Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Common Stock
Our common stock has been traded on The Nasdaq Global Select Market under the symbol “UPWK” since October 3, 2018. Prior to that time, there was no public market for our common stock.
Holders of Record
As of January 31, 2021, there were approximately 730 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners of our common stock represented by these record holders.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our board of directors may deem relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item will be included in our Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020, and is incorporated herein by reference.
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Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Upwork Inc. under the Securities Act or the Exchange Act.
The following graph shows a comparison from October 3, 2018 (the date our common stock commenced trading on The Nasdaq Global Select Market), through December 31, 2020, of the cumulative total returns for our common stock, the NASDAQ Composite Index and the NASDAQ 100 Technology Index, respectively. The graph assumes $100 was invested at the market close on October 3, 2018 in the common stock of Upwork Inc. Such returns are based on historical results and are not intended to suggest future performance. The NASDAQ Composite Index and the NASDAQ 100 Technology Index assume reinvestment of any dividends.
Recent Sales of Unregistered Securities
In October 2020, we issued 49,971 shares of our common stock upon the cashless exercise of a warrant to purchase up to an aggregate of 500,000 shares of common stock. The warrant was exercised as to all 50,000 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 in accordance with the terms of the warrant. The offer, sale, and issuance of these securities was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act. The recipient of securities acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in this transaction. The recipient of the securities was an accredited or sophisticated person and had adequate access, through business or other relationships, to information about us.
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Use of Proceeds
None.
Issuer Purchases of Equity Securities
None.
Item 6. Selected Consolidated Financial Data.
The following tables present selected historical consolidated financial and other data for our business. We derived the selected consolidated statements of operations data for the years ended December 31, 2020, 2019, and 2018 and the consolidated balance sheet data as of December 31, 2020 and 2019 from our audited consolidated financial statements that are included elsewhere in this Annual Report. We derived the selected consolidated statements of operations data for the years ended December 31, 2017 and 2016 and the selected consolidated balance sheet data as of December 31, 2018, 2017, and 2016 from our audited consolidated financial statements not included in this Annual Report. Our historical results are not necessarily indicative of the results that may be expected for any other period in the future.
On December 31, 2019, we adopted Topic 606 effective as of January 1, 2019 using the modified retrospective method. Financial results for the years ended December 31, 2020 and 2019 are presented in accordance with this new revenue recognition standard. Historical financial results for reporting periods prior to 2019 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, Topic 605.
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The following historical selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this Annual Report. You should read this information in conjunction with the sections titled “Business” and “Risk Factors” included elsewhere in this Annual Report.
Year Ended December 31,
2020 2019 2018 2017 2016
Consolidated Statements of Operations Data: (in thousands, except per share data and percentages)
Revenue
Marketplace $ 338,152 $ 268,284 $ 223,831 $ 178,046 $ 138,484
Managed services 35,476 32,278 29,523 24,506 25,961
Total revenue 373,628 300,562 253,354 202,552 164,445
Cost of revenue (1)
104,267
88,144
81,458
65,443 62,578
Gross profit 269,361 212,418 171,896 137,109 101,867
Operating expenses
Research and development (1)
83,471 64,027 55,488 45,604 37,902
Sales and marketing (1)
133,225 95,891 72,963 53,044 37,437
General and administrative (1)
71,518 67,327 49,336 37,334 35,446
Provision for transaction losses 3,555 3,905 5,821 4,250 5,550
Total operating expenses 291,769 231,150 183,608 140,232 116,335
Loss from operations (22,408) (18,732) (11,712) (3,123) (14,468)
Interest expense 778 1,306 2,038 960 858
Other (income) expense, net (469) (3,407) 6,142 62 908
Loss before income taxes (22,717) (16,631) (19,892) (4,145) (16,234)
Income tax benefit (provision) (150) (28) (15) 22 1
Net loss (22,867) (16,659) (19,907) (4,123) (16,233)
Premium on repurchase of redeemable convertible preferred stock — — — (6,506) —
Net loss attributable to common stockholders $ (22,867) $ (16,659) $ (19,907) $ (10,629) $ (16,233)
Net loss per share attributable to common stockholders, basic and diluted (2)
$ (0.19) $ (0.15) $ (0.38) $ (0.32) $ (0.51)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
118,699 109,815 52,328 32,945 32,072
Other Financial and Operating Data: (3)
Core clients (4)
145.4 124.4 105.5 86.4 76.5
GSV (5)
$ 2,523,649 $ 2,087,055 $ 1,756,289 $ 1,373,161 $ 1,148,363
Client spend retention (6)
102 % 102 % 108 % 99 % 85 %
Marketplace take rate (7)
13.6 % 13.1 % 13.0 % 13.2 % 12.3 %
Adjusted EBITDA (8)
$ 14,022 $ 7,438 $ 3,824 $ 7,909 $ 1,260
(1) Includes stock-based compensation expense as follows:
Cost of revenue $ 779 $ 456 $ 282 $ 290 $ 193
Research and development 9,783 6,471 3,258 1,797 1,820
Sales and marketing 4,440 2,609 1,637 1,299 1,052
General and administrative 10,506 9,262 5,184 3,460 4,201
Total $ 25,508 $ 18,798 $ 10,361 $ 6,846 $ 7,266
(2) See “Note 2 —Basis of Presentation and Summary of Significant Accounting Policies” and “Note 12 —Net Loss per Share” of the notes to our consolidated financial statements included elsewhere in this Annual Report for an explanation of the calculations of our net loss per share, basic and diluted.
(3) For a discussion of limitations in the measurement of core clients, GSV, client spend retention, and marketplace take rate, see the section titled “Risk Factors—We track certain performance metrics with internal tools and do not independently
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verify such metrics. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.”
(4) For the definition of core clients, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operational Metrics.”
(5) For the definition of GSV, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operational Metrics.”
(6) For the definition of client spend retention, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operational Metrics.”
(7) For the definition of marketplace take rate, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operational Metrics.”
(8) For the definition of adjusted EBITDA, a non-GAAP financial measure, and a reconciliation of net loss to adjusted EBITDA, see the section below titled “—Non-GAAP Financial Measures.”
As of December 31,
2020 2019 2018 2017 2016
Consolidated Balance Sheet Data: (in thousands)
Cash and cash equivalents $ 94,081 $ 48,392 $ 129,128 $ 21,595 $ 27,326
Marketable securities 75,570 85,481 — — —
Working capital 162,054 131,537 128,282 29,483 31,205
Total assets 529,227 446,380 391,573 275,189 249,600
Debt, current and noncurrent 10,723 18,283 23,910 33,833 16,962
Redeemable convertible preferred stock — — — 166,486 178,785
Total stockholders’ equity (deficit) 299,310 259,424 243,745 (31,367) (30,131)
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, adjusted EBITDA is a non-GAAP measure that we believe is useful in evaluating our operating performance.
We define adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense, depreciation and amortization, interest expense, other (income) expense, net, income tax (benefit) provision, and, if applicable, other non-cash transactions. Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S. GAAP.
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The following table presents a reconciliation of net loss, the most directly comparable financial measure prepared in accordance with U.S. GAAP, to adjusted EBITDA for each of the periods indicated:
Year Ended December 31,
2020 2019 2018 2017 2016
(in thousands)
Net loss $ (22,867) $ (16,659) $ (19,907) $ (4,123) $ (16,233)
Add back (deduct):
Stock-based compensation expense 25,508 18,798 10,361 6,846 7,266
Depreciation and amortization 10,172 6,661 4,949 4,186 8,462
Interest expense 778 1,306 2,038 960 858
Other (income) expense, net (469) (3,407) 6,142 62 908
Income tax (benefit) provision 150 28 15 (22) (1)
Tides Foundation common stock warrant expense 750 711 226 — —
Adjusted EBITDA $ 14,022 $ 7,438 $ 3,824 $ 7,909 $ 1,260
We use adjusted EBITDA as a measure of operational efficiency. We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:
• adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization, interest expense, other (income) expense, net, income tax (benefit) provision, and, if applicable, other non-cash transactions that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired;
• our management uses adjusted EBITDA in conjunction with financial measures prepared in accordance with U.S. GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance; and
• adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our core operating results, and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their U.S. GAAP results.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are as follows:
• adjusted EBITDA excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;
• although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• adjusted EBITDA does not reflect: (a) changes in, or cash requirements for, our working capital needs; (b) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (c) tax payments that may represent a reduction in cash available to us; and
• other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of this measure for comparative purposes.
Because of these and other limitations, you should consider adjusted EBITDA along with other financial performance measures, including net loss and our other financial results prepared in accordance with U.S. GAAP.
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