Management’s Discussion and Analysis of Financial Condition and Results of Operations.
−Removed: You should read the following discussion and analysis of our financial condition and results of operations together with the sections titled “Business,” “Risk Factors,” and “Selected Consolidated Financial Data,” and the consolidated financial statements and related notes included elsewhere in this Annual Report.
+Added: You should read the following discussion and analysis of our financial condition and results of operations together with the sections titled “Business” and “Risk Factors” and the consolidated financial statements and related notes included elsewhere in this Annual Report.
This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, as well as assumptions that may never materialize or that may be proven incorrect.
2 unchanged sentences
We operate the world’s largest work marketplace that connects businesses with independent talent, as measured by GSV.
−Removed: GSV represents the total amount that clients spend on both our marketplace offerings and our managed services offering as well as additional fees we charge to both clients and freelancers for other services.
−Removed: We define freelancers as users that advertise and provide services to clients through our work marketplace, and we define clients as users that work with freelancers through our work marketplace.
−Removed: Freelancers on our work marketplace include independent professionals and agencies of varying sizes.
+Added: GSV represents the total amount that clients spend on both our marketplace offerings and our managed services offering as well as additional fees we charge to talent for other services.
+Added: Talent includes independent professionals and agencies of varying sizes.
The clients on our work marketplace range in size from small businesses to Fortune 100 companies.
With users in over 180 countries, our work marketplace enabled $3.5 billion of GSV for the year ended December 31, 2021.
−Removed: For purposes of determining countries where we enable GSV, we include both the countries in which the clients that paid for the applicable services are located, as well as the countries in which the freelancers that provided those services are located.
−Removed: As a global work marketplace that connects freelancers and clients regardless of their location, our GSV originates from around the world.
+Added: For purposes of determining countries where we enable GSV, we include both the countries in which the clients that paid for the applicable services are located, as well as the countries in which talent that provided those services are located.
+Added: As a global work marketplace that connects talent and clients regardless of their location, our GSV originates from around the world.
Of the $3.5 billion of GSV enabled on our work marketplace in 2021, approximately 25% was generated from U.S.
−Removed: freelancers, our largest freelancer geography, as measured by GSV, in each of 2020, 2019, and 2018, while freelancers in India and the Philippines remained our next largest freelancer geographies in all three years.
−Removed: Of the $2.1 billion and $1.8 billion of GSV enabled on our work marketplace in 2019 and 2018, respectively, approximately 27% and 23%, respectively, was generated from freelancers in the United States.
+Added: talent, which is our largest talent geography in each of 2021, 2020, and 2019, as measured by GSV, while talent in India and the Philippines remained our next largest talent geographies in all three years.
+Added: Of the $2.5 billion and $2.1 billion of GSV enabled on our work marketplace in 2020 and 2019, respectively, approximately 25% and 27%, respectively, was generated from talent in the United States.
Approximately 66% of our GSV in 2021 was generated from U.S.
clients, compared to approximately 67% and 68% of GSV in 2020 and 2019, respectively, with clients in no other country representing more than 10% of our GSV in any year.
−Removed: We generate revenue from both freelancers and clients, with a majority of our revenue generated from service fees charged to freelancers.
−Removed: We also generate revenue from fees charged to both clients and freelancers for other services, such as for transacting payments through our work marketplace, premium offerings, purchases of Connects, foreign currency exchange, and our Upwork Payroll offering.
−Removed: In addition, we provide a managed services offering where we engage freelancers to complete projects, directly invoice the client, and assume responsibility for work performed.
−Removed: On December 31, 2019, we adopted Topic 606 effective as of January 1, 2019 using the modified retrospective method.
−Removed: As a result, revenue results for the years ended December 31, 2020 and 2019 are presented in accordance with this new revenue recognition standard while historical revenue results for reporting periods prior to 2019 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, Topic 605.
+Added: We generate revenue from both talent and clients, with a majority of our revenue generated from service fees charged to talent.
+Added: We also generate revenue from fees charged to both clients and talent for other services, such as for transacting payments through our work marketplace, premium offerings, purchases of Connects, foreign currency exchange when clients choose to pay in currencies other than the U.S.
+Added: dollar, and our Upwork Payroll offering.
+Added: In addition, we provide a managed services offering where we engage talent to complete projects, directly invoice the client, and assume responsibility for work performed.
Financial Highlights for 2021
−Removed: In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, which continues to spread throughout the United States and the world, and has resulted in governmental authorities implementing numerous measures to contain the virus, including travel bans and restrictions, shelter-in-place orders, and business limitations and shutdowns.
−Removed: The COVID-19 pandemic and the resulting restrictions intended to prevent its spread have accelerated the secular shift toward remote and independent work, and, with our unique, remote-based business model, the COVID-19 pandemic has not impacted our clients’ access to highly-skilled freelancers to complete short- and long-term projects on our work marketplace.
−Removed: In 2020, we continued to identify opportunities to prioritize our advertising and marketing efforts in order to reach those new and existing clients seeking to engage with independent talent due to the COVID-19 pandemic, as well as companies that have already embraced a remote work model.
−Removed: As a result of these efforts, our 2020 results were fueled by both existing and new clients, who used our work marketplace to address their changing business needs.
−Removed: We began to see the impact of the pandemic on our results at the end of the first quarter, when we experienced a temporary reduction in the growth rates of GSV and revenue.
−Removed: This trend continued into the beginning of the second quarter, driven by spend contraction by many of our clients, as the COVID-19 pandemic continued to disrupt their businesses.
−Removed: These trends stabilized in the second half of the second quarter, and improved thereafter, contributing to an overall increase in the growth
−Removed: rates of GSV and revenue in 2020.
−Removed: Also, beginning in the second half of the second quarter of 2020, we began to see an increase in client acquisition driven by the acceleration in the shift toward remote work, due in part to the COVID-19 pandemic and the execution of our strategic initiatives.
−Removed: This increase in client acquisition continued to accelerate in the second half of 2020 and drove an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue.
−Removed: As a result, our work marketplace enabled $2.5 billion of GSV in 2020, $2.1 billion in 2019, and $1.8 billion in 2018, representing year-over-year increases of 21% in 2020 and 19% in 2019.
−Removed: We generated revenue of $373.6 million in 2020, $300.6 million in 2019, and $253.4 million in 2018, representing year-over-year increases of 24% in 2020 and 19% in 2019.
−Removed: While we have not incurred significant disruptions to our business thus far from the COVID-19 pandemic, at this time, we are unable to fully assess the aggregate impact it will have on our business due to various uncertainties, which include, but are not limited to, the duration of the pandemic, its effect on the economy, its impact to the businesses of our clients, actions that may be taken by governmental authorities related to the pandemic, and other factors identified in Part I, Item 1A “Risk Factors” in this Annual Report, including the risk factor titled “Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic.
−Removed: In addition, users may reduce their use of our work marketplace following the COVID-19 pandemic.”
−Removed: Additionally, while we have made significant investments to grow our business, including investments in sales and marketing to acquire new clients and drive brand awareness, in the fourth quarter of 2020, we decided that it was no longer cost-effective for our sales team to sell our Upwork Business offering.
−Removed: We do not expect this decision to have a material impact on our marketplace revenue, as we will service those clients that we had previously targeted with our Upwork Business offering with our other marketplace offerings, such as Upwork Basic and Plus.
−Removed: In 2020, we also made significant investments in research and development to build new product features and launch new offerings and in operations and personnel, and we intend to continue to focus on these efforts.
−Removed: As a result, we generated a net loss of $22.9 million in 2020 compared to a net loss of $16.7 million in 2019.
+Added: In 2021, we continued to evolve our offerings, brand positioning, and marketing to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs.
+Added: We prioritized our advertising, marketing, and offering development efforts to reach those new and existing clients seeking to engage remote talent in light of the shift toward remote work, due in part to the COVID-19 pandemic.
+Added: As a result of these efforts, our work marketplace enabled $3.5 billion of GSV in 2021, representing a year-over-year increase of 41%, and we experienced increases in user acquisition and the number of active clients, which fueled marketplace revenue.
+Added: For the year ended December 31, 2021, marketplace revenue increased by $124.2 million, or 37%, compared to 2020.
+Added: Additionally, we increased our investment in brand marketing and to a lesser extent, our investment in sales by expanding our sales team.
+Added: We generated a net loss of $56.2 million in 2021 compared to a net loss of $22.9 million in 2020.
Our adjusted EBITDA was $19.1 million in 2021, an increase of 36% from 2020.
Adjusted EBITDA is a financial measure that is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S.
−Removed: See the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures” for a definition of adjusted EBITDA and information regarding our use of adjusted EBITDA and a reconciliation of net loss to adjusted EBITDA.
+Added: See “—Non-GAAP Financial Measures” below for the definition of adjusted EBITDA and information regarding our use of adjusted EBITDA and a reconciliation of net loss to adjusted EBITDA.
+Added: The ongoing COVID-19 pandemic and the resulting restrictions intended to prevent its spread have continued to accelerate the secular shift toward remote and independent work, and, with our unique, remote-based business model, the pandemic has not impacted our clients’ access to highly-skilled talent to complete short- and long-term projects on our work marketplace.
+Added: While we have not incurred significant disruptions to our business thus far from
+Added: the ongoing COVID-19 pandemic, at this time, we are unable to fully assess the aggregate impact it will have on our business due to various uncertainties, which include, but are not limited to, the duration of the pandemic, its effect on the economy, its impact to the businesses of our clients, actions that may be taken by governmental authorities related to the pandemic, and other factors identified in Part I, Item 1A “Risk Factors” in this Annual Report, including the risk factor titled “Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic, including as new variants of COVID-19 emerge.
+Added: In addition, the positive impacts on our business resulting from the shift to remote work during the pandemic may not continue as the pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted.”
Key Financial and Operational Metrics
We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
−Removed: On December 31, 2019, we adopted Topic 606 effective as of January 1, 2019 using the modified retrospective method.
−Removed: Financial results for the years ended December 31, 2020 and 2019 are presented in accordance with this new revenue recognition standard.
−Removed: Historical financial results for the year ended December 31, 2018 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, Topic 605.
−Removed: Our key metrics were as follows as of or for the periods presented (in thousands, except percentages):
+Added: Our key metrics were as follows as of or for the periods presented:
As of or for the Year Ended December 31,
−Removed: 2020 2019 2018
+Added: (In thousands, except percentages) 2021 % Change 2020 % Change 2019 % Change
GSV $ 3,546,774 41 % $ 2,523,649 21 % $ 2,087,055 19 %
1 unchanged sentence
Marketplace take rate 13.2 % (0.4) % 13.6 % 0.5 % 13.1 % 0.1 %
−Removed: Core clients 145.4 124.4 105.5
−Removed: Client spend retention 102 % 102 % 108 %
Net loss $ (56,240) (146) % $ (22,867) (37) % $ (16,659) 16 %
1 unchanged sentence
$ 19,127 36 % $ 14,022 89 % $ 7,438 95 %
+Added: Active clients 771 22 % 633 17 % 540 9 %
+Added: GSV per active client $ 4,599 15 % $ 3,989 3 % $ 3,864 9 %
(1) Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S.
−Removed: See “Selected Consolidated Financial Data—Non-GAAP Financial Measures” above for a definition of adjusted EBITDA and for information regarding our use of adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure prepared under U.S.
+Added: See “—Non-GAAP Financial Measures” below for the definition of adjusted EBITDA and for information regarding our use of adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure prepared under U.S.
As discussed below with respect to each key metric, we believe these key financial and operational metrics are useful to evaluate period-over-period comparisons of our business and in understanding our operating results, and management uses these metrics to track our performance.
For a discussion of limitations in the measurement of our key financial and operational metrics, see “Risk Factors—We track certain performance metrics with internal tools and do not independently verify such metrics.
−Removed: Certain of our performance metrics may not accurately reflect certain details of our business, are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect
−Removed: our business.” GSV represents the total amount that clients spend on our marketplace offerings and our managed services offering as well as additional fees we charge to both clients and freelancers for other services.
−Removed: We believe that GSV is an important metric, as it represents the overall amount of business transacted through our work marketplace, which in turn is a key driver of our financial results.
−Removed: We believe our marketplace revenue, which represents a majority of our revenue, will grow as GSV grows, although they could grow at different rates.
−Removed: We evaluate the correlation between marketplace revenue and GSV by measuring marketplace take rate, which is calculated as marketplace revenue divided by marketplace GSV.
−Removed: We use the number of core clients to track the number of clients that we consider are actively using our work marketplace, and this metric in any given period drives both GSV and client spend retention.
−Removed: Similarly, client spend retention impacts the growth rate of GSV.
−Removed: For information on how we define core clients and how we calculate client spend retention and marketplace take rate, see “—Core Clients,” “—Client Spend Retention,” and “—Marketplace Take Rate,” respectively, below.
+Added: Certain of our performance metrics may not accurately reflect certain details of our business, are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.”
Gross Services Volume (GSV)
1 unchanged sentence
Client spend, which we define as the total amount that clients spend on both our marketplace offerings and our managed services offering, is the primary component of GSV.
−Removed: GSV also includes additional fees charged to both clients and freelancers for other services and offerings, such as for transacting payments through our work marketplace, user memberships, purchases of Connects, and foreign currency exchange.
+Added: GSV also includes fees charged to talent, such as for transacting payments through our work marketplace, user memberships, and purchases of Connects, and foreign currency exchange.
GSV is an important metric because it represents the amount of business transacted through our work marketplace.
−Removed: Our marketplace revenue is primarily comprised of the service fees paid by freelancers as a percentage of the total amount freelancers charge clients for services accessed through our work marketplace.
+Added: Our marketplace revenue is primarily comprised of the service fees paid by talent as a percentage of the total amount talent charges clients for services accessed through our work marketplace.
Therefore, marketplace revenue is correlated to GSV, and we believe that our marketplace revenue will grow as GSV grows, although they could grow at different rates.
For a discussion of how we measure and evaluate the correlation between marketplace revenue and GSV, see “—Marketplace Take Rate” below.
−Removed: Growth in the number of core clients and increased client spend retention are the primary drivers of GSV growth, and we expect the client spend retention trends discussed in “—Client Spend Retention,” below, to affect the rate at which GSV grows.
+Added: Growth in the number of active clients and GSV per active client are the primary drivers of GSV, and we expect the trends discussed in “—Active Clients and GSV per Active Client,” below, to affect the rate at which GSV grows.
We derive a substantial portion of our GSV and revenue from small- and medium-sized businesses.
−Removed: In 2020, we continued to identify opportunities to prioritize our advertising and marketing efforts in order to reach those new and existing clients seeking to engage with independent talent.
−Removed: As a result, of these efforts, coupled with the secular shift towards remote work caused by the COVID-19 pandemic and the resulting restrictions intended to prevent its spread, our work marketplace enabled $2.5 billion of GSV in 2020, representing a year-over-year increase of 21%.
−Removed: We expect our GSV to fluctuate between periods due to a number of factors, including the current COVID-19 pandemic and its impact on our clients’ businesses;
−Removed: the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) or the number of Mondays (i.e., the day we bill and recognize revenue for a substantial portion of our client fees each week) in any given quarter;
−Removed: and the volume of projects that are posted by clients on our work marketplace, the characteristics of those projects, such as size, duration, and pricing, and the availability and qualifications of freelancers to complete those projects.
+Added: In 2021, we continued to evolve our offerings, brand positioning, and marketing to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs.
+Added: Additionally, we have prioritized our advertising, marketing, and product development efforts to reach those new and existing clients seeking to engage remote talent in light of the acceleration in the shift toward remote work, due in part to the pandemic.
+Added: As a result, of these efforts, our work marketplace enabled $3.5 billion of GSV in 2021, representing a year-over-year increase of 41%.
+Added: We expect our GSV to fluctuate between periods due to a
+Added: number of factors, including the current COVID-19 pandemic and its impact on our clients’ businesses;
+Added: the number of Sundays (i.e., the day we have the contractual right to bill and recognize revenue for the majority of our talent service fees each week) or the number of Mondays (i.e., the day we have the contractual right to bill and recognize revenue for a substantial portion of our client fees each week) in any given quarter;
+Added: and the volume of projects that are posted by clients on our work marketplace, the characteristics of those projects, such as size, duration, and pricing, and the availability and qualifications of talent to complete those projects.
Marketplace Revenue
−Removed: Marketplace revenue, which represents the majority of our revenue, consists of revenue derived from our Upwork Basic, Plus, and Enterprise and other premium offerings.
−Removed: We generate marketplace revenue from both freelancers and clients.
−Removed: Our marketplace revenue is primarily comprised of service fees paid by freelancers as a percentage of the total amount freelancers charge clients for services accessed through our work marketplace, and to a lesser extent, payment processing and administration fees charged to clients.
−Removed: We also generate marketplace revenue from fees for premium offerings, freelancer memberships, purchases of Connects, and other services, such as foreign currency exchange and our Upwork Payroll offering.
−Removed: Marketplace revenue is an important metric because it is the primary driver of our business, and we believe it provides greater comparability to other online marketplaces.
+Added: Marketplace revenue, which represents the majority of our revenue, consists primarily of revenue derived from our Upwork Basic, Plus, and Enterprise offerings.
+Added: We generate marketplace revenue from both talent and clients.
+Added: Revenue from our Upwork Basic and Plus offerings are primarily comprised of talent service fees, and to a lesser extent, payment processing and administration fees charged to clients.
+Added: Revenue from our Upwork Enterprise offering, which we refer to as Enterprise Revenue, includes all client fees, subscriptions, and talent service fees.
+Added: We also generate marketplace revenue from fees for premium offerings associated with our Upwork Basic, Plus, and Enterprise offerings, including talent memberships, purchases of Connects, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S.
+Added: dollar, and our Upwork Payroll offering.
+Added: Marketplace revenue is the primary driver of our business, and we believe it provides comparability to other online marketplaces.
The growth rate of marketplace revenue fluctuates in relation to the growth rate of GSV.
Therefore, marketplace revenue is correlated to GSV, and we believe that our marketplace revenue will grow as GSV grows, although they could grow at different rates.
−Removed: The COVID-19 pandemic and execution of our strategic initiatives resulted in an increase in client acquisition in the second half of 2020.
−Removed: This increase in client acquisitions drove an increase in freelancer billings, and, in turn, drove an increase in marketplace revenue.
+Added: In 2021, we prioritized our advertising, marketing, and product development efforts to reach those new and existing clients seeking to engage remote talent in light of the acceleration in the shift toward remote work, due in part to the COVID-19 pandemic.
+Added: As a result, we experienced increases in user acquisition and growth in the number of active clients, which drove an increase in talent billings, and, in turn, drove an increase in marketplace revenue.
We expect our marketplace revenue growth rates to continue to vary from period to period due to a variety of other factors such as the impact of the COVID-19 pandemic and any resulting macroeconomic impact on the businesses and spending behavior of our current and prospective clients;
−Removed: the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) or the number of Mondays (i.e., the day we bill and recognize revenue for a substantial portion of our client fees each week) in any given quarter;
+Added: the number of Sundays (i.e., the day we have the contractual right to bill and recognize revenue for the majority of our talent service fees each week) or the number of Mondays (i.e., the day we have the contractual right to bill and recognize revenue for a substantial portion of our client fees each week) in any given quarter;
the lapping of significant launches of new products, pricing changes, and other monetization efforts;
−Removed: the performance of client spend retention;
+Added: the number of active clients and their spend on our work marketplace;
and the ability of the recent and continued investment in our enterprise sales team to accelerate the acquisition of, and achieve increased spend from, Upwork Enterprise clients, and the timing of those results.
Marketplace Take Rate
−Removed: Marketplace take rate measures the correlation between marketplace revenue and GSV and is calculated by dividing marketplace revenue by marketplace GSV.
−Removed: Marketplace take rate is an important metric because it is the key indicator of how well we monetize spend on our work marketplace from our Upwork Basic, Plus, and Enterprise and other premium offerings.
−Removed: During the year ended December 31, 2020, our marketplace take rate increased primarily as a result of an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic and the execution of our strategic initiatives that resulted in an influx of new clients, which caused freelancers to bill at higher rates of our tiered service fee structure, as well as increased client payment processing fees, and other monetization efforts.
−Removed: We expect our marketplace take rate to vary from period to period as marketplace revenue and GSV vary as a result of a variety of factors, such as the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) or the number of Mondays (i.e., the day we bill and recognize revenue for a substantial portion of our client fees each week) in any given quarter;
−Removed: pricing changes;
+Added: Marketplace take rate measures the correlation between marketplace revenue and marketplace GSV and is calculated by dividing marketplace revenue by marketplace GSV.
+Added: Marketplace take rate is an important metric because it is the key indicator of how well we monetize spend on our work marketplace from our Upwork Basic, Plus, Enterprise, and other premium offerings.
+Added: More higher value relationships and higher spend per client results in a larger percentage of business activity on our work marketplace being priced at the lower rates of our tiered service fee structure.
+Added: During the year ended December 31, 2021, our marketplace take rate decreased as clients matured into higher value clients and continue to increase their spend with particular talent, which resulted in a higher mix of talent at the lower rates of our tiered service fee structure.
+Added: Additionally, in the fourth quarter of 2020, to drive GSV, we increased the number of free Connects issued to talent, which drove revenue and GSV but also resulted in talent purchasing fewer Connects and memberships during the year ended December 31, 2021, which resulted in slightly lower revenue as a percentage of GSV during the year ended December 31, 2021.
+Added: On the other hand, we intend to continue our efforts to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs through our Upwork Enterprise and other premium offerings.
+Added: These offerings have take rates that are higher than the rest of our business, which partially offsets the trend of lower rates as relationships and clients mature into higher value clients with increased spend.
+Added: Additionally, we are working on a number of initiatives that could also have a positive impact on marketplace take rate, and we will continue to introduce new or modify existing offerings or other services and features.
+Added: As a result of these efforts, over the course of 2022, we expect marketplace take rate to increase slightly.
+Added: However, we also generally expect our marketplace take rate to vary from period to period as marketplace revenue and GSV vary as a result of a variety of factors, such as the number of Sunday s (i.e., the day we have the contractual right to bill and recognize revenue for the majority of our talent service fees each week) or the number of Mondays (i.e., the day we have the contractual right to bill and recognize revenue for a substantial portion of our client fees each week) in any given quarter;
the ability of the recent and continued investment in our enterprise sales team to accelerate the acquisition of, and achieve increased spend from, our Upwork Enterprise clients and the timing of those results;
and ongoing efforts to improve processes on our work marketplace, including project proposals and purchases of Connects, among others.
−Removed: We believe that the number of core clients is an indicator of our growth and the overall health of our business because core clients are a primary driver of GSV and, therefore, marketplace revenue.
−Removed: We define a core client as a client that has spent in the aggregate at least $5,000 since it began using our work marketplace and also had spend-activity on our work marketplace during the 12 months preceding the date of measurement.
−Removed: We believe that aggregate spend of at least $5,000 indicates that the client is actively using our work marketplace.
−Removed: Historically, these core clients have been more likely to continue using our work marketplace, although we saw a contraction in spend from many core clients during the first half of the second quarter that we believe was a result of the COVID-19 pandemic’s impact on the businesses of these clients.
−Removed: This trend stabilized in the second half of the second quarter of 2020, and then improved throughout the remainder of 2020, as spend from clients increased due to a greater need for remote work resulting from the COVID-19 pandemic.
−Removed: Additionally, we saw an increase in core client acquisitions, as we have seen new clients come to our work marketplace due in part to the increase in remote work resulting from the COVID-19 pandemic and the execution of our strategic initiatives.
−Removed: We continue to see businesses of all sizes use our work marketplace in a recurring way for larger, more complex projects, and we expect the number of core clients to continue to increase over time but could vary quarter by quarter depending, in part, on the extent to which the COVID-19 pandemic and any resulting macroeconomic downturn impacts our business, the businesses of our clients, and other factors identified in the section titled “Risk Factors” included elsewhere in this Annual Report, including the risk factor titled “Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic.
−Removed: In addition, users may reduce their use of our work marketplace following the COVID-19 pandemic.”
−Removed: Client Spend Retention
−Removed: We calculate client spend retention by dividing our recurring client spend by our base client spend.
−Removed: We define base client spend as the aggregate client spend from all clients during the four quarters ended one year prior to the date of measurement.
−Removed: We define our recurring client spend as the aggregate client spend during the four quarters ended on the date of measurement from the same clients included in our measure of base client spend.
−Removed: Our business is recurring in nature even though clients are not contractually required to spend on a recurring basis.
−Removed: We believe that client spend retention is an indicator of the value of our work marketplace and the overall health of our business because it impacts the growth rate of GSV, and, therefore, marketplace revenue.
−Removed: Long-term and recurring use by freelancers and clients are the primary drivers of growth in our marketplace and give us increased revenue visibility.
−Removed: While continued use of our work marketplace by freelancers is a factor that impacts our ability to attract and retain clients, we currently have a significant surplus of freelancers in relation to the number of clients actively engaging freelancers for most categories of services on our work marketplace.
−Removed: As a result of this surplus, we primarily focus our efforts on retaining client spend and acquiring new clients, as opposed to acquiring new freelancers and retaining existing freelancers.
−Removed: Moreover, we generate revenue when clients engage and pay freelancers, and therefore, our key metrics and operating results are directly impacted by client spend.
−Removed: Additionally, the number of freelancers retained between periods is merely one of many factors that may impact client spend in a particular period and is not a primary driver of our key metrics and operating results.
−Removed: As of December 31, 2020 and 2019, client spend retention was 102%.
−Removed: Although the COVID-19 pandemic did not have a material adverse impact on our financial results for the year ended December 31, 2020, we believe the COVID-19 pandemic’s disruption of the business of many of our clients resulted in a temporary reduction in spend from some of those affected clients in the second quarter.
−Removed: Client spend stabilized in the second half of the second quarter, and then improved throughout the remainder of 2020, due to the increased adoption of remote work resulting from the COVID-19 pandemic and execution against our strategic initiatives.
−Removed: This temporary reduction in spend in the second quarter, combined with the acceleration of client spend from existing clients in the second half of 2020, resulted in client spend retention remaining unchanged from 2019.
−Removed: Additionally, client spend retention has declined—from its historically highest levels in 2018 and the first quarter of 2019—following an acceleration in client spend retention that occurred subsequent to the launch of our U.S.-to-U.S.
−Removed: domestic marketplace offering in the second half of 2017, which initiated a substantial increase in the average hourly earnings rate of freelancers.
−Removed: These hourly rates stabilized over the course of 2019, causing the reduction in retention rate.
−Removed: As we acquire more large enterprise, global account, and mid-market clients in current and future periods, we expect them to continue to make positive contributions to our client spend retention in future years.
−Removed: Client spend retention will continue to vary from period to period due to client size and spending behavior, among other factors, including the impact of the ongoing COVID-19 pandemic, the related restrictions intended to prevent its spread, and the resulting macroeconomic downturn on the businesses and spending behavior of our clients.
−Removed: Adjusted EBITDA
−Removed: 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.
−Removed: In 2020, we made significant investments to grow our business, acquire new clients, and drive brand awareness.
−Removed: As a result, our adjusted EBITDA was $14.0 million in 2020, representing an increase of 89% from 2019.
−Removed: Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S.
−Removed: See the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures” above for information on our use of adjusted EBITDA and a reconciliation of net loss to adjusted EBITDA.
+Added: Active Clients and GSV per Active Client
+Added: We define an active client as a client that has had spend activity on our work marketplace during the 12 months preceding the date of measurement.
+Added: GSV per active client is calculated by dividing total GSV during the four quarters ended on the date of measurement by the number of active clients on the date of measurement.
+Added: We believe that the number of active clients and GSV per active client are indicators of the growth and overall health of our business.
+Added: The number of active clients is a primary driver of GSV and, in turn, marketplace revenue.
+Added: In 2021, we continued to execute on our strategic initiatives, including investing in research and development to build new product features and prioritizing our advertising and marketing efforts to drive brand awareness and accelerate the acquisition of new and existing clients seeking to engage independent talent.
+Added: As a result, the number of active clients increased 22% as of December 31, 2021 compared to December 31, 2020.
+Added: Additionally, we have seen continued acceleration in the growth of GSV per active client as an increasing number of clients continue to mature into higher-value clients and expand their spend on our work marketplace.
+Added: As a result, our GSV per active client increased 15% as of December 31, 2021 compared to December 31, 2020.
+Added: We continue to see businesses of all sizes use our work marketplace in a recurring way for larger, more complex projects, and we expect the number of active clients and GSV per active client to continue to increase over time but could vary quarter by quarter depending, in part, on the extent to which the COVID-19 pandemic and any resulting macroeconomic downturn impacts our business, the businesses of our clients, and other factors identified in the section titled “Risk Factors” included elsewhere in this Annual Report, including the risk factor titled “Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic, including as new variants of COVID-19 emerge.
+Added: In addition, the positive impacts on our business resulting from the shift to remote work during the pandemic may not continue as the pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted.”
+Added: While continued use of our work marketplace by talent is a factor that impacts our ability to attract and retain clients, we currently have a significant surplus of talent in relation to the number of clients actively engaging talent for most categories of services on our work marketplace.
+Added: As a result of this surplus, we primarily focus our efforts on retaining client spend and acquiring new clients, as opposed to acquiring new talent and retaining existing talent.
+Added: Moreover, we generate revenue when clients engage and pay talent, and therefore, our key metrics and operating results are directly impacted by client spend.
+Added: Additionally, the number of talent retained between periods is merely one of many factors that may impact client spend in a particular period and is not a primary driver of our key metrics and operating results.
+Added: Cohort Analysis
+Added: Client Spend by Annual Client Cohort
+Added: Our growth has been driven, in significant part, by retaining client spend from existing clients as we grow our client base.
+Added: As illustrated in the chart below, we have been able to retain client spend over long periods of time with clients in historical cohorts continuing to spend meaningfully on our work marketplace.
+Added: A client belongs to an annual cohort based on the date of first spend activity with talent.
+Added: For example, the 2016 cohort includes all clients that had their first spend activity with talent between January 1, 2016 and December 31, 2016.
+Added: Since 2016, each new annual cohort’s first-year spend has exceeded the first-year spend of the prior year’s annual cohort.
+Added: For example, for the
+Added: years ended December 31, 2021, 2020, and 2019, client spend from new client cohorts was $537.9 million, $407.9 million, and $298.8 million, respectively.
Components of Our Results of Operations
Marketplace Revenue.
−Removed: Marketplace revenue is generated from our Upwork Basic, Plus, and Enterprise and other premium offerings.
−Removed: Under these marketplace offerings, we generate revenue from both freelancers and clients.
−Removed: Marketplace revenue, which represents the majority of our total revenue, is primarily comprised of the service fees paid by freelancers as a percentage of the total amount that freelancers charge clients for services accessed through our work marketplace and, to a lesser extent, payment processing and administration fees paid by clients.
−Removed: In the fourth quarter of 2020, we decided that it was no longer cost-effective for our sales team to sell our Upwork Business offering.
−Removed: We do not expect this decision to have a material impact on our marketplace revenue, as we will service those clients that we had previously targeted with our Upwork Business offering with our other marketplace offerings, such as Upwork Basic and Plus.
−Removed: Our Upwork Basic and Plus offerings provide clients with access to freelancers with verified work history and client feedback on our work marketplace, the ability to instantly match with the right freelancers, and built-in collaboration features.
−Removed: For freelancers working with clients that are on our Upwork Basic and Plus offerings, we have a tiered freelancer service fee schedule based on cumulative lifetime billings by the freelancer to each client.
−Removed: Freelancers typically pay us 20% of the first $500, 10% for the next $9,500, and then 5% for any amount over $10,000 they bill to each client through our work marketplace.
−Removed: We recognize revenue on Sunday for the majority of our tiered freelancer service fees each week.
−Removed: To a lesser extent, we also generate revenue from freelancers through membership fees, purchases of Connects, and withdrawal and other fees.
+Added: Marketplace revenue is generated from our Upwork Basic, Plus, Enterprise, and other premium offerings.
+Added: Under these marketplace offerings, we generate revenue from both talent and clients.
+Added: Marketplace revenue, which represents the majority of our total revenue, is primarily comprised of the service fees paid by talent as a percentage of the total amount that talent charge clients for services accessed through our work marketplace and, to a lesser extent, payment processing and administration fees paid by clients.
+Added: Our Upwork Basic and Plus offerings provide clients with access to talent with verified work history and client feedback on our work marketplace, the ability to instantly match with the right talent, and built-in collaboration features.
+Added: For talent working with clients that are on our Upwork Basic and Plus offerings, we have a tiered talent service fee schedule based on cumulative lifetime billings by talent to each client.
+Added: Talent typically pays us 20% of the first $500, 10% for the next $9,500, and then 5% for any amount over $10,000 they bill to each client through our work marketplace.
+Added: We recognize revenue on Sundays of each week for the majority of our tiered talent service fees as that is the day we have the contractual right to bill talent for the service fees.
+Added: To a lesser extent, we also generate revenue from talent through membership fees, purchases of Connects, and withdrawal and other fees.
In addition, we generate marketplace revenue from our Upwork Basic and Plus offerings by charging clients a payment processing and administration fee.
Clients using our Upwork Basic offering pay a fee equal to 3% of their client spend.
−Removed: We recognize revenue on Monday for a substantial portion of our client fees each week.
+Added: We recognize revenue on Mondays of each week for a substantial portion of our client fees as that is the day we have the contractual right to bill the fees.
Clients using our Upwork Plus offering pay a flat fee of approximately $50 per month for additional features and pay a fee equal to 3% of their client spend unless they pay via ACH (in which case, provided all eligibility criteria are met, the fee is waived).
−Removed: To a lesser extent, we also generate revenue from clients through foreign currency exchange fees when clients choose to pay in currencies other than the U.S.
−Removed: Our Upwork Enterprise and other premium offerings, which are designed for larger clients, include access to additional product features, premium access to top freelancers, professional services, custom reporting, and flexible payment terms.
−Removed: For our Upwork Enterprise offering, we charge clients a monthly or annual subscription fee and a service fee calculated as a percentage of the client’s spend on freelancer services, in addition to the service fees paid by freelancers.
−Removed: Additionally, Upwork Enterprise clients can also subscribe to a compliance offering that includes worker classification services for an additional fee and may also choose to use our work marketplace to engage freelancers that were not originally sourced through our work marketplace for a lower fee percentage.
−Removed: One of our premium offerings, Upwork Payroll, is available to clients when freelancers are classified as employees for engagements on our work marketplace.
−Removed: The client enters into an Upwork Payroll agreement with us, and we separately contract
−Removed: with unrelated third-party staffing providers that provide employment services to such clients.
−Removed: Revenue from Upwork Payroll is currently immaterial.
−Removed: The COVID-19 pandemic and the resulting restrictions intended to prevent its spread have accelerated the secular shift toward remote and independent work.
−Removed: In 2020, we continued to identify opportunities to prioritize our advertising and marketing efforts in order to reach those new and existing clients seeking to engage with independent talent due to the COVID-19 pandemic, as well as companies that have already embraced a remote work model.
−Removed: As a result of these efforts, coupled with our execution against strategic initiatives, our 2020 results were fueled by both existing and new clients, who used our work marketplace to address their changing business needs and drove an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue.
−Removed: Although the COVID-19 pandemic did not have a material adverse impact on our financial results for the year ended December 31, 2020, we are continuously evaluating the nature of and extent to which the COVID-19 pandemic will impact our business, operating results, and financial condition.
+Added: To a lesser extent, we also
+Added: generate revenue from clients through foreign currency exchange fees when clients choose to pay in currencies other than the U.S.
+Added: Our Upwork Enterprise offering, which is designed for larger clients with at least 250 employees, includes access to additional product features, premium access to top talent, professional services, custom reporting, and flexible payment terms.
+Added: For our Upwork Enterprise offering, we charge clients a monthly or annual subscription fee and a service fee calculated as a percentage of the client’s spend on talent services, in addition to the service fees paid by talent.
+Added: Additionally, Upwork Enterprise clients can also subscribe to a compliance offering that includes worker classification services for an additional fee and may also choose to use our work marketplace to engage talent that were not originally sourced through our work marketplace for a lower fee percentage.
+Added: One of our premium offerings, Upwork Payroll, is available to clients when talent are classified as employees for engagements on our work marketplace.
+Added: The client enters into an Upwork Payroll agreement with us, and we separately contract with unrelated third-party staffing providers that provide employment services to such clients.
+Added: In 2021, we prioritized our advertising, marketing, and product development efforts to reach those new and existing clients seeking to engage remote talent.
+Added: We intend to continue to focus on these efforts to attract new users, including large enterprise and other clients and prospects with larger, longer-term independent talent needs, as well as talent that meet the criteria sought by such clients.
Managed Services Revenue.
−Removed: Through our managed services offering, we are responsible for providing services and engaging freelancers directly or as employees of third-party staffing providers to perform services for clients on our behalf.
−Removed: The freelancers providing services in connection with our managed services include independent talent and agencies of varying sizes.
+Added: Through our managed services offering, we are responsible for providing services and engaging talent directly or as employees of third-party staffing providers to perform services for clients on our behalf.
+Added: The talent providing services in connection with our managed services include independent talent and agencies of varying sizes.
GAAP, we are deemed to be the principal in these managed services arrangements and therefore recognize the entire GSV of managed services projects as managed services revenue, as compared to recognizing only the percentage of the client spend that we receive, as we do with our marketplace offerings.
−Removed: Managed services revenue grew at a slower rate than our marketplace revenue in 2020 compared to 2019, and we anticipate this trend to continue, as we primarily focus on increasing client usage of and spend on our marketplace offerings.
+Added: Managed services revenue grew at a slower rate than our marketplace revenue in 2021 compared to 2020, as we primarily focused on increasing client usage of and spend on our marketplace offerings during the year ended December 31, 2021.
Cost of Revenue and Gross Profit
Cost of Revenue.
−Removed: Cost of revenue consists primarily of the cost of payment processing fees, amounts paid to freelancers to deliver services for clients under our managed services offering, personnel-related costs for our services and support personnel, third-party hosting fees for our use of AWS, and the amortization expense associated with capitalized internal-use software and platform development costs.
+Added: Cost of revenue consists primarily of the cost of payment processing fees, amounts paid to talent to deliver services for clients under our managed services offering, personnel-related costs for our services and support personnel, third-party hosting fees for our use of AWS, and the amortization expense associated with capitalized internal-use software and platform development costs.
We define personnel-related costs as salaries, bonuses, benefits, travel and entertainment, and stock-based compensation costs for employees and the costs related to other service providers we engage.
−Removed: We expect cost of revenue to increase in absolute dollars in future periods due to higher payment processing fees, third-party hosting fees, and personnel-related costs in order to support growth on our work marketplace.
−Removed: We expect third-party hosting fees to increase in 2021 as we complete our migration from the AWS data centers in California to the AWS data center in Oregon because we will need to use both AWS facilities during the migration period.
−Removed: We plan to complete this migration in the first quarter of 2021.
−Removed: Additionally, we are implementing disaster-relief protocols that will increase third-party hosting costs in future periods.
−Removed: Amounts paid to freelancers in connection with our managed services offering are tied to the volume of managed services used by our clients.
+Added: We expect cost of revenue to increase in absolute dollars in future periods due to higher payment processing fees, personnel-related costs, and third-party hosting fees in order to support growth on our work marketplace.
+Added: Amounts paid to talent in connection with our managed services offering are tied to the volume of managed services used by our clients.
The level and timing of all of these items could fluctuate and affect our cost of revenue in the future.
1 unchanged sentence
Our gross profit and gross margin may fluctuate from period to period.
−Removed: Such fluctuations may be influenced by our revenue, the mix of payment methods that our clients choose, the timing and amount of investments to expand hosting capacity, our continued investments in our services and support teams, the timing and amounts paid to freelancers in connection with our managed services offering, and the amortization expense associated with capitalized internal-use software and platform development costs.
+Added: Such fluctuations may be influenced by our revenue, the mix of payment methods that our clients choose, the timing and amount of investments to expand hosting capacity, our continued investments in our services and support teams, the timing and amounts paid to talent in connection with our managed services offering, and the amortization expense associated with capitalized internal-use software and platform development costs.
In addition, gross margin will be impacted by fluctuations in our revenue mix between marketplace revenue and managed services revenue.
−Removed: For example, our managed services revenue grew at a slower rate than our marketplace revenue in 2020 compared to 2019, and we anticipate this trend to continue, as we primarily focus on increasing client usage of and spend on our marketplace offerings.
−Removed: As a result, we expect gross profit to increase in absolute dollars in future periods, although gross margin, expressed as a percentage of total revenue, may vary from period to period.
+Added: For example, our managed services revenue grew at a slower rate than our marketplace revenue in 2021 compared to 2020, which caused gross margin to increase.
+Added: We expect gross profit to increase in absolute dollars in future periods, although gross margin, expressed as a percentage of total revenue, may vary from period to period.
Operating Expenses
Research and Development.
−Removed: Research and development expense primarily consists of personnel-related costs and third-party hosting costs related to development.
+Added: Research and development expense primarily consists of personnel-related costs.
Research and development costs are expensed as incurred, except to the extent that such costs are associated with internal-use software and platform development that qualifies for capitalization.
−Removed: In 2020, we made significant investments in research and development to build new product features and launch new offerings, and we believe continued investments in research and development are important to attain our strategic objectives.
+Added: In 2021, we made significant investments to build new product features, launch new offerings, and increase the size of our research and development workforce, and we believe continued investments in research and development are important to attain our strategic objectives.
As a result, we expect research and development expense to increase in absolute dollars in future periods, although this expense, expressed as a percentage of total revenue, may vary from period to period.
Sales and Marketing.
−Removed: Sales and marketing expense consists primarily of expenses related to personnel-related costs, including sales commissions, which we expense as they are incurred, and advertising and marketing activities.
−Removed: In 2020, we made significant investments to grow our business, including investments in sales and marketing to acquire new clients and drive
−Removed: brand awareness.
−Removed: However, in the fourth quarter of 2020, we decided that it was no longer cost-effective for our sales team to sell our Upwork Business offering.
−Removed: We do not expect this decision to have a material impact on our marketplace revenue, as we will service those clients that we had previously targeted with our Upwork Business offering with our other marketplace offerings, such as Upwork Basic and Plus.
−Removed: In light of the COVID-19 pandemic and the global macroeconomic downturn and their effect on client spend on our work marketplace, we continue to identify opportunities to prioritize our advertising and marketing efforts in order to reach those new and existing clients seeking to engage with independent talent due to the COVID-19 pandemic, as well as companies that have already embraced a remote work model.
+Added: Sales and marketing expense consists primarily of expenses related to advertising and marketing activities, as well as personnel-related costs, including sales commissions, which we expense as they are incurred.
+Added: In 2021, we continued evolving our offerings, products, brand positioning, and marketing to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs.
+Added: We made significant investments in marketing to acquire new clients and drive brand awareness, and we expect to increase these investments in 2022.
+Added: Additionally, in the fourth quarter of 2021, we began increasing our investment in sales by expanding our sales team, and we expect this expansion to continue through 2022 as we increase our efforts to acquire clients through our Upwork Enterprise offering.
As a result, we expect this expense to increase in absolute dollars in future periods, although this expense expressed as a percentage of total revenue may vary from period to period.
General and Administrative.
−Removed: General and administrative expense consists primarily of personnel-related costs for our executive, finance, legal, human resources, corporate development, and operations functions;
+Added: General and administrative expense consists primarily of personnel-related costs for our executive, finance, legal, human resources, and operations functions;
outside consulting, legal, and accounting services;
+Added: impairment expense;
and insurance.
−Removed: We expect to continue to invest in corporate infrastructure and to incur additional expenses associated with operating as a public company, including increased stock-based compensation expense related to executive compensation arrangements, legal and accounting costs, investor relations costs, insurance premiums, and compliance costs.
−Removed: Additionally, in light of the COVID-19 pandemic and the restrictions intended to prevent its spread, we are evaluating our needs for our current office space, and any reductions to our office space may impact the recoverability of our operating lease asset, which could result in impairment charges being recognized in general and administrative expense.
+Added: To achieve our strategic objectives, we expect to continue to invest in corporate infrastructure and to incur additional general and administrative expenses, including increased stock-based compensation expense related to executive compensation arrangements, legal and accounting costs, insurance premiums, and compliance costs.
+Added: Additionally, in 2020 we shifted to a flexible work model for our workforce and are evaluating our current need for office space.
+Added: As a result, we may determine to either close or sublease certain of our offices, either of which could result in further impairment charges being recognized in general and administrative expense.
As a result, we expect general and administrative expense to increase in absolute dollars in future periods, although this expense, expressed as a percentage of total revenue, may vary from period to period.
7 unchanged sentences
Other (Income) Expense, Net
−Removed: Other (income) expense, net consists primarily of gains and losses from foreign currency exchange transactions, interest income that we earn from our deposits in money market funds and investments in marketable securities, and, prior to October 2018, expenses resulting from the revaluation of our redeemable convertible preferred stock warrant liability.
−Removed: Our redeemable convertible preferred stock warrant was converted to a common stock warrant exercisable for the same number of shares, and our redeemable convertible preferred stock warrant liability was reclassified to additional paid-in capital upon the completion of our IPO in October 2018.
+Added: Other (income) expense, net consists primarily of gains and losses from foreign currency exchange transactions and interest income that we earn from our deposits in money market funds and investments in marketable securities.
Income Tax Benefit (Provision)
−Removed: We account for income taxes in accordance with the liability method.
−Removed: Under the liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
+Added: We account for income taxes in accordance with the asset and liability method.
+Added: Under the asset and liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
The provision for income taxes is comprised of the current tax liability and the change in deferred tax assets and liabilities.
8 unchanged sentences
We recognize potential liabilities based on an estimate of whether, and the extent to which, additional taxes will be due.
−Removed: We account for uncertain tax positions in accordance with the relevant guidance, which prescribes a recognition threshold and measurement approach for uncertain tax positions taken or expected to be taken in our income tax return, and also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
−Removed: guidance utilizes a two-step approach for evaluation of uncertain tax positions.
+Added: We account for uncertain tax positions in accordance with the relevant guidance, which prescribes a recognition threshold and measurement approach for uncertain tax positions taken or expected to be taken in our
+Added: income tax return, and also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
+Added: The guidance utilizes a two-step approach for evaluation of uncertain tax positions.
The first step is to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit.
3 unchanged sentences
Results of Operations
−Removed: The following table sets forth our consolidated results of operations for the years ended December 31, 2020, 2019, and 2018 (in thousands):
−Removed: 2020 2019 2018
+Added: The following table sets forth our consolidated results of operations for the years ended December 31, 2021, 2020, and 2019:
+Added: (In thousands) 2021 2020 2019
Marketplace $ 462,340 $ 338,152 $ 268,284
15 unchanged sentences
Interest expense 2,180 778 1,306
−Removed: Other (income) expense, net (469) (3,407) 6,142
+Added: Other income, net (279) (469) (3,407)
Loss before income taxes (56,118) (22,717) (16,631)
1 unchanged sentence
Net loss $ (56,240) $ (22,867) $ (16,659)
−Removed: (1) Includes stock-based compensation expense as follows (in thousands):
+Added: (1) Includes stock-based compensation expense as follows:
Cost of revenue $ 794 $ 779 $ 456
3 unchanged sentences
Total $ 53,592 $ 25,508 $ 18,798
+Added: A discussion regarding our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operation,” included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 24, 2021.
Comparison of the Years Ended December 31, 2021 and 2020
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2020 2019 $ %
+Added: Year Ended December 31, Change
+Added: (In thousands, except percentages) 2021 2020 $ %
Marketplace $ 462,340 $ 338,152 124,188 37 %
3 unchanged sentences
Total revenue $ 502,797 $ 373,628 $ 129,169 35 %
−Removed: For the year ended December 31, 2020, total revenue was $373.6 million, an increase of $73.1 million, or 24%, as compared to 2019.
+Added: For the year ended December 31, 2021, total revenue was $502.8 million, representing an increase of $129.2 million, or 35%, as compared to 2020.
+Added: In 2021, we continued to execute on our strategic initiatives, including investing in research and development to build new product features, prioritizing our advertising efforts to reach new and existing clients seeking to engage independent talent, and investing in marketing to accelerate the acquisition of new clients and drive brand awareness.
+Added: As a result, the number of active clients increased 22% as of December 31, 2021 compared to December 31, 2020, and our GSV per active client increased 15% as of December 31, 2021 compared to December 31, 2020.
+Added: The growth in active clients and GSV per active client contributed to the growth of GSV and marketplace revenue.
+Added: For the year ended December 31, 2021, GSV increased 41%, as compared to the same period in 2020.
+Added: Marketplace revenue was driven by client spend, which for the year ended December 31, 2021, drove an increase in talent service fees of 36%, as compared to the same period in 2020, and an increase in client payment processing and administrative fees of 42%, as compared to the same period in 2020.
+Added: Additionally, in 2021, we continued our efforts to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs through our Upwork Enterprise and other premium offerings.
+Added: As a result, Enterprise Revenue increased 73% to $34.9 million, which fueled marketplace revenue for the year ended December 31, 2021.
Marketplace revenue represented 92% of total revenue and increased by $124.2 million, or 37%, compared to 2020.
−Removed: Marketplace revenue increased primarily due to an increase in GSV, which grew by 21% in 2020 as compared to 2019, and a 17% increase in the number of core clients as of December 31, 2020 compared to December 31, 2019.
−Removed: We believe these increases in marketplace revenue, GSV, and core clients were primarily due to investments in sales and marketing to accelerate the
−Removed: acquisition of new clients and drive brand awareness, the launch of new offerings such as Upwork Plus, the recent changes made in the pricing and packaging of Connects purchases in 2019, and investments in research and development to build new product features.
−Removed: Additionally, marketplace revenue also increased as a result of an increase in client acquisition that was driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic and execution of our strategic initiatives.
−Removed: This increase in client acquisition, which began in the second quarter of 2020 and accelerated throughout the remainder of the year, continued to drive an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue.
−Removed: Freelancer service fees generated $199.3 million and $168.8 million of marketplace revenue during the years ended December 31, 2020 and 2019, respectively.
−Removed: Client payment processing and administration fees generated $55.2 million and $43.9 million of marketplace revenue during the years ended December 31, 2020 and 2019, respectively.
+Added: Marketplace revenue grew more slowly than GSV from our marketplace offerings in 2021, and for the year ended December 31, 2021, our marketplace take rate was 13.2%, as compared to 13.6% for the same period in 2020.
+Added: This trend was the result of a few factors.
+Added: In particular, clients are maturing into higher value clients and continue to increase their spend with particular talent, which resulted in a higher mix of talent at the lower rates of our tiered service fee structure.
+Added: Additionally, in the fourth quarter of 2020, to drive GSV, we increased the number of free Connects issued to talent, which drove revenue and GSV but also resulted in talent purchasing fewer Connects and memberships during the year ended December 31, 2021, which resulted in slightly lower revenue as a percentage of GSV during the year ended December 31, 2021.
Managed services revenue represented 8% and 9% of total revenue for the years ended December 31, 2021 and 2020, respectively.
−Removed: Managed services revenue increased by $3.2 million, or 10%, for the year ended December 31, 2020 compared to 2019.
+Added: For the year ended December 31, 2021, managed services revenue increased by $5.0 million, or 14%, compared to 2020.
Cost of Revenue and Gross Margin
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2020 2019 $ %
+Added: Year Ended December 31, Change
+Added: (In thousands, except percentages) 2021 2020 $ %
Cost of revenue $ 135,508 $ 104,267 $ 31,241 30 %
Components of cost of revenue:
−Removed: Costs of freelancer services to deliver managed services 28,703 26,763 1,940 7 %
+Added: Costs of talent services to deliver managed services 31,871 28,703 3,168 11 %
Other components of cost of revenue 103,637 75,564 28,073 37 %
1 unchanged sentence
For the year ended December 31, 2021, cost of revenue increased by $31.2 million, or 30%, compared to 2020.
−Removed: The increase was primarily due to a $14.2 million, or 23%, increase in other components of cost of revenue, which was driven by an increase of $7.5 million in payment processing fees due to an increase in client spend on our work marketplace, $2.9 million in third-party hosting costs due to our AWS data center migration and implementation of disaster-relief protocols, $2.0 million in amortization of capitalized platform development costs, and $1.8 million in customer support, software, and other costs.
+Added: For the year ended December 31, 2021, cost of revenue increased primarily as a result of increases in payment processing fees of $23.1 million, as compared to the same period in 2020, primarily due to increased client spend, as well as increases in cost of talent services to deliver managed services resulting from increases in managed services revenue for the year ended December 31, 2021, as compared to the same period in 2020.
+Added: Additionally, for
+Added: the year ended December 31, 2021, third-party hosting costs increased $2.4 million, as compared to the same period in 2020, driven by our use of two AWS data centers during the period in connection with our migration from the AWS facility in California to the AWS facility in Oregon.
Research and Development
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2020 2019 $ %
+Added: Year Ended December 31, Change
+Added: (In thousands, except percentages) 2021 2020 $ %
Research and development $ 119,083 $ 83,471 $ 35,612 43 %
1 unchanged sentence
For the year ended December 31, 2021, research and development expense increased by $35.6 million, or 43%, as compared to 2020.
−Removed: The increase was primarily due to increases in personnel-related costs of $18.6 million, which resulted from investments made to increase the size of our workforce in connection with the execution of our strategic initiatives, and licensed software and other costs of $2.1 million, partially offset by the capitalization of $1.3 million of additional internal-use software and platform development costs.
+Added: The increase was primarily due to our ongoing and significant investments to build new product features, launch new offerings, and enhance the user experience.
+Added: Specifically, investments we made to increase the size of our research and development workforce resulted in increases in personnel-related costs of $26.0 million, as compared to the same period in 2020, as well as increases in software licenses of $2.6 million, outside consultants of $1.5 million, and depreciation and other costs of $3.1 million.
+Added: Additionally, due to the timing of new projects, we capitalized less internal-use software and platform development costs than we did in 2020, when we capitalized an incremental $2.4 million.
Sales and Marketing
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2020 2019 $ %
+Added: Year Ended December 31, Change
+Added: (In thousands, except percentages) 2021 2020 $ %
Sales and marketing $ 183,294 $ 133,225 $ 50,069 38 %
1 unchanged sentence
For the year ended December 31, 2021, sales and marketing expense increased by $50.1 million, or 38%, as compared to 2020.
−Removed: This increase was primarily due to year-over-year increases of $20.3 million in personnel-related costs to expand our enterprise sales team, including sales commissions that we expense as incurred, $15.7 million in marketing and advertising costs due to our efforts to accelerate our acquisition of Upwork Enterprise clients and our ongoing focus on increasing brand awareness, and $1.3 million in amortization of licensed software and facilities-related and other costs resulting from ongoing business growth.
+Added: This increase was primarily due to increases in marketing and brand awareness campaigns of $37.1 million, as compared to the same period in 2020, as well as increases in personnel-related costs of $11.1 million.
General and Administrative
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2020 2019 $ %
+Added: Year Ended December 31, Change
+Added: (In thousands, except percentages) 2021 2020 $ %
General and administrative $ 113,081 $ 71,518 $ 41,563 58 %
1 unchanged sentence
For the year ended December 31, 2021, general and administrative expense increased by $41.6 million, or 58%, as compared to 2020.
−Removed: This increase was primarily due to increases of $5.2 million in personnel-related costs and $0.7 million in outside consulting and other costs, partially offset by reductions in facilities-related and other expenses of $1.7 million.
+Added: This increase was primarily due to increases in personnel-related costs of $29.5 million, as compared to the same period in 2020, primarily because of increased stock-based compensation expense related to executive compensation arrangements.
+Added: In 2021, we incurred impairment charges of $8.7 million related to certain of our operating lease assets and associated property and equipment.
Provision for Transaction Losses
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2020 2019 $ %
+Added: Year Ended December 31, Change
+Added: (In thousands, except percentages) 2021 2020 $ %
Provision for transaction losses $ 6,048 $ 3,555 $ 2,493 70 %
Percentage of total revenue 1 % 1 %
−Removed: For the year ended December 31, 2020, provision for transaction losses decreased by $0.4 million, or 9%, as compared to 2019, and represented approximately 1% of revenue for each period.
−Removed: Interest Expense and Other (Income) Expense, Net
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2020 2019 $ %
+Added: For the year ended December 31, 2021, provision for transaction losses increased by $2.5 million, or 70%, as compared to 2020, and represented approximately 1% of revenue for each period.
+Added: Interest Expense and Other Income, Net
+Added: Year Ended December 31, Change
+Added: (In thousands, except percentages) 2021 2020 $ %
Interest expense $ 2,180 $ 778 $ 1,402 180 %
Other income, net (279) (469) 190 (41) %
−Removed: For the year ended December 31, 2020, interest expense decreased by $0.5 million, as compared to 2019.
−Removed: This resulted from lower balances outstanding on the Term Loans.
−Removed: See “Note 7—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report.
−Removed: For the year ended December 31, 2020, other income, net was $0.5 million, as compared to $3.4 million in 2019, which was primarily driven by lower investment income received from marketable securities of $1.5 million, as well as additional foreign currency exchange losses of $1.4 million from higher volumes of foreign currency transactions resulting from additional foreign currencies added in the second quarter of 2019.
−Removed: Comparison of the Years Ended December 31, 2019 and 2018
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2019 2018 $ %
−Removed: Marketplace $ 268,284 $ 223,831 44,453 20 %
−Removed: Percentage of total revenue 89 % 88 %
−Removed: Managed services $ 32,278 $ 29,523 2,755 9 %
−Removed: Percentage of total revenue 11 % 12 %
−Removed: Total revenue $ 300,562 $ 253,354 $ 47,208 19 %
−Removed: For the year ended December 31, 2019, total revenue was $300.6 million, an increase of $47.2 million, or 19%, as compared to 2018.
−Removed: Marketplace revenue represented 89% of total revenue for 2019, an increase of $44.5 million, or 20%, compared to 2018.
−Removed: Marketplace revenue increased primarily due to an increase in GSV, which grew by 19% in 2019 as compared to 2018.
−Removed: GSV grew primarily driven by an 18% increase in the number of core clients as of December 31, 2019 compared to December 31,
−Removed: We believe these increases in marketplace revenue, GSV, and core clients were primarily due to investments in sales and marketing to acquire new clients and drive brand awareness, the launch of new offerings such as Upwork Plus and Upwork Business, the recent changes made in the pricing and packaging of Connects purchases in 2019, and investments in research and development to build new product features.
−Removed: Freelancer service fees generated $168.8 million and $149.9 million of marketplace revenue during the years ended December 31, 2019 and 2018, respectively.
−Removed: Client payment processing and administration fees generated $43.9 million and $35.5 million of marketplace revenue during the years ended December 31, 2019 and 2018, respectively.
−Removed: Managed services revenue represented 11% and 12% of total revenue for the year ended December 31, 2019 and 2018, respectively.
−Removed: Managed services revenue increased by $2.8 million, or 9%, for the year ended December 31, 2019 compared to 2018, primarily due to an increase in client demand for our managed services offering and a resulting increase in the amount of freelancer services used to deliver our managed services offering.
−Removed: Cost of Revenue and Gross Margin
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2019 2018 $ %
−Removed: Cost of revenue $ 88,144 $ 81,458 $ 6,686 8 %
−Removed: Components of cost of revenue:
−Removed: Costs of freelancer services to deliver managed services 26,763 24,490 2,273 9 %
−Removed: Other components of cost of revenue 61,381 56,968 4,413 8 %
−Removed: Total gross margin 71 % 68 %
−Removed: For the year ended December 31, 2019, cost of revenue increased by $6.7 million, or 8%, compared to 2018.
−Removed: The increase was partially due to a $2.3 million, or 9%, increase in cost of freelancer services to deliver managed services, which was driven by a corresponding increase of $2.8 million in managed services revenue for the year ended December 31, 2019 compared to 2018.
−Removed: In general, the cost of freelancer services to deliver managed services is directly correlated to our managed services revenue.
−Removed: Other components of cost of revenue increased by $4.4 million, which included an increase of $5.8 million in payment processing fees due to an increase in client spend on our work marketplace and $0.9 million in amortization of capitalized platform development costs, partially offset by a $1.7 million reduction in third-party hosting costs due to our migration to AWS and a $0.6 million reduction in personnel-related costs, amortization of licensed software, and other costs.
−Removed: Research and Development
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2019 2018 $ %
−Removed: Research and development $ 64,027 $ 55,488 $ 8,539 15 %
−Removed: Percentage of total revenue 21 % 22 %
−Removed: For the year ended December 31, 2019, research and development expense increased by $8.5 million, or 15%, as compared to 2018.
−Removed: The increase was primarily due to an increase in personnel-related costs of $8.8 million and an increase of $1.7 million in amortization of licensed software, partially offset by the capitalization of $1.3 million of additional internal-use software and platform development costs and a $0.7 million reduction in third-party services and other costs during 2019.
−Removed: Sales and Marketing
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2019 2018 $ %
−Removed: Sales and marketing $ 95,891 $ 72,963 $ 22,928 31 %
−Removed: Percentage of total revenue 32 % 29 %
−Removed: For the year ended December 31, 2019, sales and marketing expense increased by $22.9 million, or 31%, as compared to 2018.
−Removed: This increase was primarily due to year-over-year increases of $13.9 million in marketing and advertising costs due to our ongoing digital marketing and advertising programs and our TV and radio ad campaign that commenced in the second quarter of 2019, $6.1 million in personnel-related costs to build out our enterprise sales team, including sales commissions that we
−Removed: expense as incurred, and $2.9 million in amortization of licensed software, and facilities-related and other costs resulting from ongoing business growth.
−Removed: General and Administrative
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2019 2018 $ %
−Removed: General and administrative $ 67,327 $ 49,336 $ 17,991 36 %
−Removed: Percentage of total revenue 22 % 19 %
−Removed: For the year ended December 31, 2019, general and administrative expense increased by $18.0 million, or 36%, as compared to 2018.
−Removed: This increase was primarily due to increases of $11.3 million in personnel-related costs, which included adding additional personnel primarily within our finance and accounting organization to support our being a public company, $3.0 million in other professional services expenses (including audit, compliance, and legal services), $1.9 million related to increased rent, insurance, and other costs associated with our new office leases, $1.1 million in non-income taxes, and $0.7 million of expense related to our Tides Foundation common stock warrant.
−Removed: Provision for Transaction Losses
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2019 2018 $ %
−Removed: Provision for transaction losses $ 3,905 $ 5,821 $ (1,916) (33) %
−Removed: Percentage of total revenue 1 % 2 %
−Removed: For the year ended December 31, 2019, provision for transaction losses decreased by $1.9 million, or 33%, as compared to 2018.
−Removed: These decreases were mainly due to improved payment collection processes and reducing fraudulent activity on our work marketplace.
−Removed: For the year ended December 31, 2019, provision for transaction losses represented approximately 1% of revenue for the same period.
−Removed: Interest Expense and Other (Income) Expense, Net
−Removed: (in thousands, except percentages) Year Ended December 31, Change
−Removed: 2019 2018 $ %
+Added: For the year ended December 31, 2021, interest expense increased as a result of the issuance of the Notes.
+Added: See “Note 7—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information.
+Added: Non-GAAP Financial Measures
+Added: In addition to our results determined in accordance with U.S.
+Added: GAAP, adjusted EBITDA is a non-GAAP measure that we believe is useful in evaluating our operating performance.
+Added: We define adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense;
+Added: depreciation and amortization;
interest expense;
other (income) expense, net;
−Removed: For the year ended December 31, 2019, interest expense decreased by $0.7 million, as compared to 2018.
−Removed: This resulted from a reduction in the interest rate on our Second Term Loan (as defined below), which was the prime rate plus 5.25% per annum for most of 2018 and was reduced to the prime rate plus 0.25% per annum in October 2018 as a result of our IPO, resulting in a corresponding reduction in interest expense.
−Removed: See “Note 7—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report.
−Removed: For the year ended December 31, 2019, other income, net was $3.4 million, as compared to other expense, net of $6.1 million for the year ended December 31, 2018.
−Removed: During 2019, we received interest income from our cash equivalents and marketable securities of $2.5 million, as compared to $6.1 million of expense we incurred in 2018 related to the revaluation of our redeemable convertible preferred stock warrant liability.
−Removed: Our redeemable convertible preferred stock warrant converted to a common stock warrant exercisable for the same number of shares, and our redeemable convertible preferred stock warrant liability was reclassified to additional paid-in capital upon completion of our IPO.
−Removed: Accordingly, we did not incur this expense during the year ended December 31, 2019, nor will this expense recur in future periods.
−Removed: Quarterly Results of Operations
−Removed: The following tables summarize our selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2020.
−Removed: The information for each of these quarters has been prepared on a basis consistent with our audited financial statements included elsewhere in this Annual Report and, in the opinion of management, includes all adjustments of a normal, recurring nature that are necessary for the fair statement of the results of operations for these periods in accordance with U.S.
−Removed: The data should be read in conjunction with our audited financial statements and notes thereto included elsewhere in this Annual Report.
−Removed: Our historical quarterly results are not necessarily indicative of the results that may be expected for a full year or in any future period.
−Removed: Three Months Ended
−Removed: 2019 June 30,
−Removed: 2019 September 30,
−Removed: 2019 December 31,
−Removed: 2019 March 31,
−Removed: 2020 June 30,
−Removed: 2020 September 30,
−Removed: 2020 December 31,
+Added: income tax (benefit) provision;
+Added: and, if applicable, other non-cash transactions.
+Added: Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S.
+Added: The following table presents a reconciliation of net loss, the most directly comparable financial measure prepared in accordance with U.S.
+Added: GAAP, to adjusted EBITDA for each of the periods indicated:
+Added: Year Ended December 31,
(In thousands) 2021 2020 2019
−Removed: $ 60,455 $ 65,728 $ 69,912 $ 72,189 $ 74,782 $ 78,464 $ 88,040 $ 96,866
−Removed: Managed services
−Removed: 8,021 8,055 8,103 8,099 8,414 9,067 8,708 9,287
−Removed: Total revenue
−Removed: 68,476 73,783 78,015 80,288 83,196 87,531 96,748 106,153
−Removed: Cost of revenue (1)
−Removed: 21,125 21,588 22,494 22,937 23,485 25,408 26,596 28,778
−Removed: 47,351 52,195 55,521 57,351 59,711 62,123 70,152 77,375
−Removed: Operating expenses
−Removed: Research and development (1)
−Removed: 15,800 15,696 16,209 16,322 19,348 20,547 20,833 22,743
−Removed: Sales and marketing (1)
−Removed: 20,518 24,479 25,322 25,572 30,678 34,440 33,577 34,530
−Removed: General and administrative (1)
−Removed: 15,661 14,064 16,468 21,134 17,824 17,102 18,047 18,545
−Removed: Provision for transaction losses 637 855 1,214 1,199 912 1,018 724 901
−Removed: Total operating expenses 52,616 55,094 59,213 64,227 68,762 73,107 73,181 76,719
−Removed: Income (loss) from operations (5,265) (2,899) (3,692) (6,876) (9,051) (10,984) (3,029) 656
+Added: Net loss $ (56,240) $ (22,867) $ (16,659)
+Added: Add back (deduct):
+Added: Stock-based compensation expense 53,592 25,508 18,798
+Added: Depreciation and amortization 10,261 10,172 6,661
Interest expense 2,180 778 1,306
−Removed: Other (income) expense, net (479) (832) (462) (1,634) 731 (248) (452) (500)
−Removed: Income (loss) before income taxes (5,159) (2,424) (3,547) (5,501) (10,012) (10,994) (2,729) 1,018
+Added: Other income, net (279) (469) (3,407)
Income tax provision 122 150 28
−Removed: Net income (loss) $ (5,160) $ (2,451) $ (3,547) $ (5,501) $ (10,021) $ (11,024) $ (2,747) $ 925
−Removed: Net income (loss) per share, basic and diluted $ (0.05) $ (0.02) $ (0.03) $ (0.05) $ (0.09) $ (0.09) $ (0.02) $ 0.01
−Removed: Weighted-average shares used to compute net income (loss) per share, basic and diluted 106,639 108,683 111,163 112,690 114,119 116,524 120,681 123,398
−Removed: (1) Includes stock-based compensation expense as follows (in thousands):
−Removed: Cost of revenue $ 144 $ 73 $ 109 $ 130 $ 174 $ 202 $ 203 $ 200
−Removed: Research and development 1,380 1,686 1,503 1,902 1,950 2,769 2,567 2,497
−Removed: Sales and marketing 642 583 635 749 928 1,312 1,212 988
−Removed: General and administrative 2,129 289 1,685 5,159 2,485 2,851 2,874 2,296
−Removed: $ 4,295 $ 2,631 $ 3,932 $ 7,940 $ 5,537 $ 7,134 $ 6,856 $ 5,981
−Removed: The following table sets forth our unaudited quarterly consolidated results of operations data for each of the periods indicated as a percentage of total revenue:
−Removed: Three Months Ended
−Removed: 2019 June 30,
−Removed: 2019 September 30,
−Removed: 2019 December 31,
−Removed: 2019 March 31,
−Removed: 2020 June 30,
−Removed: 2020 September 30,
−Removed: 2020 December 31,
−Removed: Marketplace 88 % 89 % 90 % 90 % 90 % 90 % 91 % 91 %
−Removed: Managed services 12 11 10 10 10 10 9 9
−Removed: Total revenue 100 100 100 100 100 100 100 100
−Removed: Cost of revenue 31 29 29 29 28 29 27 27
−Removed: Gross profit 69 71 71 71 72 71 73 73
−Removed: Operating expenses
−Removed: Research and development 23 21 21 20 23 23 22 21
−Removed: Sales and marketing 30 33 32 32 37 39 35 33
−Removed: General and administrative 23 19 21 26 21 20 19 17
−Removed: Provision for transaction losses 1 1 2 1 1 1 1 1
−Removed: Total operating expenses 77 75 76 80 83 84 76 72
−Removed: Income (loss) from operations (8) (4) (5) (9) (11) (13) (3) 1
+Added: Tides Foundation common stock warrant expense 750 750 711
+Added: Impairment expense 8,741 — —
+Added: Adjusted EBITDA $ 19,127 $ 14,022 $ 7,438
+Added: We use adjusted EBITDA as a measure of operational efficiency.
+Added: 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:
+Added: • 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;
+Added: depreciation and amortization;
interest expense;
other (income) expense, net;
−Removed: Income (loss) before income tax (8) (3) (5) (7) (12) (13) (3) 1
−Removed: Income tax — — — — — — — —
−Removed: Net income (loss) (8) % (3) % (5) % (7) % (12) % (13) % (3) % 1 %
+Added: income tax (benefit) provision;
+Added: 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;
+Added: • our management uses adjusted EBITDA in conjunction with financial measures prepared in accordance with U.S.
+Added: 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;
+Added: • 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.
+Added: GAAP results.
+Added: 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.
+Added: Some of these limitations are as follows:
+Added: • 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;
+Added: • 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;
+Added: • adjusted EBITDA does not reflect:
+Added: (a) changes in, or cash requirements for, our working capital needs;
+Added: (b) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us;
+Added: or (c) tax payments that may represent a reduction in cash available to us;
+Added: • 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.
+Added: 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.
Liquidity and Capital Resources
−Removed: Our principal sources of liquidity are our cash and cash equivalents, marketable securities, and amounts available for borrowing under the Loan Agreement referred to below under “—Term and Revolving Loans.” In August 2020, we entered into an 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 us from borrowing funds under the revolving line of credit in an amount that exceeded a specified percentage of eligible trade and client accounts receivable.
−Removed: Our cash equivalents and marketable securities primarily consist of commercial paper, treasury bills, and U.S.
−Removed: government securities.
+Added: Our principal sources of liquidity are our cash and cash equivalents and marketable securities, including the net proceeds from the sale of the Notes.
+Added: Our cash equivalents and marketable securities primarily consist of money market funds, commercial paper, treasury bills, corporate bonds, U.S.
+Added: government securities, asset-backed securities, and Yankee bonds.
As of December 31, 2021 and 2020, we had $187.2 million and $94.1 million in cash and cash equivalents, respectively.
As of December 31, 2021 and 2020, we had $497.6 million and $75.6 million in marketable securities, respectively.
−Removed: We believe our existing cash and cash equivalents, marketable securities, cash flow from operations (in periods in which we generate cash flow from operations), and amounts available for borrowing under the Loan Agreement will be sufficient to meet our working capital requirements for at least the next 12 months.
−Removed: To the extent existing cash and cash equivalents, cash from marketable securities, cash from operations (in periods in which we generate cash flow from operations), and amounts available for borrowing under the Loan Agreement are insufficient to fund our working capital requirements, or should we require additional cash for other purposes, we will need to raise additional funds.
−Removed: In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements.
+Added: We believe our existing cash and cash equivalents, marketable securities, and cash flow from operations (in periods in which we generate cash flow from operations) will be sufficient for at least the next 12 months to meet our requirements and plans for cash, including meeting our working capital requirements and capital expenditure requirements.
+Added: In the long term, our ability to support our working capital and capital expenditure requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from users, the expansion of sales and marketing activities, the timing and extent of spending to support research and development efforts, the cost to host our work marketplace, the introduction of new offerings and services, the continuing market adoption of our work marketplace, any acquisitions or investments that we make in complementary businesses, products, and technologies and our ability to obtain equity or debt financing.
+Added: Our principal commitments consist of obligations under our non-cancellable operating leases for office space and the Notes.
+Added: As of December 31, 2021, our future lease commitments were $26.5 million (excluding adjustments for discount to present value), including $6.6 million for 2022.
+Added: For additional information about our Notes, see the section titled “—Convertible Senior Notes Due 2026.”
+Added: We anticipate satisfying our short-term cash requirements with our existing cash and cash equivalents and may satisfy our long-term cash requirements with cash and cash equivalents on hand or with proceeds from a future equity or debt financing.
+Added: To the extent existing cash and cash equivalents, cash from marketable securities, and cash from operations (in periods in which we generate cash flow from operations) are insufficient to fund our working capital and capital expenditure requirements, or should we require additional cash for other purposes, we will need to raise additional funds.
+Added: In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements, as we did in the third quarter of 2021.
If we raise additional funds by issuing equity or equity-linked securities, the ownership and economic interests of our existing stockholders will be diluted.
3 unchanged sentences
The inability to raise additional capital as and when required would have an adverse effect, which could be material, on our results of operations, financial condition, and ability to achieve our business objectives.
−Removed: We also believe that our principal sources of liquidity will allow us to manage the impact of the COVID-19 pandemic on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from users, as
−Removed: further described above in “Risk Factors—Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic.
−Removed: In addition, users may reduce their use of our work marketplace following the COVID-19 pandemic.” The challenges posed by the COVID-19 pandemic on our business are expected to continue to evolve.
−Removed: Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the COVID-19 pandemic.
+Added: We also believe that our principal sources of liquidity will allow us to manage the impact of the COVID-19 pandemic on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from users, as further described above in “Risk Factors—Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic, including as new variants of COVID-19 emerge.
+Added: In addition, the positive impacts on our business resulting from the shift to remote work during the pandemic may not continue as the pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted.” The challenges posed by the COVID-19 pandemic on our business are expected to continue to evolve.
+Added: Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the pandemic.
+Added: We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
Escrow Funding Requirements
−Removed: As a licensed internet escrow agent, we offer escrow services to users of our work marketplace and, as such, we are required to hold our users’ escrowed cash and in-transit cash in trust as an asset and record a corresponding liability for escrow funds held on behalf of freelancers and clients on our balance sheet.
+Added: As a licensed internet escrow agent, we offer escrow services to users of our work marketplace and, as such, we are required to hold our users’ escrowed cash and in-transit cash in trust as an asset and record a corresponding liability for escrow funds held on behalf of talent and clients on our balance sheet.
We expect the balances of our funds held in escrow, including funds held in transit, and the related liability to grow as GSV grows and may vary from period to period.
Escrow regulations require us to fund the trust with our operating cash to cover shortages due to the timing of cash receipts from clients for completed hourly billings.
−Removed: Freelancers submit their billings for hourly contracts to their clients on a weekly basis every Sunday, and the aggregate amount of such billings is added to escrow funds payable to freelancers on the same day.
−Removed: As of Sunday each week, we have not yet collected funds for hourly billings from clients as these funds are in transit.
+Added: Talent submit their billings for hourly contracts to their clients on a weekly basis every Sunday, and the aggregate amount of such billings is added to escrow funds payable to talent on the same day.
+Added: As of each Sunday of each week, we have not yet collected funds for hourly billings from clients as these funds are in transit.
Therefore, in order to satisfy escrow funding requirements, every Sunday we fund the shortage of cash in trust with our own operating cash and typically collect this cash shortage from clients within the next several days.
1 unchanged sentence
As of December 31, 2021 and 2020, funds held in escrow, including funds in transit, were $160.8 million and $135.0 million, respectively.
−Removed: To the extent we have not yet collected funds for hourly billings from clients which are in transit due to timing differences in receipt of cash from clients and payments of cash to freelancers, we may, from time to time, utilize the revolving line of credit under our Loan Agreement to satisfy escrow funding requirements.
−Removed: We drew down $25.0 million under the revolving line of credit for such purpose in each of March and June 2019, which we subsequently repaid in April and July 2019, respectively.
−Removed: We drew down $15.0 million under the revolving line of credit for the same purpose in September 2018, which we subsequently repaid in October 2018.
Term and Revolving Loans
−Removed: Under our 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 we refer to as the First Term Loan, a term loan in the original principal amount of $9.0 million, which we refer 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.
−Removed: The First Term Loan matures in March 2022, and the Second Term Loan and revolving line of credit mature in September 2022.
−Removed: All borrowings under the Loan Agreement bear interest at floating rates, and, therefore, our borrowing costs are affected by changes in market interest rates.
−Removed: Specifically, the First Term Loan bears interest at the prime rate plus 0.25% per annum and has a repayment term of 18 months of interest-only payments that ended in March 2019, followed by equal monthly installments of principal plus interest until the maturity in March 2022.
−Removed: Accordingly, we commenced repayment of the First Term Loan in April 2019.
−Removed: For the years ended December 31, 2020 and 2019, we repaid $5.0 million and $3.8 million of principal of the First Term Loan, respectively.
−Removed: In September 2018, we entered into a second amendment to the Loan Agreement, which, among other changes, 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 us with net proceeds of more than $50.0 million.
−Removed: This reduction became effective following the completion of our IPO in October 2018.
−Removed: The Second Term Loan has a repayment term of 17 months of interest-only payments that ended in March 2019, followed by equal monthly installments of principal plus interest until the maturity in September 2022.
−Removed: Accordingly, we commenced repayment of the Second Term Loan in April 2019.
−Removed: For the years ended December 31, 2020 and 2019, we repaid $2.6 million and $1.9 million of principal of the Second Term Loan, respectively.
−Removed: In March 2019, we entered into the third amendment to the Loan Agreement, which, among other changes, (i) amended the adjusted quick ratio financial covenant to provide that we will maintain an adjusted quick ratio of 1.75 to 1.00 (previously 1.30 to 1.00), (ii) reduced the frequency with which we are required to provide certain financial information to the lender during periods in which we maintain an adjusted quick ratio of 2.50 to 1.00, and (iii) eliminated the minimum EBITDA covenant with which we were required to comply.
−Removed: In August 2020, we entered into the fourth amendment to the Loan Agreement, which, 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 us from borrowing funds under the revolving line of credit in an amount that exceeded a specified percentage of eligible trade and client accounts receivable.
−Removed: The revolving line of credit bears interest at the prime rate with accrued interest due monthly.
−Removed: As a result of the uncertainty caused by the COVID-19 pandemic, we drew down $15.0 million and $3.0 million under the revolving line of credit in March and April 2020, respectively, both of which we subsequently repaid in full in May
−Removed: Additionally, as described above under “—Escrow Funding Requirements,” to the extent we have not yet collected funds for hourly billings from clients that are in-transit due to timing differences in receipt of cash from clients, we may utilize the revolving line of credit to satisfy escrow funding requirements.
−Removed: In each of March and June 2019, we drew down $25.0 million under the revolving line of credit for such purpose, which we subsequently repaid in April and July 2019, respectively.
−Removed: We drew down $15.0 million under the revolving line of credit for such purpose in September 2018, which we subsequently repaid in October 2018.
−Removed: For further information, see “Note 7—Debt” in the notes to our consolidated financial statements included elsewhere in this Annual Report.
−Removed: Our obligations under the Loan Agreement are secured by first priority liens on substantially all of our assets excluding our intellectual property (but including proceeds therefrom) and the funds and assets held by our subsidiary Upwork Escrow Inc.
−Removed: The Loan Agreement prohibits us from pledging our intellectual property.
−Removed: The Loan Agreement also includes a restriction on dividend payments, other than dividends payable solely in common stock.
−Removed: The Loan Agreement contains affirmative covenants, including a covenant requiring that we maintain an adjusted quick ratio, and also contains certain non-financial covenants.
−Removed: We were in compliance with our covenants under the Loan Agreement as of December 31, 2020 and 2019.
−Removed: As of December 31, 2020, we had $10.8 million outstanding pursuant to the Term Loans and no borrowings outstanding under the revolving line of credit.
−Removed: As of December 31, 2019, we had $18.3 million outstanding pursuant to the Term Loans and no borrowings outstanding under the revolving line of credit.
−Removed: The following table summarizes our cash flows for the years ended December 31, 2020, 2019, and 2018 (in thousands):
−Removed: 2020 2019 2018
+Added: In August 2021, in connection with our issuance of the Notes, we paid off outstanding amounts under, and terminated, our loan and security agreement with Silicon Valley Bank, as amended, which we refer to as the Loan Agreement.
+Added: Convertible Senior Notes Due 2026
+Added: In August 2021, we issued the Notes pursuant to an Indenture between us and Wells Fargo Bank, National Association, as trustee, which we refer to as the Indenture.
+Added: The Notes are senior, unsecured obligations and will bear interest at a rate of 0.25% per year, payable semiannually in arrears, and are due August 15, 2026.
+Added: Upon conversion, we have an option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock.
+Added: The net proceeds from the issuance of the Notes were approximately $560.1 million, after deducting debt issuance costs.
+Added: We used approximately $49.4 million of the net proceeds from the Notes offering to pay the cost of the Capped Calls.
+Added: We intend to use the remainder of the net proceeds from the offering for general corporate purposes, including marketing, brand awareness and sales, and which may include working capital, capital expenditures, and investments in and acquisitions of other companies, products or technologies that we may identify in the future.
+Added: See “Note 7—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information regarding the Notes.
+Added: In connection with the issuance of the Notes, we entered into the Capped Calls.
+Added: The Capped Calls are expected generally to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price.
+Added: The initial cap price of the Capped Calls is $92.74 per share of common stock, subject to certain customary adjustments under the terms of the Capped Calls.
+Added: See “Note 7—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information regarding the Notes and the Capped Calls.
+Added: The following table summarizes our cash flows for the years ended December 31, 2021, 2020, and 2019:
+Added: (In thousands) 2021 2020 2019
Net cash provided by operating activities $ 10,836 $ 22,365 $ 1,058
1 unchanged sentence
Net cash provided by financing activities 537,739 54,641 29,402
−Removed: Net increase (decrease) in cash, cash equivalents, and restricted cash $ 72,860 $ (70,464) $ 118,968
+Added: Net change in cash, cash equivalents, and restricted cash (1)
+Added: $ 119,595 $ 72,860 $ (70,464)
+Added: (1) Includes increases in funds held in escrow, including funds in transit of $25.8 million, $26.3 million, and $10.5 million during the years ended December 31, 2021, 2020, and 2019, respectively.
Operating Activities
Our largest source of cash from operating activities is revenue generated from our work marketplace.
−Removed: Our primary uses of cash from operating activities are for personnel-related expenditures, marketing activities, including advertising, payment processing fees, amounts paid to freelancers to deliver services for clients under our managed services offering, and third-party hosting costs.
+Added: Our primary uses of cash from operating activities are for personnel-related expenditures, marketing activities, including advertising, payment processing fees, amounts paid to talent to deliver services for clients under our managed services offering, and third-party hosting costs.
In addition, because we are licensed as an internet escrow agent, our total cash and cash provided by operating activities may be impacted by the timing of the end of our fiscal quarter as discussed in the section titled “—Liquidity and Capital Resources—Escrow Funding Requirements.”
+Added: Net cash provided by operating activities during 2021 was $10.8 million, which resulted from non-cash charges of $83.5 million, offset by a net loss of $56.2 million and net cash outflows of $16.5 million from changes in operating assets and liabilities.
+Added: The change in operating assets and liabilities primarily resulted from the increase in trade and client receivables.
+Added: Due to fluctuations in revenue and the number of transactions on our platform, coupled with fluctuations in the timing of cash receipts from clients, our trade and client receivables will likely continue to fluctuate in the future.
Net cash provided by operating activities during 2020 was $22.4 million, which resulted from non-cash charges of $43.0 million and net cash inflows of $2.2 million from changes in operating assets and liabilities, offset by a net loss of $22.9 million.
The change in operating assets and liabilities primarily resulted from changes in trade and client receivables, accrued expenses, and other current and long-term liabilities.
−Removed: Due to fluctuations in revenue and the number of transactions on our work marketplace, coupled with fluctuations in the timing of cash receipts and payments, our operating assets and liabilities will likely continue to fluctuate in the future.
Net cash provided by operating activities during 2019 was $1.1 million, which resulted from non-cash charges of $32.2 million, offset by a net loss of $16.7 million and net cash outflows of $14.4 million from changes in operating assets and liabilities.
The change in operating assets and liabilities primarily resulted from the increase in trade and client receivables of $10.9 million.
−Removed: Net cash provided by operating activities during 2018 was $13.7 million, which resulted from a net loss of $19.9 million, offset by non-cash charges of $10.4 million for stock-based compensation, $4.9 million for depreciation and amortization, $6.1 million and $0.2 million related to the change in fair value of our redeemable convertible preferred stock warrant liability and expense related to our Tides Foundation common stock warrant, respectively, $5.1 million for provision for transaction losses, $0.2 million for amortization of debt issuance costs and loss on disposal of fixed assets, and net cash inflows of $6.7 million from changes in operating assets and liabilities.
−Removed: The changes in operating assets and liabilities included cash inflows of $3.5 million resulting from a decrease in trade and client receivables due to the timing of collections year-over-year.
−Removed: Additionally, changes in accounts payable and accrued expenses and other liabilities generated cash inflows of $1.6 million and $2.9 million, respectively.
−Removed: These cash inflows were partially offset by $1.3 million related to cash spent on prepaid expenses and other assets.
Investing Activities
+Added: Net cash used in investing activities during 2021 was $429.0 million, which was primarily a result of investing $525.3 million in various marketable securities, as well as $5.1 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of $1.0 million, partially offset by proceeds from maturities of marketable securities of $102.5 million.
Net cash used in investing activities during 2020 was $4.1 million, which was primarily a result of investing $107.3 million in various marketable securities during 2020, as well as $8.0 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of $6.3 million primarily for leasehold improvements and furniture related to our office lease in Chicago, Illinois.
2 unchanged sentences
These uses of cash were partially offset by proceeds from maturities of marketable securities of $84.5 million.
−Removed: Net cash used in investing activities during 2018 was $6.8 million, which resulted from capitalized internal-use software and platform development costs of $3.8 million and purchases of property and equipment of $3.0 million primarily for leasehold improvements and furniture.
Financing Activities
+Added: Net cash provided by financing activities during 2021 was $537.7 million, which resulted primarily from proceeds from the Notes, net of debt issuance costs of $560.1 million, an increase in escrow funds payable of $25.8 million,
+Added: cash received from stock option exercises of $7.2 million, and proceeds received from our employee stock purchase plan of $4.8 million, partially offset by purchases of the Capped Calls of $49.4 million and repayments of borrowings on debt of $10.8 million.
Net cash provided by financing activities during 2020 was $54.6 million, which resulted primarily from cash received from stock option exercises of $31.0 million, proceeds from our employee stock purchase program of $4.9 million, and an increase in escrow funds payable of $26.3 million, partially offset by net repayments of debt of $7.6 million.
Net cash provided by financing activities during 2019 was $29.4 million, which resulted primarily from cash received from stock option exercises of $18.2 million, proceeds from our employee stock purchase program of $6.4 million, and an increase in escrow funds payable of $10.5 million, partially offset by net repayments of debt of $5.7 million.
−Removed: Net cash provided by financing activities during 2018 was $112.1 million, which was primarily due to proceeds received from our IPO, net of underwriting discounts and commissions, of $109.4 million, cash received from the exercise of stock options and common stock warrants of $8.2 million, and an increase in escrow funds payable of $10.9 million, partially offset by net repayments of debt of $10.0 million, payments of taxes related to net share settlements of $0.2 million, and the payment of costs related to our IPO of $6.2 million.
−Removed: Obligations and Other Commitments
−Removed: Our principal commitments consist of obligations under our non-cancellable operating leases for office space and the Loan Agreement.
−Removed: The following table summarizes our contractual obligations as of December 31, 2020 (in thousands):
−Removed: Total Less than
−Removed: 1 Year 1 - 3 Years 3 - 5 Years More Than
−Removed: Debt principal 10,750 7,571 3,179 — —
−Removed: Total contractual obligations $ 43,656 $ 13,976 $ 16,544 $ 8,199 $ 4,937
−Removed: (1) Represents minimum operating lease payments under operating leases for office facilities, excluding potential lease renewals and tenant improvement allowances.
−Removed: In the ordinary course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification.
−Removed: In addition, we have entered into indemnification agreements with our directors and executive officers and certain key employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as our directors, executive officers, or employees.
−Removed: The terms of such obligations may vary.
−Removed: To date, we have not paid any material claims or been required to defend any actions related to our indemnification obligations.
−Removed: As of December 31, 2020 and 2019, we had accrued liabilities related to uncertain non-income tax positions based on management’s best estimate of its liability, which are reflected on our consolidated balance sheet.
−Removed: We could be subject to examination in various jurisdictions related to income and non-income tax matters.
−Removed: The resolution of these types of matters, giving recognition to the recorded reserve, could have an adverse impact on our business.
−Removed: Additionally, in light of the COVID-19 pandemic and the restrictions intended to prevent its spread, we are evaluating our needs for our current office space.
−Removed: We may determine to either close or sublease certain of our offices, either of which may impact the recoverability of our operating lease asset, which could result in impairment charges being recognized in general and administrative expense.
−Removed: Off-Balance Sheet Arrangements
−Removed: As of December 31, 2020, we did not have any relationships with other entities or financial partnerships such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
4 unchanged sentences
Certain of our accounting policies require higher degrees of judgement than others in their application.
−Removed: These include certain aspects of accounting for revenue recognition, goodwill, internal-use software and platform development costs, stock-based compensation, and income taxes.
+Added: These include certain aspects of accounting for revenue recognition, stock-based compensation, and income taxes.
Revenue Recognition
−Removed: We primarily generate revenue from freelancers and clients from marketplace and managed service offerings.
+Added: We primarily generate revenue from talent and clients from marketplace and managed service offerings.
We account for revenue in accordance with Topic 606, which we adopted on December 31, 2019 effective as of January 1, 2019 using the modified retrospective method.
1 unchanged sentence
Determining the method and amount of revenue to recognize requires management to make judgments and estimates.
−Removed: Other judgements include determining whether to present revenue gross, as a principal, or net, as an agent, and certain aspects of applying Topic 606 to our arrangements with freelancers subject to tiered service fees.
−Removed: We apply judgement in the application of the portfolio approach practical expedient to our arrangements with freelancers subject to tiered service fees, 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.
+Added: Judgments include determining whether to present revenue gross, as a principal, or net, as an agent, which is based on an evaluation of whether we control the service prior to it being transferred to the client, and certain aspects of applying Topic 606 to our arrangements with talent subject to tiered service fees.
+Added: We apply judgement in the application of the portfolio approach practical expedient to our arrangements with talent subject to tiered service fees, 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 applies judgement in assessing the continued appropriateness for the estimates, which include assessing the continued appropriateness of the 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.
1 unchanged sentence
We recognize revenue related to the material rights based on our estimate of when the material rights are exercised, and adjust revenue for changes in estimates in the period of change on a cumulative catch-up basis.
−Removed: Goodwill is not amortized, but is assessed for impairment at least annually, or more frequently if events or changes in circumstances indicate the goodwill may be impaired.
−Removed: For purposes of performing the impairment tests, we identify reporting units in accordance with U.S.
−Removed: The identification of reporting units requires management judgment.
−Removed: We conduct our annual assessment during the fourth quarter of each calendar year based on a single reporting unit structure.
−Removed: We have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
−Removed: If, after assessing the totality of events or circumstances, we determine it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not required.
−Removed: However, if we conclude otherwise, then we are required to perform a quantitative test.
−Removed: We compare the carrying value of the reporting unit to its estimated fair value, and if the fair value is determined to be less than the carrying value, we recognize an impairment loss for the difference.
−Removed: For 2020, 2019, and 2018, we conducted our goodwill impairment testing by performing the quantitative test of the impairment model.
−Removed: The fair value was determined by us using quoted market prices of our common stock.
−Removed: We determined that the fair value of our reporting unit exceeded the net book value of our reporting unit, and as such, we concluded that there was no impairment of goodwill at the impairment testing date.
−Removed: Internal-Use Software and Platform Development Costs
−Removed: We capitalize certain internal-use software and platform development costs associated with creating and enhancing internal-use software related to our software platform and technology infrastructure.
−Removed: Once a project is substantially complete and the software and technologies are ready for their intended purpose, capitalization ends and amortization commences.
−Removed: Internal-use software and platform development costs are amortized using a straight-line method over the estimated useful life, and the determination of the estimated useful life requires management judgment.
Stock-Based Compensation
−Removed: We measure and recognize compensation expense for all stock-based awards granted to service providers, including stock options, RSUs, and purchase rights granted under our 2018 Employee Stock Purchase Plan, which we refer to as the 2018 ESPP, based on the estimated fair value of the award on the grant date.
+Added: We measure and recognize compensation expense for all stock-based awards granted to service providers, including stock options, RSUs, performance stock units, which we refer to as PSUs, and purchase rights granted under our 2018 Employee Stock Purchase Plan, which we refer to as the 2018 ESPP, based on the estimated fair value of the award on the grant date.
We calculate the estimated fair value of stock options and purchase rights granted under the 2018 ESPP on the date of grant using the Black-Scholes option pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to, the expected dividend yield, the expected term of the awards, the risk-free interest rates, and the expected common stock price volatility over the term of the option awards.
−Removed: Prior to our IPO, the estimated fair value of our common stock was determined by our board of directors, and had been based in part upon contemporaneous valuations performed at periodic intervals by unrelated third-party specialists.
−Removed: Because there had been no public market for our common stock, our board of directors considered this independent valuation and other factors, including, but not limited to, our actual operating and financial performance, the current status of the technical and commercial success of our operations, our financial condition, the stage of development, and competition to establish the fair value of our common stock at the time of grant of stock options.
−Removed: Following our IPO, we use the quoted market price of our common stock as reported on The Nasdaq Global Select Market for the fair value of RSUs and stock options and purchase rights under our 2018 ESPP.
+Added: The fair value and derived service period of stock options with market-based conditions is estimated using the Monte Carlo valuation model.
+Added: We evaluate the assumptions used to value option awards upon each grant of stock options.
+Added: The grant date fair value of PSUs is determined using the closing common stock price of our common stock on the grant date multiplied by the number of PSUs that are probable of being earned as of the grant date.
+Added: We use the quoted market price of our common stock as reported on The Nasdaq Global Select Market for the fair value of RSUs, PSUs, stock options, and purchase rights under our 2018 ESPP.
We generally recognize the fair value of stock options and RSUs on a straight-line basis over the period during which a service provider is required to provide services in exchange for the award (generally the vesting period).
−Removed: We recognize the fair value of purchase rights granted under the 2018 ESPP as an expense on a straight-line basis over the offering period and account for forfeitures as they occur.
+Added: We recognize the fair value of purchase rights granted under the 2018 ESPP as an expense on a straight-line basis over the offering period and
+Added: account for forfeitures as they occur.
+Added: Stock-based compensation expense associated with service- and market-based stock options is recognized over the longer of the expected achievement period for the service condition and market condition.
+Added: Stock-based compensation expense associated with PSUs is recognized over the longer of the expected achievement period for the performance condition and the service condition.
We utilize the asset and liability method under which deferred tax assets and liabilities arise from the temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards.
1 unchanged sentence
A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
+Added: In determining the need for a valuation allowance, we assess, among other things, the historical levels of income and various sources of taxable income.
We regularly review our tax positions and benefits to be realized.
5 unchanged sentences
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.