What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-13 compared with 2024-02-15 · 420 added, 271 removed, 924 unchanged (43% of the section changed)

39 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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

As described in Notes 2 and 12 to the consolidated financial statements, the Company charges talent a service fee as a percentage of talent billings primarily using a tiered service fee model based on cumulative lifetime billings by talent to each client.

The Company recorded total revenue of $689.1 million for the year ended December 31, 2023, of which $369.9 million related to revenue from talent.

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

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 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.

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

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

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

Management utilized historical 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.

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

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

Revenue Recognition – Talent Service Fee and Client Marketplace Fee

As described in Note 2 to the consolidated financial statements, the Company earns fees from talent and clients under its marketplace offerings, which represent a single promise to provide continuous access to the Company’s work marketplace and site services.

The Company’s single promise is comprised of a series of distinct service periods.

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

The Company’s marketplace offerings may include fixed and variable consideration.

For the year ended December 31, 2024, the Company’s consolidated revenue was $769.3 million, of which a majority relates to talent service fee and client marketplace fee revenue.

The principal consideration for our determination that performing procedures relating to revenue recognition for talent service fee and client marketplace fee revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.

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

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

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

These procedures included testing the effectiveness of controls relating to the revenue recognition process for talent service fee and client marketplace fee revenue.

These procedures also included, among others, testing revenue recognized for a sample of talent service fee and client marketplace fee revenue transactions by obtaining and inspecting source documents, such as contracts, terms of service, invoices, payment receipts, and client acceptance of the milestones.

/s/ PricewaterhouseCoopers LLP

17 unchanged sentences

Operating lease asset 5,752 4,333

Deferred tax asset 128,779 —

Other assets, noncurrent 1,919 1,430

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Additional paid-in capital 653,575 674,918

Accumulated other comprehensive income (loss)

205 ( 3,085 )

Accumulated and other comprehensive income 264 205

Accumulated deficit ( 78,476 ) ( 294,062 )

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Total operating expenses 530,025 529,946 550,540

Loss from operations ( 11,260 ) ( 92,624 ) ( 54,217 )

Other income (expense), net 60,137 3,275 ( 1,901 )

Income (loss) from operations 65,206 ( 11,260 ) ( 92,624 )

Other income, net 25,221 60,137 3,275

Income (loss) before income taxes 90,427 48,877 ( 89,349 )

Income tax provision ( 1,990 ) ( 536 ) ( 122 )

Income tax benefit (provision) 125,159 ( 1,990 ) ( 536 )

Net income (loss) $ 215,586 $ 46,887 $ ( 89,885 )

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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

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

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

Tides Foundation common stock warrant expense — — 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 )

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Balances as of December 31, 2022 132,368,265 $ 13 $ 592,900 $ ( 3,085 ) $ ( 340,949 ) $ 248,879

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

Issuance of common stock upon exercise of stock options and common stock warrants 640,687 — 2,012 — — 2,012

Stock-based compensation expense — — 75,175 — — 75,175

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Issuance of common stock in connection with employee stock purchase plan 598,781 — 4,081 — — 4,081

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

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

Unrealized gain on marketable securities — — — 3,290 — 3,290

Net income — — — — 46,887 46,887

Balances as of December 31, 2023 137,272,754 $ 14 $ 674,918 $ 205 $ ( 294,062 ) $ 381,075

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Issuance of common stock in connection with employee stock purchase plan 657,526 — 4,795 — — 4,795

Repurchase of common stock, including excise tax ( 8,076,726 ) ( 1 ) ( 100,276 ) — — ( 100,277 )

Unrealized gain on marketable securities — — — 59 — 59

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Amortization of debt issuance costs 1,842 2,098 2,961

Amortization of premium (accretion of discount) of purchases of marketable securities, net ( 14,430 ) ( 1,486 ) 298

Accretion of discount on purchases of marketable securities, net ( 11,911 ) ( 14,430 ) ( 1,486 )

Amortization of operating lease asset 2,837 3,269 3,079

1 unchanged sentence

Stock-based compensation expense 68,391 74,195 75,501

Impairment expense — — 8,741

Gain on early extinguishment of debt ( 38,945 ) — —

Deferred taxes ( 129,258 ) — —

Gain on early extinguishment of convertible senior notes — ( 38,945 ) —

Changes in operating assets and liabilities:

Trade and client receivables (1)

( 4,802 ) ( 22,176 ) ( 15,292 )

Prepaid expenses and other assets ( 656 ) 146 ( 630 )

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Purchase of an intangible asset — ( 3,000 ) —

Acquisition of business, net of cash acquired ( 14,333 ) — —

Purchases of property and equipment ( 3,528 ) ( 692 ) ( 1,248 )

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CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in escrow funds payable 50,930 645 25,771

Change in escrow funds payable, net (1)

9,956 25,443 ( 4,294 )

Proceeds from exercises of stock options and common stock warrant 3,293 2,012 1,643

Proceeds from employee stock purchase plan 4,795 4,081 3,794

Net cash paid for early extinguishment of debt ( 171,327 ) — —

Repayment of debt — — ( 10,750 )

Proceeds from issuance of convertible senior notes — — 575,000

Payment of debt issuance costs — — ( 14,855 )

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

Net cash paid for early extinguishment of convertible senior notes — ( 171,327 ) —

Repurchase of common stock ( 100,000 ) — —

Net cash provided by (used in) financing activities ( 81,956 ) ( 139,791 ) 1,143

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 209,175 1,187 ( 56,827 )

Cash, cash equivalents, and restricted cash—beginning of year 295,231 352,058 232,463

Cash, cash equivalents, and restricted cash—end of year $ 296,418 $ 295,231 $ 352,058

Cash, cash equivalents, and restricted cash—beginning of period 296,418 295,231 352,058

Cash, cash equivalents, and restricted cash—end of period $ 505,593 $ 296,418 $ 295,231

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

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Cash paid for interest $ 920 $ 1,321 $ 1,541

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:

Right-of-use asset recognized $ 4,436 $ — $ —

Property and equipment purchased but not yet paid $ 26 $ 27 $ —

Internal-use software and platform development costs incurred but not yet paid $ 400 $ 215 $ 73

(1) Refer to “Note 2—Basis of Presentation and Summary of Significant Accounting Policies” for discussion of the change in the current period presentation.

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

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Independent talent on the Company’s work marketplace, which are referred to as talent, and, together with clients, as customers, include independent professionals and agencies of varying sizes and are an increasingly sought-after, critical, and expanding segment of the global workforce.

The Company is incorporated in the state of Delaware and is currently headquartered in San Francisco, California.

The Company is incorporated in the state of Delaware and is headquartered in Palo Alto, California.

Unless otherwise expressly stated or the context otherwise requires, the terms “Upwork” and the “Company” in these notes to the consolidated financial statements refer to Upwork and its wholly-owned subsidiaries.

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All intercompany balances and transactions have been eliminated in consolidation.

In 2023, the Company changed the name of its Upwork Enterprise offering to Enterprise Solutions.

Concurrently, to align with customer needs and internal decision-making, the Company combined Enterprise Solutions and Managed Services into a suite of Enterprise offerings.

In order to conform to the current period presentation as of December 31, 2023, the Company presents revenue from Enterprise Solutions and Managed Services together as Enterprise revenue in prior periods and no longer reports revenue from its Enterprise Solutions offering in Marketplace revenue.

Prior period presentation has been revised to conform to the current period presentation as of December 31, 2024.

Changes in Presentation

During the fourth quarter of 2024, the Company elected to change the presentation of certain cash flows on its Consolidated Statement of Cash Flows.

The change in Trade and Client Receivables relating to amounts received on behalf of talent to fund their escrow accounts was reclassified from operating activities to financing activities, reflected within the caption Change in escrow fund payable, net.

Prior period comparative amounts have been recast to conform to the current period presentation.

This change had the impact of increasing cash flow provided by operating activities by $ 25.5 million and $ 4.9 million, for the years ended December 31, 2023 and 2022, respectively, and a corresponding offset in cash provided by (used in) financing activities.

This reclassification did not affect the previously reported total cash balances on the Consolidated Statement of Cash Flows.

Additionally, these reclassifications had no impact on the Consolidated Statements of Operation and Comprehensive Income, Consolidated Balance Sheets, or Consolidated Statements of Shareholders’ Equity.

Use of Estimates

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Cash and Cash Equivalents

The Company classifies as cash and cash equivalents its cash held in checking and interest-bearing accounts and investments in money market funds, U.S.

The Company classifies cash and cash equivalents to include cash held in checking and interest-bearing accounts and investments in money market funds, U.S.

government securities, and debt securities with maturities of 90 days or less from the date of purchase.

Restricted Cash

As of December 31, 2023 and 2022, the Company maintained restricted cash of $ 4.4 million 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 $ 3.6 million as of December 31, 2023 and 2022, and long-term restricted cash included in other assets, noncurrent was $ 0.8 million as of December 31, 2023 and 2022.

Notes to Consolidated Financial Statements—Continued

Restricted Cash

As of December 31, 2024 and 2023, the Company maintained restricted cash of $ 4.1 million and $ 4.4 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 $ 3.6 million as of December 31, 2024 and 2023, and long-term restricted cash included in other assets, noncurrent was $ 0.6 million and $ 0.8 million as of December 31, 2024 and 2023, respectively.

Funds Held in Escrow, Including Funds in Transit

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

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

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

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

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

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

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

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

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

Notes to Consolidated Financial Statements—Continued

income (loss).

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

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

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

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

Notes to Consolidated Financial Statements—Continued

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 in other income, net within the Company’s consolidated statements of operations and comprehensive income (loss).

Escrow Funds Payable

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

The Company had two clients that accounted for more than 10 % of trade and client receivables as of December 31, 2024.

The Company did not have any clients that accounted for more than 10% of trade and client receivables as of December 31, 2023.

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

For the years ended December 31, 2024, 2023 and 2022, the Company did not have any clients that accounted for more than 10% of total revenue.

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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.

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

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

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

The notional amounts associated with the Company’s foreign currency forward contracts as of December 31, 2023 and 2022 were $ 7.0 million and $ 7.2 million, respectively, none of which were designated as cash flow hedges.

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

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

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

The notional amounts associated with the Company’s foreign exchange activity as of December 31, 2024 and 2023 were $ 0.2 million and $ 7.0 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.

The fair values of the Company’s outstanding foreign currency forward contracts not designated as hedging instruments as of December 31, 2023 and 2022 were not material.

Gains on foreign currency forward contracts not designated as hedging instruments were $ 0.5 million for the year ended December 31, 2023.

Losses on foreign currency forward contracts not designated as hedging instruments were $ 0.2 million for the year ended December 31, 2022.

The fair values of the Company’s outstanding foreign currency forward contracts not designated as hedging instruments as of December 31, 2024 and 2023 was not material.

Gains on foreign currency forward contracts not designated as hedging instruments were $ 0.1 million and $ 0.5 million for the years ended December 31, 2024 and 2023, respectively.

Losses on foreign currency forward contracts not designated as hedging instruments were $ 0.2 million for the year ended December 31, 2022.

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Segment Information

The Company has one reportable segment.

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 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 a 2014 business combination.

The Company has one operating and reportable segment.

The Company’s Chief Operating Decision Maker, which is referred to as the CODM, is its President and Chief Executive Officer, who reviews financial information presented on a consolidated basis for the purpose of allocating resources and evaluating financial performance.

Business Combination and Goodwill

The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition.

Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded at their estimated fair values on the acquisition date.

Any excess purchase consideration over the fair value of net assets acquired is recognized as goodwill.

The Company determines the fair value of assets acquired and liabilities assumed by exercising judgment and using various estimates, including the selection of valuation methodologies, cash flow projections, discount rates, and comparable company analyses.

To support this process, the Company may engage a third-party valuation firm, as needed, to assist in determining the fair values of acquired assets, assumed liabilities, and any contingent consideration in a business combination.

Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

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

The Company performs its annual impairment assessment during the fourth quarter of each calendar year based on a single reporting unit structure by comparing the carrying value of the reporting unit to its fair value.

The Company performs its annual impairment assessment during the fourth quarter of each fiscal year based on a single reporting unit structure by comparing the carrying value of the reporting unit to its fair value.

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

For 2024, 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 the fair value by 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 has been no impairment of goodwill for any of the periods presented.

The Company’s intangible assets consist of an identifiable, finite-lived intangible asset, namely an assembled workforce, acquired as part of an asset acquisition in November 2023.

The assembled workforce intangible asset is carried at cost, less accumulated amortization.

The Company amortizes the assembled workforce intangible asset over its estimated useful life of two years , based on the pattern in which the economic benefits of the intangible asset is consumed, or the straight-line method when the pattern cannot be reliably determined.

Amortization expense is included in research and development expense on the Company’s consolidated statement of operations and comprehensive income (loss).

Acquired Intangible and Other Long-Lived Assets

The Company’s intangible assets include identifiable, finite-lived intangible assets such as customer relationships and developed technology, acquired as part of a business combination in November 2024, as well as an assembled workforce, acquired as part of an asset acquisition in November 2023.

These intangible assets are carried at cost, less accumulated amortization.

The Company amortizes the intangible assets over their estimated useful lives, either based on the pattern in which the economic benefits are consumed, or using the straight-line method when the pattern cannot be reliably determined.

The estimated useful lives of the intangible assets range from six months to three years .

Intangible amortization expense related to developed technology and an assembled workforce is included in research and development expense on the Company’s consolidated statement of operations and comprehensive income (loss).

Intangible amortization expense related to customer relationships is included in sales and marketing expense on the Company’s consolidated statement of operations and comprehensive income (loss).

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 an assembled workforce is included in research and development expense in the Company’s statement of operations.

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

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

There has been no asset impairments for any of the periods presented.

Notes to Consolidated Financial Statements—Continued

Convertible Senior Notes

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See “Note 10—Debt” for additional information.

Debt Issuance Costs

Debt issuance costs incurred in connection with securing the Company’s financing arrangements are capitalized and amortized over the term of the respective financing arrangement under the straight-line method as the results obtained are not materially different from those that would result from the use of the effective interest method.

Debt issuance costs are generally presented in the Company’s consolidated balance sheets as a reduction to the carrying amount of the outstanding borrowings.

Notes to Consolidated Financial Statements—Continued

Revenue Recognition

In 2023, the Company changed the name of its Upwork Enterprise offering to Enterprise Solutions.

Concurrently, to align with customer needs and internal decision-making, the Company combined Enterprise Solutions and Managed Services into a suite of Enterprise offerings.

The Company generates revenue from clients and talent from its Marketplace and Enterprise offerings.

The Company generates revenue from talent and clients from its Marketplace and Enterprise offerings.

The Company accounts for revenue in accordance with FASB ASU No.

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Marketplace Offerings

The Company’s Marketplace revenue represents the majority of its revenue and is derived from its Marketplace offerings, which include all offerings other than the Enterprise offerings—Enterprise Solutions, previously referred to as Upwork Enterprise, and Managed Services.

The Company generates Marketplace revenue from both talent and clients.

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

The Company also generates Marketplace revenue from fees for premium offerings, such as its Upwork Payroll offering, as well as purchases of Connects, talent memberships, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S.

The Company also generates Marketplace revenue through ads and monetization products, including purchases of Connects, which are virtual tokens required for talent to bid on projects and purchase ads products on the Company’s work marketplace, membership fees, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S.

dollar, Additionally the Company earns interest on funds held on behalf of customers.

The Company earns fees from talent under its Marketplace 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.

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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 those agreements.

Accordingly, for these arrangements, the Company presents revenue on a net basis, as an agent.

Accordingly, for these arrangements, the

Notes to Consolidated Financial Statements—Continued

Company presents revenue on a net basis, as an agent.

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

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

The Company presents revenue from withdrawal fees on a gross basis as a principal and not net of the third-party payment processing costs incurred because the Company controls the payment processing

Notes to Consolidated Financial Statements—Continued

services prior to providing to the Company’s talent.

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

The Company recognizes the withdrawal fees when transactions are processed, which is when it has the contractual right to bill for the services.

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The Company recognizes the revenue over the period of the membership, which is generally monthly, consistent with the common measure of progress for the entire performance obligation.

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

The Company charges fees to talent for the purchase of Connects.

Connects represent a separate performance obligation.

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Contract initiation fees.

In April 2023, the Company introduced a contract initiation fee for clients on the Marketplace offering.

The Company charges a contract initiation fee on new contracts between clients and talent, which is considered fixed consideration.

The Company charges a contract initiation fee on new contracts between talent and clients, which is considered fixed consideration.

The contract initiation fee is assessed on both fixed price and hourly contracts.

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For contract initiation 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.

Notes to Consolidated Financial Statements—Continued

Foreign currency exchange fees.

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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.

Notes to Consolidated Financial Statements—Continued

Upwork Payroll service fees.

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

The Company earns interest on customer funds while they are held in escrow.

The Company earns interest on a portion of customer funds while they are held in escrow.

The interest is considered variable consideration and is recognized when it is specified and earned from the financial institution.

Enterprise Offerings

The Company earns fees from talent under its Enterprise Solutions offering, previously referred to as Upwork Enterprise, which represents a single promise to provide continuous access (i.e., stand-ready performance obligation) to the Company’s work marketplace and site services.

The Company earns fees from talent under its Enterprise Solutions 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 talent simultaneously receive and consume the benefits as access is provided, the Company’s single promise under its Enterprise Solutions offering is comprised of a series of distinct service periods.

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

Notes to Consolidated Financial Statements—Continued

Enterprise compliance service fees.

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The Company charges Enterprise Compliance service fees as a percentage of talent billings;

Notes to Consolidated Financial Statements—Continued

these fees represent variable consideration.

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Deferred Revenue

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

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

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

In May 2023, the Company retired its tiered service fee structure for talent and introduced a simplified flat service fee.

With this change, the Company no longer allocates a portion of the transaction price to unexercised material rights.

Deferred revenue also consists of subscription, membership, and C onnects fees collected in advance of performing the service or the talent using the Connect.

Cost of Revenue

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Advertising Expense

Advertising costs are expensed as they are incurred, and are included in sales and marketing expense in the Company’s consolidated statement of operations.

Advertising costs are expensed as they are incurred, and are included in sales and marketing expense in the Company’s consolidated statement of operations and comprehensive income (loss).

The Company incurred $ 57.1 million, $ 83.2 million, and $ 121.2 million in advertising expenses during the years ended December 31, 2024, 2023, and 2022, respectively.

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Stock-Based Compensation

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

Notes to Consolidated Financial Statements—Continued

the 2018 Employee Stock Purchase Plan, which is referred to as the 2018 ESPP, to employees and directors based on their estimated fair value on the date of grant.

The fair value and derived service period of stock options with market-based conditions is estimated using the Monte Carlo valuation model.

The Company evaluates the assumptions used to value option awards upon each grant of stock options.

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

Notes to Consolidated Financial Statements—Continued

Select Market on the date of grant.

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.

The grant date fair value of PSUs is determined using the Company’s closing common stock price on the grant date multiplied by the number of PSUs that are probable of being earned as of the grant date.

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

Stock-based compensation expense associated with PSUs is recognized over the longer of the expected achievement period for the performance condition and the service condition.

Stock-based compensation expense associated with PSUs is recognized over the longer of the expected achievement period for the performance condition and the service condition, if applicable.

Stock-based compensation for purchase rights granted under the 2018 ESPP is recognized over the offering period.

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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 (expense), net in the consolidated statements of operations and comprehensive income (loss).

The Company recorded net foreign currency transaction gains of $ 0.5 million for the year ended December 31, 2023 and net foreign currency transaction losses of $ 0.2 million and $ 0.5 million for the years ended December 31, 2022, and 2021, respectively.

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

The Company recorded net foreign currency transaction gains of $ 0.1 million and $ 0.5 million for the years ended December 31, 2024 and 2023, respectively, and net foreign currency transaction losses of $ 0.2 million for the year ended December 31, 2022.

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

Under the asset and liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

The provision for income taxes is comprised of the current tax liability and the change in deferred tax assets and liabilities.

The Company establishes a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be recoverable against future taxable income.

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

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

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

In addition, the calculation of tax liabilities involved dealing with uncertainties in the application of complex tax regulations.

The Company recognized potential liabilities based on its estimate of whether, and the extent to which, additional taxes will be due.

In addition, the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

The Company recognizes potential liabilities based on its estimate of whether, and the extent to which, additional taxes will be due.

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 of uncertain tax positions.

The guidance utilizes 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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Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period.

Diluted net income (loss) is computed by adjusting net income (loss) to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding common

Diluted net income (loss) is computed by adjusting net income (loss) to

Notes to Consolidated Financial Statements—Continued

stock options, RSUs, PSUs, warrants to purchase common stock, common stock issuable in connection with the 2018 ESPP, and common stock issuable in connection with the Notes.

reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding common stock options, RSUs, PSUs, warrants to purchase common stock, common stock issuable in connection with the 2018 ESPP, and common stock issuable in connection with the Notes.

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

Recent Accounting Pronouncements Not Yet Adopted

With the exception of those discussed below, the Company has reviewed all recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280) :

Improvements to Reportable Segment Disclosures” (“ASU 2023-07”) , which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and accompanying footnotes.

Improvements to Reportable Segment Disclosures , which is referred to as ASU 2023-07 .

ASU 2023-07 requires public entities to disclose information about their significant expenses and other items by reportable segment on both an interim and annual basis.

Public entities with a single reportable segment are required to apply these enhanced disclosure requirements as well as all existing segment and reconciliation requirements under Accounting Standards Codification, which is referred to as ASC, 280 for both interim and annual reporting.

On December 31, 2024, the Company adopted ASU 2023-07, effective as of January 1, 2024.

As a result, the Company has updated its segment disclosures in “Note 15 – Segment Information,” providing more detailed information on significant expenses and other relevant segment items in accordance with the new guidance.

The adoption of ASU 2023-07 did not result in any changes to the Company’s reportable segments but did enhance the granularity of disclosures within our financial statements, increasing transparency for interim and annual reporting periods.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

Improvements to Income Tax Disclosures, which is referred to as ASU 2023-09 .

ASU 2023-09 requires public entities to provide annual disclosures of specific categories in the rate reconciliation and to disclose income taxes paid, disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and accompanying footnotes.

The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statements and accompanying footnotes.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses , which is referred to as ASU 2024-03.

ASU 2024-03 requires public entities to disclose detailed information about specific types of expenses included within the expense captions presented on the face of the income statement.

While ASU 2024-03 does not alter the presentation of expense captions on the face of the income statement, it introduces requirements for disaggregating certain expense captions into specified categories within the footnotes to the financial statements.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact that ASU 2024-03 will have on its consolidated financial statements and accompanying footnotes.

Note 3— Revenue

Revenue Recognition

For information about how the Company derives revenue, as well as the Company’s accounting policies, refer to “Note 2—Basis of Presentation and Summary of Significant Accounting Policies.”

Disaggregation of Revenue

See Note 12 for the Company’s revenue disaggregated by type of service and geographic area.

Remaining Performance Obligations

As of December 31, 2023, the Company had approximately $ 18.2 million of remaining performance obligations.

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

In May 2023, the Company retired its tiered service fee structure for talent and introduced a simplified flat service fee of 10 %.

This change took effect for new contracts and existing contracts that would have otherwise been subject to a 20 % fee under the former tiered service fee model.

Contracts under the former tiered service fee model that had a 5 % fee retained that rate for those contracts through the end of 2023.

With this change to the Company’s tiered service fee structure, the Company no longer allocates a portion of the transaction price to unexercised material rights.

As of December 31, 2023, the Company expects to recognize approximately $ 17.4 million over the next 12 months, with the remaining balance recognized thereafter.

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

Based on the information provided and reviewed by the CODM, the nature, amount, timing, and uncertainty of revenue and cash flows and how they are affected by economic factors are most appropriately depicted by the type of service and primary geographical markets.

Revenues recorded within these categories are earned from similar products and services for which the nature of associated fees and the related revenue recognition models are substantially similar.

The Company disaggregates revenue by two types of services:

Marketplace revenue and Enterprise revenue.

The following table sets forth total revenue by type of service for the years ended December 31, 2024, 2023, and 2022:

Notes to Consolidated Financial Statements—Continued

(In thousands) 2024 2023 2022

Marketplace $ 662,108 $ 586,099 $ 518,282

Enterprise 107,217 103,037 100,036

Total revenue

$ 769,325 $ 689,136 $ 618,318

The following table sets forth total revenue by geographic area based on the billing address of talent and clients for the years ended December 31, 2024, 2023, and 2022:

(In thousands) 2024 2023 2022

United States $ 111,691 $ 95,833 $ 86,892

Philippines 58,475 45,912 39,946

India 56,897 49,487 45,817

Rest of world (1)

212,065 178,693 162,016

Total talent 439,128 369,925 334,671

United States 238,786 236,744 210,582

Rest of world (1)

91,411 82,467 73,065

Total clients 330,197 319,211 283,647

Total $ 769,325 $ 689,136 $ 618,318

(1) During the years ended December 31, 2024, 2023, and 2022, no country included in the Rest-of-World category had revenue that exceeded 10% of total talent revenue, total client revenue, or total revenue.

Deferred Revenue and Remaining Performance Obligation

Deferred revenue represents amounts billed in advance for services not yet rendered.

Deferred revenue expected to be recognized within the next twelve months is classified as current deferred revenue, while the remaining balance is noncurrent.

As of December 31, 2024, the Company’s performance obligation from transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with talent subject to tiered service fees was immaterial and is expected to be recognized as revenue within the next twelve months.

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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Deferred revenue (component of other liabilities, noncurrent) — 790

During 2024, changes in the contract liabilities balances were primarily the result of normal business activity, including the deferral, and subsequent recognition, of revenue related to arrangements with talent subject to tiered service fees and related allocation of transaction price to material rights.

The significant change in deferred revenue in 2024 compared to the prior year was largely attributable to the Company’s transition away from the tiered service

Notes to Consolidated Financial Statements—Continued

During 2023, changes in the contract liabilities balances were a result of normal business activity and deferral, and subsequent recognition, of revenue related to arrangements with talent subject to tiered service fees and related allocation of transaction price to material rights.

fee structure to a flat fee structure, which impacted how transaction price was allocated and revenue was recognized.

Revenue recognized during the year ended December 31, 2024 that was included in deferred revenue as of December 31, 2023 was $ 17.3 million.

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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, 2024 and 2023.

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, 2023 and 2022:

The following tables summarize the Company’s 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, 2024 and 2023.

(In thousands)

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Gain Unrealized

Value Cash and

Cash Equivalents Marketable

Cash $ 60,904 $ — $ — $ 60,904 $ 60,904 $ —

Value Cash Equivalents

Marketable Securities

Money market funds $ 193,481 $ — $ — $ 193,481 $ 193,481 $ —

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Foreign government and agency securities 5,036 14 ( 12 ) 5,038 — 5,038

agency securities 4,506 — ( 6 ) 4,500 — 4,500

Total Level II 152,377 447 ( 156 ) 152,668 — 152,668

Total $ 509,505 $ 509 $ ( 189 ) $ 509,825 $ 193,481 $ 316,344

Notes to Consolidated Financial Statements—Continued

(In thousands)

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Gain Unrealized

Value Cash and

Cash Equivalents Marketable

Cash $ 27,528 $ — $ — $ 27,528 $ 27,528 $ —

Value Cash Equivalents

Marketable Securities

Money market funds $ 4,782 $ — $ — $ 4,782 4,782 —

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Foreign government and agency securities 3,075 5 — 3,080 — 3,080

8,176 — ( 10 ) 8,166 — 8,166

agency securities 4,506 — ( 6 ) 4,500 — 4,500

21,785 38 ( 23 ) 21,800 — 21,800

Total Level II 166,358 196 ( 60 ) 166,494 — 166,494

Total $ 488,964 $ 308 $ ( 78 ) $ 489,194 $ 18,737 $ 470,457

(1) Prior period has been reclassified to conform to the current period presentation as of December 31, 2023.

As of December 31, 2023 and 2022, the Company’s funds held on behalf of customers were held in interest-bearing cash accounts, which include Level I inputs.

Notes to Consolidated Financial Statements—Continued

Additionally, the Company deposits funds held in escrow in interest-bearing and non-interest-bearing cash accounts.

The interest earned on the interest-bearing accounts is included in revenue in the Company’s consolidated statement of operations and comprehensive income (loss).

As of December 31, 2024 and 2023, the fair value of the Company’s funds held on behalf of customers and held in interest-bearing cash accounts was measured using Level I inputs.

The Company’s non-financial assets acquired pursuant its acquisition of Objective AI, Inc., including intangible assets and goodwill, are measured at estimated fair value on a non-recurring basis.

For additional information, refer to “Note 7—Business Combination.”

The following table summarizes the remaining contractual maturities of our cash equivalents and marketable securities as of December 31, 2024:

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Corporate bonds 33,386 ( 142 ) 2,819 ( 2 ) 36,205 ( 144 )

Asset-backed securities 6,598 ( 20 ) 7,348 ( 22 ) 13,946 ( 42 )

agency securities 1,995 ( 1 ) 2,505 ( 5 ) 4,500 ( 6 )

Foreign government and agency securities 2,362 ( 12 ) — — 2,362 ( 12 )

Total $ 48,270 $ ( 181 ) $ 6,941 $ ( 8 ) $ 55,211 $ ( 189 )

Notes to Consolidated Financial Statements—Continued

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

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Fair Value Unrealized loss Fair Value Unrealized loss Fair Value Unrealized loss

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

government securities $ 15,381 $ ( 15 ) $ 5,182 $ ( 3 ) $ 20,563 $ ( 18 )

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Asset-backed securities 6,598 ( 20 ) 7,348 ( 22 ) 13,946 ( 42 )

Foreign government and agency securities (1)

5,576 ( 8 ) 2,591 ( 2 ) 8,167 ( 10 )

agency securities 1,995 ( 1 ) 2,505 ( 5 ) 4,500 ( 6 )

9,478 ( 23 ) — — 9,478 ( 23 )

Total $ 48,036 $ ( 46 ) $ 15,587 $ ( 32 ) $ 63,623 $ ( 78 )

(1) Prior period has been reclassified to conform to the current period presentation as of December 31, 2023.

For available-for-sale marketable debt securities with unrealized loss positions, the Company does not intend to sell these securities, nor does it anticipate that it will need to or be required to sell the securities.

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For additional information regarding the Notes, refer to “Note 10—Debt.”

During the years ended December 31, 2023, 2022, and 2021, interest income, net was $ 24.4 million, $ 7.9 million, and $ 0.3 million, respectively, and is included in other income (expense), net in the Company’s consolidated statement of operations and comprehensive income (loss).

Notes to Consolidated Financial Statements—Continued

During the years ended December 31, 2024, 2023, and 2022, interest income was $ 28.0 million, $ 24.4 million, and $ 7.9 million, respectively, and is included in other income, net in the Company’s consolidated statement of operations and comprehensive income (loss).

Note 5— Balance Sheet Components

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Property and equipment, net $ 30,056 $ 27,140

Depreciation expense related to property and equipment was $ 2.9 million, $ 3.2 million, and $ 3.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Depreciation expense related to property and equipment, excluding internal-use software and platform development, was $ 2.9 million, $ 2.9 million, and $ 3.2 million for the years ended December 31, 2024, 2023, and 2022, respectively.

The Company capitalized $ 12.8 million, $ 13.8 million, and $ 7.5 million of internal-use software and platform development costs during the years ended December 31, 2024, 2023, and 2022, respectively.

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Amortization expense related to the capitalized internal-use software and platform development costs was $ 4.9 million for the year ended December 31, 2022, of which $ 2.7 million was included in cost of revenue related to developed technology used on the work marketplace.

Intangible Assets, Net

In November 2023, the Company purchased certain assets, namely an assembled workforce.

The assembled workforce is presented as an intangible asset on the Company’s consolidated balance sheet and amortized over two years .

For the year ended December 31, 2023, amortization expense of intangible assets was immaterial .

For the year ended December 31, 2022, there was no amortization expense.

For the year ended December 31, 2021, amortization expense of intangible assets acquired in a 2014 business combination was $ 0.7 million.

As of December 31, 2023, the remaining useful life for the assembled workforce intangible asset was 1.92 years.

Notes to Consolidated Financial Statements—Continued

Accrued Expenses and Other Current Liabilities

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Accrued vendor expenses 9,485 8,844

Operating lease liability, current 5,687 6,502

Accrued payment processing fees 4,478 2,090

Operating lease liability, current 1,624 5,687

Accrued talent costs 801 1,415

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Total accrued expenses and other current liabilities $ 59,300 $ 58,192

Note 6— Leases

Operating Leases

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The Company has not entered into any significant finance, sales-type, or direct financing leases.

Notes to Consolidated Financial Statements—Continued

The Company’s significant judgments include determining whether an arrangement is or contains a lease, the determination of the discount rate used to calculate the lease liability, and whether or not lease incentives are reasonably certain to occur in the initial measurement of the lease liability.

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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 five years .

The Company’s leases have remaining lease terms of approximately four years to eight years .

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

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

Notes to Consolidated Financial Statements—Continued

The following table summarizes the Company’s operating lease assets and lease liabilities as of December 31, 2024 and 2023:

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For the years ended December 31, 2024, 2023, and 2022, the Company made lease payments of $ 5.8 million, $ 6.8 million , and $ 6.6 million , respectively.

San Francisco Sublease and Santa Clara Sub-Sublease

In November 2023, the Company amended its sub-sublease agreement that was executed in April 2021 to sublease the entirety of its former headquarters in Santa Clara, California.

The terms of the amended sub-sublease extends the sub-sublease an additional 51 months through August 31, 2028, unless terminated earlier.

The amended sub-sublease term comprises substantially all of the remaining term of the Company’s master lease.

Rent payments approximate $ 0.1 million per month and are recorded within general and administrative expenses within the Company’s consolidated statements of operations and comprehensive income (loss).

Palo Alto Office Lease

In June 2024, the Company entered into a new lease agreement to lease approximately 12,685 square feet of office space in Palo Alto, California, which serves as the Company’s corporate headquarters.

The lease commenced in September 2024 and rent payments for the premises will commence in March 2025.

The initial term of the lease is 91 months from the commencement date and is set to expire in September 2032, unless terminated earlier.

The Company has two options to extend the lease term, each for an additional three years , exercisable under certain conditions as specified in the lease agreement.

The Company evaluated these options as part of the lease accounting under ASC 842 and determined that the extension options are not reasonably certain to be exercised.

As such, the options have not been included in the measurement of the right-of-use asset or lease liability.

As a result of entering into this lease, the Company recorded a right-of-use asset and lease liability of $ 4.5 million and $ 4.4 million, respectively.

Rent payments under this lease are approximately $ 0.1 million per month and are recorded within general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income (loss).

The lease for the Company’s previous headquarters in San Francisco, California expired in August 2024.

Santa Clara Sub-Sublease

In November 2023, the Company amended its sub-sublease agreement, originally executed in April 2021, to sublease the entirety of its former headquarters in Santa Clara, California.

The amended sub-sublease extends the term by an additional 51 months, through August 31, 2028, unless terminated earlier.

The amended sub-sublease term aligns substantially with the remaining term of the Company’s master lease.

Rent payments under the amended agreement approximate $ 0.1 million per month and are recorded within general and administrative expenses within the Company’s consolidated statements of operations and comprehensive income (loss).

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

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

The suite that was not subleased continues to be utilized by the Company as its headquarters, as it was prior to entering into the sublease agreement.

The term of the sublease expires on August 31, 2024, unless terminated earlier in accordance

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

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

Chicago Leases

In December 2024, as a result of the restructuring plan announced in October 2024, which the Company refers to as the Restructuring Plan, the Company entered into an early termination agreement for the Chicago leases, effective December 31, 2024.

The Company recognized approximately $ 1.1 million in early termination costs, primarily consisting of remaining lease payments under the termination agreement.

Operating lease costs for the year ended December 31, 2024, including variable lease charges, reflect amounts incurred prior to the lease termination.

Notes to Consolidated Financial Statements—Continued

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

Rent payments are recorded within general and administrative expenses within the Company’s consolidated statements of operations and comprehensive income (loss).

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

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 2021 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.

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.” As a result, during the year ended December 31, 2021, the Company recorded impairment charges of $ 8.7 million, which are included in general and administrative expenses within its consolidated statement of operations and comprehensive income (loss).

Prior to the termination, the Company leased office space in Chicago, Illinois, consisting of the 11th and 16th floors of an office building, with both leases originally scheduled to expire on April 30, 2025.

Monthly rent payments for each floor were approximately $ 0.1 million.

The following table shows the Company’s future lease commitments due in each of the next five years for operating leases, which excludes amounts received in the form of sublease income discussed above:

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Year Ended December 31, Leases

Thereafter 3,918

Total lease payments 15,891

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For the year ended December 31, 2024, the weighted-average discount rate is 7.0 % .

Note 7— Business Combination

On November 20, 2024, the Company acquired Objective AI Inc., referred to as Objective AI, a search-as-a-service platform specializing in AI-native search integration for digital experiences.

The Company acquired 100 % of Objective AI’s outstanding equity for $ 19.1 million in cash consideration.

This strategic acquisition aims to enhance the Company’s platform by integrating advanced AI-native search capabilities and strengthen its AI and search teams with specialized talent.

The acquisition of Objective AI was accounted for as a business combination under ASC Topic 805, Business Combinations.

Accordingly, the total purchase consideration was allocated as follows (in thousands):

Cash and cash equivalents

Intangible assets

Other net, tangible assets acquired and liabilities assumed

Total purchase consideration

The excess purchase price over the net identifiable assets acquired was recorded as goodwill.

The goodwill recognized from the acquisition is primarily attributable to the assembled workforce associated with Objective AI, that cannot be individually identified and separately recognized as intangible asset.

Goodwill is not deductible for tax purposes.

The Company engaged an independent third-party valuation specialist to assist in the determination of the fair value of intangible assets acquired.

All key estimates, assumptions, and forecasts, were either provided by, or reviewed by management.

While the third-party specialist provided significant input into the valuation, the final conclusions reflect the judgment of management.

The fair value measurements of the intangible assets were based primarily on significant unobservable inputs and this represents a Level 3 measurement.

The estimated useful lives and fair value of the identifiable intangible assets at acquisition date were as follows (dollars in thousands):

Expected Useful life

Developed technology

$ 11,000 3 years

Customer relationships

$ 1,000 6 months

Notes to Consolidated Financial Statements—Continued

The Company considers the valuation of the assets acquired and liabilities assumed to be final.

Management does not anticipate any material adjustments to these allocations .

Note 8— Goodwill and Net Intangible Assets

The following table summarizes the change in the carrying value amount of goodwill for the year ended December 31, 2024.

Balance at December 31, 2023

Increase in goodwill related to business combination

Balance at December 31, 2024

Net Intangible Assets

The Company’s intangible assets include identifiable, finite-lived intangible assets including developed technology and customer relationships, acquired as part of the Objective AI acquisition, and an assembled workforce, acquired as part of an asset acquisition in November 2023.

The following table summarizes the components of net intangible assets as of December 31, 2024 and 2023:

(In thousands)

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Developed technology $ 11,000 $ 305 $ 10,695 $ — $ — $ —

Assembled workforce 3,188 1,727 1,461 3,180 132 3,048

Customer relationships 1,000 167 833 — — —

$ 15,188 $ 2,199 $ 12,989 $ 3,180 $ 132 $ 3,048

For the year ended December 31, 2024, amortization expense of intangible assets was $ 2.1 million, which includes the amortization expense of intangible assets acquired in the Objective AI acquisition.

For the year ended December 31 2023, amortization expense of intangible assets was immaterial .

For the year ended December 31, 2022, there was no amortization expense.

As of December 31, 2024, the weighted average amortization periods for the finite-lived intangible assets are as follows:

Developed technology 2.9 years

Assembled workforce 0.9 years

Customer relationships 0.4 years

As of December 31, 2024, the estimated annual amortization expense for finite-lived intangible assets over the remaining useful life is as follows (in thousands):

(In thousands)

Year Ended December 31, Estimated Amortization Expense

Notes to Consolidated Financial Statements—Continued

Note 9— Commitments and Contingencies

Letters of Credit

In conjunction with the Company’s operating lease agreements, as of December 31, 2023 and 2022, the Company had irrevocable letters of credit outstanding in the aggregate amount of $ 0.8 million.

In conjunction with the Company’s operating lease agreements, as of December 31, 2024 and 2023, the Company had irrevocable letters of credit outstanding in the aggregate amount of $ 0.6 million and $ 0.8 million, respectively.

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

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Any claims, litigation, or other contingencies could have an adverse effect on the Company’s business, financial position, results of operations or cash flows in or following the period that claims, litigation or other contingencies are resolved.

As of December 31, 2023 and 2022, the Company was not a party to any material legal proceedings or claims, nor is the Company aware of any pending or threatened litigation or claims, including non-income tax matters, that could reasonably be expected to have a material adverse effect on its business, operating results, cash flows, or

Notes to Consolidated Financial Statements—Continued

financial condition.

As of December 31, 2024 and 2023, the Company was not a party to any material legal proceedings or claims, nor is the Company aware of any pending or threatened litigation or claims, including non-income tax matters, that could reasonably be expected to have a material adverse effect on its business, operating results, cash flows, or financial condition.

Accordingly, the amounts accrued for contingencies for which the Company believes a loss is probable were not material as of and for the years ended December 31, 2024 and 2023.

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It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the facts and circumstances involved in each particular provision.

Notes to Consolidated Financial Statements—Continued

Note 10— Debt

The following table presents the carrying value of the Company’s debt obligations as of December 31, 2024 and 2023:

(In thousands) 2024 2023

Convertible senior notes—interest accrues from August 2021 and will be payable semiannually in arrears on February 15 and August 15 of each year, beginning February 2022, maturing August 2026;

Convertible senior notes—interest accrues from August 2021 and is payable semiannually in arrears on February 15 and August 15 of each year, beginning February 2022, maturing August 2026;

interest at 0.25 % per annum

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Convertible Senior Notes Due 2026

In August 2021, the Company issued $ 570.0 million aggregate principal amount of 0.25 % convertible senior note due 2026, at par value.

The issuance included the full exercise of an option granted by the Company to the initial purchasers of the Notes to purchase an additional $ 75.0 million aggregate principal amount of the Notes.

In August 2021, the Company issued 0.25 % convertible senior notes due 2026.

The Notes were issued pursuant to and are subject to the terms and conditions of an indenture between the Company and Computershare Trust Company, National Association (as successor in interest to Wells Fargo Bank, National Association), as trustee, which is referred to as the Indenture.

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.

In March 2023, the Company entered into separate, privately negotiated repurchase agreements with a limited number of institutional holders of the Notes to repurchase an aggregate of $ 214.0 million principal amount of the Notes for an aggregate cash payment of $ 170.8 million.

In March 2023, the Company entered into separate, privately negotiated repurchase agreements with a limited number of institutional holders of the Notes to effect the Note Repurchases, resulting in the repurchase of $ 214.0 million aggregate principal amount of the Notes for an aggregate cash payment of $ 170.8 million.

As a result, during the year ended December 31, 2023, the Company recognized a gain on the early extinguishment of debt of $ 38.9 million, which is net of $ 3.7 million related to the pro-rata write-off of unamortized issuance costs associated with the sale of the Notes in August 2021, and $ 0.6 million of other fees incurred to effect the Note Repurchases.

The resulting gain on early extinguishment of debt is included in other income (expense), net in the Company’s consolidated statement of operations and comprehensive income (loss).

As of December 31, 2023, $ 361.0 million aggregate principal amount of the Notes remain outstanding.

The resulting gain on early extinguishment of debt is included in other income, net in the Company’s consolidated statement of operations and comprehensive income (loss).

As of each of December 31, 2024 and 2023, $ 361.0 million aggregate principal amount of the Notes remained outstanding.

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

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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

• 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;

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The Notes have an initial conversion rate of 15.1338 shares of common stock per $1,000 principal amount of Notes, which is subject to adjustment in certain circumstances.

This is equivalent to an initial conversion price of approximately $ 66.08 per share of the Company’s common stock.

This is equivalent to an initial conversion price of approximately $ 66.08 per share of the Company’s

Notes to Consolidated Financial Statements—Continued

common stock.

The conversion rate is subject to customary adjustments under certain circumstances in accordance with the terms of the Indenture.

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and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

The net proceeds from the issuance of the Notes were approximately $ 560.1 million, after deducting debt issuance costs.

The total debt issuance costs incurred and recorded by the Company amounted to $ 14.9 million, which were recorded as a reduction to the face amount of the Notes and are amortized to interest expense on a straight-line basis, which produces a materially consistent amount as the effective interest method over the contractual term of the Notes.

For the year ended December 31, 2024, interest expense was $ 0.9 million and amortization of the issuance costs was $ 1.8 million related to the Notes.

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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

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.

In connection with the issuance of the Notes, the Company entered into privately negotiated capped call transactions, which are referred to as the Capped Calls, with various financial institutions.

Subject to customary anti-dilution adjustments substantially similar to those applicable to the Notes, the Capped Calls cover the number of shares of the Company’s common stock initially underlying the Notes.

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If, however, the market price per share of common stock, as measured under the terms of the Capped Calls, exceeds the cap price of the Capped Calls, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share of common stock exceeds the cap price of the Capped Calls.

The initial cap price of the Capped Calls is $ 92.74 per share of common stock, which represents a premium of 100 % over the last reported sale price of the common stock of $ 46.37 per share on August 5, 2021, and is subject to certain customary adjustments under the terms of the Capped Calls;

The initial cap price of the Capped Calls is $ 92.74 per share of common stock, which represents a premium of 100 % over the last reported sale price of the common stock of $ 46.37 per share on August 5, 2021, the date of issuance of the Notes, and is subject to certain customary adjustments under the terms of the Capped Calls;

provided that the cap price will not be reduced to an amount less than the strike price of $ 66.08 per share.

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Preferred Stock

Notes to Consolidated Financial Statements—Continued

As of December 31, 2024 and 2023, the Company was authorized to issue up to 10,000,000 shares of undesignated preferred stock, $ 0.0001 par value per share.

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Share Repurchase Program

In November 2023, the Company’s board of directors authorized the repurchase of up to $ 100.0 million of shares of the Company’s outstanding common stock, or the Share Repurchase Program.

Repurchases of the Company’s common stock under the Share Repurchase Program may be made from time to time on the open market (including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act), in privately negotiated transactions, or by other methods, at the Company’s discretion, and in accordance with applicable securities laws and other restrictions.

The Share Repurchase Program has no expiration date and will continue until otherwise suspended, terminated, or modified at any time for any reason.

The Share Repurchase Program does not

Notes to Consolidated Financial Statements—Continued

obligate the Company to repurchase any dollar amount or number of shares.

The Company did not have any share repurchase activity for the period in which the Share Repurchase Program was active during the year ended December 31, 2023.

In November 2023, the Company’s board of directors authorized a share repurchase program for the repurchase of up to $ 100.0 million of shares of the Company’s outstanding common stock, which is referred to as the 2023 Share Repurchase Authorization.

During the year ended December 31, 2024, the Company repurchased and subsequently retired 8.1 million shares of its common stock under the 2023 Share Repurchase Authorization for an aggregate amount of $ 100.0 million at an average price of $ 12.38 per share, including fees associated with the repurchases and excluding excise tax.

As of December 31, 2024, the Company had no remaining balance available for repurchases under the 2023 Share Repurchase Authorization.

In October 2024, the Company’s board of directors authorized a share repurchase program for the repurchase of up to $ 100.0 million of shares of the Company’s outstanding common stock, which is referred to as the 2024 Repurchase Authorization.

The Company did not repurchase any shares under the 2024 Share Repurchase Authorization.

As of December 31, 2024, the Company had $ 100.0 million available for repurchases under the 2024 Share Repurchase Authorization.

As was the case with the 2023 Share Repurchase Authorization, repurchases of the Company’s common stock under the 2024 Share Repurchase Authorization may be made from time to time on the open market (including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act), in privately negotiated transactions, or by other methods, at the Company’s discretion, and in accordance with applicable securities laws and other restrictions.

The 2024 Share Repurchase Authorization has no expiration date and will continue until otherwise suspended, terminated, or modified at any time for any reason.

The 2024 Share Repurchase Authorization does not obligate the Company to repurchase any dollar amount or number of shares, and the timing and amount of any repurchases will depend on market and business conditions.

Common Stock Warrant

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The program includes a donor-advised fund created through the Tides Foundation.

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

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

The vesting and exercisability provisions of the warrant became effective upon the Company’s initial public offering, which is referred to as the IPO, in October 2018.

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

In 2023 and 2021, this warrant was exercised as to all 50,000 of the then-vested and exercisable shares.

In 2024, the holder of the warrant exercised 67,000 of the then-vested and exercisable shares.

In 2023, this warrant was exercised as to all 50,000 of the then-vested and exercisable shares.

The holder of the warrant did no t exercise in 2022.

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

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

Notes to Consolidated Financial Statements—Continued

exercise price.

In each of the years ended December 31, 2024, 2023, and 2022, 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 income (loss).

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The total number of shares of common stock reserved and available for grant and issuance pursuant to such plan was originally 12,462,985 plus (i) shares that were then subject to outstanding option grants under the oDesk Corporation 2004 Stock Plan, the Elance 1999 Stock Option Plan, and the Elance 2009 Stock Option Plan, which are referred to collectively as the Prior Plans, but subsequently ceased to be subject to an award for any reason other than exercise of a stock option, (ii) shares that had been reserved but not subject to any outstanding awards under the Prior Plans and (iii) shares issued under the Prior Plans that were repurchased, forfeited, or used to pay employee withholding or exercise price obligations.

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

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

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

As of 2024, no further awards may be granted under the 2014 EIP.

2018 Equity Incentive Plan

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

On January 1 of each year, shares available for issuance are increased based on the provisions of the 2018 EIP.

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

On January 1 of each year through 2028, shares available for issuance are increased based on the provisions of the 2018 EIP.

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

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

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For awards containing only service conditions, the Company determines the expected term using the simplified method as the Company did not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior at the time of grant.

Notes to Consolidated Financial Statements—Continued

The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.

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Expected Volatility —Since the Company did not have a sufficient trading history of its common stock at the time of grant, the expected volatility is derived from the average historical stock volatilities of several unrelated public companies within the Company’s industry that the Company considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.

Fair Value of Common Stock —Given the absence of a public trading market prior to the IPO, the Company’s board of directors considered numerous objective and subjective factors to determine the fair value of its common stock at each grant date.

Notes to Consolidated Financial Statements—Continued

each grant date.

These factors included, but were not limited to:

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$ 100 500,000

As of December 31, 2024, none of the Market Condition stock price thresholds had been met, and no shares subject to the CEO Award had been earned or vested.

Stock-based compensation expense associated with the CEO Award will be recognized over the longer of the expected achievement period for the Market Condition and the Service Condition.

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The Company did not grant any stock option awards during the years ended December 31, 2024 and 2023.

As of December 31, 2023, total unrecognized stock-based compensation cost was $ 1.3 million, which is expected to be generally recognized on a straight-line basis over a weighted-average period of 0.8 years.

As of December 31, 2024, total unrecognized stock-based compensation expense is immaterial and will be recognized over a brief period.

RSU and PSU Awards

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.

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

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Unvested balance - December 31, 2024 8,841,716 $ 12.99

In 2023, the compensation committee of the Company’s board of directors approved PSU grants to certain members of the Company’s leadership team under the 2018 EIP.

The number of PSUs that were earned by the

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

For the years ended

Notes to Consolidated Financial Statements—Continued

recipients, which are referred to as Earned PSUs, was determined based on the Company’s revenue achievement during the year ended December 31, 2023, which is referred to as the PSU Performance Condition.

December 31, 2024, 2023, and 2022, the weighted-average grant-date fair value of RSUs granted was $ 11.90 , $ 11.73 , and $ 19.66 , respectively.

For the years ended December 31, 2024, 2023, and 2022, the fair value of RSUs vested was $ 66.2 million, $ 61.9 million, and $ 57.4 million, respectively.

As of December 31, 2024, the Company had $ 86.2 million of unrecognized stock-based compensation expense related to outstanding RSUs to employees that is expected to be recognized over a weighted-average period of 2.2 years.

In March 2024, the compensation committee of the Company’s board of directors, which is referred to as the compensation committee, approved the grant of PSU awards to certain members of the Company’s leadership team under the 2018 EIP, which are referred to as the 2024 PSU Awards.

These awards were granted on March 18, 2024, which is referred to as the 2024 PSU Grant Date.

Up to fifty percent of the total number of shares subject to the 2024 PSU Awards are eligible to vest based on the Company’s achievement of certain financial performance targets in the fiscal year ending December 31, 2025 and up to the remaining fifty percent of the total number of shares subject to the 2024 PSU Awards are eligible to vest based on the Company’s achievement of certain financial performance targets in the fiscal year ending December 31, 2026.

For each year, the financial performance targets consist of year-over-year revenue growth and adjusted EBITDA margin targets that were established by the compensation committee at the time of grant, which is referred to as the 2024 PSU Performance Condition.

In order to receive the vested PSUs, a recipient must remain in continuous service with the Company until the compensation committee certifies the achievement of the 2024 PSU Performance Condition for the applicable year, which is referred to as the 2024 PSU Service Condition.

The dates on which such certification takes place are referred to as Certification Dates.

The Company classifies the 2024 PSU Awards as equity awards.

Stock-based compensation expense related to the 2024 PSU Awards is a component of operating expenses in the Company’s consolidated statements of operations and comprehensive income (loss) and is recognized over the longer of the expected achievement period for the 2024 PSU Performance Condition and the 2024 PSU Service Condition, which is 23 months and 35 months for the shares eligible to vest under the 2024 PSU Awards based on performance in each of the years ending December 31, 2025 and 2026, respectively.

The grant date fair value of the 2024 PSU Awards was determined using the Company’s closing common stock price on the 2024 PSU Grant Date multiplied by the number of 2024 PSU Awards that were probable of vesting on the 2024 PSU Grant Date.

At each reporting date prior to the Certification Dates, the number of 2024 PSU Awards that are probable of vesting will be reassessed and any changes are reflected in stock-based compensation expense for the period.

In 2023, the compensation committee approved PSU grants to certain members of the Company’s leadership team under the 2018 EIP, which are referred to as the 2023 PSU Awards.

These awards were granted on February 18, 2023, which is referred to as the 2023 PSU Grant Date.

The number of shares subject to the 2023 PSU Awards that were earned by the recipients, which are referred to as 2023 Earned PSUs, was determined based on the Company’s revenue achievement during the year ended December 31, 2023, which is referred to as the 2023 PSU Performance Condition.

Pursuant to the 2023 PSU Performance Condition, the 2023 Earned PSUs are subject to a time-based vesting requirement conditioned on the recipient of the 2023 PSU Award continuing to provide service to the Company for four years from the 2023 PSU Grant Date, which is referred to as the 2023 PSU Service Condition.

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The grant date fair value of the 2023 PSU Awards was determined using the Company’s closing common stock price on the 2023 PSU Grant Date multiplied by the number of PSUs that were probable of being earned on the 2023 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.

At each interim reporting date prior to the date on which the compensation committee certified the 2023 PSU Performance Condition, the number of PSUs that were probable of being earned was reassessed and any changes were reflected in the total stock-based compensation expense associated with the 2023 PSU Awards.

For the years ended December 31, 2024, 2023, and 2022, the weighted-average grant-date fair value of PSUs granted was $ 12.06 , $ 11.72 , and $ 24.49 , respectively.

During the years ended December 31, 2023, 2022, and 2021, the Company recorded stock-based compensation expense related to the PSUs of $ 2.4 million, $ 4.4 million, and $ 3.4 million, respectively.

During the years ended December 31, 2024, 2023, and 2022, the Company recorded stock-based compensation expense related to PSUs of $ 3.1 million, $ 2.4 million, and $ 4.4 million, respectively.

As of December 31, 2024, unrecognized stock-based compensation cost was $ 5.5 million, which is expected to be recognized over a weighted-average period of 2.1 years.

For the years ended December 31, 2023, 2022, and 2021, the weighted-average grant-date fair value of RSUs granted was $ 11.73 , $ 19.66 , and $ 51.37 , respectively.

For the years ended December 31, 2023, 2022, and 2021, the fair value of RSUs vested was $ 61.9 million, $ 57.4 million, and $ 30.5 million, respectively.

As of December 31, 2023, there was $ 131.4 million of unrecognized stock-based compensation expense related to outstanding RSUs to employees that is expected to be recognized over a weighted-average period of 2.6 years.

Notes to Consolidated Financial Statements—Continued

2018 Employee Stock Purchase Plan

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

On January 1 of each year, shares available for issuance are increased based on the provisions of the 2018 ESPP.

On January 1 of each year, shares available for issuance are increased based on the provisions of the 2018 ESPP, up to an aggregate maximum of 20,400,000 shares issued under the 2018 ESPP, subject to adjustment for certain company capital changes.

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.

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During the year ended December 31, 2024, the Company issued 657,526 shares of common stock under the 2018 ESPP.

Notes to Consolidated Financial Statements—Continued

As of December 31, 2024, there was $ 1.5 million of unrecognized stock-based compensation expense that is expected to be recognized over the remaining term of the respective offering periods.

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Total $ 68,391 $ 74,195 $ 75,501

For the year ended December 31, 2024, the Company recorded $ 12.8 million of tax benefit on total stock-based compensation expense, which is reflected in the benefit from income taxes in the consolidated statement of operations and comprehensive income (loss).

Tax benefits on total stock-based compensation for the years ended December 31, 2023 and 2022 were not material.

Stock-Based Compensation to Employees

Stock-based compensation expense related to employees for the year ended December 31, 2023 was $ 5.1 million, $ 65.1 million, and $ 5.0 million related to stock option grants, RSU and PSU grants, and the 2018 ESPP, respectively.

Stock-based compensation expense related to employees for the year ended December 31, 2022 was $ 11.4 million, $ 59.7 million, and $ 4.5 million related to stock option grants, RSU grants, and the 2018 ESPP, respectively.

Stock-based compensation expense related to employees for the year ended December 31, 2021 was $ 12.7 million, $ 38.8 million, and $ 2.2 million related to stock option grants, RSUs, and the 2018 ESPP, respectively.

Stock-based compensation expense related to employees for the year ended December 31, 2024 was $ 1.3 million, $ 66.2 million, and $ 2.6 million related to stock options, RSU and PSU grants, and the 2018 ESPP, respectively.

Stock-based compensation expense related to employees for the year ended December 31, 2023 was $ 5.1 million, $ 65.1 million, and $ 5.0 million related to stock options, RSU and PSU grants, and the 2018 ESPP, respectively.

Notes to Consolidated Financial Statements—Continued

Stock-based compensation expense related to employees for the year ended December 31, 2022 was $ 11.4 million, $ 59.7 million, and $ 4.5 million related to stock options, RSUs, and the 2018 ESPP, respectively.

Note 13— Net Income (Loss) per Share

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Options to purchase common stock 1,211,092 1,401,107 —

Common stock issuable upon vesting of restricted stock units and performance stock units 2,437,873 — —

Common stock issuable upon exercise of common stock warrants 232,813 299,741 —

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Diluted $ 1.52 $ 0.06 $ ( 0.69 )

For the years ended December 31, 2023, 2022, and 2021, the following potentially dilutive shares were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive:

For the years ended December 31, 2024, 2023, and 2022, the following potentially dilutive shares were excluded from the computation of diluted net income (loss) per share because including them would have been anti-dilutive:

2024 2023 2022

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Federal $ 110,923 $ — $ —

State 18,335 — —

Foreign — — —

Total deferred $ 129,258 $ — $ —

Income tax provision $ ( 1,990 ) $ ( 536 ) $ ( 122 )

Income tax benefit (provision)

$ 125,159 $ ( 1,990 ) $ ( 536 )

The Company had an effective tax rate of ( 138.41 )%, 4.07 %, and ( 0.60 )% for the years ended December 31, 2024, 2023, and 2022, respectively.

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Foreign-derived intangible income benefit

( 3.76 ) ( 5.56 ) —

Other items 0.16 ( 0.79 ) ( 0.60 )

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Operating lease asset ( 1,316 ) ( 997 )

Acquired intangibles

Total deferred tax liabilities ( 4,205 ) ( 1,499 )

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2022 132,162 24,489 702 — 157,353

The Company records a full valuation allowance of $ 140.3 million and $ 157.4 million as of December 31, 2023 and 2022, 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.

Due to the history of losses the Company has generated in the past, the Company believes that it is not more likely than not that all of the deferred tax assets can be realized as of December 31, 2023.

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

The Company has released the valuation allowance of $ 140.3 million as of December 31, 2024.

This release reflects the Company’s determination that it is more likely than not that its U.S.

federal and state deferred tax assets will be realized.

As a result, the income tax benefit for the year was primarily attributable to the release of this valuation allowance.

Previously, the Company recorded a full valuation allowance of $ 140.3 million as of December 31, 2023.

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

This assessment considers all available positive and negative evidence, including cumulative pre-tax income, anticipated future earnings, and the impact of permanent differences and other comprehensive losses.

As of December 31, 2024, the Company achieved cumulative U.S.

pre-tax income during the prior three years, adjusted for permanent differences and other comprehensive losses, which provided objective and verifiable evidence supporting the release of the valuation allowance.

This sustained profitability, combined with anticipated future taxable income, led the Company to conclude, based on the weight of all available evidence, that it is more likely than not that its U.S.

federal and state deferred tax assets will be realized.

The Company has federal net operating loss, which is referred to as NOL, carryforwards of approximately $ 18.9 million and $ 181.2 million as of December 31, 2024 and 2023, respectively.

The federal NOLs will begin to expire in 2034, if not utilized.

The federal NOL carryforwards of $ 18.9 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.

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California NOLs will begin to expire in 2032 if not utilized.

Notes to Consolidated Financial Statements—Continued

The Company has federal research and development credits of approximately $ 31.1 million and $ 29.1 million as of December 31, 2024 and 2023, respectively.

The federal research and development credits are subject to expiration from 2033 through 2042.

The federal research and development credits will begin to expire in 2038 if not utilized.

The Company has California research and development credits of approximately $ 16.7 million and $ 16.6 million as of December 31, 2024 and 2023, 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

Notes to Consolidated Financial Statements—Continued

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

The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of NOLs 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

As of December 31, 2023, the Company’s total amount of unrecognized tax benefits was $ 18.2 million, none of which would impact the Company’s effective tax rate, if recognized.

As of December 31, 2024, the Company’s total amount of unrecognized tax benefits was $ 20.0 million, which would impact the Company’s effective tax rate, if recognized.

For the years ended December 31, 2024, 2023, and 2022, the activity related to the unrecognized tax benefits were as follows:

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Due to certain tax attribute carryforwards, the tax years 2001 to 2023 remain open to examination by the major taxing jurisdictions in which the Company is subject to tax.

As of December 31, 2023, the Company was not under examination by the Internal Revenue Service or any state or foreign tax jurisdiction.

Note 12— Segment and Geographical Information

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

The following table sets forth total revenue by type of service for the years ended December 31, 2023, 2022, and 2021:

(In thousands) 2023 2022 2021

Marketplace (1)

As of December 31, 2024, the Company was not under examination by the Internal Revenue Service.

The Company is subject to ongoing audits by state and foreign tax authorities.

Note 15— Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly provided to the CODM in deciding how to allocate resources to an individual segment and in assessing performance.

The Company’s Chief Executive Officer is the Company’s CODM.

The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

For information about how the Company derives revenue, as well as the Company’s accounting policies, refer to “Note 2—Basis of Presentation and Summary of Significant Accounting Policies.”

The CODM uses consolidated net income (loss) to assess performance, evaluate cost optimization, and allocate resources, including personnel-related and financial or capital resources, in the annual budget and forecasting process, as well as budget-to-actual variances on a monthly basis.

As such, the Company has determined that it operates as one operating and reportable segment.

The following tables set forth significant expense categories and other specified amounts included in consolidated net income (loss) that are otherwise regularly provided to the CODM for the years ended December 31, 2024, 2023, and 2022:

Notes to Consolidated Financial Statements—Continued

2024 2023 2022

Enterprise (1)

$ 769,325 $ 689,136 $ 618,318

Total revenue

Cost of revenue (1)(2)

163,560 164,088 156,240

(1) In order to conform to the current period presentation as of December 31, 2023, the Company presents revenue from Enterprise Solutions and Managed Services together as Enterprise revenue in prior periods and no longer reports revenue from its Enterprise Solutions offering, previously referred to as Upwork Enterprise, in Marketplace revenue.

Notes to Consolidated Financial Statements—Continued

The Company generates its revenue from talent and clients.

The following table sets forth total revenue by geographic area based on the billing address of its talent and clients for the years ended December 31, 2023, 2022, and 2021:

(In thousands) 2023 2022 2021

United States $ 95,833 $ 86,892 $ 74,890

India 49,487 45,817 42,277

Philippines 45,912 39,946 32,918

Rest of world (1)

Research and development (1)(2)

167,211 146,442 121,813

Total talent 369,925 334,671 296,979

United States 236,744 210,582 153,003

Rest of world (1)

Sales and marketing (1)(2)

166,331 206,614 235,106

Total clients 319,211 283,647 205,818

Total $ 689,136 $ 618,318 $ 502,797

(1) During the years ended December 31, 2023, 2022, and 2021, 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, 2023 and 2022.

General and administrative (1)(2)(3)

97,903 85,881 84,035

Provision for transaction losses 6,728 12,977 25,153

Stock-based compensation expense (4)

68,391 74,195 75,501

Depreciation and amortization 14,813 9,449 8,057

Interest income

( 27,963 ) ( 24,424 ) ( 7,917 )

Interest expense

2,761 3,218 4,482

Gain on early extinguishment of convertible senior notes — ( 38,945 ) —

Restructuring charges (4)

Income tax (benefit) provision

( 125,159 ) 1,990 536

Other segment items (4)(5)(6)

730 764 5,197

Segment net income (loss)

$ 215,586 $ 46,887 $ ( 89,885 )

GAAP net income (loss)

$ 215,586 $ 46,887 $ ( 89,885 )

(1) Years 2024, 2023, and 2022 exclude stock-based compensation and depreciation and amortization included in cost of revenue, research and development, sales and marketing, and general and administrative expenses, as these amounts are regularly provided to the CODM.

Additionally, year 2024 excludes restructuring charges.

(2) Year 2022 excludes certain incremental expenses associated with the Company’s humanitarian response to Russia’s invasion in Ukraine.

(3) Years 2024, 2023, and 2022 exclude expenses related to the Tides Foundation Warrant.

(4) During the year ended December 31, 2024, the Company incurred $ 19.2 million in costs related to the execution of the Restructuring Plan.

Of this amount, $ 18.4 million is included in “Restructuring charges” while the remaining amount is allocated between “Stock-based compensation expense” and “Other segment items”.

See “Note 17—Restructuring Charges” for more information.

(5) During the year ended December 31, 2022, in response to Russia’s invasion of Ukraine, the Company incurred certain incremental expenses associated with its humanitarian response efforts of $ 4.3 million.

(6) During each of the years ended December 31, 2024, 2023, and 2022, the Company incurred $ 0.8 million of expenses related to the Tides Foundation Warrant.

Substantially all of the Company’s long-lived assets, including operating lease right-of-use assets, were located in the United States as of December 31, 2024 and 2023.

Note 16— 401(k) Plan

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

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

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

The Retirement Plan provides for a discretionary employer cash matching contribution.

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The Company’s total expense for the matching contributions was $ 3.9 million, $ 3.7 million, and $ 3.5 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Note 17— Restructuring Charges

In October 2024, the Company announced the Restructuring Plan, intended to continue the Company’s profitable trajectory, increase efficiency, and accelerate innovation for its customers.

The Restructuring Plan included various cost-reduction measures, including workforce reductions, reductions in operating expenses, as well as decreases in capital expenditures.

As part of the Restructuring Plan, the Company reduced its total workforce by approximately

Notes to Consolidated Financial Statements—Continued

The workforce reductions, including associated cash payments, were substantially completed by December 31, 2024.

The total restructuring charges for the fourth quarter of 2024 were $ 19.2 million and are presented within the respective functional line items in the Company's consolidated statement of operations and comprehensive (loss), as shown in the following table for the year ended December 31, 2024:

(in thousands)

Employee severance and benefit costs

Contract termination costs

Other charges

Total Restructuring Charges

Cost of revenue

$ 139 $ 198 $ — $ 337

Research and development 3,904 4,249 — 8,153

Sales and marketing 5,262 1,872 — 7,134

General and administrative 1,699 559 1,043 3,301

Other income, net

$ 11,004 $ 6,878 $ 1,304 $ 19,186

Contract termination costs include expenses related to the reduction in force of the Company’s contracted workforce impacted by the Restructuring Plan, as well as vendor contract terminations.

Other charges include additional expenses incurred as part of the Restructuring Plan, such as lease termination costs and disposal of certain fixed assets.

No restructuring charges were recorded for the years ended December 31, 2023 and 2022.

The following table summarizes the Company’s restructuring liability:

( in thousands )

Restructuring Liability

Beginning balance as of January 1, 2024

Restructuring charges incurred

Ending balance as of December 31, 2024

As of December 31, 2024, the remaining restructuring liability of $ 2.1 million consists primarily of accrued severance and benefit costs, and vendor termination costs, recorded within “Accrued expenses and other current liabilities” in the accompanying consolidated Balance Sheet.

The remaining liability is expected to be settled by the end of the first quarter 2025.

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

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data