What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-15 · 147 added, 125 removed, 355 unchanged (43% of the section changed)

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Independent talent is an increasingly sought-after, critical, and expanding segment of the global workforce.

We operate the world’s largest work marketplace that connects businesses with independent talent, as measured by GSV.

We operate the world’s largest work marketplace that connects businesses with independent talent from across the globe, as measured by GSV.

GSV represents the total amount that clients spend on both our marketplace offerings and our managed services offering as well as additional fees we charge to talent for other services.

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.

The clients on our work marketplace range in size, including small businesses to Fortune 100 companies.

With users in over 180 countries, our work marketplace enabled $4.1 billion of GSV for the year ended December 31, 2022.

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Of the $4.1 billion of GSV enabled on our work marketplace in 2022, approximately 26% was generated from U.S.

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.

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.

talent, which was our largest talent geography in each of 2022, 2021, and 2020, as measured by GSV, while talent in India and the Philippines remained our next largest talent geographies in all three years.

Of the $3.5 billion and $2.5 billion of GSV enabled on our work marketplace in 2021 and 2020, respectively, approximately 25% was generated from talent in the United States in each year.

Approximately 68% of our GSV in 2022 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.

We generate revenue from both talent and clients, with a majority of our revenue generated from service fees charged to talent.

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.

clients, compared to approximately 66% and 67% of GSV in 2021 and 2020, respectively, with clients in no other country representing more than 10% of our GSV in any such year.

In April 2022, we combined our Upwork Basic and Upwork Plus client offerings into our new Client Marketplace offering, which simplifies our pricing model for clients of those offerings.

This model makes available the most popular features of the legacy Upwork Plus offering, while eliminating the monthly client subscription fees and moving to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients.

We generate revenue from both talent and clients.

Revenue is primarily generated from talent service fees, and to a lesser extent, client marketplace fees.

We also generate revenue from fees for premium offerings, including our Upwork Enterprise offering, as well as talent memberships, purchases of Connects, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S.

dollar, and our Upwork Payroll offering.

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Financial Highlights for 2022

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.

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.

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.

Our work marketplace enabled $4.1 billion of GSV in 2022, representing a year-over-year increase of 16%.

We also experienced increases in user acquisition and the number of active clients, which drove marketplace revenue.

I n an effort to continue to acquire large enterprise and other clients, in 2022, we continued our investments in marketing to drive brand awareness, however our year-over-year growth rates were impacted by a number of factors.

In April 2022, we combined our Upwork Basic and Upwork Plus client offerings into our new Client Marketplace offering.

The resulting pricing change drove greater revenue and resulted in a higher marketplace take rate, but also drove a reduction in spend by some clients.

Additionally, our year-over-year growth rates were impacted by the lapping of prior periods during which we experienced accelerated growth, driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic;

challenging macroeconomic conditions that we began to experience in the second half of 2022;

and our decision in March 2022 to suspend our business operations in Russia and Belarus.

For the year ended December 31, 2022, marketplace revenue increased by $104.3 million, or 23%, compared to 2021.

Additionally, we increased our investment in brand marketing and to a lesser extent, our investment in sales by expanding our sales team.

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.

Additionally, we increased our investment in brand marketing, research and development to enhance platform functionality and infrastructure, and, to a lesser extent, sales, by expanding our sales team.

We generated a net

loss of $89.9 million in 2022 compared to a net loss of $56.2 million in 2021.

Our adjusted EBITDA loss was $4.0 million in 2022, as compared to adjusted EBITDA income of $19.1 million in 2021.

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.

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.

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.

While we have not incurred significant disruptions to our business thus far from

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.

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.”

See “—Non-GAAP Financial Measures” below for the definition of adjusted EBITDA, information regarding our use of adjusted EBITDA, and a reconciliation of net loss to adjusted EBITDA.

Key Financial and Operational Metrics

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As of or for the Year Ended December 31,

(In thousands, except percentages) 2021 % Change 2020 % Change 2019 % Change

(In thousands, except GSV per active client and percentages ) 2022 % Change 2021 % Change 2020 % Change

GSV $ 4,104,891 16 % $ 3,546,774 41 % $ 2,523,649 21 %

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Client spend, which we define as the total amount that clients spend on both our marketplace offerings and our managed services offering, is the primary component of GSV.

GSV also includes fees charged to talent, such as for transacting payments through our work marketplace, user memberships, and purchases of Connects, and foreign currency exchange.

GSV also includes fees charged to users, 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.

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.

Our marketplace revenue is primarily generated from 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.

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We derive a substantial portion of our GSV and revenue from small- and medium-sized businesses.

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.

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.

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%.

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;

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;

During 2022, in an effort to continue to acquire large enterprise and other clients, we continued our investments in marketing to drive brand awareness.

Our work marketplace enabled $4.1 billion of GSV in 2022, representing a year-over-year increase of 16% primarily due to increased spend from existing clients.

However, the year-over-year GSV growth rate decelerated to 16% for the year ended December 31, 2022 from 41% for 2021 as the changes to client fees as a result of the shift to our new Client Marketplace offering in April 2022 and the challenging macroeconomic conditions that we began to experience in the second half of 2022 both drove reductions in spend by some clients.

Additionally, in March 2022, we made the decision to suspend our business operations in Russia and Belarus, which also resulted in a loss of client spend in the year.

We expect our GSV to fluctuate between periods due to a number of factors, including changing macroeconomic conditions;

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) in any given period;

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

Marketplace revenue, which represents the majority of our revenue, consists primarily of revenue derived from our Upwork Basic, Plus, and Enterprise offerings.

Marketplace revenue, which represents the majority of our revenue, consists of revenue derived from our marketplace offerings.

Marketplace offerings consist of all offerings other than our managed services offering, including our former Upwork Basic and Upwork Plus offerings and our current Client Marketplace and Enterprise offerings.

In April 2022, we combined our Upwork Basic and Upwork Plus client offerings into our new Client Marketplace offering, which simplifies our pricing model for clients of those offerings.

We generate marketplace revenue from both talent and clients.

Revenue from our Upwork Basic and Plus offerings are primarily comprised of talent service fees, and to a lesser extent, payment processing and administration fees charged to clients.

Revenue from our Upwork Enterprise offering, which we refer to as Enterprise Revenue, includes all client fees, subscriptions, and talent service fees.

We also generate marketplace revenue from fees for premium offerings associated with our Upwork Basic, Plus, and Enterprise offerings, including talent memberships, purchases of Connects, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S.

Marketplace revenue is primarily generated from talent service fees, and to a lesser extent, client marketplace fees (and prior to the launch of our Client Marketplace offering, payment processing and administration fees).

Additionally, marketplace revenue includes revenue from our Upwork Enterprise offering, which we refer to as Enterprise Revenue, including all client fees, subscriptions, and talent service fees.

We also generate marketplace revenue from fees for premium offerings, including talent memberships, purchases of Connects, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S.

dollar, and our Upwork Payroll offering.

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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.

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.

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;

In 2022, we continued evolving our offerings, products, and marketing to better address large enterprise and other clients.

Marketplace revenue was also driven by the changes to client fees as a result of the shift to our new Client Marketplace offering in April 2022, which resulted in increases in client marketplace fees (previously referred to as client payment processing and administrative fees) of 73%, as compared to 2021.

We expect our marketplace revenue growth rates to continue to vary from period to period due to a variety of other factors such as changing macroeconomic conditions;

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) in any given period;

the lapping of significant launches of new products, pricing changes, and other monetization efforts;

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Marketplace take rate measures the correlation between marketplace revenue and marketplace GSV and is calculated by dividing marketplace revenue by marketplace GSV.

Marketplace take rate is an important metric because it is the key indicator of how well we monetize spend on our work marketplace from our Upwork Basic, Plus, Enterprise, and other premium offerings.

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 marketplace offerings.

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.

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.

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.

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.

During the year ended December 31, 2022, our marketplace take rate increased to 14.0%, as compared to 13.2% during the year ended December 31, 2021.

This trend was primarily a result of client fee changes related to the shift to our new Client Marketplace offering, partially offset by existing clients maturing into higher value clients and continuing to increase their spend with particular talent, which resulted in a higher mix of talent at the lower rates of our tiered service fee structure.

We intend to continue our efforts to better address large enterprise and other clients through our Upwork Enterprise and other premium offerings.

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.

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.

As a result of these efforts, over the course of 2022, we expect marketplace take rate to increase slightly.

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;

As a result of these efforts, over the course of 2023, we expect marketplace take rate to continue to increase.

pricing changes;

changing macroeconomic conditions;

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;

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The number of active clients is a primary driver of GSV and, in turn, marketplace revenue.

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.

In 2022, we continued our investments in marketing to acquire large enterprise and other clients and drive brand awareness.

As a result, the number of active clients increased 6% as of December 31, 2022 compared to December 31, 2021.

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.

As a result, our GSV per active client increased 15% as of December 31, 2021 compared to December 31, 2020.

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.

We believe that the decline in the year-over-year growth rate of active clients is in large part due to the lapping of prior periods during which we experienced an acceleration of active client growth, driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic.

Additionally, we began to experience challenging macroeconomic conditions in the second half of 2022, which impacted our ability to acquire new clients and retain existing clients.

We have seen continued 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.

Our GSV per active client increased 10% as of December 31, 2022 compared to December 31, 2021.

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 increase over time, but these metrics could vary quarter by quarter depending, in part, on macroeconomic conditions and other factors identified in the section titled “Risk Factors” included elsewhere in this Annual Report.

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.

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For example, the 2022 cohort includes all clients that had their first spend activity with talent between January 1, 2022 and December 31, 2022.

Since 2016, each new annual cohort’s first-year spend has exceeded the first-year spend of the prior year’s annual cohort.

For example, for the

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.

For the years ended December 31,

2022, 2021, and 2020, client spend from new client cohorts was $507.6 million, $537.9 million, and $407.9 million, respectively.

Components of Our Results of Operations

Marketplace Revenue.

Marketplace revenue is generated from our Upwork Basic, Plus, Enterprise, and other premium offerings.

Under these marketplace offerings, we generate revenue from both talent and clients.

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.

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.

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.

Marketplace revenue, which represents the majority of our revenue, consists of revenue derived from our marketplace offerings.

We generate marketplace revenue from both talent and clients.

For talent working with clients on our former Upwork Basic and Upwork Plus offerings and our current Client Marketplace offering, we have a tiered talent service fee schedule based on cumulative lifetime billings by talent to each client.

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.

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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.

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).

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.

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.

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.

In addition, we generate marketplace revenue from clients of our Client Marketplace offering.

In April 2022, we combined our Upwork Basic and Upwork Plus client offerings into our new Client Marketplace offering, which

simplifies our pricing model for clients of those offerings.

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.

Our Upwork Enterprise offering, which is designed primarily 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.

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.

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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.

In 2021, we prioritized our advertising, marketing, and product development efforts to reach those new and existing clients seeking to engage remote talent.

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.

In 2022, we continued evolving our offerings, products, and marketing to better address large enterprise and other clients.

We intend to continue to focus on these efforts to attract new clients, as well as talent that meet the criteria sought by such clients.

Managed Services Revenue.

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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.

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.

Managed services revenue grew at a faster rate than our marketplace revenue in 2022 due to increased spend from existing clients on our managed services offering.

Cost of Revenue and Gross Profit

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In addition, gross margin will be impacted by fluctuations in our revenue mix between marketplace revenue and managed services revenue.

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.

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.

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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.

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.

In 2022, we made significant investments to enhance platform functionality and infrastructure, build new product features, 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.

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.

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.

We made significant investments in marketing to acquire new clients and drive brand awareness, and we expect to increase these investments in 2022.

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.

In 2022, we continued evolving our offerings, products, brand positioning, and marketing to better address large enterprise and other clients, and we made significant investments in marketing to acquire new clients and drive brand awareness.

Additionally, in the fourth quarter of 2021, we began increasing our investment in sales by expanding our sales team, which continued throughout 2022.

We expect to reduce our investments in sales, including slowing our Enterprise sales hiring pace, and marketing in 2023, as compared to 2022, as we become more strategic and efficient around prioritizing investments that will yield better returns.

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.

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and insurance.

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.

We expect to continue 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.

Additionally, in 2020 we shifted to a flexible work model for our workforce and are evaluating our current need for office space.

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Provisions for these items represent estimates of losses based on our actual historical incurred losses and other factors.

We expect provisions for transaction losses to increase proportionally as GSV grows.

As a result, we expect provision for transaction losses to increase in absolute dollars in future periods, although expressed as a percentage of total revenue, this expense may vary from period to period.

In 2022, we experienced increased instances of fraud, higher chargeback losses, and bad debt losses related to Upwork Enterprise clients.

As a result, we partnered with an industry-leading third-party fraud detection vendor and enhanced our trust and safety measures.

Due to these efforts, we expect provision for transaction losses to remain elevated throughout the first quarter of 2023 but to gradually decline throughout the remainder of 2023.

However, it could fluctuate as a result of continued instances of fraud and higher chargeback or bad debt losses and our ongoing efforts to reduce this activity on our work marketplace.

Interest Expense

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Other (Income) Expense, Net

Other (income) expense, net consists primarily of gains and losses from foreign currency exchange transactions and interest income that we earn from our deposits in money market funds and investments in marketable securities.

Other (income) expense, net consists primarily of interest income that we earn from our deposits in money market funds and investments in marketable securities and gains and losses from foreign currency exchange transactions.

Income Tax Benefit (Provision)

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We recognize potential liabilities based on an estimate of whether, and the extent to which, additional taxes will be due.

income tax return, and also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

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.

The guidance utilizes a two-step approach for evaluation of uncertain tax positions.

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For the year ended December 31, 2022, total revenue was $618.3 million, representing an increase of $115.5 million, or 23%, as compared to 2021.

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.

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.

The growth in active clients and GSV per active client contributed to the growth of GSV and marketplace revenue.

For the year ended December 31, 2021, GSV increased 41%, as compared to the same period in 2020.

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.

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.

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.

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.

This trend was the result of a few factors.

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.

Managed services revenue represented 8% and 9% of total revenue for the years ended December 31, 2021 and 2020, respectively.

For the year ended December 31, 2021, managed services revenue increased by $5.0 million, or 14%, compared to 2020.

The number of active clients increased 6% as of December 31, 2022 compared to December 31, 2021, and our GSV per active client increased 10% as of December 31, 2022 compared to December 31, 2021, driven by increased spend from existing clients.

The growth in active clients and GSV per active client contributed to the year-over-year growth of GSV and marketplace revenue.

In April 2022, we combined our Upwork Basic and Upwork Plus client offerings into our new Client Marketplace offering, which simplifies our pricing model for clients of those offerings.

This pricing change resulted in greater revenue and a higher marketplace take rate, but also drove a reduction in client spend by some clients.

Additionally, we began to experience challenging macroeconomic conditions in the second half of 2022, which impacted our ability to acquire new clients and retain existing clients.

We also decided, in March 2022, to suspend our business operations in Russia and Belarus.

As a result, the year-over-year GSV growth rate decelerated to 16% for the year ended December 31, 2022 from 41% for 2021.

For the year ended December 31, 2022, marketplace revenue represented 92% of total revenue and increased by $104.3 million, or 23%, compared to 2021.

Marketplace revenue was driven by increased client spend on our marketplace offerings, which for the year ended December 31, 2022, drove an increase in talent service fees of 11%, as compared to the same period in 2021.

Marketplace revenue was also driven by the changes to client fees as a result of the shift to our new Client Marketplace offering in April 2022, which resulted in an increase in client marketplace fees (previously referred to as client payment processing and administrative fees) of 73%, as compared to the same periods in 2021.

Marketplace revenue grew at a faster rate than GSV from our marketplace offerings in 2022, and for the year ended December 31, 2022, our marketplace take rate was 14.0%, as compared to 13.2% for the same period in 2021.

Additionally, during the year ended December 31, 2022, we continued our efforts to better address large enterprise and other clients through our Upwork Enterprise and other premium offerings.

As a result, for the year ended December 31, 2022, Enterprise Revenue increased 39% to $48.3 million, as compared to the same period in 2021, which drove marketplace revenue in 2022.

Managed services revenue represented 8% of total revenue in each of the years ended December 31, 2022 and 2021.

For the year ended December 31, 2022, managed services revenue increased by $11.2 million, or 28%, compared to 2021 due to increased spend from existing clients on our managed services offering.

Cost of Revenue and Gross Margin

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For the year ended December 31, 2022, cost of revenue increased primarily as a result of increases in payment processing fees of $14.8 million, as compared to the same period in 2021, primarily due to increased client spend, as well as increases in cost of talent services to deliver managed services resulting from increases in managed services revenue for the year ended December 31, 2022, as compared to the same period in 2021.

Additionally, for

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.

Additionally, for the year ended December 31, 2022, third-party hosting costs increased $2.2 million, as compared to the same period in 2021.

Research and Development

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For the year ended December 31, 2022, research and development expense increased by $35.5 million, or 30%, as compared to 2021.

The increase was primarily due to our ongoing and significant investments to build new product features, launch new offerings, and enhance the user experience.

Specifically, investments we made to increase the size of our research and development workforce resulted in increases in personnel-related costs of $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.

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.

The increase was primarily due to our significant investments to enhance platform functionality and infrastructure, build new product features, and increase the size of our research and development workforce, which resulted in increases in personnel-related costs of $33.8 million, as compared to the same period in 2021.

Additionally, during the year ended December 31, 2022, we incurred approximately $2.7 million of research and development expense related to our humanitarian response efforts in response to the war in Ukraine, which primarily consisted of special bonuses to our team members in the impacted region and expenses incurred in connection with the relocation of our team members in the impacted region.

These increases were partially offset by $2.4 million incremental internal-use software and platform development costs that we capitalized during the year ended December 31, 2022 as compared to the same period in 2021.

Sales and Marketing

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For the year ended December 31, 2022, sales and marketing expense increased by $63.6 million, or 35%, as compared to 2021.

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.

In 2022, we continued evolving our brand positioning and marketing to better address large enterprise and other clients.

We made significant investments in marketing and, to a lesser extent, our sales team.

These investments resulted in increases in marketing and brand awareness campaigns of $34.9 million, as compared to the same period in 2021, as well as increases in personnel-related costs of $25.3 million.

Additionally, during the year ended December 31, 2022, software costs increased by $1.6 million, as compared to the same period in 2021.

General and Administrative

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For the year ended December 31, 2022, general and administrative expense increased by $10.9 million, or 10%, as compared to 2021.

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.

This increase was primarily due to increases in personnel-related costs of $11.9 million, as compared to the same period in 2021, primarily because of increased stock-based compensation expense, as well as $5.5 million related to indirect taxes incurred during the year ended December 31, 2022.

Additionally, in 2022, we incurred approximately $1.3 million of general and administrative expense related to our humanitarian response efforts and charitable donations related to the war in Ukraine.

In 2021, we incurred impairment charges of $8.7 million related to certain of our operating lease assets and associated property and equipment.

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Percentage of total revenue 4 % 1 %

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.

For the year ended December 31, 2022, provision for transaction losses increased by $19.1 million, or 316%, as compared to 2021, and represented approximately 4% of revenue, as compared to 1%, in the same period in 2021.

Provision for transaction losses increased due to increased instances of fraud, higher chargeback losses, and bad debt losses related to Upwork Enterprise clients.

We continue to closely monitor this activity and have put a number of additional measures in place to decrease transaction losses going forward, including increasing fraud detection efforts and resources, enhancing our trust and safety measures, and integrating with an industry-leading third-party fraud detection vendor.

Interest Expense and Other Income, Net

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Other income, net (7,758) (279) (7,479) 2,681 %

For the year ended December 31, 2021, interest expense increased as a result of the issuance of the Notes.

For the year ended December 31, 2022, interest expense increased, as compared to the same period in 2021, due to incurring a full year of interest expense in 2022 as compared to a partial year in 2021 from the Notes that we issued in August 2021.

See “Note 7—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information.

For the year ended December 31, 2022, other income, net, increased, as compared to the same period in 2021, primarily due to increases in interest income from our marketable securities of $7.6 million.

Non-GAAP Financial Measures

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and, if applicable, other non-cash transactions.

Additionally, in response to the war in Ukraine, during the year ended December 31, 2022, we incurred certain incremental expenses associated with our humanitarian response efforts.

These expenses are not representative of our ongoing operations, and, as a result, we excluded these costs from adjusted EBITDA for the year ended December 31, 2022.

Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S.

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Impairment expense — 8,741 —

Humanitarian response efforts (1)

Adjusted EBITDA $ (4,029) $ 19,127 $ 14,022

(1) Represents (i) $1.4 million of special one-time bonuses to our team members in the region impacted by Russia’s invasion of Ukraine, (ii) $1.5 million of expenses incurred in connection with the relocation of our team members in the impacted region, (iii) $1.1 million of donations made to humanitarian aid organizations to support initiatives related to humanitarian response efforts in the impacted region, primarily to Direct Relief International, a humanitarian aid organization, and (iv) $0.4 million of payments of one-time service award bonuses (and associated taxes) to certain of our team members paid in recognition of contributions made by such team members to our humanitarian response efforts in the impacted region.

We use adjusted EBITDA as a measure of operational efficiency.

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Our cash equivalents and marketable securities primarily consist of money market funds, commercial paper, treasury bills, corporate bonds, U.S.

government securities, asset-backed securities, and Yankee bonds.

government securities, asset-backed securities, and other types of fixed income securities.

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk.

Since our inception, our business has consisted of the operation of an online work marketplace that connects businesses with independent talent from across the globe, and we do not make investments for trading or speculative purposes.

As of December 31, 2022 and 2021, we had $129.4 million and $187.2 million in cash and cash equivalents, respectively.

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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.

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.

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, macroeconomic conditions, and our ability to obtain equity or debt financing.

Our principal commitments consist of obligations under our non-cancellable operating leases for office space and the Notes.

As of December 31, 2022, our future lease commitments were $19.9 million (excluding adjustments for discount to present value), including $6.8 million for 2023.

Assuming the Notes are not converted into our common stock, repurchased or redeemed prior to maturity, (i) annual interest expense relating to the Notes will be $1.4 million in each fiscal year through 2026 and (ii) principal in the amount of $575.0 million will be payable upon the maturity of the Notes on August 15, 2026.

For additional information about our Notes, see the section titled “—Convertible Senior Notes Due 2026.”

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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.

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.

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 with the offering of the Notes 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.

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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.

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.

Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the pandemic.

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.

During the periods presented, we did not have, 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

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.

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.

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Term and Revolving Loans

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.

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.

Convertible Senior Notes Due 2026

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.

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.

The Notes are senior, unsecured obligations and bear interest at a rate of 0.25% per year, payable semiannually in arrears, and are due August 15, 2026.

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.

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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.”

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.”

Net cash provided by operating activities during 2022 was $6.6 million, which resulted from non-cash charges of $112.2 million, offset by a net loss of $89.9 million and net cash outflows of $15.7 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.

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.

Due to fluctuations in revenue and the number of transactions on our work marketplace, 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 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.

The change in operating assets and liabilities primarily resulted from the increase in trade and client receivables.

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.

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.

Investing Activities

Net cash used in investing activities during 2022 was $69.5 million, which was primarily a result of investing $581.9 million in various marketable securities, as well as $7.5 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of $1.2 million, partially offset by proceeds from maturities of marketable securities of $521.2 million.

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.

These uses of cash were partially offset by proceeds from maturities of marketable securities of $117.5 million.

Net cash used in investing activities during 2019 was $100.9 million, which was primarily a result of investing $168.8 million in various marketable securities during 2019, as well as $5.9 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of $10.8 million primarily for leasehold improvements and furniture related to our new office leases in Santa Clara, California and Chicago, Illinois.

These uses of cash were partially offset by proceeds from maturities of marketable securities of $84.5 million.

Financing Activities

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 2022 was $6.1 million, which was primarily a result of proceeds received from our employee stock purchase plan of $3.8 million, cash received from stock option exercises of $1.6 million, and an increase in escrow funds payable of $0.6 million.

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, 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.

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Actual results could materially differ from these estimates and assumptions.

Certain of our accounting policies require higher degrees of judgement than others in their application.

Certain of our accounting policies require higher degrees of judgment than others in their application.

These include certain aspects of accounting for revenue recognition, stock-based compensation, and income taxes.

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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.

We account for revenue in accordance with Topic 606.

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

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Stock-Based Compensation

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 measure and recognize compensation expense for all stock-based awards granted to service providers, including stock options, restricted stock units, which we refer to as 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.

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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).

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.

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.

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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis