Upwork, Inc 10-K for FY2020

Upwork, Inc (UPWK)

10-K 2021-02-24 For: 2020-12-31

Added on April 09, 2026

About this 10-K

Upwork, Inc filed this 10-K on February 24, 2021, covering the fiscal year ended December 31, 2020 (FY2020).

Headline figures

Fiscal year ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $373.63M; up 24.3% from $300.56M a year earlier
Net loss: $22.87M; compared with a net loss of $16.66M a year earlier

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Delaware		46-4337682
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2625 Augustine Drive, Suite 601
Santa Clara,	California	95054
(Address of principal executive offices)		(Zip Code)


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share	UPWK	The Nasdaq Stock Market LLC


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


		Page
Special Note Regarding Forward-Looking Statements		1

PART I
Item 1.	Business	2
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	48
Item 2.	Properties	49
Item 3.	Legal Proceedings	49
Item 4.	Mine Safety Disclosures	49

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	49
Item 6.	Selected Consolidated Financial Data	51
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	55
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 8.	Financial Statements and Supplementary Data	75
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	109
Item 9A.	Controls and Procedures	109
Item 9B.	Other Information	109

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	110
Item 11.	Executive Compensation	110
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	110
Item 13.	Certain Relationships and Related Transactions, and Director Independence	110
Item 14.	Principal Accountant Fees and Services	110

PART IV
Item 15.	Exhibits and Financial Statement Schedules	111
Item 16.	Form 10-K Summary	113
Signatures		114


	Year Ended December 31,
	2020			2019			2018			2017			2016
Consolidated Statements of Operations Data:	(in thousands, except per share data and percentages)
Revenue
Marketplace	$	338,152		$	268,284		$	223,831		$	178,046		$	138,484
Managed services	35,476			32,278			29,523			24,506			25,961
Total revenue	373,628			300,562			253,354			202,552			164,445
Cost of revenue(1)	104,267			88,144			81,458			65,443			62,578
Gross profit	269,361			212,418			171,896			137,109			101,867
Operating expenses
Research and development(1)	83,471			64,027			55,488			45,604			37,902
Sales and marketing(1)	133,225			95,891			72,963			53,044			37,437
General and administrative(1)	71,518			67,327			49,336			37,334			35,446
Provision for transaction losses	3,555			3,905			5,821			4,250			5,550
Total operating expenses	291,769			231,150			183,608			140,232			116,335
Loss from operations	(22,408)			(18,732)			(11,712)			(3,123)			(14,468)
Interest expense	778			1,306			2,038			960			858
Other (income) expense, net	(469)			(3,407)			6,142			62			908
Loss before income taxes	(22,717)			(16,631)			(19,892)			(4,145)			(16,234)
Income tax benefit (provision)	(150)			(28)			(15)			22			1
Net loss	(22,867)			(16,659)			(19,907)			(4,123)			(16,233)
Premium on repurchase of redeemable convertible preferred stock	—			—			—			(6,506)			—
Net loss attributable to common stockholders	$	(22,867)		$	(16,659)		$	(19,907)		$	(10,629)		$	(16,233)
Net loss per share attributable to common stockholders, basic and diluted(2)	$	(0.19)		$	(0.15)		$	(0.38)		$	(0.32)		$	(0.51)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted	118,699			109,815			52,328			32,945			32,072

Other Financial and Operating Data: (3)
Core clients (4)	145.4			124.4			105.5			86.4			76.5
GSV (5)	$	2,523,649		$	2,087,055		$	1,756,289		$	1,373,161		$	1,148,363
Client spend retention (6)	102		%	102		%	108		%	99		%	85		%
Marketplace take rate (7)	13.6		%	13.1		%	13.0		%	13.2		%	12.3		%
Adjusted EBITDA (8)	$	14,022		$	7,438		$	3,824		$	7,909		$	1,260


Cost of revenue	$	779	$	456	$	282	$	290	$	193
Research and development	9,783		6,471		3,258		1,797		1,820
Sales and marketing	4,440		2,609		1,637		1,299		1,052
General and administrative	10,506		9,262		5,184		3,460		4,201
Total	$	25,508	$	18,798	$	10,361	$	6,846	$	7,266


	As of December 31,
	2020		2019		2018		2017		2016
Consolidated Balance Sheet Data:	(in thousands)
Cash and cash equivalents	$	94,081	$	48,392	$	129,128	$	21,595	$	27,326
Marketable securities	75,570		85,481		—		—		—
Working capital	162,054		131,537		128,282		29,483		31,205
Total assets	529,227		446,380		391,573		275,189		249,600
Debt, current and noncurrent	10,723		18,283		23,910		33,833		16,962
Redeemable convertible preferred stock	—		—		—		166,486		178,785
Total stockholders’ equity (deficit)	299,310		259,424		243,745		(31,367)		(30,131)


	As of or for the Year Ended December 31,
	2020			2019			2018

GSV	$	2,523,649		$	2,087,055		$	1,756,289
Marketplace revenue	$	338,152		$	268,284		$	223,831
Marketplace take rate	13.6		%	13.1		%	13.0		%
Core clients	145.4			124.4			105.5
Client spend retention	102		%	102		%	108		%
Net loss	$	(22,867)		$	(16,659)		$	(19,907)
Adjusted EBITDA (1)	$	14,022		$	7,438		$	3,824


(in thousands, except percentages)	Year Ended December 31,						Change
	2020			2019			$		%
Marketplace	$	338,152		$	268,284		69,868		26	%
Percentage of total revenue	91		%	89		%
Managed services	$	35,476		$	32,278		3,198		10	%
Percentage of total revenue	9		%	11		%
Total revenue	$	373,628		$	300,562		$	73,066	24	%


	Three Months Ended
	March 31, 2019		June 30, 2019		September 30, 2019		December 31, 2019		March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020
	(in thousands)
Revenue
Marketplace	$	60,455	$	65,728	$	69,912	$	72,189	$	74,782	$	78,464	$	88,040	$	96,866
Managed services	8,021		8,055		8,103		8,099		8,414		9,067		8,708		9,287
Total revenue	68,476		73,783		78,015		80,288		83,196		87,531		96,748		106,153
Cost of revenue(1)	21,125		21,588		22,494		22,937		23,485		25,408		26,596		28,778
Gross profit	47,351		52,195		55,521		57,351		59,711		62,123		70,152		77,375
Operating expenses
Research and development(1)	15,800		15,696		16,209		16,322		19,348		20,547		20,833		22,743
Sales and marketing(1)	20,518		24,479		25,322		25,572		30,678		34,440		33,577		34,530
General and administrative(1)	15,661		14,064		16,468		21,134		17,824		17,102		18,047		18,545
Provision for transaction losses	637		855		1,214		1,199		912		1,018		724		901
Total operating expenses	52,616		55,094		59,213		64,227		68,762		73,107		73,181		76,719
Income (loss) from operations	(5,265)		(2,899)		(3,692)		(6,876)		(9,051)		(10,984)		(3,029)		656
Interest expense	373		357		317		259		230		258		152		138
Other (income) expense, net	(479)		(832)		(462)		(1,634)		731		(248)		(452)		(500)
Income (loss) before income taxes	(5,159)		(2,424)		(3,547)		(5,501)		(10,012)		(10,994)		(2,729)		1,018
Income tax provision	(1)		(27)		—		—		(9)		(30)		(18)		(93)
Net income (loss)	$	(5,160)	$	(2,451)	$	(3,547)	$	(5,501)	$	(10,021)	$	(11,024)	$	(2,747)	$	925
Net income (loss) per share, basic and diluted	$	(0.05)	$	(0.02)	$	(0.03)	$	(0.05)	$	(0.09)	$	(0.09)	$	(0.02)	$	0.01
Weighted-average shares used to compute net income (loss) per share, basic and diluted	106,639		108,683		111,163		112,690		114,119		116,524		120,681		123,398

(1) Includes stock-based compensation expense as follows (in thousands):

Cost of revenue	$	144	$	73	$	109	$	130	$	174	$	202	$	203	$	200
Research and development	1,380		1,686		1,503		1,902		1,950		2,769		2,567		2,497
Sales and marketing	642		583		635		749		928		1,312		1,212		988
General and administrative	2,129		289		1,685		5,159		2,485		2,851		2,874		2,296
Total	$	4,295	$	2,631	$	3,932	$	7,940	$	5,537	$	7,134	$	6,856	$	5,981


	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
Leases(1)	$	32,906	$	6,405	$	13,365	$	8,199	$	4,937
Debt principal	10,750		7,571		3,179		—		—
Total contractual obligations	$	43,656	$	13,976	$	16,544	$	8,199	$	4,937


Report of Independent Registered Public Accounting Firm			76
Consolidated Balance Sheets as of December 31, 2020 and 2019			78
Consolidated Statements of Operations for the Years ended December 31, 2020, 2019, and 2018			79
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2020, 2019, and 2018			80
Consolidated Statements of Cash Flows for the Years ended December 31, 2020, 2019, and 2018			81
Notes to Consolidated Financial Statements			82


	2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	94,081	$	48,392
Marketable securities	75,570		85,481
Funds held in escrow, including funds in transit	135,042		108,721
Trade and client receivables – net of allowance of $1,661 and $2,215 as of December 31, 2020 and 2019, respectively	47,018		30,156
Prepaid expenses and other current assets	9,090		7,885
Total current assets	360,801		280,635
Property and equipment, net	28,139		21,454
Goodwill	118,219		118,219
Intangible assets, net	667		3,335
Operating lease asset	19,729		21,908
Other assets, noncurrent	1,672		829
Total assets	$	529,227	$	446,380

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,455	$	652
Escrow funds payable	135,042		108,721
Debt, current	7,581		7,584
Accrued expenses and other current liabilities	32,868		18,342
Deferred revenue	16,801		13,799
Total current liabilities	198,747		149,098
Debt, noncurrent	3,142		10,699
Operating lease liability, noncurrent	20,506		21,186
Other liabilities, noncurrent	7,522		5,973
Total liabilities	229,917		186,956
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of December 31, 2020 and 2019; 124,795,222 and 113,604,398 shares issued and outstanding as of December 31, 2020 and 2019, respectively	12		11
Additional paid-in capital	494,122		431,370
Accumulated deficit	(194,824)		(171,957)
Total stockholders’ equity	299,310		259,424
Total liabilities and stockholders’ equity	$	529,227	$	446,380


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balances as of December 31, 2017	61,279,079	$	166,486	33,740,323	$	3	$	92,222	$	(123,592)	$	(31,367)
Issuance of common stock upon exercise of stock options and common stock warrants	—	—		3,567,917	1		8,159		—		8,160
Stock-based compensation expense	—	—		—	—		10,361		—		10,361
Issuance of common stock in connection with the initial public offering, net of discounts and commissions	—	—		7,840,908	1		109,380		—		109,381
Costs related to the initial public offering	—	—		—	—		(6,282)		—		(6,282)
Conversion of redeemable convertible preferred stock warrant in connection with the initial public offering	—	—		—	—		7,160		—		7,160
Conversion of redeemable convertible preferred stock in connection with the initial public offering	(61,279,079)	(166,486)		61,279,079	6		166,480		—		166,486
Issuance of common stock for settlement of RSUs	—	—		38,742	—		—		—		—
Shares withheld related to net share settlement of RSUs	—	—		(12,648)	—		(247)		—		(247)
Net loss	—	—		—	—		—		(19,907)		(19,907)
Balances as of December 31, 2018	—	—		106,454,321	11		387,233		(143,499)		243,745
Cumulative effect adjustment from adoption of new accounting pronouncement (Note 2)	—	—		—	—		—		(11,799)		(11,799)
Issuance of common stock upon exercise of stock options and common stock warrants	—	—		6,429,471	—		18,155		—		18,155
Stock-based compensation expense	—	—		—	—		18,616		—		18,616
Tides Foundation common stock warrant expense and other	—	—		—	—		975		—		975
Issuance of common stock for settlement of RSUs	—	—		163,943	—		—		—		—
Issuance of common stock in connection with employee stock purchase plan	—	—		556,663	—		6,391		—		6,391
Net loss	—	—		—	—		—		(16,659)		(16,659)
Balances as of December 31, 2019	—	—		113,604,398	11		431,370		(171,957)		259,424
Issuance of common stock upon exercise of stock options and common stock warrants	—	—		9,115,947	1		31,027		—		31,028
Stock-based compensation expense	—	—		—	—		25,677		—		25,677
Tides Foundation common stock warrant expense and other	—	—		—	—		1,135		—		1,135
Issuance of common stock for settlement of RSUs	—	—		1,590,225	—		—		—		—
Issuance of common stock in connection with employee stock purchase plan	—	—		484,652	—		4,913		—		4,913
Net loss	—	—		—	—		—		(22,867)		(22,867)
Balances as of December 31, 2020	—	$	—	124,795,222	$	12	$	494,122	$	(194,824)	$	299,310


	2020		2019
Trade and client receivables, net of allowance	$	47,018	$	30,156
Contract liabilities
Deferred revenue	16,801		13,799
Deferred revenue (component of other liabilities, noncurrent)	4,177		3,153


	2020		2019		2018
Net cash provided by operating activities	$	22,365	$	1,058	$	13,744
Net cash used in investing activities	(4,146)		(100,924)		(6,841)
Net cash provided by financing activities	54,641		29,402		112,065
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	72,860	$	(70,464)	$	118,968


	2020		2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(22,867)	$	(16,659)	$	(19,907)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for transaction losses	2,919		3,118		5,110
Depreciation and amortization	10,172		6,661		4,949
Amortization of debt issuance costs	61		52		77
Amortization of discount on purchases of marketable securities	(320)		(1,158)		—
Change in fair value of redeemable convertible preferred stock warrant liability	—		—		6,056
Amortization of operating lease asset	3,860		3,945		—
Tides Foundation common stock warrant expense	750		711		226
Stock-based compensation expense	25,508		18,798		10,361
Loss on disposal of fixed assets	44		14		91
Changes in operating assets and liabilities:
Trade and client receivables	(20,000)		(10,918)		3,506
Prepaid expenses and other assets	(1,198)		(2,069)		(1,292)
Operating lease liability	(1,851)		(1,453)		—
Accounts payable	5,822		(1,457)		1,609
Accrued expenses and other liabilities	15,438		(2,957)		2,849
Deferred revenue	4,027		4,430		109
Net cash provided by operating activities	22,365		1,058		13,744
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(107,281)		(168,786)		—
Proceeds from maturities of marketable securities	117,500		84,500		—
Purchases of property and equipment	(6,320)		(10,752)		(3,002)
Internal-use software and platform development costs	(8,045)		(5,886)		(3,839)
Net cash used in investing activities	(4,146)		(100,924)		(6,841)
CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in escrow funds payable	26,321		10,535		10,991
Proceeds from exercises of stock options and common stock warrant	31,028		18,155		8,160


Taxes paid related to net share settlement of restricted stock units	—		—		(247)
Proceeds from borrowings on debt	18,000		50,000		15,000

Repayment of debt	(25,621)		(55,679)		(25,000)
Proceeds from employee stock purchase plan	4,913		6,391		—
Proceeds from the initial public offering, net of discounts and commissions	—		—		109,381


	2020		2019		2018
Allowance for doubtful accounts, beginning balance	$	2,215	$	2,832	$	1,577
Provision for doubtful accounts	3,143		3,193		4,940
Amounts written off	(3,697)		(3,810)		(3,685)
Allowance for doubtful accounts, ending balance	$	1,661	$	2,215	$	2,832


	December 31, 2020
	Level I		Level II		Level III		Total

Cash equivalents
Money market funds	$	65,723	$	—	$	—	$	65,723
Commercial paper	—		5,999		—		5,999
Marketable securities
Commercial paper	—		50,965		—		50,965
Treasury Bills	4,499		—		—		4,499
U.S. government securities	20,106		—		—		20,106
Total financial assets	$	90,328	$	56,964	$	—	$	147,292


	December 31, 2019
	Level I		Level II		Level III		Total

Cash equivalents—money market funds	$	35,286	$	—	$	—	$	35,286
Marketable securities
Commercial paper	—		50,794		—		50,794
U.S. government securities	34,687		—		—		34,687
Total financial assets	$	69,973	$	50,794	$	—	$	120,767







Fair value at December 31, 2017	$	1,104
Change in fair value	6,056
Conversion to common stock warrant in connection with the initial public offering	(7,160)
Fair value at December 31, 2018	$	—


	2020		2019
Computer equipment and software	$	4,819	$	3,613
Internal-use software and platform development costs	20,727		12,726
Leasehold improvements	14,613		10,576
Office furniture and fixtures	3,354		2,454
Total property and equipment	43,513		29,369
Less: Accumulated depreciation	(15,374)		(7,915)
Property and equipment, net	$	28,139	$	21,454


	As of December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade names	$	2,293	$	2,293	$	—
User relationships	18,678		18,011		667
Developed technology	10,356		10,356		—
Domain names	529		529		—
Total	$	31,856	$	31,189	$	667


	As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade names	$	2,293	$	2,293	$	—
User relationships	18,678		15,343		3,335
Developed technology	10,356		10,356		—
Domain names	529		529		—
Total	$	31,856	$	28,521	$	3,335


Year Ended December 31,	Estimated Amortization Expense
2021	$	667


Total	$	667


	2020		2019
Accrued compensation and related benefits	$	14,007	$	5,344
Accrued freelancer costs	1,235		622
Accrued indirect taxes	3,818		2,401
Accrued vendor expenses	8,662		5,485
Accrued payment processing fees	1,219		832
Operating lease liability, current	3,725		3,214
Other	202		444
Total accrued expenses and other current liabilities	$	32,868	$	18,342


Balance Sheet Classification		2020		2019
Assets
Operating—noncurrent	Operating lease asset	$	19,729	$	21,908
Liabilities
Operating—current	Accrued expenses and other current liabilities	3,725		3,214
Operating—noncurrent	Operating lease liability, noncurrent	20,506		21,186
Total lease liabilities		$	24,231	$	24,400


Year Ended December 31,	Leases
2021	$	3,919
2022	5,391
2023	6,519
2024	5,843
2025	2,356
Thereafter	4,937

Total lease payments	28,965
Adjustment for discount to present value	(4,734)
Total	$	24,231


	2020			2019
First term loan—18 months of interest-only payments ended in March 2019 followed by 36 equal monthly installments of principal plus interest, maturing March 2022; interest at prime plus 0.25% per annum	$	6,250		$	11,250
Second term loan—17 months of interest-only payments ended in March 2019 followed by 42 equal monthly installments of principal plus interest, maturing September 2022; interest at prime plus 0.25% per annum	4,500			7,071

Total debt	10,750			18,321
Less: Unamortized debt discount issuance costs	(27)			(38)
Balance	10,723			18,283
Debt, current	(7,581)			(7,584)
Debt, noncurrent	$	3,142		$	10,699
Weighted-average interest rate	5.64		%	6.93		%


Year Ended December 31,	Principal Payments
2021	$	7,571
2022	3,179




Total	$	10,750



Dividend yield	0	%
Expected term (in years)	2.75
Risk-free interest rates	1.8	%
Expected volatility	34.6	%


	2020	2019
Options issued and outstanding	4,858,590	15,140,579
RSUs issued and outstanding	5,568,225	2,503,182

Warrant to purchase common stock	400,000	450,000


Remaining shares reserved for future issuances under 2018 Equity Incentive Plan	18,332,765	16,091,801
Remaining shares reserved for future issuances under 2018 Employee Stock Purchase Plan	2,419,154	1,994,971
Total	31,578,734	36,180,533


Dividend yield	—	%
Expected term (in years)	0.3 - 1.3
Risk-free interest rates	1.5% - 1.6%
Expected volatility	38% - 39%



Dividend yield	—	%
Expected term (in years)	5.2 - 6.1
Risk-free interest rates	2.5% - 2.9%
Expected volatility	38% - 45%


	Number of Shares Underlying Outstanding Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)








Balances at December 31, 2019	15,140,579	$	3.61	6.19	$	106,967

Exercised	(9,065,976)	3.42
Forfeited and canceled	(1,216,013)	4.08
Balances at December 31, 2020	4,858,590	3.83		5.80	149,046
Vested and exercisable as of December 31, 2020	3,876,252	3.74		5.55	119,303
Vested and expected to vest as of December 31, 2020	4,858,590	3.83		5.80	149,046


	Number of RSUs Outstanding	Weighted-Average Grant Date Fair Value
Unvested balance - January 1, 2020	2,503,182	$	15.82
Granted	5,750,034	10.96
Vested	(1,590,225)	13.15
Forfeited/canceled	(1,094,766)	12.70
Unvested balance - December 31, 2020	5,568,225	$	12.20


	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	77,230	$	48,988
Stock-based compensation	230		4,192
Operating lease liability	5,555		10,248
Non-deductible accrued expenses, reserves and other	4,903		2,596
Research and development credits	11,352		8,762
Gross deferred tax assets	99,270		74,786
Valuation allowance	(92,390)		(63,542)
Total deferred tax assets	6,880		11,244
Deferred tax liabilities:
Acquired intangible assets	(89)		(693)
Operating lease asset	(4,523)		(9,202)
Depreciation and amortization	(2,268)		(1,349)
Total deferred tax liabilities	(6,880)		(11,244)
Net deferred tax assets	$	—	$	—


Year Ended December 31,	Balance at Beginning of Year		Additions Charged to Costs & Expenses		Additions Charged to Other Accounts		Deductions		Balance at End of Year

2020	$	63,542	$	28,848	$	—	$	—	$	92,390
2019	49,439		14,103		—		—		63,542
2018	45,364		4,075		—		—		49,439


	Upwork Inc.

Date: February 23, 2021	By:	/s/ Hayden Brown
		Hayden Brown
		President and Chief Executive Officer