What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-24 compared with 2020-03-02 · 270 added, 400 removed, 886 unchanged (43% of the section changed)

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In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to a lack of a sufficient number of qualified accounting personnel with an appropriate level of experience and insufficient controls over the period end financial reporting process commensurate with the complexity of the business.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness referred to above is described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Change in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers, the manner in which it accounts for restricted cash and the manner in which it accounts for leases in 2019.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers and the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

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Revenue Recognition – Estimation of Standalone Selling Price of the Freelancer Material Rights and the Period of Time Over Which to Defer and Recognize the Consideration Allocated to the Material Rights

As described above and in Notes 2 and 14 to the consolidated financial statements, certain of the Company’s contracts with customers contain multiple performance obligations in the event management determines a material right exists.

The Company charges freelancers a service fee as a percentage of freelancer billings using a tiered service fee model based on cumulative lifetime billings by the freelancer to each client.

The arrangements subject to tiered service fees also include contract renewal options that represent a material right.

As described in Notes 2 and 14 to the consolidated financial statements, the Company charges freelancers a service fee as a percentage of freelancer billings using a tiered service fee model based on cumulative lifetime billings by the freelancer to each client.

The Company recorded total revenue of $373.6 million for the year ended December 31, 2020, of which $226.7 million related to revenue from freelancers.

Under the new revenue recognition standard, a material right is accounted for as a separate performance obligation and consequently management was required to estimate standalone selling price for the material rights.

Certain of the Company’s contracts with freelancers contain multiple performance obligations in the event management determines a material right exists.

Specifically, the arrangements with freelancers subject to tiered service fees include contract renewal options that represent a material right.

For such arrangements, management allocates revenue to each performance obligation based on its relative standalone selling price by applying the portfolio approach practical expedient.

Standalone selling prices for offerings subject to tiered service fees are estimated based on observable transactions when these services are sold on a standalone basis.

Standalone selling price for a material right is estimated by determining the discount that the freelancer would obtain when exercising the option, adjusted for the likelihood that the option will be exercised.

Management allocates consideration to each performance obligation in contracts with material rights based on the relative standalone selling price of the performance obligation by applying the portfolio approach practical expedient.

Significant judgment is applied in the use of the portfolio approach which includes estimating the standalone selling price of the material rights and estimating the period of time over which to defer and recognize the consideration allocated to the material rights.

Specifically, management applied significant judgment in using the portfolio approach practical expedient in determining an appropriate model for the estimates, which includes selecting the appropriate methodology and relevant data inputs to estimate the likelihood and the period of time over which to defer and recognize the consideration allocated to the material rights.

Management applies significant judgment in the application of the portfolio approach practical expedient, which includes estimating the standalone selling price of the material rights and the period of time over which to defer and recognize the consideration allocated to the material rights.

Specifically, management applied significant judgment in assessing the appropriateness of the model for the estimates, which includes assessing the appropriateness of the methodology and relevant data inputs to (i) estimate the standalone selling price of the material rights, which includes the standalone selling price of the services when sold separately and the likelihood of exercise of the material rights, and (ii) estimate the period of time over which to defer and recognize the consideration allocated to the material rights.

Management utilized historical client-freelancer transaction data in developing the estimates.

Management recognizes revenue related to the material right based on the Company’s estimate of when the material rights are exercised.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the estimation of standalone selling price of the freelancer material rights and the period of time over which to defer and recognize the consideration allocated to the material rights, is a critical audit matter are there was significant judgment by management in determining the appropriate model, methodology and relevant data inputs to estimate the stand-alone selling price, including the likelihood and period of time over which to defer and recognize the consideration allocated to the material rights.

This in turn led to significant auditor judgment, subjectivity and effort in performing procedures and evaluating the audit evidence obtained.

The Company recognizes revenue related to the material rights based on management’s estimate of when the material rights are exercised.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the estimation of standalone selling price of the freelancer material rights and the period of time over which to defer and recognize the consideration allocated to the material rights, is a critical audit matter are the significant judgment by management in assessing the appropriateness of the model, methodology and relevant data inputs to estimate the standalone selling price of the material rights, and the period of time over which to defer and recognize the consideration allocated to the material rights.

This in turn led to significant auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s determination of the standalone selling price of the services when sold separately, the likelihood of exercise of the material rights, and the period of time over which to defer and recognize the consideration allocated to the material rights.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including the determination of the appropriate model, methodology and relevant data to estimate the material rights stand-alone selling price and the period of time over which to defer and recognize the consideration allocated to the material rights.

These procedures also included, among others, (i) evaluating the appropriateness of management’s model, including the reasonableness of the selected methodology and relevant data inputs used in determining the likelihood, and period of time over which, to defer and recognize the consideration allocated to the material rights, (ii) testing the completeness

and accuracy of data inputs, and (iii) testing the mathematical accuracy of the model’s calculations and that the amount to be recorded for the material rights is completely and accurately reflected in the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including the assessment of the appropriateness of the model, methodology and relevant data inputs to estimate the material rights standalone selling price and the period of time over which to defer and recognize the consideration allocated to the material rights.

These procedures also included, among others, (i) evaluating the appropriateness of management’s model used in developing the estimates, the reasonableness of the selected methodology and relevant data inputs used in determining the standalone selling price of the services when sold separately and the likelihood of exercise of the material rights, and the period of time over which to defer and recognize the consideration allocated to the material rights, (ii) testing the completeness and accuracy of data inputs, and (iii) testing the mathematical accuracy of the model’s calculations and the amounts recorded for the material rights in the consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 2, 2020

February 23, 2021

We have served as the Company’s auditor since 2016.

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Trade and client receivables – net of allowance of $ 1,661 and $ 2,215 as of December 31, 2020 and 2019, respectively

47,018 30,156

Prepaid expenses and other current assets 9,090 7,885

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Loss before income taxes ( 22,717 ) ( 16,631 ) ( 19,892 )

Income tax benefit (provision) ( 28 ) ( 15 ) 22

Income tax provision ( 150 ) ( 28 ) ( 15 )

Net loss $ ( 22,867 ) $ ( 16,659 ) $ ( 19,907 )

Premium paid on repurchase of redeemable convertible preferred stock — — ( 6,506 )

Net loss attributable to common stockholders $ ( 16,659 ) $ ( 19,907 ) $ ( 10,629 )

Net loss per share attributable to common stockholders, basic and diluted $ ( 0.15 ) $ ( 0.38 ) $ ( 0.32 )

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 109,815 52,328 32,945

Net loss per share, basic and diluted $ ( 0.19 ) $ ( 0.15 ) $ ( 0.38 )

Weighted-average shares used to compute net loss per share, basic and diluted 118,699 109,815 52,328

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

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(In thousands, except share amounts)

Preferred Stock

Common Stock Additional

Redeemable Convertible Preferred Stock Common Stock Additional

Capital Accumulated

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Balances as of December 31, 2017 61,279,079 $ 166,486 33,740,323 $ 3 $ 92,222 $ ( 123,592 ) $ ( 31,367 )

Exercise of warrant on redeemable convertible preferred stock and related reclassification of redeemable convertible preferred stock warrant liability 83,181 404 — — — — —

Issuance of common stock upon exercise of stock options — — 1,554,944 — 2,547 — 2,547

Issuance of common stock to consultants — — 7,143 — — — —

Repurchase and retirement of redeemable convertible preferred stock ( 4,268,489 ) ( 12,703 ) — — ( 6,506 ) — ( 6,506 )

Stock-based compensation expense — — — — 6,846 — 6,846

Net loss — — — — — ( 4,123 ) ( 4,123 )

Balances as of December 31, 2017 61,279,079 166,486 33,740,323 3 92,222 ( 123,592 ) ( 31,367 )

Issuance of common stock upon exercise of stock options and common stock warrants — — 3,567,917 1 8,159 — 8,160

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Balances as of December 31, 2019 — — 113,604,398 11 431,370 ( 171,957 ) 259,424

Issuance of common stock upon exercise of stock options and common stock warrants — — 9,115,947 1 31,027 — 31,028

Stock-based compensation expense — — — — 25,677 — 25,677

Tides Foundation common stock warrant expense and other — — — — 1,135 — 1,135

Issuance of common stock for settlement of RSUs — — 1,590,225 — — — —

Issuance of common stock in connection with employee stock purchase plan — — 484,652 — 4,913 — 4,913

Net loss — — — — — ( 22,867 ) ( 22,867 )

Balances as of December 31, 2020 — $ — 124,795,222 $ 12 $ 494,122 $ ( 194,824 ) $ 299,310

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

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Net loss $ ( 22,867 ) $ ( 16,659 ) $ ( 19,907 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Provision for transaction losses 2,919 3,118 5,110

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Deferred revenue 4,027 4,430 109

Net cash provided by (used in) operating activities 1,058 13,744 ( 4,001 )

Net cash provided by operating activities 22,365 1,058 13,744

CASH FLOWS FROM INVESTING ACTIVITIES:

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Proceeds from exercises of stock options and common stock warrant 31,028 18,155 8,160

Proceeds from exercise of redeemable convertible preferred stock warrant — — 260

Repurchase of redeemable convertible preferred stock — — ( 19,208 )

Taxes paid related to net share settlement of restricted stock units — — ( 247 )

Proceeds from borrowings on debt 18,000 50,000 15,000

Payment of debt issuance costs — — ( 177 )

Repayment of debt ( 25,621 ) ( 55,679 ) ( 25,000 )

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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes $ 42 $ 13 $ 55

Cash paid for interest $ 764 $ 1,291 $ 1,976

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Internal-use software and platform development costs incurred but not yet paid 286 684 130

Reclassification of redeemable convertible preferred stock warrant liability to redeemable convertible preferred stock — — 144

Conversion of redeemable convertible preferred stock warrant in connection with the initial public offering — — 7,160

Conversion of redeemable convertible preferred stock in connection with the initial public offering — — 166,486

Unpaid deferred offering costs — — 25

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

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Note 1— Organization and Description of Business

(the “Company” or “Upwork”) operates an online talent solution that enables businesses (“clients”) to find and work with highly-skilled independent professionals (“freelancers,” and, together with clients, “users”).

The Company was originally incorporated in the state of Delaware in December 2013 prior to and in connection with the combination (the “Elance-oDesk Combination”) of Elance, Inc.

(“Elance”) and oDesk Corporation (“oDesk”).

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 freelancers, 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 was originally incorporated in the state of Delaware in December 2013 prior to and in connection with the combination, which is referred to as the Elance-oDesk Combination, of Elance, Inc., which is referred to as Elance, and oDesk Corporation, which is referred to as oDesk.

The Company changed its name to Elance-oDesk, Inc.

shortly before the Elance-oDesk Combination in March 2014, and later to Upwork Inc.

In May 2015, the Company relaunched under the brand name Upwork and commenced consolidation of its two operating platforms.

In 2016, following completion of the platform consolidation, the Company began operating under a single platform.

In 2015, the Company relaunched as Upwork and commenced consolidation of its two operating platforms.

In 2016, following completion of the platform consolidation, the Company began operating under a single work marketplace.

The Company is currently headquartered in Santa Clara, California.

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Initial Public Offering

In October 2018, the Company completed its initial public offering (“IPO”), in which the Company issued and sold an aggregate of 7,840,908 of the Company’s common stock, including 1,022,727 shares pursuant to the exercise of the underwriters’ option to purchase additional shares.

In October 2018, the Company completed its initial public offering, which is referred to as the IPO, in which the Company issued and sold an aggregate of 7,840,908 of the Company’s common stock, including 1,022,727 shares pursuant to the exercise of the underwriters’ option to purchase additional shares.

The shares were sold to the underwriters at the IPO price of $ 15.00 per share less an underwriting discount of $ 1.05 per share.

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Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S.

The accompanying 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 include the accounts of Upwork Inc.

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All intercompany balances and transactions have been eliminated in consolidation.

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the year ended December 31, 2019.

Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topics 606 and 842, while prior period amounts have not been adjusted and continue to be reported under Topics 605 and 840.

Use of Estimates

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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;

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 right;

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;

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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.

Actual results could materially differ from these estimates.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy.

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.

Cash and Cash Equivalents

The Company holds its cash in checking and interest-bearing accounts and investments in money market funds with maturities of 90 days or less from the date of purchase.

The Company classifies as cash and cash equivalents its cash held in checking and interest-bearing accounts and investments in money market funds and commercial paper with maturities of 90 days or less from the date of purchase.

Notes to Consolidated Financial Statements — Continued

Restricted Cash

As of December 31, 2019 and 2018, the Company maintained restricted cash of $ 2.5 million and $2.7 million, respectively, related to cash reserve requirements under the California Department of Business Oversight’s escrow laws and regulations and collateral for letters of credit issued in conjunction with operating leases.

As of December 31, 2020 and 2019, the Company maintained restricted cash of $ 3.3 million and $ 2.5 million, respectively, related to cash reserve requirements under the escrow laws and regulations of the California Department of Financial Protection and Innovation and collateral for letters of credit issued in conjunction with operating leases.

Short-term restricted cash included in prepaid expenses and other current assets was $ 2.3 million and $ 1.7 million as of December 31, 2020 and 2019, respectively, and long-term restricted cash included in other assets, noncurrent was $ 1.0 million and $ 0.8 million as of December 31, 2020 and 2019, respectively.

Notes to Consolidated Financial Statements — Continued

Funds Held in Escrow, Including Funds in Transit

The Company maintains its users’ funds held in escrow in demand or checking accounts at U.S.

financial institutions, as well as five California licensed money transmitters.

financial institutions, as well as three California licensed money transmitters.

The balance in these accounts was in excess of federally insured limits as of December 31, 2020 and 2019.

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Marketable Securities

Beginning in 2019, the Company purchased various marketable securities consisting of commercial paper, treasury bills, and U.S.

The Company’s marketable securities consist of commercial paper, treasury bills, and U.S.

government securities, all of which have contractual maturities within 24 months from the date of purchase.

The marketable securities are ava ilable for current operations and are classified as available-for-s ale.

The marketable securities are available for current operations and are classified as available-for-sale.

These marketable securities are carried at estimated fair value with unrealized gains and losses, net of taxes, included within the stockholders’ equity section of the Company’s consolidated balance sheet.

The Company periodically reviews its available-for-sale marketable securities for other-than-temporary impairments.

The Company considers factors such as the duration, severity, and the reason for any decline in value, the potential recovery period, and its intent to sell.

For debt securities, the Company also considers whether (i) it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result of credit losses.

Unrealized losses are charged against other (income) expense, net when a decline in fair value is determined to be other-than-temporary.

The Company periodically assesses its portfolio of debt investments for impairment.

For debt securities in an unrealized loss position, this assessment first takes into account the Company’s intent to sell, or whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

If either of these criteria are met, the debt security’s amortized cost basis is written down to fair value through other (income) expense, net.

For debt securities in an unrealized loss position that do not meet the aforementioned criteria, the Company assesses whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors.

In making this assessment, the Company considers factors such as the extent to which fair value is less than the amortized cost basis, the financial condition of the issuer, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded through other (income) expense, net, limited by the amount that the fair v alue is less than the amortized cost basis.

Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive income.

Cha nges in the allowance for credit losses are reflected as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell are met.

These changes are recorded in other (income) expense, net.

The Company determines realized gains or losses from the sale of marketable securities on a specific identification method and records such gains or losses as other (income) expense, net within the Company’s consolidated statements of operations.

Notes to Consolidated Financial Statements — Continued

For the year ended December 31, 2020, the gross unrealized gains and losses on the Company’s marketable securities were immaterial.

As of December 31, 2019, 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 the year ended December 31, 2019.

The Company did not record any impairment charges with respect to its marketable securities during the years ended December 31, 2020, 2019, and 2018.

Escrow Funds Payable

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Escrow funds payable to clients primarily represent deposits received from certain clients to set up an account or to apply toward future payments to freelancers upon completion of the project defined and agreed between the client and the freelancer.

Notes to Consolidated Financial Statements — Continued

Concentration of Risk

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These losses, when incurred, have been within the range of the Company’s expectations.

Two clients each accounted for more than 10% of trade and client receivables as of December 31, 2019 and 2018.

For the years ended December 31, 2019 and 2018, the Company generated $ 32.0 million and $ 29.5 million, respectively, in revenue from one of these clients, which accounted for more than 10% of revenue for each period.

Three clients each accounted for more than 10% of trade and client receivables as of December 31, 2020.

Two clients each accounted for more than 10% of trade and client receivables as of December 31, 2019.

For the year ended December 31, 2020, the Company did not have any clients that accounted for more than 10% of total revenue.

The Company is dependent upon third parties, such as Amazon Web Services, in order to meet the uptime and performance needs of its users.

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In aggregate, gross trade receivables were $ 15.9 million and $ 10.3 million and gross client receivables were $ 32.8 million and $ 22.1 million as of December 31, 2020 and 2019, respectively.

The allowance for doubtful accounts is the Company’s estimate of the probable credit losses.

The allowance for doubtful accounts is the Company’s estimate of the probable credit losses on accounts receivable.

The Company periodically assesses the collectability of the accounts and determines the allowance recognized by taking into consideration the aging of its receivable balances, historical write-off experience, probability of collection, and other relevant data.

Trade and client receivables are written off against the allowance when management determines a balance is uncollectible and no longer actively pursues collection of the receivable.

Notes to Consolidated Financial Statements — Continued

The following table presents the changes in the allowance for doubtful accounts as of December 31, 2020, 2019, and 2018 (in thousands):

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When in loss positions, the foreign currency forward contracts are recorded within accrued expenses and other current liabilities in the consolidated balance sheets.

Gains or losses from changes in the fair value of these

Notes to Consolidated Financial Statements — Continued

foreign currency forward contracts not designated as hedging instruments are recorded in other (income) expense, net to offset the changes in the fair value of the underlying assets or liabilities being hedged.

Gains or losses from changes in the fair value of these foreign currency forward contracts not designated as hedging instruments are recorded in other (income) expense, net to offset the changes in the fair value of the underlying assets or liabilities being hedged.

The notional amounts associated with the Company’s foreign currency forward contracts at December 31, 2020 and 2019 were $ 7.6 million and $ 5.4 million, respectively, none of which were designated as cash flow hedges.

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The fair values of the Company’s outstanding foreign currency forward contracts not designated as hedging instruments as of December 31, 2020 and 2019 were not material.

Losses on foreign currency forward contracts not designated as hedging instruments were $ 0.6 million for the year ended December 31, 2020.

Gains on foreign currency forward contracts not designated as hedging instruments were $ 0.9 million for the year ended December 31, 2019.

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Costs incurred for enhancements that are expected to result in additional significant functionality are also capitalized.

Such costs are generally amortized on a straight-line basis over two years , beginning when the asset is ready for its intended use.

Such costs are generally amortized on a straight-line basis over their estimated useful lives determined on a project-by-project basis, which historically has ranged between two to three years , beginning when the asset is ready for its intended use.

Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred.

Amortization of capitalized internal-use software is allocated to each functional expense category based on headcount.

Amortization of capitalized platform development costs are included in cost of revenue.

Amortization of capitalized internal-use software and platform development costs is allocated to functional expense categories based on headcount and the nature and intended use of the project.

Segment Information

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Goodwill is not amortized, but rather is assessed for impairment at least annually, or more frequently if events and changes in circumstances indicate that its carrying amount may not be recoverable.

The Company conducts its annual assessment during the fourth quarter of each calendar year based on a single reporting unit structure.

The Company may elect to utilize a qualitative assessment to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that could indicate that it would more likely than not reduce the fair value of the reporting unit below its carrying amount, including goodwill.

If it is more likely than not that the fair value of the reporting unit is at or above its carrying amount, then goodwill is not considered to be impaired and no further testing is required.

A two-step quantitative assessment is performed if the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is below its carrying amount or if a qualitative assessment is not performed.

The first step involves comparing the fair value of the reporting unit to its carrying value, including goodwill.

If the carrying value of the reporting unit exceeds its fair value, the second step of the process is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value.

If the carrying value of the goodwill is greater than its implied fair value, an impairment charge is recognized for the excess.

The Company performs its annual impairment assessment during the fourth quarter of each calendar

Notes to Consolidated Financial Statements — Continued

year based on a single reporting unit structure by comparing the carrying value of the reporting unit to its fair value.

An impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit.

There has been no impairment of goodwill for any of the periods presented.

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Intangible amortization expense related to user relationships and domain names is included in operating expenses.

Notes to Consolidated Financial Statements — Continued

The Company evaluates the recoverability of its long-lived assets, including finite-lived intangible assets, for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.

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Revenue Recognition

The Company operates an online talent solution that enables clients to find and work with freelancers.

The Company primarily generates revenue from clients and freelancers from marketplace and managed service offerings.

The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No.

The Company primarily generates revenue from clients from its marketplace and managed service offerings and from freelancers from its marketplace.

The Company accounts for revenue in accordance with Financial Accounting Standards Board, which is referred to as FASB, Accounting Standards Update, which is referred to as ASU, No.

2014-09, Revenue from Contracts with Customers (Topic 606), which the Company adopted on December 31, 2019 effective as of January 1, 2019 using the modified retrospective method.

Revenue is recognized upon transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services.

In the ordinary course of business, the Company makes payments to customers when those customers provide services in their capacity as vendors.

Revenue is recognized upon transfer of control of promised services to users in an amount that reflects the consideration the Company expects to receive in exchange for those services.

In the ordinary course of business, the Company makes payments to users when those users provide services in their capacity as vendors.

These payments are for distinct services and are at fair value.

These transactions are primarily with certain financial institutions that the Company uses as payment processors on the Upwork platform.

The Company accounts for the consideration payable to these customers in their capacity as vendors as a purchase of services from a vendor and records such payments in either cost of revenue or sales and marketing within the consolidated statements of operations.

The Company’s marketplace revenue is derived from Upwork Basic, Plus, Business, Enterprise, and other premium offerings.

These transactions are primarily with certain financial institutions that the Company uses as payment processors on the work marketplace.

The Company accounts for the consideration payable to these users in their capacity as vendors as a purchase of services from a vendor and records such payments in either cost of revenue or sales and marketing within the consolidated statements of operations.

The Company’s marketplace revenue is derived from Upwork Basic, Plus, and Enterprise and other premium offerings.

Upwork Basic and Plus

The Company earns fees from freelancers under the Upwork Basic and Plus offerings, which represent a single promise to provide continuous access (i.e.

stand-ready performance obligation) to the Company’s platform and site services.

As each day of providing access to the platform and site services (including, but not limited to, communication, invoicing, reporting, dispute resolution, and payment services) is substantially the same and the freelancer simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Basic and Plus offerings is comprised of a series of distinct service periods.

stand-ready performance obligation) to the Company’s work marketplace and site services.

As each day of providing access to the work marketplace and site services (including, but not limited to, communication, invoicing, reporting, dispute resolution, and payment services) is substantially the same and the freelancer simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Basic and Plus offerings is comprised of a series of distinct service periods.

The Company allocates variable consideration received to each distinct service period within the series and recognizes revenue as each distinct service period is performed.

The Company’s Upwork Basic and Plus arrangements may include fixed and variable consideration, or a combination of the two, comprised of the following:

Notes to Consolidated Financial Statements — Continued

Service fees.

Freelancers are provided access to the Upwork platform to market their businesses, send proposals to and communicate with prospective clients, and, if engaged by a client, to perform specified services agreed between freelancers and clients (“freelancer services”).

Freelancers charge clients on an hourly or a milestone basis for services rendered to clients through the Upwork platform (“freelancer billings”);

Freelancers are provided access to the Upwork work marketplace to market their businesses, send proposals to and communicate with prospective clients, and, if engaged by a client, to perform specified services agreed between freelancers and clients, which are referred to as freelancer services.

Freelancers charge clients on an hourly or a milestone basis for services rendered to clients through the Upwork work marketplace, which are referred to as freelancer billings;

billings charged on an hourly basis are variable consideration;

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The Company recognizes the service fee as services are rendered for each distinct time increment in the series.

Notes to Consolidated Financial Statements — Continued

Withdrawal fees .

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A withdrawal fee is charged for each withdrawal transaction, which represents variable consideration.

The Company presents revenue from withdrawal fees on a gross basis as a principal and not net of the third-party payment processing costs incurred because the Company controls the payment processing services prior to providing to the Company's freelancers.

The Company recognizes the withdrawal fees when transactions are processed for each distinct time increment in the series.

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Connects fees.

The Company charges fees to freelancers for the purchase of Connects, which are virtual tokens that are required for freelancers to bid on projects on the Company’s platform.

The Company charges fees to freelancers for the purchase of Connects, which are virtual tokens that are required for freelancers to bid on projects on the Company’s work marketplace.

These fees represent variable consideration, and the Company recognizes revenue as Connects are used in each distinct time increment in the series.

The Company earns fees from clients under the Upwork Basic and Plus offerings, which represent a single promise to provide continuous access (i.e.

stand-ready performance obligation) to the Company’s platform and site services.

As each day of providing access to the platform and site services is substantially the same and the client simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Basic and Plus offerings is comprised of a series of distinct service periods.

stand-ready performance obligation) to the Company’s work marketplace and site services.

As each day of providing access to the work marketplace and site services is substantially the same and the client simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Basic and Plus offerings is comprised of a series of distinct service periods.

The Company allocates variable consideration received to each distinct service period within the series and recognizes revenue as each distinct service period is performed.

The Company’s Upwork Basic and Plus arrangements may include fixed consideration, variable consideration, or a combination of the two comprised of the following:

The Company’s Upwork Basic and Plus arrangements may include fixed and variable consideration, or a combination of the two, comprised of the following:

Client payment processing and administration fees.

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Upwork Payroll service fees.

The Company charges clients using the Upwork Payroll offering when their freelancers are classified as employees for engagements on the Upwork platform.

The Company charges clients using the Upwork Payroll offering when their freelancers are classified as employees for engagements on the Upwork work marketplace.

The client enters into an Upwork Payroll agreement with the Company, and Upwork separately contracts with unrelated third-party staffing providers that provide employment services to such clients.

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Such service fees are variable consideration and charged as a fixed percentage of the total freelancer billings.

Under an Upwork Payroll agreement, the Company provides the client access to the Upwork platform to procure and manage freelancer services, as well as access to employment services provided by the third-party staffing providers.

Under an Upwork Payroll agreement, the Company provides the client access to

Notes to Consolidated Financial Statements — Continued

the Upwork work marketplace to procure and manage freelancer services, as well as access to employment services provided by the third-party staffing providers.

The Company presents Upwork Payroll service fees revenue on a net basis as an agent of the client for providing access to employment services provided by the third-party staffing provider.

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The Company recognizes the Upwork payroll service fee as revenue as the services are provided for each distinct time increment in the series.

Upwork Enterprise, Business, and Other Premium Offerings

The Company earns fees from freelancers under Upwork Enterprise, Business, and other premium offerings, which represent a single promise to provide continuous access (i.e.

stand-ready performance obligation) to the Company’s platform and site services.

As each day of providing access to the platform and site services is substantially the same and the freelancer simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Enterprise, Business and other premium offerings is comprised of a series of distinct service periods.

The Company allocates

Notes to Consolidated Financial Statements — Continued

variable consideration received to each distinct service period within the series and recognizes revenue as each distinct service period is performed.

Upwork Enterprise and Other Premium Offerings

The Company earns fees from freelancers under Upwork Enterprise and other premium offerings, which represent a single promise to provide continuous access (i.e.

stand-ready performance obligation) to the Company’s work marketplace and site services.

As each day of providing access to the work marketplace and site services is substantially the same and the freelancer simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Enterprise and other premium offerings is comprised of a series of distinct service periods.

The Company allocates variable consideration received to each distinct service period within the series and recognizes revenue as each distinct service period is performed.

These arrangements include variable consideration as follows:

Service fees.

The Company provides freelancers access to the Upwork platform to perform freelancer services for clients.

The Company provides freelancers access to the Upwork work marketplace to perform freelancer services for clients.

The Company charges freelancers a service fee as a percentage of freelancer billings.

The Company earns service fees based on a fixed percentage of freelancer billings.

For service fees charged to freelancers, the Company presents revenue on a net basis, as an agent, for providing access to the Upwork platform as it does not control the freelancer services provided to clients, and therefore the Company is not considered the principal for the freelancer services.

For service fees charged to freelancers, the Company presents revenue on a net basis, as an agent, for providing access to the Upwork work marketplace as it does not control the freelancer services provided to clients, and therefore the Company is not considered the principal for the freelancer services.

Additionally, freelancers and clients negotiate and agree upon the scope and the price for freelancer services directly with each other, and the Company is not a party to their agreement.

The Company recognizes the service fee as services are rendered for each distinct time increment in the series.

The Company earns fees from clients under Upwork Enterprise, Business and other premium offerings, each of which represent a single promise to provide continuous access (i.e.

stand-ready performance obligation) to the Company’s platform and site services.

As each day of providing access to the platform and site services is substantially the same and the client simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Enterprise, Business and other premium offerings is comprised of a series of distinct service periods.

The Company earns fees from clients under Upwork Enterprise and other premium offerings, each of which represent a single promise to provide continuous access (i.e.

stand-ready performance obligation) to the Company’s work marketplace and site services.

As each day of providing access to the work marketplace and site services is substantially the same and the client simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Enterprise and other premium offerings is comprised of a series of distinct service periods.

The Company allocates variable consideration received to each distinct service period within the series and recognizes revenue as each distinct service period is performed.

These arrangements may include fixed consideration, variable consideration, or a combination of the two comprised of the following:

These arrangements may include fixed and variable consideration, or a combination of the two, comprised of the following:

Client service fees.

The Company offers clients access to the Company’s platform to source freelancers in exchange for a client service fee calculated as a percentage of freelancer billings;

The Company offers clients access to the Company’s work marketplace to source freelancers in exchange for a client service fee calculated as a percentage of freelancer billings;

these fees represent variable consideration.

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These arrangements are considered a single performance obligation comprised of variable consideration and are recognized over time based on transactions processed.

Notes to Consolidated Financial Statements — Continued

Managed Services

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Arrangements with Multiple Performance Obligations

Certain of the Company’s contracts with customers contain multiple performance obligations in the event the Company determines a material right exists.

Specifically, the arrangements with freelancers subject to tiered service fees also include contract renewal options that represent a material right.

Certain of the Company’s contracts with freelancers contain multiple performance obligations in the event the Company determines a material right exists.

Specifically, the arrangements with freelancers subject to tiered service fees include contract renewal options that represent a material right.

For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price by applying the portfolio approach practical expedient under Topic 606.

Standalone selling prices for offerings subject to tiered service fees are estimated based on observable

Notes to Consolidated Financial Statements — Continued

transactions when these services are sold on a standalone basis.

Standalone selling prices for offerings subject to tiered service fees are estimated based on observable transactions when these services are sold on a standalone basis.

Significant judgment is applied in the application of the portfolio approach practical expedient, which includes estimating the standalone selling price of the material rights and the period of time over which to defer and recognize the consideration allocated to the material rights.

Specifically, management applied significant judgment in determining an appropriate model for the estimates, which includes selecting the appropriate methodology and relevant data inputs to estimate the likelihood and the period of time over which to defer and recognize the consideration allocated to the material rights.

The Company utilized historical client-freelancer transaction data in developing the estimates.

The Company recognizes revenue related to the material rights based on the Company’s estimate of when the material rights are exercised.

Specifically, management applied significant judgment in assessing the appropriateness of the model for the estimates, which include assessing the appropriateness of the methodology and relevant data inputs to (i) estimate the standalone selling price of the material rights, which includes the standalone selling price of the services when sold separately and the likelihood of exercise of the material rights;

and (ii) estimate the period of time over which to defer and recognize the consideration allocated to the material rights.

The Company utilized historical user transaction data in developing the estimates.

The Company recognizes revenue related to the material rights based on the Company’s estimate of when the material rights are exercised and adjusts revenue for changes in estimates in the period of change on a cumulative catch-up basis.

Deferred Revenue

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Cost of Revenue

Cost of revenue consists primarily of the cost of payment processing fees, costs of freelancers to deliver services under the Company’s managed services offering, personnel-related costs for the Company’s services and support personnel, third-party hosting fees, and the amortization expense associated with acquired intangibles and capitalized internal-use software.

Cost of revenue consists primarily of the cost of payment processing fees, costs of freelancers to deliver services under the Company’s managed services offering, personnel-related costs for the Company’s services and support personnel, third-party hosting fees, and amortization expense associated with acquired intangibles and capitalized internal-use software.

The Company defines personnel-related costs as salaries, bonuses, benefits, and stock-based compensation costs for employees, and costs related to other service providers the Company engages to provide internal services to the Company.

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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 platform development that qualify for capitalization.

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 qualify for capitalization.

Advertising Expense

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The Company incurred $ 51.4 million, $ 37.4 million, and $ 23.6 million in advertising expenses during the years ended December 31, 2020, 2019, and 2018, respectively.

Notes to Consolidated Financial Statements — Continued

Provision for Transaction Losses

Provision for transaction losses consists primarily of losses resulting from fraud on the platform and bad debt expense associated with the Company’s trade and client receivables balance and transaction losses expense related to chargebacks.

Provision for transaction losses consists primarily of losses resulting from fraud on the work marketplace and bad debt expense associated with the Company’s trade and client receivables balance and transaction losses expense related to chargebacks.

Provision for these items represent estimates of losses based on the Company’s actual historical incurred losses and other factors.

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Stock-Based Compensation

The Company accounts for stock options, restricted stock units (“RSUs”) and purchase rights granted under the 2018 Employee Stock Purchase Plan (“2018 ESPP”) to employees and directors based on their estimated fair value on the date of grant.

The Company accounts for stock options, restricted stock units, which are referred to as RSUs, and purchase rights granted under the 2018 Employee Stock Purchase Plan, which is referred to as the 2018 ESPP, to employees and directors based on their estimated fair value on the date of grant.

The fair value of each stock option and purchase rights granted under the 2018 ESPP is estimated using the Black-Scholes valuation model.

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The fair value of RSUs awarded to employees is based on the closing price of the Company’s common stock, as reported on The Nasdaq Global Select Market on the date of grant.

Notes to Consolidated Financial Statements — Continued

The Company generally recognizes stock-based compensation expense for stock options and RSUs on a straight-line basis over the vesting term.

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Foreign currency transaction gains and losses are included in other (income) expense, net in the consolidated statements of operations.

The Company recorded net foreign currency transaction gains of $ 0.9 million for the year ended December 31, 2019 and net foreign currency transaction losses of $ 0.4 million for the year ended December 31, 2018.

Foreign currency transaction gains and losses for the year ended December 31, 2017 were immaterial.

The Company recorded net foreign currency transaction losses of $ 0.6 million for the year ended December 31, 2020, net foreign currency transaction gains of $ 0.9 million for the year ended December 31, 2019, and net foreign currency transaction losses of $ 0.4 million for the year ended December 31, 2018.

Comprehensive Loss

For the year ended December 31, 2019, net unrealized gains from the Company’s marketable securities were immaterial.

For the year ended December 31, 2020, net unrealized losses from the Company’s marketable securities were immaterial.

Comprehensive loss approximates net loss for all periods presented.

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The realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.

Accordingly, the net deferred tax assets

Notes to Consolidated Financial Statements — Continued

have been fully offset by a valuation allowance.

If the Company subsequently realizes deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in an adjustment to earnings in the period such determination is made.

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Any interest and penalties related to unrecognized tax benefits are recorded as income tax expense.

Net Loss per Share Attributable to Common Stockholders

Prior to its IPO, the Company followed the two-class method when computing net loss per share as the Company had issued shares that met the definition of participating securities.

The two-class method determined net loss per share for each class of common stock and participating securities according to accumulated and participation rights in undistributed earnings.

The two-class method required income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

The Company’s redeemable convertible preferred stock contractually entitled the holders of such shares to participate in dividends, but did not contractually require the holders of such shares to participate in losses of the Company.

Accordingly, the two-class method did not apply for periods in which the Company reported a net loss or a net loss attributable to common stockholders

Upon the closing of the IPO in October 2018, all outstanding shares of redeemable convertible preferred stock were converted into shares of common stock.

As such, the two-class method is no longer applicable.

Notes to Consolidated Financial Statements — Continued

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period.

Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding common stock options, convertible preferred stock and warrants to purchase common stock and convertible preferred stock.

For periods in which the Company has reported net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period.

Diluted net loss is computed by adjusting net loss to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding common stock options, RSUs, warrants to purchase common stock, and common stock issuable in connection with the 2018 ESPP.

For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

The Company has reviewed all recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016–13, Financial Instruments—Credit Losses (Topic 326).

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The standard requires a modified retrospective method of adoption.

The new standard is not expected to have a material impact on the Company’s consolidated financial statements.

The Company adopted ASU No.

2016-13 and related updates on January 1, 2020.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No.

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The guidance becomes effective for the Company on January 1, 2020 on a prospective basis for its annual or any interim goodwill impairment tests during the 2020 fiscal year.

The new standard is not expected to have a material impact on the Company’s consolidated financial statements.

The Company adopted ASU No.

2017-04 on January 1, 2020.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

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2018-13 is effective for the Company beginning January 1, 2020.

The standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

The Company adopted ASU No.

2018-13 on January 1, 2020.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

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Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license.

2018-15 is effective for the Company beginning January 1, 2020.

The new standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (Topic 740).

This ASU simplifies accounting for income taxes by removing certain exceptions to the general principles and amending existing guidance to improve consistent application.

The Company is required to adopt this guidance in fiscal year 2021 with early adoption permitted.

The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.

The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements

On December 31, 2019, the Company adopted Topic 606 effective as of January 1, 2019, which replaced most existing revenue recognition guidance.

The core principle of Topic 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services.

Topic 606 has been applied to contracts that were not completed as of January 1, 2019.

Results for reporting periods beginning after January 1, 2019 are presented under Topic 606 (and therefore differ from amounts previously reported on the Company’s quarterly reports on Form 10-Q for periods beginning after January 1, 2019), while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting.

Notes to Consolidated Financial Statements — Continued

The Company adopted Topic 606 using the modified retrospective method, which required an adjustment to accumulated deficit and deferred revenue for the cumulative effect of applying Topic 606 to active contracts as of the adoption date.

The impacts to the consolidated financial statements for the year ended December 31, 2019 included additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including judgments and changes in estimates.

On December 31, 2019, the Company adopted FASB ASU No.

2016-02, Leases (Topic 842) effective as of January 1, 2019, and related updates, using the effective date method.

Prior period amounts were not adjusted.

The primary impact of adoption is the requirement for lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by both operating and finance leases.

Enhanced quantitative and qualitative disclosures about leasing arrangements are also required.

The Company elected the package of practical expedients which does not require reassessment of prior conclusions related to identifying leases, lease classification or initial direct costs.

The Company also elected the practical expedient to combine lease and non-lease components, accounting for the combined components as a single lease component.

Additionally, the Company elected the short-term lease exemption, and are only applying the requirements of Topic 842 to long-term leases (leases greater than 1 year).

The adoption of Topic 606 resulted in an $ 11.8 million deferral of revenue with a corresponding increase to accumulated deficit as of January 1, 2019.

Topic 606 did not have a material impact on the consolidated statements of cash flows.

The adoption of Topic 842 resulted in the recognition of $ 17.3 million of operating lease assets and $ 17.8 million of operating lease liabilities on the consolidated balance sheet as of January 1, 2019.

Topic 842 does not have a material impact on the consolidated statements of operations or consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit) or consolidated statements of cash flows.

See Note 5 for additional information.

The following tables summarize the impacts of adopting Topic 606 and Topic 842 on the Company’s consolidated financial statements as of and for the year ended December 31, 2019 (in thousands):

December 31, 2019

Balances, without Adoption of

Topics 606 and 842 Adjustments

due to Topic 606 Adjustments

due to Topic 842 (1)

Consolidated Balance Sheet

Current assets—Trade and client receivables, net $ 36,487 $ ( 6,331 ) $ — $ 30,156

Noncurrent assets

Operating lease asset — — 21,908 21,908

Other assets, noncurrent 904 — ( 75 ) 829

Current liabilities

Accrued expenses and other current liabilities 21,027 ( 5,817 ) 3,132 18,342

Deferred revenue 2,280 11,519 — 13,799

Noncurrent liabilities

Operating lease liability, noncurrent — — 21,186 21,186

Other liabilities, noncurrent 6,740 1,850 ( 2,617 ) 5,973

Total stockholders’ equity 273,141 ( 13,883 ) 166 259,424

Consolidated Statement of Operations

Revenue $ 302,647 $ ( 2,085 ) $ — $ 300,562

Operating expense—General and administrative 67,493 — ( 166 ) 67,327

Net loss attributable to common stockholders ( 14,740 ) ( 2,085 ) 166 ( 16,659 )

Net loss per share attributable to common stockholders, basic and diluted ( 0.13 ) ( 0.02 ) — ( 0.15 )

(1) Amounts include other adjustments made in conjunction with the adoption of Topic 842.

In 2016, the FASB issued ASU No.

2016-18, Statement of Cash Flows (Topic 230):

Restricted Cash, that requires the classification and presentation of changes in restricted cash and cash equivalents in the statement of cash flows.

Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances shown on the statement of cash flows.

The guidance was required to be applied retrospectively after adoption.

The Company adopted the standard on December 31, 2019 on a retrospective basis.

The beginning and ending balances of cash and cash equivalents on the consolidated statement of cash

2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement

Notes to Consolidated Financial Statements — Continued

flows now include restricted cash and restricted cash equivalents, such as cash and cash equivalents underlying funds held in escrow and restricted cash.

In June 2018, the FASB issued ASU No.

2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Non-employee Share-Based Payment Accounting.

2018-07 expands the scope of Topic 718, Compensation-Stock Compensation to include share-based payment transactions for acquiring goods and services from non-employees.

These awards are measured at the grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

The Company adopted the standard on December 31, 2019 on a modified retrospective basis.

The standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU No.

2016-01, Financial Instruments (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities.

2016-01 makes targeted improvements to U.S.

GAAP regarding financial instruments.

2016-01 eliminates the requirement to classify investments in equity securities with readily determinable fair values into trading or available-for-sale categories and requires those equity securities to be measured at fair value with changes in fair value recognized in net earnings rather than in other comprehensive income.

2016-01 also revises certain presentation and disclosure requirements.

Under ASU No.

2016-01, accounting for investments in debt securities remains essentially unchanged.

The Company adopted the standard on December 31, 2019.

The standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No.

2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payment, to clarify how certain cash receipts and payments are presented and classified in the statement of cash flows.

The Company adopted the new standard on December 31, 2019.

The new standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license.

2018-15 is effective for the Company beginning January 1, 2020.

The Company adopted ASU No.

2018-15 on January 1, 2020 using the prospective adoption method.

The adoption did not have a material impact on the Company’s consolidated financial statements.

Note 3— Revenue

Disaggregation of Revenue

See Note 14 for the Company’s disaggregated revenues by type of service and geographic area.

See Note 14 for the Company’s revenue disaggregated by type of service and geographic area.

Remaining Performance Obligations

As of December 31, 2020, the Company had approximately $ 21.0 million of remaining performance obligations.

The Company’s remaining performance obligations represent transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with freelancers subject to tiered service fees.

As of December 31, 2019, the Company is expected to recognize approximately $ 11.5 million over the next 12 months, with the remaining balance recognized thereafter.

The Company’s remaining performance obligations consist of transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with freelancers subject to tiered service fees, subscriptions, memberships, Connects, and certain incentive payments made to the Company by payment processors.

As of December 31, 2020, the Company expects to recognize approximately $ 16.8 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;

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Contract Balances

The following table provides information about the balances of the Company’s trade and client receivables and contract liabilities (deferred revenue):

December 31, 2019 As of

January 1, 2019

(As Adjusted)

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 as of December 31, 2020 and 2019 (in thousands):

Trade and client receivables, net of allowance $ 47,018 $ 30,156

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Deferred revenue (component of other liabilities, noncurrent) 4,177 3,153

Changes in the contract liabilities balances during 2019 were a result of normal business activity and deferral of revenue related to arrangements with freelancers subject to tiered service fees and related allocation of transaction price to material rights.

During the year ended December 31, 2019, the Company recognized $ 10.1 million of revenue that was included in deferred revenue as of January 1, 2019.

Notes to Consolidated Financial Statements — Continued

During 2020, changes in the contract liabilities balances were a result of normal business activity, deferral of revenue related to arrangements with freelancers subject to tiered service fees and related allocation of transaction price to material rights, and a change in estimate related to the period of time over which to recognize the consideration allocated to the material rights.

Revenue recognized during the year ended December 31, 2020 that was included in deferred revenue as of December 31, 2019 w as $ 13.0 million.

Reve nue recognized during the year ended December 31, 2019 that was included in deferred revenue as of January 1, 2019 was $ 10.1 million.

Note 4— Fair Value Measurements

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• 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;

Notes to Consolidated Financial Statements — Continued

• 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.

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Level I Level II Level III Total

Cash equivalents—money market funds $ 35,286 $ — $ — $ 35,286

Cash equivalents

Money market funds $ 65,723 $ — $ — $ 65,723

Commercial paper — 5,999 — 5,999

Marketable securities

Commercial paper — 50,965 — 50,965

Treasury Bills 4,499 — — 4,499

government securities 20,106 — — 20,106

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Cash equivalents—money market funds $ 35,286 $ — $ — $ 35,286

Marketable securities

Commercial paper — 50,794 — 50,794

government securities 34,687 — — 34,687

Total financial assets $ 69,973 $ 50,794 $ — $ 120,767

As of December 31, 2020 and 2019, the Company had debt obligations outstanding of $ 10.8 million and $ 18.3 million, respectively, under the Company’s Loan and Security Agreement, as amended, which is referred to as the Loan Agreement.

As of December 31, 2020 and 2019, the carrying value approximated fair value as borrowings under the Loan Agreement bore interest at variable rates, and the Company believes its credit risk quality is consistent with when the debt was originated.

The Company considered the balances outstanding under the Loan Agreement to be Level II liabilities as of December 31, 2020 and 2019.

See “Note 7—Debt.”

Prior to the IPO, the Company measured its redeemable convertible preferred stock warrant liability at fair value on a recurring basis, and it was classified within Level III because the warrants were valued using a Black-Scholes valuation model, for which some inputs are unobservable in the market.

The valuation methodology and underlying assumptions are discussed further in Note 9.

For the years ended December 31, 2018 and 2017, the Company recorded $ 6.1 million and $ 0.1 million, respectively, related to the revaluation of its redeemable convertible preferred stock warrant liability, which is included in other (income) expense, net in the Company’s consolidated statement of operations.

Upon the closing of the IPO in October 2018, the

Notes to Consolidated Financial Statements — Continued

redeemable convertible preferred stock warrant converted to a common stock warrant.

For the year ended December 31, 2018, the Company recorded $ 6.1 million related to the revaluation of its redeemable convertible preferred stock warrant liability, which is included in other (income) expense, net in the Company’s consolidated statement of operations.

Upon the closing of the IPO in October 2018, the redeemable convertible preferred stock warrant converted to a common stock warrant.

As such, the Company reclassified its redeemable convertible preferred stock warrant liability to additional paid-in capital.

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Change in fair value 6,056

Reclassification to redeemable convertible preferred stock due to warrant exercise ( 144 )

Fair value at December 31, 2017 1,104

Change in fair value 6,056

Conversion to common stock warrant in connection with the initial public offering ( 7,160 )

Fair value at December 31, 2018 $ —

Notes to Consolidated Financial Statements — Continued

Note 5— Balance Sheet Components

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The Company capitalized $ 8.0 million, $ 6.4 million, and $ 4.0 million of internal-use software and platform development costs during the years ended December 31, 2020, 2019, and 2018, respectively.

Amortization expense related to the capitalized internal-use software and platform development costs was $ 1.2 million for the year ended December 31, 2019, of which $ 0.9 million was included in cost of revenue related to developed technology used on the platform.

Amortization expense related to the capitalized internal-use software and platform development costs was $ 3.9 million for the year ended December 31, 2020, of which $ 2.9 million was included in cost of revenue related to developed technology used on the work marketplace.

Amortization expense related to the capitalized internal-use software and platform development costs was $ 0.1 million for the year ended December 31, 2018.

There was no amortization expense for the year ended December 31, 2017 related to the internal-use software and platform development costs as the underlying assets had not been placed into service as of December 31, 2017.

Notes to Consolidated Financial Statements — Continued

Intangible Assets, Net

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As of December 31, 2020, the remaining useful life for user relationships was 0.3 years.

Notes to Consolidated Financial Statements — Continued

As of December 31, 2020, the estimated future amortization expense for the acquired intangible assets is as follows (in thousands):

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Amortization Expense

Total $ 3,335

Accrued Expenses and Other Current Liabilities

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Total accrued expenses and other current liabilities $ 32,868 $ 18,342

Notes to Consolidated Financial Statements — Continued

Operating Leases

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The application of the incremental borrowing rate is performed on a lease-by-lease basis and approximates the rate at which the Company could borrow, on a secured basis for a similar term, an amount equal to its lease payments in a similar economic environment.

The Company’s leases have remaining lease terms of approximately one year to nine years , which may include the option to extend the lease.

The Company’s leases have remaining lease terms of approximately one year to eight years , which may include the option to extend the lease.

The Company includes lease payments associated with renewal options in its operating lease asset and liability only when it becomes reasonably certain the company will exercise the renewal option.

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The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The following table summarizes the Company’s operating lease assets and lease liabilities as of December 31, 2019 (in thousands):

Balance Sheet Classification As of December 31, 2019

Notes to Consolidated Financial Statements — Continued

The following table summarizes the Company’s operating lease assets and lease liabilities as of December 31, 2020 and 2019 (in thousands):

Balance Sheet Classification 2020 2019

Operating—noncurrent Operating lease asset $ 19,729 $ 21,908

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Total lease liabilities $ 24,231 $ 24,400

Operating lease cost, inclusive of variable lease charges, for the year ended December 31, 201 9 was $ 5.9 million.

Sublease income recognized during the year ended December 31, 2019 was approximately $ 0.4 million.

Charges related to operating leases that are variable, and therefore not included in the measurement of the lease liabilities, we re $ 0.6 million for the year ended December 31, 2019.

The Company made lease payments of $ 3.3 million during the year ended December 31, 2019.

The Company obtained an $ 8.6 million operating lease asset in exchange for a new lease obligation during the year ended December 31, 2019.

As of December 31, 2019, the Company had no material finance leases.

Notes to Consolidated Financial Statements — Continued

For the years ended December 31, 2020 and 2019, operating lease cost, inclusive of variable lease c harges, was $ 6.0 million and $ 5.9 million, respectively, and sublease income recognized was approximately $ 0.3 million and $ 0.4 million, respectively.

For the years ended December 31, 2020 and 2019, charges related to operating leases that are variable, and therefore not included in the measurement of the lease liabilities, were $ 0.7 million and $ 0.6 million, respectively.

The Company made lease payments of $ 3.3 million and $ 3.3 million during the years ended December 31, 2020 and 2019, respectively.

On January 1, 2020, the Company commenced an operating lease of one additional floor in its Chicago, Illinois office.

As a result, the Company recognized a $ 1.7 million operating lease asset and $ 1.7 million operating lease liability on January 1, 2020, which are inc luded in operating lease asset and operating lease liability, noncurrent, respectively, on the Company’s consolidated balance sheet as of December 31, 2020.

The lease has an initial term of five years with the option to renew for an additional five years at the end of the initial lease term.

Total minimum lease payments under the initial term are $ 2.1 million.

For the initial measurement of the present value of the lease payments associated with this lease, the Company used its incremental borrowing rate, which is a collateralized rate and approximates the rate at which the Company could borrow, on a secured basis for a similar term, an amount equal to its lease payments in a similar economic environment.

As of December 31, 2020 and 2019, the Company had no material finance leases.

The following table shows the Company’s future lease commitments due in each of the next five years and thereafter for operating leases (in thousands):

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Total $ 24,231

As of December 31, 2019, the Company had $ 2.2 million of net operating lease commitments not included in the table above for additional office space in the Company’s Chicago, Illinois office building.

The lease for the additional space will commence in fiscal year 2020 with a lease term of five years .

As of December 31, 2018, future aggregate minimum lease payments under the non-cancellable operating leases were as follows (in thousands):

Year Ended December 31, Leases (1)

Thereafter 4,890

rental payments from subleases ( 363 )

Total $ 27,939

(1) Amounts are based on Topic 840 that were superseded upon adoption of Topic 842 as of January 1, 2019.

As of and for the year ended December 31, 2020, the weighted-average remaining lease term is 5.4 years, and the weighted-average discount rate is 5.80 %.

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Letters of Credit

In conjunction with the operating lease agreements, as of December 31, 2019 and 2018, the Company had three irrevocable letters of credit outstanding in the aggregate amount of $ 0.8 million.

In conjunction with the operating lease agreements, as of December 31, 2020 and 2019, the Company had three irrevocable letters of credit outstanding in the aggregate amount of $ 1.0 million and $ 0.8 million, respectively.

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 December 31, 2020 and 2019.

Notes to Consolidated Financial Statements — Continued

Contingencies

The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

From time to time in the normal course of business, various claims and litigation have been asserted or commenced.

Due to uncertainties inherent in litigation and other claims 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 or litigation 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 or litigation are resolved.

As of December 31, 2019 and 2018, 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 that could reasonably be expected to have a material adverse effect on its business, operating results, cash flows, or financial condition.

Accordingly, the Company has determined that the existence of a material loss as of this date is neither probable nor reasonably possible.

Notes to Consolidated Financial Statements — Continued

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 December 31, 2020 and 2019, 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 and for the years-ended December 31, 2020 and 2019.

Indemnification

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interest at prime plus 0.25 % per annum

$ 6,250 $ 11,250

Second term loan— 17 months of interest-only payments ended in March 2019 followed by 42 equal monthly installments of principal plus interest, maturing September 2022;

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Weighted-average interest rate 5.64 % 6.93 %

In September 2017, the Company entered into a Loan and Security Agreement, which was subsequently amended in November 2017, September 2018, and March 2019.

Under the Company’s Loan and Security Agreement, as amended (the “Loan Agreement”), the aggregate amount of the facility is up to $ 49.0 million, consisting of a term loan in the original principal amount of $ 15.0 million (the “First Term Loan”), a term loan in the original principal amount of $ 9.0 million (the “Second Term Loan” and, together with the First Term Loan, the “Term Loans”) and a revolving line of credit, which permits borrowings of up to $ 25.0 million subject to customary conditions.

Among other things, the Company may only borrow funds under the revolving line of credit if, after giving effect thereto, total borrowings under the line of credit do not exceed a specified percentage of eligible trade and client accounts receivable.

In September 2017, the Company entered the Loan Agreement, which was subsequently amended in November 2017, September 2018, March 2019, and August 2020.

Under the Loan Agreement, the aggregate amount of the facility is up to $ 49.0 million, consisting of a term loan in the original principal amount of $ 15.0 million, which is referred to as the First Term Loan, a term loan in the original principal amount of $ 9.0 million, which is referred to as the Second Term Loan and, together with the First Term Loan, the Term Loans, and a revolving line of credit, which permits borrowings of up to $ 25.0 million subject to customary conditions.

The Company has granted its lender first-priority liens against substantially all of its assets, as collateral, excluding the Company’s intellectual property (but including proceeds therefrom) and the funds and assets held by the Company’s subsidiary, Upwork Escrow Inc.

The Company has also agreed to a negative pledge on its intellectual property.

The Loan Agreement is also subject to the Company maintaining an adjusted quick ratio of 1.75 and achieving minimum EBITDA levels over trailing periods ranging from three to 12 months.

The Loan Agreement also requires that the Company maintain an adjusted quick ratio of 1.75 .

The Loan Agreement also includes a restrictive covenant on dividend payments other than dividends paid solely in common stock.

In September 2018, the Company entered into a second amendment (the “Second Amendment”) to the Loan Agreement, which expanded the types of eligible trade and client accounts receivable considered for the determination of the borrowing base of the revolving line of credit.

The Second Amendment also provided for a reduction in the interest rate for the Second Term Loan, from the prime rate plus 5.25 % per annum to the prime rate plus 0.25 % per annum, from and after the occurrence of an initial public offering by the Company with net proceeds of more than $ 50.0 million;

this reduction became effective following the completion of the Company’s IPO in October 2018.

In March 2019, the Company entered into a third amendment (the “Third Amendment”) to the Loan Agreement, which, among other changes, (i) amended the adjusted quick ratio financial covenant to provide that the Company will maintain an adjusted quick ratio of 1.75 to 1.00 (previously 1.30 to 1.00), (ii) reduced the frequency with which the Company is required to provide certain financial information to the lender during periods in which it maintains an adjusted quick ratio of 2.50 to 1.00, and (iii) eliminated the minimum EBITDA covenant with which the Company was required to comply.

The Company was in compliance with its covenants under the Loan Agreement as of December 31, 2019 and 2018.

In March 2019, the Company entered into a third amendment to the Loan Agreement, which, among other changes, (i) amended the adjusted quick ratio financial covenant to provide that the Company will maintain an adjusted quick ratio of 1.75 to 1.00

Notes to Consolidated Financial Statements — Continued

(previously 1.30 to 1.00), (ii) reduced the frequency with which the Company is required to provide certain financial information to the lender during periods in which it maintains an adjusted quick ratio of 2.50 to 1.00, and (iii) eliminated the minimum EBITDA covenant with which the Company was required to comply.

The Company was in compliance with its covenants under the Loan Agreement as of December 31, 2020 and 2019.

In August 2020, the Company entered into a fourth amendment to the Loan Agreement that, among other things, extended the maturity date of the revolving line of credit from September 2020 to September 2022 and eliminated a formula-based restriction that prohibited the Company from borrowing funds under the revolving line of credit in an amount that exceeded a specified percentage of eligible trade and client accounts receivable.

To the extent the Company has not yet collected funds for hourly billings from clients that are in-transit due to timing differences in receipt of cash from clients, the Company may utilize the revolving line of credit to satisfy customary escrow funding requirements.

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Additionally, in October 2018, the Company used part of the net proceeds from the IPO to repay $ 10.0 million of indebtedness owed under the revolving line of credit.

Pursuant to the terms of the Loan Agreement, in April 2019, the Company commenced repayment on the Term Loans.

Pursuant to the terms of the Loan Agreement, the Company commenced repayment on the Term Loans in April 2019.

During the year ended December 31, 2020, the Company repaid $ 5.0 million and $ 2.6 million related to the First Term Loan and the Second Term Loan, respectively.

During the year ended December 31, 2019, the Company repaid $ 3.8 million and $ 1.9 million related to the First Term Loan and the Second Term Loan, respectively.

Amortization expense related to the debt discount was immaterial for the years ended December 31, 2020, 2019, and 2018.

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Therefore, there were no issued or outstanding shares of redeemable convertible preferred stock as of December 31, 2020 and 2019.

Redeemable convertible preferred stock as of December 31, 2017 consisted of the following (in thousands, except share data):

Outstanding Net

Carrying Value Aggregate

Series A-1 10,141,345 9,142,770 $ 72,181 $ 91,427

Series A-2 60,000,000 47,124,931 65,853 5

Series B-1 5,854,982 4,866,360 27,628 27,787

Series B-2 145,018 145,018 824 828

Total redeemable convertible preferred stock 76,141,345 61,279,079 $ 166,486 $ 120,047

Shares of redeemable convertible preferred stock were not mandatorily redeemable.

However, a liquidation or winding up of the Company, a greater than 50 % change in control, or a sale of substantially all of the Company’s assets would constitute a redemption event that is outside of the Company’s control.

As such, all shares of redeemable convertible preferred stock were presented outside of permanent equity.

The Company did not adjust the carrying values of the redeemable convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable as of December 31, 2017.

No subsequent adjustments to increase or decrease the carrying values were made between December 31, 2017 and the date of the Company’s IPO.

As a result of the Elance-oDesk Combination, holders of preferred stock of Elance and holders of preferred stock of oDesk each received as consideration for such shares a combination of shares of Series A-1 and Series A-2 redeemable convertible preferred stock.

As a result, no stockholder held shares of Series A-1 redeemable convertible preferred stock without also holding shares of Series A-2 redeemable convertible preferred stock, nor did any stockholder hold shares of Series A-2 redeemable convertible preferred stock without also holding shares of Series A-1 redeemable convertible preferred stock.

The rights, privileges, and preferences of the Series A-1, Series A-2, Series B-1, and Series B-2 redeemable convertible preferred stock (“Preferred Stock”) were as follows:

Notes to Consolidated Financial Statements — Continued

Holders of the Series A-1, Series A-2, Series B-1, and Series B-2 redeemable convertible preferred stock were each entitled to non-cumulative dividends of $ 0.80 , $ 0.000008 , $ 0.4568 , and $ 0.4568 per share, respectively.

Dividends on the Preferred Stock were payable only when, and if, declared by the board of directors.

No dividends on the Preferred Stock were declared by the Company’s board of directors, or were paid, as of December 31, 2017 and as of the date of the Company’s IPO.

Voting Rights

The holders of each share of Preferred Stock were entitled to the number of votes equal to the number of shares of common stock into which their respective shares were convertible, provided, however, that the holders of Series B-2 redeemable convertible preferred stock, or common stock issued upon conversion thereof, were not entitled to cast votes in connection with the election of members of the board of directors.

The holders of Preferred Stock had certain protective provisions so long as an aggregate of 15.1 million shares of Preferred Stock were outstanding.

Under these provisions, the Company could not, without the approval of greater than 50 % of the then-outstanding shares of Preferred Stock (i) alter or change the rights, powers, or preferences of the Preferred Stock set forth in the Company’s certificate of incorporation or bylaws, (ii) authorize or create any new class of stock having rights, powers or preferences that were senior to or on parity with any series of Preferred Stock, or obligate itself to authorize or create any security convertible into or exercisable for such class of stock, (iii) redeem or repurchase any shares of common stock or Preferred Stock (other than shares subject to the Company’s right of repurchase, through the exercise of any right of first refusal, or otherwise approved by the board of directors), (iv) declare or pay a dividend or otherwise make a distribution to holders of Preferred Stock or common stock (other than a dividend on the common stock payable solely in shares of common stock or a repurchase approved by the board of directors), (v) voluntarily liquidate, dissolve, or wind-up the business or effect a deemed liquidation event (as defined in the certificate of incorporation), or (vi) increase or decrease the authorized number of directors constituting the board of directors.

In addition, so long as any shares of any series of Preferred Stock were outstanding, the Company could not, without the approval of greater than 50 % of the then-outstanding shares of such series of Preferred Stock, alter or change the rights, powers, or preferences of such series of Preferred Stock set forth in the Company’s certificate of incorporation or bylaws in a way that adversely affected such series of Preferred Stock in a manner different from other series of Preferred Stock (other than (a) the authorization, creation, or issuance of any new class or series of capital stock having rights, powers, or preferences that were senior to, on parity with, or junior to any series of Preferred Stock and (b) an amendment or other change of the rights, powers, or preferences of any series of preferred stock that was proportional to the amendments or other changes similarly made to other series of Preferred Stock that had a similar right, power, or preference).

The holders of each share of Preferred Stock had the option to convert each share of Preferred Stock at any time into a number of shares of common stock determined by dividing the original issue price per share by the then-current conversion price for such series.

The original issue prices per share for the Series A-1, Series A-2, Series B-1, and Series B-2 redeemable convertible preferred stock were $ 10.00 , $ 0.0001 , $ 5.71 , and $ 5.71 , respectively, and, subject to adjustments for certain dilutive issuances, splits, and combinations, and other recapitalizations or reorganizations, the conversion price for each series of Preferred Stock was equal to the original issue price for such series.

In the event that any holder of Series A-1 or Series A-2 redeemable convertible preferred stock elected to voluntarily convert shares of such Preferred Stock into shares of common stock, the election was deemed to be an election of such holder to convert shares of Series A-1 and Series A-2 redeemable convertible preferred stock held by such holder into shares of common stock at the same ratio and in the same proportions.

In addition, the Preferred Stock would automatically be converted into common stock upon the earlier of (i) the written consent of the holders of at least a majority of the then-outstanding shares of Preferred Stock, voting together as a single class on an as-converted basis or (ii) an IPO that resulted in aggregate gross proceeds to the Company of at least $ 50.0 million.

As of December 31, 2017, the conversion ratio was 1 :1 for each series of Preferred Stock.

Liquidation Preference

In the event of liquidation, dissolution, or winding up or any deemed liquidation event of the Company, the holders of Preferred Stock were entitled to receive the greater of (i) their full preferential amounts plus any declared but unpaid dividends and (ii) such amount per share as would have been payable had all shares of such series of Preferred Stock been converted into common stock, prior to any distribution to the holders of common stock.

If the assets available for distribution were insufficient to pay such amounts, then the entire assets available for distribution would have been distributed ratably among the holders of Preferred Stock in proportion to the full amount each holder was otherwise entitled to receive.

After payment to the holders of Preferred Stock of their full preferential amounts specified above, the Company’s remaining assets available for distribution to stockholders would be distributed among the holders of common stock pro rata based upon the number of shares of common stock held by each holder.

The preferential amounts per share of the Series A-1, Series A-2, Series B-1, and Series B-2 redeemable convertible preferred stock were $ 10.00 , $ 0.0001 , $ 5.71 , and $ 5.71 , respectively, as of December 31, 2017.

Notes to Consolidated Financial Statements — Continued

A deemed liquidation event would be deemed to have occurred upon (a) a merger or consolidation of the Company into another entity (except where the merger or combination results in the holders of the Company’s capital stock prior to the merger or consolidation continuing to hold at least 50 % of the voting power of the surviving or acquiring entity) or (b) a sale, lease, transfer, exclusive license, or other disposition, in a single transaction or a series of related transactions, of all or substantially all of the Company’s assets (or in the case of an exclusive license, of all or substantially all of the Company’s intellectual property).

The holders of Preferred Stock could waive the treatment of any transaction as a deemed liquidation event by a vote of the holders of a majority of the then-outstanding shares of Preferred Stock.

The holders of Preferred Stock had no voluntary rights to redeem shares.

Repurchase of Redeemable Convertible Preferred Stock in Connection with Secondary Market Transaction

In November 2017, the Company’s board of directors approved the repurchase of 874,069 shares of Series A-1 redeemable convertible preferred stock, 3,151,858 shares of Series A-2 redeemable convertible preferred stock, and 242,562 shares of Series B-1 redeemable convertible preferred stock, from one stockholder at the purchase price of $ 4.50 per share, for a total consideration of $ 19.2 million, which exceeded the carrying value of $ 12.7 million on the date of repurchase.

The redeemable convertible preferred stock repurchased was retired immediately thereafter.

The repurchase price in excess of the carrying value of redeemable convertible preferred stock of $ 6.5 million was recorded as a reduction to additional paid-in capital, while the carrying value of the shares repurchased was recorded as a reduction to redeemable convertible preferred stock.

For the computation of earnings per share for the year ended December 31, 2017, the repurchase price in excess of the carrying value of the redeemable convertible preferred stock of $ 6.5 million is reflected as an increase to net loss attributable to common stockholders (see Note 12).

Note 9— Preferred and Common Stock Warrants

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As a result of the Elance-oDesk Combination, a redeemable convertible preferred stock warrant that was originally issued by Elance prior to the Elance-oDesk Combination became exercisable to purchase up to 124,506 and 273,825 shares of the Company’s Series A-1 and Series A-2 redeemable convertible preferred stock, respectively, at an exercise price of $ 3.13 per share.

In 2017, the warrant was exercised in full for cash.

Further, as a result of the Elance-oDesk Combination, another redeemable convertible preferred stock warrant that was originally issued by Elance prior to the Elance-oDesk Combination became exercisable to purchase up to 124,506 and 273,825 shares of the Company’s Series A-1 and Series A-2 redeemable convertible preferred stock, respectively, at an exercise price of $ 3.13 per share.

Upon completion of the IPO, this warrant converted to a common stock warrant exercisable for the same number of shares and was reclassified to additional paid-in capital.

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The Company issued 333,685 shares of common stock upon the exercise of this common stock warrant.

Notes to Consolidated Financial Statements — Continued

Prior to the IPO, the Company estimated the fair value of each redeemable convertible preferred stock warrant using the Black-Scholes valuation model.

The following assumptions were used to calculate the estimated fair value of the then-outstanding warrants until the closing date of the Company’s IPO:

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In May 2018, the Company issued a warrant to purchase 500,000 shares of its common stock at an exercise price of $ 0.01 per share to the Tides Foundation.

The vesting and exercisability provisions of the warrant became

Notes to Consolidated Financial Statements — Continued

effective upon the Company’s IPO in October 2018.

The vesting and exercisability provisions of the warrant became effective upon the Company’s IPO in October 2018.

This warrant is exercisable as to 1/10th of the shares on each anniversary of the IPO, with proceeds from the sale of such shares to be donated in accordance with the Company’s directive.

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The Company issued 49,963 shares of common stock upon the exercise of this common stock warrant.

For the years ended December 31, 2019 and 2018, the Company recorded $ 0.7 million and $ 0.2 million of expense related to this warrant, which is included in general and administrative expense in the Company’s consolidated statement of operations.

In 2020, this warrant was exercised as to all 50,000 of the then-vested and exercisable shares.

In lieu of a cash payment, the holder of the warrant surrendered 29 shares of common stock to cover the exercise price.

The Company issued 49,971 shares of common stock upon the exercise of this common stock warrant.

For the years ended December 31, 2020, 2019, and 2018, the Company recorded $ 0.8 million, $ 0.7 million, and $ 0.2 million, respectively, of expense related to this warrant, which is included in general and administrative expense in the Company’s consolidated statement of operations.

Note 10— Preferred and Common Stock

Preferred Stock

As of December 31, 2019, the Company was authorized to issue up to 10,000,000 shares of undesignated preferred stock, $ 0.0001 par value per share.

As of December 31, 2020 and 2019, the Company was authorized to issue up to 10,000,000 shares of undesignated preferred stock, $ 0.0001 par value per share.

The Company did not have any outstanding shares of preferred stock as of December 31, 2020 and 2019.

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Total 31,578,734 36,180,533

Notes to Consolidated Financial Statements — Continued

Note 11— Stock-Based Compensation

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Assumed Awards

In connection with the Elance-oDesk Combination, the Company assumed substantially all stock options outstanding under the Elance 1999 Stock Option Plan (the “Elance 1999 Plan”) and the Elance 2009 Stock Option Plan (the “Elance 2009 Plan”).

In connection with the Elance-oDesk Combination, the Company assumed substantially all stock options outstanding under the Elance 1999 Stock Option Plan, which is referred to as the Elance 1999 Plan, and the Elance 2009 Stock Option Plan, which is referred to as the Elance 2009 Plan.

Such assumed options were converted into options to purchase the Company’s common stock.

In addition, all stock options outstanding under the oDesk Corporation 2004 Stock Plan (the “oDesk Plan”) were converted into options to purchase shares of the Company’s common stock, with the number of shares that could be purchased under each option reduced by approximately 16.14 %.

In addition, all stock options outstanding under the oDesk Corporation 2004 Stock Plan, which is referred to as the oDesk Plan, were converted into options to purchase shares of the Company’s common stock, with the number of shares that could be purchased under each option reduced by approximately 16.14 %.

The exercise price of all options was simultaneously increased such that the then-aggregate exercise price payable by holders did not change.

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2014 Equity Incentive Plan

In March 2014, the Company’s board of directors and, in June 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan (the “2014 EIP”).

The total number of shares of common stock reserved and available for grant and issuance pursuant to such plan was originally 12,462,985 plus (i) shares that were then subject to outstanding option grants under the oDesk Plan, the Elance 1999 Plan, and the Elance 2009 Plan (collectively, the “Prior Plans”) but subsequently ceased to be subject to an award for any reason other than exercise of a stock option, (ii) shares that had been reserved but not subject to any outstanding awards under the Prior Plans and (iii) shares issued under the Prior Plans that were repurchased, forfeited, or used to pay employee withholding or exercise price obligations.

In March 2014, the Company’s board of directors and, in June 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan, which is referred to as the 2014 EIP.

The total number of shares of common stock reserved and available for grant and issuance pursuant to such plan was originally 12,462,985 plus (i) shares that were then subject to outstanding option grants under the oDesk Plan, the Elance 1999 Plan, and the Elance 2009 Plan, which are referred to collectively as the Prior Plans, but subsequently ceased to be subject to an award for any reason other than exercise of a stock option, (ii) shares that had been reserved but not subject to any outstanding awards under the Prior Plans and (iii) shares issued under the Prior Plans that were repurchased, forfeited, or used to pay employee withholding or exercise price obligations.

The number of shares available for grant under the 2014 EIP was increased by 3,001,091 shares, 4,500,000 shares and 100,000 shares in August 2014, October 2017 and August 2018, respectively.

Under the terms of the 2014 EIP, incentive stock options may be granted at prices not less than 100 % of the fair value of the Company’s common stock on the date of grant unless determined in writing by the Company’s board of directors.

Notes to Consolidated Financial Statements — Continued

The options granted under the 2014 EIP generally vest over a four-year period from the original date of grant and expire ten years from the original grant date.

2018 Equity Incentive Plan

In 2018, the Company’s board of directors and stockholders each adopted the 2018 Equity Incentive Plan (the “2018 EIP”), which became effective on the date immediately prior to the date of the IPO.

In 2018, the Company’s board of directors and stockholders each adopted the 2018 Equity Incentive Plan, which is referred to as the 2018 EIP, which became effective on the date immediately prior to the date of the IPO.

A total of 10,701,505 shares of common stock were initially reserved for issuance pursuant to future awards under the 2018 EIP.

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Any shares subject to outstanding awards under the 2014 EIP that are canceled or repurchased subsequent to the 2018 EIP’s effective date are returned to the pool of shares reserved for issuance under the 2018 EIP.

Awards granted under the 2018 EIP may be (i) incentive stock options, (ii) nonqualified stock options, (iii) restricted stock units (“RSUs”), (iv) restricted stock awards, or (v) stock appreciation rights, as determined by the Company’s board of directors or compensation committee at the time of grant.

Awards granted under the 2018 EIP may be (i) incentive stock options, (ii) nonqualified stock options, (iii) RSUs, (iv) restricted stock awards, or (v) stock appreciation rights, as determined by the Company’s board of directors or compensation committee at the time of grant.

Pursuant to the terms of the 2018 EIP, the number of shares available for grant was increased by 5,680,219 shares in January 2020.

In February 2019, the Company’s board of directors approved the omnibus Performance Bonus Plan along with the performance criteria and bonus pool for 2019 (the “Bonus Plan”), which provides for the payment of bonus compensation to selected employees of the Company, including the Company’s executive officers, upon the achievement of certain performance criteria.

In lieu of a cash payment, bonus payments to certain of the Company’s management team were made in the form of fully vested RSUs issued from the 2018 EIP.

The number of fully vested RSUs granted was determined by dividing (i) the total dollar value of the bonus that would have otherwise been delivered in cash by (ii) the closing stock price on the day prior to the award grant date, which occurred in the first quarter of 2020.

The payment of the bonus in fully vested RSUs requires accounting as a stock-based award under U.S.

Because the number of fully vested RSUs to be granted was dependent upon the future closing price of the Company’s common stock, the Company has classified this award as a liability within its consolidated balance sheet as of December 31, 2019.

Each reporting period, the Company assesses the probability that the performance criteria will be met and records expense for those shares that are probable of vesting.

For the year ended December 31, 2019, stock-based compensation expense related to the Bonus Plan was immaterial.

On December 8, 2019 (the “Modification Date”), the Company entered into a transition agreement (the “Transition Agreement”) with Mr.

Kasriel pursuant to which Mr.

Kasriel tendered his resignation as the Company’s President and Chief Executive Officer effective as of December 31, 2019 (the “Resignation Date”).

On December 8, 2019, which is referred to as the Modification Date, the Company entered into a transition agreement, which is referred to as the Transition Agreement, with Stephane Kasriel pursuant to which Mr.

Kasriel tendered his resignation as the Company’s President and Chief Executive Officer effective as of December 31, 2019, which is referred to as the Resignation Date.

The Transition Agreement provides that Mr.

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Kasriel has earned under the Bonus Plan and that Mr.

Kasriel will become a special advisor to the Board through April 30, 2021 pursuant to an advisory services agreement (the “Advisory Agreement”).

Kasriel will become a special advisor to the Board through April 30, 2021 pursuant to an advisory services agreement, which is referred to as the Advisory Agreement.

Among other terms, the Advisory Agreement provides that while he is providing advisory services, (i) the Company will pay Mr.

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Kasriel beyond December 31, 2019 were nonsubstantive.

As a result, for the year ended December 31, 2019, the Company recorded $ 3.5 million of additional stock-based compensation expense related to the Transition Agreement.

Notes to Consolidated Financial Statements — Continued

As a result, for the year ended December 31, 2019, the Company recorded $ 3.5 million of additional stock-based compensation expense related to the Transition Agreement.

The fair values of the awards modified by the Transition Agreement were estimated using the Black-Scholes valuation model with the following assumptions:

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Determination of Fair Value

The Company did not grant any stock option awards during the year ended December 31, 2019.

For the years ended December 31, 2018 and 2017, the fair value of stock options granted to employees was estimated on the grant date using the Black-Scholes valuation model with the following assumptions:

The Company did not grant any stock option awards during the years ended December 31, 2020 and 2019.

For the year ended December 31, 2018, the fair value of stock options granted to employees was estimated on the grant date using the Black-Scholes valuation model with the following assumptions:

Dividend yield — %

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The intrinsic value of options exercised was $ 124.1 million, $ 73.0 million, and $ 18.0 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The weighted-average grant-date fair value of options granted was $ 3.65 and $ 1.54 for the years ended December 31, 2018 and 2017, respectively.

For the year ended December 31, 2018, the weighted-average grant-date fair value of options granted was $ 3.65 .

As of December 31, 2020, total unrecognized stock-based compensation cost was $ 1.9 million, which is expected to be generally recognized on a straight-line basis over a weighted-average period of 1.2 years.

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The associated tax liability was paid in full prior to December 31, 2018.

For the years ended December 31, 2020, 2019, and 2018, the weighted-average grant-date fair value of RSUs granted was $ 10.96 , $ 16.15 , and $ 15.00 , respectively.

For the years ended December 31, 2020 and 2019, the fair value of RSUs vested was $ 20.3 million and $ 2.6 million, respectively.

For the year ended December 31, 2018, the fair value of RSUs vested was immaterial.

As of December 31, 2020, there was $ 62.8 million of unrecognized stock-based compensation expense related to outstanding RSUs to employees that is expected to be recognized over a weighted-average period of 2.9 years.

2018 Employee Stock Purchase Plan

In August 2018, the Company’s board of directors and stockholders each adopted the 2018 Employee Stock Purchase Plan (the “2018 ESPP”), which became effective prior to the completion of the IPO.

In August 2018, the Company’s board of directors and stockholders each adopted the 2018 ESPP, which became effective prior to the completion of the IPO.

A total of 1,700,000 shares of common stock was initially reserved for issuance under the 2018 ESPP.

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For the years ended December 31, 2020, 2019, and 2018, the assumptions used to determine the fair value of the shares to be awarded was estimated on the grant date using the Black-Scholes valuation model with the following assumptions:

2020 2019 2018

Dividend yield 0 %

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Risk-free interest rates 0.1 % - 0.2 %

1.5 % - 2.4 %

2.4 % - 2.9 %

Expected volatility 50 % - 82 %

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Stock-based compensation expense related to employees for the year ended December 31, 2020 was $ 2.5 million, $ 20.0 million, and $ 3.2 million related to stock option grants, RSU grants, and the 2018 ESPP, respectively.

Stock-based compensation expense related to employees for the year ended December 31, 2019 was $ 8.5 million, $ 7.9 million, and $ 2.6 million related to stock option grants, RSU grants, and the 2018 ESPP, respectively.

Stock-based compensation expense related to employees for the year ended December 31, 2018 was $ 8.6 million, $ 1.1 million, and $ 0.6 million related to stock option grants, RSUs, and the 2018 ESPP, respectively.

Stock-based compensation expense related to employees for the year ended December 31, 2017 was $ 6.3 million related to stock option grants.

The amount of stock-based compensation capitalized to internal-use software and platform development costs was immaterial for the years ended December 31, 2019, 2018 and 2017.

Certain common stockholders (who were employees or former employees of the Company) sold the Company’s common stock in secondary market transactions to third parties in 2017.

They sold an aggregate of 488,484 shares of common stock for $ 2.3 million at an average price of $ 4.72 per share for the year ended December 31, 2017.

The incremental value between the sale price and the fair value of the common stock at each date of sale resulted in aggregate stock-based compensation expense of $ 0.4 million for the year ended December 31, 2017.

There was an immaterial secondary market transaction during the year ended December 31, 2018.

Notes to Consolidated Financial Statements — Continued

Note 12— Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2019, 2018 and 2017 (in thousands, except share and per share data):

Note 12— Net Loss per Share

The following table sets forth the computation of the Company’s basic and diluted net loss per share for the years ended December 31, 2020, 2019, and 2018 (in thousands, except share and per share data):

2020 2019 2018

Net loss $ ( 22,867 ) $ ( 16,659 ) $ ( 19,907 )

Premium on repurchase of redeemable convertible preferred stock — — ( 6,506 )

Net loss attributable to common stockholders $ ( 16,659 ) $ ( 19,907 ) $ ( 10,629 )

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 109,814,604 52,327,518 32,944,714

Net loss per share attributable to common stockholders, basic and diluted $ ( 0.15 ) $ ( 0.38 ) $ ( 0.32 )

For the years ended December 31, 2019, 2018 and 2017, the following potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have been anti-dilutive:

Weighted-average shares used to compute net loss per share, basic and diluted 118,698,567 109,814,604 52,327,518

Net loss per share, basic and diluted $ ( 0.19 ) $ ( 0.15 ) $ ( 0.38 )

For the years ended December 31, 2020, 2019, and 2018, the following potentially dilutive shares were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive:

2020 2019 2018

Options to purchase common stock 4,858,590 15,140,579 23,774,279

Common stock issuable upon conversion of redeemable convertible preferred stock — — 61,279,079

Common stock issuable upon exercise of common stock warrants 400,000 450,000 898,331

Common stock issuable upon exercise and redeemable conversion of preferred stock warrants — — 398,331

Common stock issuable upon vesting of restricted stock units 5,568,225 2,503,182 288,460

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Notes to Consolidated Financial Statements — Continued

For the years ended December 31, 2019, 2018 and 2017, the components of the income tax benefit (provision) were as follows (in thousands):

For the years ended December 31, 2020, 2019, and 2018, the components of the income tax provision were as follows (in thousands):

2020 2019 2018

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Change in valuation allowance ( 110.34 ) ( 63.42 ) ( 19.21 )

Rate differential impact of Tax Cuts and Jobs Act of 2017 — — ( 545.38 )

Effective tax rate ( 0.66 ) % ( 0.17 ) % ( 0.07 ) %

Notes to Consolidated Financial Statements — Continued

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Gross deferred tax assets 99,270 74,786

Valuation allowance ( 92,390 ) ( 63,542 )

Total deferred tax assets 6,880 11,244

Deferred tax liabilities:

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Depreciation and amortization ( 2,268 ) ( 1,349 )

Net deferred tax assets prior to valuation allowance 63,542 49,439

Valuation allowance ( 63,542 ) ( 49,439 )

Total deferred tax liabilities ( 6,880 ) ( 11,244 )

Net deferred tax assets $ — $ —

Notes to Consolidated Financial Statements — Continued

The Company established a full valuation allowance of $ 63.5 million and $ 49.4 million as of December 31, 2019 and 2018, respectively, against its net deferred tax assets.

The change in valuation allowance for deferred tax assets was as follows for the periods presented (in thousands):

Year Ended December 31, Balance at

Beginning of Year Additions Charged to

Costs & Expenses

Additions Charged to Other Accounts Deductions Balance at End of Year

2020 $ 63,542 $ 28,848 $ — $ — $ 92,390

2019 49,439 14,103 — — 63,542

2018 45,364 4,075 — — 49,439

The Company records a full valuation allowance of $ 92.4 million and $ 63.5 million as of December 31, 2020 and 2019, respectively, against its net deferred tax assets.

The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized.

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Accordingly, the Company has recorded a full valuation allowance on its deferred tax assets.

The Company has federal net operating loss (“NOL”) carryforwards of approximately $ 220.4 million and $ 172.3 million as of December 31, 2019 and 2018, respectively.

The federal NOLs generated in the years ended December 31, 1999 through 2017 will begin to expire in 2020 for federal income tax purposes, including $ 21.6 million in 2020.

NOLs originating before January 1, 2018, are eligible to offset taxable income, if not otherwise limited under Internal Revenue Code (“IRC”) §382 limitations.

The Company has federal net operating loss, which is referred to as NOL, carryforwards of approximately $ 343.1 million and $ 220.4 million as of December 31, 2020 and 2019, respectively.

The federal NOLs generated in the years ended December 31, 2017 and prior are subject to expiration, including $ 15.1 million that expired in 2020 and $ 21.6 million that will expire in 2021.

NOLs originating before January 1, 2018, are eligible to offset taxable income, if not otherwise limited under Internal Revenue Code, which is referred to as IRC, §382 limitations.

NOLs generated after December 31, 2017, have an infinite carryforward period and subject to 80 % deduction limitation based upon pre-NOL deduction taxable income.

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California NOLs generated before 2008 have expired in accordance the California Revenue Taxation Code and related regulations.

The Company has federal research and development credits (“Credits”) of approximately $ 10.1 million and $ 8.8 million as of December 31, 2019 and 2018, respectively.

The federal Credit will begin to expire in 2020 through 2039.

The Company has federal research and development credits, which are referred to as Credits, of approximately $ 12.0 million and $ 10.1 million as of December 31, 2020 and 2019, respectively.

In 2020, $ 0.2 million of federal research and development credits expired and the remaining carryforward is subject to expiration through 2039.

The Company has California Credits of approximately $ 13.1 million and $ 11.3 million as of December 31, 2020 and 2019, respectively.

California Credits have an infinite carryforward period.

Notes to Consolidated Financial Statements — Continued

Utilization of the NOL and Credit carryforwards that were generated prior to January 1, 2018, may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by IRC §382 and §383, as well as similar state provisions.

The Company adopted ASU No.

2016-09 effective January 1, 2018, on a prospective basis.

The Company’s previously unrecognized excess tax benefit of $ 1.6 million has been recognized as an increase to both the NOL deferred tax asset and the valuation allowance.

There was no material impact as a result of this adoption.

Uncertain Tax Positions

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Increase related to tax positions taken during current year 608 1,973 667

Decrease related to tax positions taken during current year — — —

Decrease related to expiration of unrecognized tax benefit ( 183 ) — —

Gross unrecognized tax benefits—ending balance $ 13,338 $ 12,782 $ 10,973

For the year ended December 31, 2017, the changes related to prior year uncertain tax positions reflected above is largely attributable to the completion of a study on the qualifying activities related to research and development costs giving rise to research and development tax credits.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

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Note 15— 401(k) Plan

The Company offers the Upwork Retirement Savings Plan (the “Retirement Plan”), a defined contribution plan that allows employees to contribute a portion of their salary, subject to the annual limits.

The Company offers the Upwork Retirement Savings Plan, which is referred to as the Retirement Plan, a defined contribution plan that allows employees to contribute a portion of their salary, subject to the annual limits.

Under the Retirement Plan, eligible employees may defer a portion of their pretax salaries, but not more than the statutory limits.

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The Company’s total expense for the matching contributions was $ 2.5 million, $ 2.0 million, and $ 1.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Note 16— Subsequent Events

On January 18, 2021, which is referred to as the Grant Date, the compensation committee of the board of directors of the Company approved a stock option grant exercisable for up to 1,500,000 shares of the Company’s common stock to Hayden Brown, the Company’s Chief Executive Officer, under the 2018 EIP, which is referred to as the CEO Award.

The CEO Award will vest in sixteen equal quarterly installments, which is referred to as the service condition, subject to the achievement of certain volume weighted-average common stock price targets, which is referred to as the market condition, conditioned upon Ms.

Brown’s continued employment as the Chief Executive Officer of the Company.

Stock-based compensation expense associated with the CEO Award will be recognized over the longer of the expected achievement period for each of the market condition or service condition.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data