What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-15 · 227 added, 258 removed, 922 unchanged (34% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the Years ended December 31, 2021, 2020, and 2019

Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2022, 2021, and 2020

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, 2021, and 2020

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We have audited the accompanying consolidated balance sheets of Upwork Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of stockholders' equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

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

Basis for Opinions

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(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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

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

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

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

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

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

Management utilized historical user transaction data in developing the estimates.

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

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

testing the completeness and accuracy of data inputs, and (iii) testing the mathematical accuracy of the model’s calculations and the amounts recorded for the material rights in the consolidated financial statements.

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

/s/ PricewaterhouseCoopers LLP

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Goodwill 118,219 118,219

Intangible assets, net — 667

Operating lease asset 7,603 10,682

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Escrow funds payable 161,457 160,813

Debt, current — 7,581

Accrued expenses and other current liabilities 53,611 45,742

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Additional paid-in capital 592,900 511,096

Accumulated other comprehensive loss ( 3,085 ) ( 528 )

Accumulated deficit ( 340,949 ) ( 251,064 )

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

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Years Ended December 31, 2022, 2021, and 2020

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Weighted-average shares used to compute net loss per share, basic and diluted 130,518 127,164 118,699

Other comprehensive loss, net of tax:

Net unrealized holding loss on marketable securities, net $ ( 2,557 ) $ ( 547 ) $ ( 18 )

Total comprehensive loss $ ( 92,442 ) $ ( 56,787 ) $ ( 22,885 )

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

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Common Stock Additional

Capital Accumulated

Capital Accumulated Other Comprehensive Loss Accumulated

Deficit Total

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Balances as of December 31, 2019 113,604,398 $ 11 $ 431,333 $ 37 $ ( 171,957 ) $ 259,424

Cumulative effect adjustment from adoption of new accounting pronouncement — — — ( 11,799 ) ( 11,799 )

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

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

Tides Foundation common stock warrant expense and other — — 975 — 975

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

Tides Foundation common stock warrant expense and other — — 1,153 — — 1,153

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

Unrealized loss on marketable securities — — — ( 18 ) — ( 18 )

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

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Stock-based compensation expense — — 53,671 — — 53,671

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

Issuance of common stock for settlement of RSUs 1,865,444 — 1 — — 1

Tides Foundation common stock warrant expense and other — — 749 — — 749

Issuance of common stock in connection with employee stock purchase plan 384,114 — 4,789 — — 4,789

Purchase of capped calls related to convertible senior notes — — ( 49,393 ) — — ( 49,393 )

Unrealized loss on marketable securities — — ( 547 ) — ( 547 )

Net loss — — — — ( 56,240 ) ( 56,240 )

Balances as of December 31, 2021 129,130,478 13 511,096 ( 528 ) ( 251,064 ) 259,517

Issuance of common stock upon exercise of stock options and common stock warrants 2,085,698 1 7,176 — 7,177

Issuance of common stock upon exercise of stock options 412,171 — 1,642 — — 1,642

Stock-based compensation expense — — 75,618 — — 75,618

Tides Foundation common stock warrant expense and other — — 202 — 202

Issuance of common stock for settlement of RSUs 2,553,300 — — — — —

Tides Foundation common stock warrant expense and other — — 750 — — 750

Issuance of common stock in connection with employee stock purchase plan 272,316 — 3,794 — — 3,794

Purchase of capped calls related to convertible senior notes — — ( 49,393 ) — ( 49,393 )

Unrealized loss on marketable securities — — — ( 2,557 ) — ( 2,557 )

Net loss — — — — ( 89,885 ) ( 89,885 )

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standalone selling price of material rights and the period of time over which to defer and recognize the consideration allocated to the material rights;

allowance for doubtful accounts;

allowance for expected credit losses;

liabilities relating to transaction losses;

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The Company evaluates its estimates, assumptions, and judgments on an ongoing basis using historical experience and other factors and revises them when facts and circumstances dictate.

Given the Company’s shift to a flexible work model for its workforce, in 2021, the Company subleased the entirety of its former headquarters in Santa Clara, California and subleased a portion of its current headquarters in San Francisco, California.

As a result, during the year ended December 31, 2021, the Company incurred impairment charges of $ 8.7 million related to the associated operating lease assets and property and equipment.

The Company may determine to either close or sublease certain of its other offices, either of which may result in further impairment charges.

See “Note 5—Balance Sheet Components” for additional information regarding these impairments.

Notwithstanding the foregoing, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities.

The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities.

These estimates may change as new events occur and additional information is obtained.

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As of December 31, 2022 and 2021, the Company maintained restricted cash of $ 4.4 million and $ 4.0 million, respectively, related to cash reserve requirements under the escrow laws and regulations of the California Department of Financial Protection and Innovation and collateral for letters of credit issued in conjunction with operating leases.

Short-term restricted cash included in prepaid expenses and other current assets was $ 3.2 million

Notes to Consolidated Financial Statements—Continued

and $ 2.3 million as of December 31, 2021 and 2020, respectively, and long-term restricted cash included in other assets, noncurrent was $ 0.8 million and $ 1.0 million as of December 31, 2021 and 2020, respectively.

Short-term restricted cash included in prepaid expenses and other current assets was $ 3.6 million and $ 3.2 million as of December 31, 2022 and 2021, respectively, and long-term restricted cash included in other assets, noncurrent was $ 0.8 million and $ 0.8 million as of December 31, 2022 and 2021, respectively.

Funds Held in Escrow, Including Funds in Transit

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

The balance in these accounts was in excess of federally insured limits as of December 31, 2021 and 2020.

The balance in these accounts was in excess of

Notes to Consolidated Financial Statements—Continued

federally insured limits as of December 31, 2022 and 2021.

Users’ funds held in escrow are denominated exclusively in U.S.

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Marketable Securities

The Company's marketable securities consist of commercial paper, corporate debt securities, treasury bills, U.S.

government securities, asset-backed securities, and Yankee debt securities issued by foreign governments or entities and denominated in U.S.

The Company's marketable securities consist of money market funds, commercial paper, treasury bills, corporate bonds, U.S.

government securities, asset-backed securities, and other types of fixed income securities issued by foreign governments or entities and denominated in U.S.

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

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These changes are recorded in other income, net.

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

Notes to Consolidated Financial Statements—Continued

Escrow Funds Payable

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Escrow funds payable to talent are comprised primarily of funds available to be withdrawn by talent for work performed and paid by clients.

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

Escrow funds payable to clients primarily represent deposits received from certain

Notes to Consolidated Financial Statements—Continued

clients to set up an account or to apply toward future payments to talent upon completion of the project defined and agreed between the client and talent.

Concentration of Risk

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One client accounted for more than 10% of trade and client receivables as of December 31, 2022.

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

One client accounted for more than 10% of trade and client receivables as of December 31, 2021.

For the years ended December 31, 2022, 2021 and 2020, the Company did not have any clients that accounted for more than 10% of total revenue.

For the year ended December 31, 2019, the Company generated $ 32.0 million in revenue from one client, which accounted for more than 10% of revenue during the year ended December 31, 2019.

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

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The Company believes that the carrying values of the remaining financial instruments approximate their fair values.

Trade and Client Receivables and Related Allowance for Doubtful Accounts

Trade and Client Receivables and Related Allowance for Expected Credit Losses

Trade and client receivables are primarily comprised of amounts receivable from clients for completed work, including amounts in transit.

It also includes unbilled amounts due from clients primarily through the Company’s managed services offering.

Trade and client receivables are recorded and stated at realizable value, net of an allowance for doubtful accounts.

Trade and client receivables are recorded and stated at realizable value, net of an allowance for expected credit losses.

Credit is extended generally without collateral to the Company’s managed services and marketplace clients with Upwork Enterprise offerings based on an initial and ongoing evaluation of their financial condition and other factors.

In aggregate, gross trade receivables were $ 22.6 million and $ 19.7 million and gross client receivables were $ 54.7 million and $ 50.5 million as of December 31, 2022 and 2021, respectively.

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

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

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

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

Notes to Consolidated Financial Statements—Continued

The following table presents the changes in the allowance for doubtful accounts as of December 31, 2021, 2020, and 2019:

The following table presents the changes in the allowance for expected credit losses as of December 31, 2022, 2021, and 2020:

(In thousands) 2022 2021 2020

Allowance for doubtful accounts, beginning balance $ 1,661 $ 2,215 $ 2,832

Provision for doubtful accounts 4,803 3,143 3,193

Allowance for expected credit losses, beginning balance $ 3,410 $ 1,661 $ 2,215

Provision for expected credit losses 22,167 4,803 3,143

Amounts written off ( 13,113 ) ( 3,054 ) ( 3,697 )

Allowance for doubtful accounts, ending balance $ 3,410 $ 1,661 $ 2,215

Allowance for expected credit losses, ending balance $ 12,464 $ 3,410 $ 1,661

Derivative Instruments

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The Company does not enter into derivative instruments for speculative or trading purposes and these instruments generally have maturities within 12 months.

Notes to Consolidated Financial Statements—Continued

The foreign currency forward contracts are recorded at fair value and, when in gain positions, are reported within prepaid expenses and other current assets.

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

The notional amounts associated with the Company’s foreign currency forward contracts at December 31, 2021 and 2020 were $ 7.2 million and $ 7.6 million, respectively, none of which were designated as cash flow hedges.

The notional amounts associated with the Company’s foreign currency forward contracts as of December 31, 2022 and 2021 were $ 7.2 million and $ 7.2 million, respectively, none of which were designated as cash flow hedges.

The carrying values of the foreign currency forward contracts approximated their fair values due to their relatively short settlement durations.

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Losses on foreign currency forward contracts not designated as hedging instruments were $ 0.5 million for the year ended December 31, 2021.

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

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

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

2016-02, Leases (Topic 842), which the Company adopted on December 31, 2019 effective as of January 1, 2019 using the effective date method.

Property and Equipment

Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation and amortization.

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

Notes to Consolidated Financial Statements—Continued

Segment Information

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The Company’s chief operating decision maker is its President and Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Goodwill, Acquired Intangible Assets, and Other Long-Lived Assets

Goodwill and Other Long-Lived Assets

Goodwill represents the excess of the aggregate fair value of the consideration transferred over the fair value of the net tangible and identifiable intangible assets acquired in the Elance-oDesk Combination.

As of December 31, 2022 and 2021, all of the Company’s intangible assets were fully amortized.

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

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

The Company’s long-lived assets consist of property and equipment and acquired identifiable, finite-lived intangible assets, namely developed technology, user relationships, trade names, and domain names.

The finite-lived intangible assets are carried at cost, less accumulated amortization.

The Company amortizes the finite-lived intangible assets over their estimated useful lives ranging from two to seven years based on the pattern in which the economic benefits of the intangible assets are consumed, or the straight-line method when the pattern cannot be reliably determined.

The Company periodically reviews the remaining estimated useful lives of its long-lived tangible and amortizable intangible assets.

If the estimated useful life assumption for any asset is changed, the remaining unamortized balance would be depreciated or amortized over the revised estimated useful life, on a prospective basis.

Intangible amortization expense related to developed technology and trade names is recorded as cost of revenue.

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

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

The Company’s long-lived assets consist of property and equipment and internal-use software and platform development costs.

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

Recoverability of these assets is measured by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate.

If it is determined that the asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds the aggregate future undiscounted cash flows.

If it is determined that the asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds the aggregate future

Notes to Consolidated Financial Statements—Continued

undiscounted cash flows.

When an impairment loss is recognized, the carrying amount of such assets is reduced to fair value.

For 2021, the Company conducted its goodwill impairment testing by performing the first step of the two-step impairment model.

For 2022, the Company conducted its goodwill impairment testing by performing step one of the quantitative assessment, of the two-step impairment model.

The fair value was determined by the Company using quoted market prices of the Company’s common stock.

The Company determined that the fair value of its reporting unit exceeded the carrying value, and, as such, the Company concluded that there was no impairment of goodwill at the impairment testing date.

There was no impairment of long-lived assets in any of the periods presented.

There was no impairment of goodwill in any of the periods presented.

Convertible Senior Notes

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

Revenue is recognized upon transfer of control of

Notes to Consolidated Financial Statements—Continued

promised services to users in an amount that reflects the consideration the Company expects to receive in exchange for those services.

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

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

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

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

Marketplace Offerings

The Company’s marketplace revenue, which represents the majority of its revenue, consists primarily of revenue derived from Upwork Basic, Plus, and Enterprise offerings.

The Company’s marketplace revenue, which represents the majority of its revenue, consists of revenue derived from its marketplace offerings.

Marketplace offerings consist of all offerings other than the Company’s managed services offering, including the Company’s former Upwork Basic and Upwork Plus offerings and its current Client Marketplace and Enterprise offerings.

In April 2022, the Company combined the Upwork Basic and Upwork Plus client offerings into a new Client Marketplace offering, which simplifies the 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.

The Company generates marketplace revenue from both talent and clients.

Revenue from the Company’s 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 the Company’s Upwork Enterprise offering, which is referred to as Enterprise Revenue, includes all client fees, subscriptions, and talent service fees.

The Company also generates marketplace revenue from fees for premium offerings associated with its 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 the Client Marketplace offering, payment processing and administration fees).

Additionally, marketplace revenue includes revenue from the Company’s Upwork Enterprise offering, which is referred to as Enterprise Revenue, including all client fees, subscriptions, and talent service fees.

The Company also generates 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 the Company’s Upwork Payroll offering.

Upwork Basic, Plus, and Other Premium Offerings

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

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

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

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

As each day of providing access to the work marketplace and site services (including, but not limited to, communication, invoicing, reporting, dispute resolution,

Notes to Consolidated Financial Statements—Continued

and payment services) is substantially the same and talent simultaneously receive and consume the benefits as access is provided, the Company’s single promise under its Upwork Basic and Upwork Plus talent offerings is comprised of a series of distinct service periods.

The Company allocates variable consideration to each distinct service period in which it has the contractual right to bill.

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

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

Service fees.

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These fees represent variable consideration and are allocated to and recognized in the distinct service period in which the Connects are used .

Notes to Consolidated Financial Statements—Continued

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

The Company earns fees from clients under the Client Marketplace offering, which represents a single promise to provide continuous access (i.e.

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

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

The Company allocates variable consideration to each distinct service period in which it has the contractual right to bill.

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

Client payment processing and administration fees.

The Company charges clients for payment processing services at the time the client is charged for the amounts due from the client.

This fee is charged on a per-transaction basis and is variable consideration.

Per-transaction payment processing fees are recognized when the client is charged for the amount due and fees charged on a monthly basis are recognized over the month that payment processing services are provided.

For client payment processing fees, the Company presents revenue on a gross basis as a principal and not net of the third-party payment processing costs incurred because the Co mpany controls the payment processing and administration services prior to providing to the Company’s clients.

The Company recognizes the revenue when a payment from a client is processed, which is when it has the contractual right to bill for the services.

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

The Company’s Client Marketplace offering may include fixed and variable consideration, or a combination of the two, comprised of the following:

Client marketplace fees (previously referred to as client payment processing and administrative fees).

The Company charges a client marketplace fee on a per-transaction basis and is considered variable consideration.

The client marketplace fee may include fixed and variable consideration, or a combination of the two.

The Company allocates fixed and variable consideration to each distinct service period based on the contractual right to bill.

For fixed consideration, the Company recognizes revenue when a client funds a contract, and for variable consideration, the Company recognizes revenue at the end of the weekly billing period, which is when the Company has the contractual right to bill for the services.

For client marketplace fees, the Company presents revenue on a gross basis as a principal and not net of the third-party payment processing costs incurred because the Company controls the services prior to providing to the Company’s clients.

Foreign currency exchange fees.

The Company charges clients a fixed mark-up above foreign currency exchange rates that are charged to the Company when the Company collects amounts denominated in foreign curr ency.

The Company charges clients a fixed mark-up above foreign currency exchange rates that are charged to the Company when the Company collects amounts denominated in foreign currency.

Foreign currency exchange fees are variable consideration and recognized as they are earned for each transaction processed, which is when the Company has the contractual right to bill for the services.

Membership fees.

The Company charges membership fees to clients.

These fees are charged monthly, are fixed consideration, and are recognized over the period of the membership, which is generally monthly consistent with the common measure of progress for the entire performance obligation.

Upwork Payroll service fees.

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In such arrangements, talent providing talent services to clients become employees of third-party staffing providers.

In arrangements where clients enter into Upwork Payroll agreements, the Company charges Upwork Payroll service fees to clients and does not charge service fees to talent who are employees of the third-party staffing providers.

In arrangements where clients

Notes to Consolidated Financial Statements—Continued

enter into Upwork Payroll agreements, the Company charges Upwork Payroll service fees to clients and does not charge service fees to talent who are employees of the third-party staffing providers.

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

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The Company does not control these employment services performed by the third-party on behalf of the client or for the services performed by talent that are employed by the third-party staffing providers.

Therefore, the Company is not considered the principal for these serv ices.

Therefore, the Company is not considered the principal for these services.

The Company recognizes the service fees for each distinct service period when it has the contractual right to bill for the services.

Prior to April 2022, the Company earned fees from clients under its former Upwork Basic and Upwork Plus offerings, which represented a single promise to provide continuous access (i.e.

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

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

The Company allocated variable consideration to each distinct service period in which it had the contractual right to bill.

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

Client payment processing and administration fees.

The Company charged clients for payment processing services at the time the client was charged for the amounts due from the client.

This fee was charged on a per-transaction basis and was variable consideration.

Per-transaction payment processing fees were recognized when the client was charged for the amount due and fees charged on a monthly basis were recognized over the month that payment processing services were provided.

For client payment processing fees, the Company presented revenue on a gross basis as a principal and not net of the third-party payment processing costs incurred because the Company controlled the payment processing and administration services prior to providing to the Company’s clients.

The Company recognized the revenue when a payment from a client was processed, which was when it had the contractual right to bill for the services.

Foreign currency exchange fees.

These fees did not change as a result of the Company’s shift to the Client Marketplace offering.

Refer to the discussion above for details of these fees.

Membership fees.

The Company charged membership fees to clients.

These fees were charged monthly, were fixed consideration, and were recognized over the period of the membership, which was generally monthly consistent with the common measure of progress for the entire performance obligation.

Upwork Payroll service fees.

These fees did not change as a result of the Company’s shift to the Client Marketplace offering.

Refer to the discussion above for details of these fees.

Upwork Enterprise and Other Premium Offerings

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The Company charges talent a service fee as a percentage of talent billings.

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

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

Additionally, talent and clients negotiate and agree upon the scope and the price for talent

Notes to Consolidated Financial Statements—Continued

services directly with each other, and the Company is not a party to their agreement.

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

The Company recognizes the service fees for each distinct service period in which it has the contractual right to bill for the services.

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

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

As each day of providing access to the work marketplace and site services is

Notes to Consolidated Financial Statements—Continued

substantially the same and the client simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its Upwork Enterprise and other premium offerings is comprised of a series of distinct service periods.

The Company allocates variable consideration to each distinct service period in which it has the contractual right to bill.

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Upwork Payroll service fees.

Upwork Payroll service fees are recognized on the same basis as described under the Upwork Basic and Plus offerings and are variable consideration.

Upwork Payroll service fees are recognized on the same basis as described under the Client Marketplace offering and are variable consideration.

Revenue Sharing Arrangements

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

Specifically, management applied significant judgment in assessing the appropriateness of the

Notes to Consolidated Financial Statements—Continued

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

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

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

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

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

The Company recognizes revenue related to the

Notes to Consolidated Financial Statements—Continued

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

Deferred Revenue

Deferred revenue consists of subscription, membership, and Connects fees collected in advance of performing the service.

The Company also recognizes deferred revenue for amounts attributable to unexercised material rights related to arrangements with talent that are subject to tiered service fees.

Deferred revenue consists of amounts attributable to unexercised material rights related to arrangements with talent that are subject to tiered service fees.

Deferred revenue also consists of subscription, membership, and Connects fees collected in advance of performing the service.

Cost of Revenue

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

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

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

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

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

Stock-Based Compensation

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The Company accounts for forfeitures as they occur.

Notes to Consolidated Financial Statements—Continued

Foreign Currency

The functional currency of the Company and its subsidiaries is the U.S.

Transactions with users denominated in currencies other than the U.S.

dollar are remeasured at the exchange rate in effect on the date of the transaction.

At the end of each reporting period, monetary assets and liabilities are remeasured using exchange rates in effect at the balance sheet date.

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

The Company recorded net foreign currency transaction losses of $ 0.5 million for the year ended December 31, 2021, net foreign currency transaction losses of $ 0.6 million for the year ended December 31, 2020, and net foreign currency transaction gains of $ 0.9 million for the year ended December 31, 2019.

Comprehensive Loss

For the years ended December 31, 2021, 2020, and 2019, net unrealized losses from the Company’s marketable securities were immaterial.

Comprehensive loss approximates net loss for all periods presented.

Accordingly, the consolidated statements of comprehensive loss have been omitted from the consolidated financial statements.

The functional currency of our foreign subsidiaries is generally the local currency of the country in which the foreign subsidiary is located.

At the end of each reporting period, monetary assets and liabilities are remeasured using exchange rates in effect at the balance sheet date, while revenues and expenses are translated at average exchange rates during the year.

Foreign currency transaction gains and losses are included in other income, net in the consolidated statements of operations and comprehensive loss.

The Company recorded net foreign currency

Notes to Consolidated Financial Statements—Continued

transaction losses of $ 0.2 million, $ 0.5 million, and $ 0.6 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The Company accounts for income taxes in accordance with the asset and liability method.

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The Company accounts 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 a company’s income tax return, and also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

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

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

Step one, Recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit.

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

Notes to Consolidated Financial Statements—Continued

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No.

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

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

The Company is required to adopt this guidance in the year ended December 31, 2021.

The Company concluded that there was not a material impact to its consolidated financial statements as a result of the adoption.

In August 2020, the FASB issued ASU No.

2020—06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible instruments.

This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

For public companies, this guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years.

Early adoption is permitted.

The Company early adopted the standard as of January 1, 2021 and applied this guidance to the Notes issued in August 2021.

Refer to “Note 7—Debt” for additional information.

Note 3— Revenue

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As of December 31, 2022, the Company had approximately $ 32.7 million of remaining performance obligations.

The Company’s remaining performance obligations consist of transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with talent subject to tiered service fees, subscriptions, memberships, and Connects.

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

The remaining transaction price allocated to other performance obligations is immaterial.

As of December 31, 2022, the Company expects to recognize approximately $ 25.1 million over the next 12 months, with the remaining balance recognized thereafter.

Notes to Consolidated Financial Statements—Continued

The Company has applied the practical expedients and exemptions and does not disclose the value of remaining performance obligations for (i) contracts with an original expected length of one year or less;

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Revenue recognized during the year ended December 31, 2021 that was included in deferred revenue as of December 31, 2020 was $ 15.5 million.

Note 4— Fair Value Measurements and Marketable Securities

Note 4— Fair Value Measurements

The Company defines fair value as the exchange price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must

Notes to Consolidated Financial Statements—Continued

maximize the use of observable inputs and minimize the use of unobservable inputs.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The authoritative guidance describes three levels of inputs that may be used to measure fair value:

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The Company’s financial instruments that are carried at fair value consist of Level I and Level II assets as of December 31, 2022 and 2021.

The following tables summarize the Company’s cash and available-for-sale marketable securities’ amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category reported as cash and cash equivalents or marketable securities as of December 31, 2021 and 2020:

The following tables summarize the Company’s cash and available-for-sale marketable securities’ amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant

Notes to Consolidated Financial Statements—Continued

investment category reported as cash and cash equivalents or marketable securities as of December 31, 2022 and 2021:

(In thousands)

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Corporate bonds 85,639 3 ( 639 ) 85,003 3,420 81,583

Commercial deposits 28,945 — — 28,945 — 28,945

Asset-backed securities 33,261 31 ( 306 ) 32,986 — 32,986

Yankee bonds 5,176 — ( 8 ) 5,168 — 5,168

Agency bonds 12,989 7 ( 23 ) 12,973 — 12,973

Agency discount bonds 8,796 31 — 8,827 — 8,827

Supranational bonds 3,000 — ( 2 ) 2,998 — 2,998

Total Level II 298,166 72 ( 978 ) 297,260 11,458 285,802

Total $ 689,663 $ 85 $ ( 3,134 ) $ 686,614 $ 129,384 $ 557,230

Notes to Consolidated Financial Statements—Continued

(In thousands)

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Commercial paper 171,918 — — 171,918 29,544 142,374

Corporate bonds 183,303 1 ( 217 ) 183,087 17,861 165,226

Asset-backed securities 13,749 — ( 11 ) 13,738 — 13,738

Yankee bonds 6,693 — ( 12 ) 6,681 — 6,681

Total Level II 375,663 1 ( 240 ) 375,424 47,405 328,019

Total $ 685,294 $ 2 $ ( 525 ) $ 684,771 $ 187,205 $ 497,566

Unrealized Investment Losses

The following table summarizes, for all debt securities classified as available for sale in an unrealized loss position as of December 31, 2022, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position.

Unrealized losses as of December 31, 2021 were immaterial.

Notes to Consolidated Financial Statements—Continued

(In thousands) Less Than 12 Months 12 Months or Longer Total

Duration of unrealized losses Fair Value Unrealized loss Fair Value Unrealized loss Fair Value Unrealized loss

Treasury bills 132,995 ( 131 ) — — 132,995 ( 131 )

government securities 21,214 ( 63 ) 82,927 ( 1,963 ) 104,141 ( 2,026 )

Corporate bonds 18,274 ( 120 ) 58,235 ( 519 ) 76,509 ( 639 )

Asset-backed securities 23,515 ( 285 ) 1,707 ( 20 ) 25,222 ( 305 )

Yankee bonds 2,578 ( 6 ) 2,591 ( 2 ) 5,169 ( 8 )

Agency bonds 9,478 ( 23 ) — — 9,478 ( 23 )

Supranational bonds 2,998 ( 2 ) — — 2,998 ( 2 )

Total $ 211,052 $ ( 630 ) $ 145,460 $ ( 2,504 ) $ 356,512 $ ( 3,134 )

For available-for-sale marketable debt securities with unrealized loss positions, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the securities.

As of December 31, 2022 and 2021, the decline in fair value of these securities was due to increases in interest rates and not due to credit related factors.

As of December 31, 2022 and 2021, the Company considered any decreases in market value to be temporary in nature and did not consider any of the Company’s marketable securities to be other-than-temporarily impaired.

The Company did not record any impairment charges with respect to its marketable securities during the years ended December 31, 2022, 2021, and 2020.

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

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

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

As of December 31, 2021, the Loan Agreement had been terminated and no amounts thereunder were outstanding.

See “Note 7—Debt.”

Note 5— Balance Sheet Components

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

Notes to Consolidated Financial Statements—Continued

Intangible Assets, Net

All of the Company’s identifiable intangible assets were fully amortized as of December 31, 2021.

Total amortization expense of intangible assets was $ 0.7 million for the year ended December 31, 2021.

Total amortization expense of intangible assets was $ 2.7 million for each of the years ended December 31, 2020 and 2019.

All of the Company’s identifiable intangible assets were fully amortized as of December 31, 2022 and 2021.

Total amortization expense of intangible assets was $ 0.7 million and $ 2.7 million for the years ended December 31, 2021 and 2020, respectively.

Amortization expense is included in general and administrative expenses.

As of December 31, 2020, intangible assets, net consisted of the following:

As of December 31, 2020

(In thousands) Gross Carrying

Amount Accumulated

Amortization Net Carrying

Trade names $ 2,293 $ 2,293 $ —

User relationships 18,678 18,011 667

Developed technology 10,356 10,356 —

Domain names 529 529 —

Total $ 31,856 $ 31,189 $ 667

Notes to Consolidated Financial Statements—Continued

Accrued Expenses and Other Current Liabilities

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Accrued compensation and related benefits $ 17,239 $ 23,047

Accrued indirect taxes 14,102 4,137

Accrued vendor expenses 8,858 7,728

Operating lease liability, current 6,502 6,315

Accrued indirect taxes 4,137 3,818

Accrued payment processing fees 2,425 2,085

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

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

The Company includes lease payments associated with renewal options in its operating

Notes to Consolidated Financial Statements—Continued

lease asset and liability only when it becomes reasonably certain the company will exercise the renewal option.

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

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

The Company has not included renewal options for any of its operating leases in its determination of lease liabilities.

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

Notes to Consolidated Financial Statements—Continued

The following table summarizes the Company’s operating lease assets and lease liabilities as of December 31, 2022 and 2021:

(In thousands)

Balance Sheet Classification 2021 2020

Balance Sheet and Cash Flow Classification 2022 2021

Operating—noncurrent Operating lease asset $ 7,603 $ 10,682

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Total lease liabilities $ 17,679 $ 23,068

For the years ended December 31, 2021, 2020, and 2019, operating lease cost, inclusive of variable lease c harges, was $ 6.0 million, $ 6.0 million, and $ 5.9 million, respectively, and sublease income recognized was approximately $ 0.5 million, $ 0.3 million , and $ 0.4 million, respectively.

For the years ended December 31, 2022, 2021, and 2020, operating lease cost, inclusive of variable lease charges, was $ 6.6 million, $ 6.0 million, and $ 6.0 million, respectively, and sublease income recognized was approximately $ 1.6 million, $ 0.5 million, and $ 0.3 million, respectively.

For the years ended December 31, 2022, 2021, and 2020, charges related to operating leases that are variable, and therefore not included in the measurement of the lease liabilities, were $ 2.2 million, $ 1.2 million, and $ 0.7 million, respectively.

For the years ended December 31, 2021, 2020 , and 2019, t he Company made lease payments of $ 6.4 million , $ 3.3 million, and $ 3.3 million, respectively.

San Francisco Sublease

For the years ended December 31, 2022, 2021, and 2020, the Company made lease payments of $ 6.6 million, $ 6.4 million , and $ 3.3 million , respectively.

San Francisco Sublease and Santa Clara Sub-Sublease

In December 2021, the Company executed a sublease agreement to sublease one of the two suites the Company is currently leasing as its headquarters in San Francisco, California.

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The term of the sublease commences on February 1, 2022 and expires on August 31, 2024, unless terminated earlier in accordance therewith.

Rent payments begin on March 1, 2022 and approximate $ 0.1 million per month.

Rent payments will be recorded within general and administrative expenses within the Company’s consolidated statements of operations.

Rent payments began on March 1, 2022 and approximate $ 0.1 million per month.

Rent payments will be recorded within general and administrative expenses within the Company’s consolidated statements of operations and comprehensive loss.

Neither party has the option to renew or extend the sublease agreement.

Under the sublease agreement, the Company is not relieved of its original obligation with the master lessor, which expires on August 31, 2024.

The Company determined the sublease agreement is an operating lease, which is consistent with the classification of the original sublease with the landlord.

As a result of the execution of the sublease agreement, the Company determined that indicators of impairment existed with respect to the asset group that consisted of the operating lease asset and related leasehold improvements associated with the suite being subleased.

Accordingly, the Company conducted an impairment test to assess whether the fair value of the asset group was lower than its carrying value.

The results of the impairment test indicated that the fair value of the asset group was lower than its carrying value.

The Company determined the fair value of the asset group using the discounted cash flow method.

The assumptions used in the discounted cash flow analysis included projected sublease income over the remaining term of the original lease with the landlord and a discount rate the Company believes reflects the level of risk associated with these future cash flows.

The Company considers these assumptions to be Level III inputs in accordance with the fair value hierarchy described in “Note 4—Fair Value Measurements and Marketable Securities.”

As a result of the partial sublease of its San Francisco office, during the year ended December 31, 2021, the Company recorded an impairment charge of $ 1.4 million, of which $ 1.2 million was allocated to the operating lease asset and $ 0.2 million was allocated to the associated leasehold improvements.

The Company recorded this impairment charge within general and administrative expenses within its consolidated statement of operations for the year ended December 31, 2021.

Notes to Consolidated Financial Statements—Continued

Santa Clara Sub-Sublease

In April 2021, the Company executed a sub-sublease agreement to sublease the entirety of its former headquarters in Santa Clara, California.

The sub-sublease agreement became effective in May 2021 upon receipt of the consent of the Company’s landlord and master lessor.

In April 2021, the Company executed a sub-sublease agreement to sublease the entirety of its former headquarters in Santa Clara, California, which became effective in May 2021.

The term of the sub-sublease commenced on June 1, 2021 and expires on May 31, 2024, unless terminated earlier in accordance therewith.

Rent payments begin on January 1, 2022 and approximate $ 0.1 million per month.

Rent payments will be recorded within general and administrative expenses within the Company’s consolidated statements of operations.

Rent payments began on January 1, 2022 and approximate $ 0.1 million per month.

Rent payments will be recorded within general and administrative expenses within the Company’s consolidated statements of operations and comprehensive loss.

Neither party has the option to renew or extend the sub-sublease agreement.

Under the sub-sublease agreement, the Company is not relieved of its original obligation with the master lessor that expires on October 15, 2028.

The Company determined the sub-sublease agreement is an operating lease, which is consistent with the classification of the original sublease with the master lessor.

As a result of the execution of the sub-sublease agreement, the Company determined that indicators of impairment existed with respect to the asset group that consisted of the Santa Clara office operating lease asset and associated leasehold improvements, furniture and fixtures, and hardware.

Under both of these sublease agreements, the Company is not relieved of its original obligation with the master lessor, which expires on August 31, 2024 for the San Francisco lease and October 15, 2028 for the Santa Clara lease.

The Company determined the sublease agreements are an operating lease, which is consistent with the classification of the original subleases with the landlords.

As a result of the execution of the sublease agreements, the Company determined that indicators of impairment existed with respect to the asset group that consisted of the operating lease asset and related leasehold improvements associated with the suites being subleased.

Accordingly, the Company conducted an impairment test to assess whether the fair value of the asset group was lower than its carrying value.

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The Company determined the fair value of the asset group using the discounted cash flow method.

The assumptions used in the discounted cash flow analysis included projected sublease income over the remaining term of the original sublease with the master lessor, expected downtime prior to the commencement of future subleases, and a discount rate the Company believes reflects the level of risk associated with these future cash flows.

The Company considers these assumptions to be Level III inputs in accordance with the fair value hierarchy described in “Note 4—Fair Value Measurements and Marketable Securities.”

As a result of the sublease of its Santa Clara office, during the year ended December 31, 2021, the Company recorded an impairment charge of $ 7.4 million, of which $ 4.3 million was allocated to the Santa Clara office operating lease asset, $ 2.9 million was allocated to the associated leasehold improvements, and $ 0.2 million was allocated to the associated furniture and fixtures and hardware.

The Company recorded this impairment charge within general and administrative expenses within its consolidated statement of operations for the year ended December 31, 2021.

Chicago Lease

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

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

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

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

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

As of December 31, 2021 and 2020, the Company had no material finance leases.

The Company considers these assumptions to be Level III inputs in accordance with the fair value hierarchy described in “Note 4—Fair Value Measurements.”

As a result of the partial sublease of its San Francisco office, during the year ended December 31, 2021, the Company recorded an impairment charge of $ 1.4 million.

As a result of the sublease of its Santa Clara office, which expires on May 31, 2024 , during the year ended December 31, 2021, the Company recorded an impairment charge of $ 7.4 million.

The Company recorded these impairment charges within general and administrative expenses within its consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.

Notes to Consolidated Financial Statements—Continued

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Letters of Credit

In conjunction with the Company’s operating lease agreements, as of December 31, 2021 and 2020, the Company had three irrevocable letters of credit outstanding in the aggregate amounts of $ 0.8 million and $ 1.0 million, respectively.

In conjunction with the Company’s operating lease agreements, as of December 31, 2022 and 2021, the Company had three irrevocable letters of credit outstanding in the aggregate amount of $ 0.8 million.

The letters of credit are collateralized by restricted cash in the same amount.

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The Company has indemnification agreements with its officers, directors, and certain key employees to indemnify them while they are serving in good faith in their respective positions.

In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to clients, business partners, vendors, and other parties, including, but not limited to, losses arising out of the Company’s breach of such agreements, claims related to potential data or information security breaches, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from the Company’s offerings and services or its acts or omissions.

In addition, subject to the terms of the applicable agreement, as part of the Company’s Upwork Enterprise and certain other premium offerings, the Company indemnifies clients that subscribe to worker classification services for losses arising from worker misclassification.

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$ 575,000 $ 575,000

First term loan— 18 months of interest-only payments ended in March 2019 followed by 36 equal monthly installments of principal plus interest, maturing March 2022;

interest at prime plus 0.25 % per annum

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

interest at prime plus 0.25 % per annum

Total debt 575,000 575,000

Unamortized debt issuance costs ( 10,739 ) ( 13,701 )

Balance 561,299 10,723

Debt, current — ( 7,581 )

Debt, noncurrent $ 564,261 $ 561,299

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Term and Revolving Loans

The Loan Agreement, which was subsequently amended in November 2017, September 2018, March 2019, and August 2020, was terminated in August 2021.

The Company’s Loan and Security Agreement, which is referred to as the Loan Agreement, was terminated in August 2021.

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

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As of December 31, 2021, no amounts remained outstanding under the Loan Agreement.

The Company was in compliance with its covenants under the Loan Agreement as of August 5, 2021 and December 31, 2020.

The Company was in compliance with its covenants under the Loan Agreement as of August 5, 2021.

During the year ended December 31, 2021, the Company repaid $ 6.3 million and $ 4.5 million related to the First Term Loan and the Second Term Loan, respectively.

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The Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Notes are senior, unsecured obligations of the Company and will bear interest at a rate of 0.25 % per year.

Interest will accrue from August 10, 2021 and will be payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2022, and the principal amount of the Notes will not accrete.

The Notes are senior, unsecured obligations of the Company and bear interest at a rate of 0.25 % per year.

Interest will accrue from August 10, 2021 and is payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2022, and the principal amount of the Notes will not accrete.

The Notes will mature on August 15, 2026, unless earlier redeemed, repurchased, or converted in accordance with the terms of the Notes.

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

Notes to Consolidated Financial Statements—Continued

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

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

days ending on, and including, the last trading day of the immediately preceding calendar quarter of the conversion price on each applicable trading day;

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

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For the year ended December 31, 2022, interest expense was $ 1.4 million and amortization of the issuance costs was $ 3.0 million related to the Notes.

As of December 31, 2021, the if-converted value of the Notes did not exceed the outstanding principal amount.

As of December 31, 2021, the total estimated fair value of the Notes was $ 538.3 million and was determined based on a market approach using actual bids and offers of the Notes in an

For the year ended December 31, 2021, interest expense was $ 0.6 million and amortization of the issuance costs was $ 1.1 million related to the Notes.

As of December 31, 2022 and December 31, 2021, the if-converted value of the Notes did not exceed the outstanding principal amount.

As of December 31, 2022 and December 31, 2021, the total estimated fair value of the Notes was $ 437.0 million and $ 538.3 million, respectively, and was determined based on a market approach using actual bids and offers of the Notes in an over-the-counter market on the last trading day of the period.

The Company considers these assumptions to be Level II inputs in accordance with the fair value hierarchy described in “Note 4—Fair Value Measurements.”

Notes to Consolidated Financial Statements—Continued

over-the-counter market on the last trading day of the period.

The Company considers these assumptions to be Level II inputs in accordance with the fair value hierarchy described in “Note 4—Fair Value Measurements and Marketable Securities.”

In connection with the pricing of the Notes on August 5, 2021 and in connection with the full exercise by the initial purchasers on August 9, 2021 of their option to purchase additional Notes, the Company used approximately $ 49.4 million of the net proceeds from the issuance of the Notes to enter into privately negotiated capped call transactions, which are referred to as the Capped Calls, with various financial institutions.

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

In each of 2019, 2020, and 2021 this warrant was exercised as to all 50,000 of the then-vested and exercisable shares.

The holder of the warrant did not exercise in 2022.

In 2021 and 2020, this warrant was exercised as to all 50,000 of the then-vested and exercisable shares.

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

For the years ended December 31, 2021, 2020, and 2019, the Company recorded $ 0.8 million, $ 0.8 million, and $ 0.7 million, respectively, of expense related to this warrant, which is included in general and administrative expense in the Company’s consolidated statement of operations.

In each of the years ended December 31, 2022, 2021, and 2020, the Company recorded $ 0.8 million of expense related to this warrant, which is included in general and administrative expense in the Company’s consolidated statement of operations and comprehensive loss.

Note 9— Stock-Based Compensation

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Balances at December 31, 2021 4,264,068 $ 16.29 6.37 $ 76,025

Granted 1,500,000 38.80

Exercised ( 412,171 ) 3.99

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The Market Condition period and the valuation of each tranche of the CEO Award were determined using a Monte Carlo simulation.

In the event the Market Condition is met prior to the expected achievement period, any then-unrecognized compensation expense associated with the shares that have vested with respect to both the Market Condition and the Service Condition will be recognized immediately in the Company’s consolidated statements of operations.

For the year ended December 31, 2021, the Company recorded stock-based compensation expense of $ 11.3 million related to the CEO Award.

Stock-based compensation expense for the CEO Award is recorded as a component of general and administrative expense in the Company’s consolidated statement of operations.

For the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense related to the CEO Award of $ 11.0 million and $ 11.3 million, respectively.

Stock-based compensation expense for the CEO Award is recorded as a component of general and administrative expense in the Company’s consolidated statement of operations and comprehensive loss.

The Company estimated the fair value of the CEO Award using a Monte Carlo simulation.

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Expected volatility 65 %

In 2019, the Company entered into a transition agreement, which is referred to as the Transition Agreement, with Stephane Kasriel pursuant to which Mr.

Kasriel tendered his resignation as the Company’s President and Chief Executive Officer effective as of December 31, 2019.

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

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

Dividend yield — %

Expected term (in years) 0.3 - 1.3

Risk-free interest rates 1.5 % - 1.6 %

Expected volatility 38 % - 39 %

For the years ended December 31, 2022, 2021, and 2020, the intrinsic value of options exercised was $ 6.6 million , $ 88.9 million, and $ 124.1 million, respectively.

The aggregate intrinsic value represents the difference between the

Notes to Consolidated Financial Statements—Continued

exercise price of the options and the closing price of the Company’s common stock on The Nasdaq Global Select Market on the day prior to the date of exercise.

The aggregate intrinsic value represents the difference between the exercise price of the options and the closing price of the Company’s common stock on The Nasdaq Global Select Market on the day prior to the date of exercise.

For the year ended December 31, 2021, the weighted-average grant-date fair value of options granted was $ 19.19 .

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

Notes to Consolidated Financial Statements—Continued

The following table summarizes the RSU and PSU activity and related information under the 2018 EIP:

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The Earned PSUs will vest with respect to 25 % of the Earned PSUs on the one-year anniversary of the PSU Grant Date and 1/16th of the Earned PSUs on a quarterly basis thereafter.

Stock-based compensation expense associated with the PSU Awards is a component of operating expenses in the Company’s consolidated statements of operations and will be recognized over the longer of the expected achievement period for the PSU Performance Condition and the PSU Service Condition.

Stock-based compensation expense associated with the PSU Awards is a component of operating expenses in the Company’s consolidated statements of operations and comprehensive loss and will be recognized over the longer of the expected achievement period for the PSU Performance Condition and the PSU Service Condition.

The grant date fair value of the PSU Awards was determined using the Company’s closing common stock price on the PSU Grant Date multiplied by the number of PSUs that were probable of being earned on the PSU Grant Date.

At each interim reporting date prior to the date on which the compensation committee of the Company’s board of directors certifies the PSU Performance Condition, the number of PSUs that are probable of being earned is reassessed and any changes are reflected in the total stock-based compensation expense associated with the PSU Awards.

For the year ended December 31, 2021, the weighted-average grant-date fair value of PSUs granted was $ 56.42 .

During the year ended December 31, 2021, the Company recorded stock-based compensation expense of $ 3.4 million related to the PSUs.

For the years ended December 31, 2022 and 2021, the weighted-average grant-date fair value of PSUs granted was $ 24.49 and $ 56.42 , respectively.

During the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense related to the PSUs of $ 4.4 million and $ 3.4 million, respectively.

As of December 31, 2022, unrecognized stock-based compensation cost was $ 3.9 million, which is expected to be recognized over a weighted-average period of 1.7 years.

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The 2018 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15 % through payroll deductions of their eligible compensation, subject to any plan limitations.

Except for the initial offering period, the 2018 ESPP provides for 24-month offering periods beginning November 15 and May 15 of each year, and each

Notes to Consolidated Financial Statements—Continued

offering period consists of four 6-month purchase periods.

Except for the initial offering period, the 2018 ESPP provides for 24-month offering periods beginning November 15 and May 15 of each year, and each offering period consists of four 6-month purchase periods.

Pursuant to the terms of the 2018 ESPP, in January 2022, the number of shares of common stock available for issuance was increased by 1,033,043 shares.

Notes to Consolidated Financial Statements—Continued

For the years ended December 31, 2022, 2021, and 2020, the assumptions used to determine the fair value of the shares to be awarded was estimated on the grant date using the Black-Scholes valuation model with the following assumptions:

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0.1 % - 0.2 %

1.5 % - 2.4 %

Expected volatility 68 % - 76 %

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Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2021, 2020, and 2019:

The following table summarizes the components of stock-based compensation expense recognized in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022, 2021, and 2020:

(In thousands) 2022 2021 2020

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Total deferred $ — $ — $ —

Total income tax benefit (provision) $ ( 122 ) $ ( 150 ) $ ( 28 )

Income tax provision $ ( 536 ) $ ( 122 ) $ ( 150 )

The Company had an effective tax rate of ( 0.60 )%, ( 0.21 )%, and ( 0.66 )% for the years ended December 31, 2022, 2021, and 2020, respectively.

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Stock-based compensation ( 4.02 ) 44.13 94.02

Officer’s compensation limitation ( 1.51 ) — —

Other items ( 0.60 ) ( 0.16 ) ( 0.59 )

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Operating lease liability 4,066 5,296

Non-deductible accrued expenses, reserves and other 7,259 4,903

Research and development credits 17,044 11,352

Accrued liabilities, reserves and other 10,216 7,259

Capitalized research and development 33,179 —

Tax Credits 24,470 17,044

Gross deferred tax assets 159,855 136,052

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Deferred tax liabilities:

Acquired intangible assets — ( 89 )

Prepaid expenses ( 753 ) —

Operating lease asset ( 1,749 ) ( 2,452 )

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2020 63,542 28,848 — — 92,390

The Company records a full valuation allowance of $ 132.2 million and $ 92.4 million as of December 31, 2021 and 2020, respectively, against its net deferred tax assets.

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

The Company records a full valuation allowance of $ 157.4 million and $ 132.2 million as of December 31, 2022 and 2021, respectively.

The Company regularly assesses the realizability of its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some or all of its deferred tax assets will not be realized.

Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain.

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

The Company has federal net operating loss, which is referred to as NOL, carryforwards of approximately $ 444.6 million and $ 343.1 million as of December 31, 2021 and 2020, respectively.

The federal NOLs generated in the

Notes to Consolidated Financial Statements—Continued

years ended December 31, 2001 through 2017 began to expire in 2021, including $ 21.6 million that expired in 2021 and $ 23.0 million that will expire in 2022.

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

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

The Company has federal net operating loss, which is referred to as NOL, carryforwards of approximately $ 341.4 million and $ 444.6 million as of December 31, 2022 and 2021, respectively.

The federal NOLs generated in the years ended December 31, 2001 through 2017 will begin to expire in 2024.

The federal NOL carryforwards of $ 324.7 million generated after December 31, 2017 can be carried forward indefinitely with utilization in any year limited to 80% of the Company’s taxable income.

The Company has California NOL carryforwards of approximately $ 95.0 million and $ 90.4 million as of December 31, 2022 and 2021, respectively.

California NOLs generated in the years ended December 31, 2008 through 2018 will begin to expire in 2028.

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

The Company has federal research and development credits, which are referred to as Credits, of approximately $ 19.1 million and $ 12.0 million as of December 31, 2021 and 2020, respectively.

The Company has federal research and development credits of approximately $ 27.1 million and $ 19.1 million as of December 31, 2022 and 2021, respectively.

In 2022, $ 0.2 million of federal research and development credits expired and the remaining carryforward is subject to expiration through 2042.

The Company has California Credits of approximately $ 13.6 million and $ 13.1 million as of December 31, 2021 and 2020, respectively.

California Credits have an infinite carryforward period.

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

The Company has California research and development credits of approximately $ 15.7 million and $ 13.6 million as of December 31, 2022 and 2021, respectively.

California research and development credits have an infinite carryforward period.

The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credit carryforwards in the event that there is a change in ownership as provided by Section 382 of the Internal Revenue code and similar state provisions.

Such a limitation could result in the expiration of the NOL carryforwards and tax credits before utilization, which could result in increased future tax liabilities.

Uncertain Tax Positions

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The Company operates as one operating and reportable segment for purposes of allocating resources and evaluating financial performance.

Notes to Consolidated Financial Statements—Continued

The following table sets forth total revenue by type of service for the years ended December 31, 2022, 2021, and 2020:

(In thousands) 2022 2021 2020

Basic, Plus, and other $ 427,476 $ 317,942 $ 253,099

Basic, Plus, Client Marketplace (1) and other

$ 518,282 $ 427,476 $ 317,942

Enterprise 48,341 34,864 20,210

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Total $ 618,318 $ 502,797 $ 373,628

Notes to Consolidated Financial Statements—Continued

(1) In April 2022, the Company combined its Upwork Basic and Upwork Plus client offerings into a new Client Marketplace offering.

The Company generates its revenue from talent and clients.

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Rest of world (1)

162,016 146,894 109,805

Total talent 334,671 296,979 226,699

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Rest of world (1)

73,065 52,815 39,570

Total clients 283,647 205,818 146,929

Total $ 618,318 $ 502,797 $ 373,628

(1) During the years ended December 31, 2022, 2021, and 2020, no country included in the Rest-of-World category had revenue that exceeded 10% of total talent revenue, total client revenue, or total revenue.

Substantially all of the Company’s long-lived assets were located in the United States as of December 31, 2022 and 2021.

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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 8. Financial Statements and Supplementary Data