UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-38678

UPWORK INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		46-4337682
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~2625 Augustine Drive,~~475 Brannan Street, Suite ~~601~~430
~~Santa Clara,~~San Francisco,	California	~~95054~~94107
(Address of principal executive offices)		(Zip Code)

(650) 316-7500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 31, 2020,~~June 30, 2021, there were ~~122,073,553~~127,616,789 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS


		Page
Special Note Regarding Forward-Looking Statements		1

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	2
	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	4
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	65
	Notes to Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2016
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4027
Item 4.	Controls and Procedures	4027

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	4228
Item 1A.	Risk Factors	4228
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8673
Item 6.	Exhibits	8774
Signatures		8875

Unless otherwise expressly stated or the context otherwise requires, references in this Quarterly Report on Form 10-Q, ~~(this “Quarterly Report” or “report”)~~which we refer to as this Quarterly Report, to “Upwork,” “Company,” “our,” “us,” and “we” and similar references refer to Upwork Inc. and its wholly-owned subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Quarterly Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, potential growth or growth prospects, client spend retention, core clients, future research and development, sales and marketing and general and administrative expenses, provision for transaction losses, our objectives for future operations, and potential impacts of the COVID-19 pandemic, or expectations regarding actions we may take in response to the pandemic, are forward-looking statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” “continues,” “anticipates,” “intends,” “expects,” “could,” “would,” “projects,” “plans,” “targets,” and variations of such words and similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections as of the date of this filing about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report and the impact of the COVID-19 pandemic. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report and in other documents we file from time to time with the Securities and Exchange Commission, ~~(the “SEC”)~~which we refer to as the SEC, that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Quarterly Report are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason after the date of this Quarterly Report or to conform statements to actual results or revised expectations, except as required by law.

You should read this Quarterly Report and the documents that we reference herein and have filed with the SEC as exhibits to this Quarterly Report with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

UPWORK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

September 30, 2020 December 31, 2019
ASSETS
Current assets
Cash and cash equivalents $ 88,436 $ 48,392
Marketable securities 67,051 85,481
Funds held in escrow, including funds in transit 128,131 108,721
Trade and client receivables – net of allowance of $1,648 and $2,215 as of September 30, 2020 and December 31, 2019, respectively 39,853 30,156
Prepaid expenses and other current assets 8,487 7,885
Total current assets 331,958 280,635
Property and equipment, net 27,680 21,454
Goodwill 118,219 118,219
Intangible assets, net 1,334 3,335
Operating lease asset 20,662 21,908
Other assets, noncurrent 1,784 829
Total assets $ 501,637 $ 446,380
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 5,708 $ 652
Escrow funds payable 128,131 108,721
Debt, current 7,576 7,584
Accrued expenses and other current liabilities 28,766 18,342
Deferred revenue 15,892 13,799
Total current liabilities 186,073 149,098
Debt, noncurrent 5,021 10,699
Operating lease liability, noncurrent 21,693 21,186
Other liabilities, noncurrent 7,276 5,973
Total liabilities 220,063 186,956
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 121,775,309 and 113,604,398 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 12 11
Additional paid-in capital 477,311 431,370
Accumulated deficit (195,749) (171,957)
Total stockholders’ equity 281,574 259,424
Total liabilities and stockholders’ equity $ 501,637 $ 446,380


	June 30, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	131,448	$	94,081
Marketable securities	40,990		75,570
Funds held in escrow, including funds in transit	165,082		135,042
Trade and client receivables – net of allowance of $1,886 and $1,661 as of June 30, 2021 and December 31, 2020, respectively	62,232		47,018
Prepaid expenses and other current assets	12,526		9,090
Total current assets	412,278		360,801
Property and equipment, net	23,683		28,139
Goodwill	118,219		118,219
Intangible assets, net	0		667
Operating lease asset	13,674		19,729
Other assets, noncurrent	1,406		1,672
Total assets	$	569,260	$	529,227

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	8,625	$	6,455
Escrow funds payable	165,082		135,042
Debt, current	6,344		7,581
Accrued expenses and other current liabilities	33,211		32,868
Deferred revenue	19,164		16,801
Total current liabilities	232,426		198,747
Debt, noncurrent	633		3,142
Operating lease liability, noncurrent	18,757		20,506
Other liabilities, noncurrent	8,916		7,522
Total liabilities	260,732		229,917

Commitments and contingencies (Note 6)	0		0

Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 127,616,789 and 124,795,222 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	13		12
Additional paid-in capital	527,712		494,122

Accumulated deficit	(219,197)		(194,824)
Total stockholders’ equity	308,528		299,310
Total liabilities and stockholders’ equity	$	569,260	$	529,227

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenue	Revenue	$	96,748	$	78,015	$	267,475	$	220,274	Revenue	$	124,181	$	87,531	$	237,800	$	170,727
Cost of revenue	Cost of revenue	26,596		22,494		75,489		65,207		Cost of revenue	33,083		25,408		63,524		48,893
Gross profit	Gross profit	70,152		55,521		191,986		155,067		Gross profit	91,098		62,123		174,276		121,834
Operating expenses	Operating expenses									Operating expenses
Research and development	Research and development	20,833		16,209		60,728		47,705		Research and development	28,124		20,547		54,737		39,895
Sales and marketing	Sales and marketing	33,577		25,322		98,695		70,319		Sales and marketing	45,817		34,440		85,421		65,118
General and administrative	General and administrative	18,047		16,468		52,973		46,193		General and administrative	32,355		17,102		55,886		34,926
Provision for transaction losses	Provision for transaction losses	724		1,214		2,654		2,706		Provision for transaction losses	1,197		1,018		2,324		1,930
Total operating expenses	Total operating expenses	73,181		59,213		215,050		166,923		Total operating expenses	107,493		73,107		198,368		141,869
Loss from operations	Loss from operations	(3,029)		(3,692)		(23,064)		(11,856)		Loss from operations	(16,395)		(10,984)		(24,092)		(20,035)
Interest expense	Interest expense	152		317		640		1,047		Interest expense	110		258		309		488
Other (income) expense, net	Other (income) expense, net	(452)		(462)		31		(1,773)		Other (income) expense, net	17		(248)		(61)		483
Loss before income taxes	Loss before income taxes	(2,729)		(3,547)		(23,735)		(11,130)		Loss before income taxes	(16,522)		(10,994)		(24,340)		(21,006)
Income tax provision	Income tax provision	(18)		0		(57)		(28)		Income tax provision	(16)		(30)		(33)		(39)
Net loss	Net loss	$	(2,747)	$	(3,547)	$	(23,792)	$	(11,158)	Net loss	$	(16,538)	$	(11,024)	$	(24,373)	$	(21,045)

Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.02)	$	(0.03)	$	(0.20)	$	(0.10)	Net loss per share, basic and diluted	$	(0.13)	$	(0.09)	$	(0.19)	$	(0.18)
Weighted-average shares used to compute net loss per share, basic and diluted	Weighted-average shares used to compute net loss per share, basic and diluted	120,681		111,163		117,121		108,844		Weighted-average shares used to compute net loss per share, basic and diluted	126,742		116,524		126,011		115,321

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)


Three Months Ended September 30, 2020		Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders’ Equity
Three Months Ended June 30, 2021													Three Months Ended June 30, 2021					Common Stock		Additional Paid-in Capital		Accumulated Deficit				Total Stockholders’ Equity
			Shares			Additional Paid-in Capital			Amount		Accumulated Deficit			Total Stockholders’ Equity										Shares						Amount
Balances as of June 30, 2020			119,267,694						$	270,143
Balances as of March 31, 2021																Balances as of March 31, 2021					125,962,107			$	13			$	508,147			$	(202,659)			$	305,501
Issuance of common stock upon exercise of stock options	Issuance of common stock upon exercise of stock options		2,096,934	0					7,333				—				7,333		Issuance of common stock upon exercise of stock options			926,721				—				3,130				—				3,130
Stock-based compensation expense	Stock-based compensation expense		—	—			6,734				—			6,734		Stock-based compensation expense				—		—				13,562				—				13,562
Issuance of common stock for settlement of RSUs	Issuance of common stock for settlement of RSUs		410,681	—			—				—			0		Issuance of common stock for settlement of RSUs				492,503		—				—				—				—
Tides Foundation common stock warrant expense and other	Tides Foundation common stock warrant expense and other		—	—			111				—			111		Tides Foundation common stock warrant expense and other				—		—				185				—				185

Issuance of common stock in connection with employee stock purchase plan																Issuance of common stock in connection with employee stock purchase plan				235,458		—				2,688				—				2,688
Net loss	Net loss		—	—			—				(2,747)			(2,747)		Net loss				—		—				—				(16,538)				(16,538)
Balances as of September 30, 2020			121,775,309	$	12		$	477,311			$	(195,749)		$	281,574
Balances as of June 30, 2021																Balances as of June 30, 2021				127,616,789		$	13			$	527,712			$	(219,197)			$	308,528


Three Months Ended June 30, 2020	Common Stock		Additional Paid-in Capital			Accumulated Deficit		Total Stockholders’ Equity
		Shares			Amount
Balances as of March 31, 2020		114,866,938	$	11		$	440,703	$	(181,978)	$	258,736

Issuance of common stock upon exercise of stock options		3,697,663	1			12,844		—		12,845
Stock-based compensation expense		—	—			6,866		—		6,866
Issuance of common stock for settlement of RSUs		438,849	—			—		—		—
Tides Foundation common stock warrant expense and other		—	—			59		—		59
Issuance of common stock in connection with employee stock purchase plan		264,244	—			2,661		—		2,661
Net loss		—	—			—		(11,024)		(11,024)
Balances as of June 30, 2020		119,267,694	$	12		$	463,133	$	(193,002)	$	270,143


Three Months Ended September 30, 2019		Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders’ Equity
Six Months Ended June 30, 2021													Six Months Ended June 30, 2021					Common Stock		Additional Paid-in Capital		Accumulated Deficit				Total Stockholders’ Equity
			Shares			Additional Paid-in Capital			Amount		Accumulated Deficit			Total Stockholders’ Equity											Shares					Amount
Balances as of June 30, 2019			110,708,530						$	244,978

Balances as of December 31, 2020																Balances as of December 31, 2020					124,795,222			$	12			$	494,122			$	(194,824)			$	299,310
Issuance of common stock upon exercise of stock options	Issuance of common stock upon exercise of stock options		1,122,763	—					3,795				—				3,795		Issuance of common stock upon exercise of stock options			1,675,117				1				5,726				—				5,727
Stock-based compensation expense	Stock-based compensation expense		—	—			3,998				—			3,998		Stock-based compensation expense				—		—				24,826				—				24,826
Issuance of common stock for settlement of RSUs	Issuance of common stock for settlement of RSUs		68,200	—			—				—			0		Issuance of common stock for settlement of RSUs				910,992		—				—				—				—

Tides Foundation common stock warrant expense and other																Tides Foundation common stock warrant expense and other				—		—				350				—				350
Issuance of common stock in connection with employee stock purchase plan																Issuance of common stock in connection with employee stock purchase plan				235,458		—				2,688				—				2,688
Net loss	Net loss		—	—			—				(3,547)			(3,547)		Net loss				—		—				—				(24,373)				(24,373)
Balances as of September 30, 2019			111,899,493	$	11		$	415,669			$	(166,456)		$	249,224
Balances as of June 30, 2021																Balances as of June 30, 2021				127,616,789		$	13			$	527,712			$	(219,197)			$	308,528

Nine Months Ended September 30, 2020 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity
Shares Amount
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 6,744,484 1 23,342 — 23,343
Stock-based compensation expense — — 18,927 — 18,927
Issuance of common stock for settlement of RSUs 1,162,183 — — — 0
Tides Foundation common stock warrant expense and other — — 1,011 — 1,011
Issuance of common stock in connection with employee stock purchase plan 264,244 — 2,661 — 2,661
Net loss — — — (23,792) (23,792)
Balances as of September 30, 2020 121,775,309 $ 12 $ 477,311 $ (195,749) $ 281,574

Nine Months Ended September 30, 2019 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity
Shares Amount
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 — — — (11,799) (11,799)
Issuance of common stock upon exercise of stock options and common stock warrants 5,041,302 — 14,145 — 14,145
Stock-based compensation expense — — 10,714 — 10,714
Issuance of common stock for settlement of RSUs 123,562 — — — 0
Issuance of common stock in connection with employee stock purchase plan 280,308 — 3,577 — 3,577
Net loss — — — (11,158) (11,158)
Balances as of September 30, 2019 111,899,493 $ 11 $ 415,669 $ (166,456) $ 249,224


Six Months Ended June 30, 2020	Common Stock		Additional Paid-in Capital			Accumulated Deficit		Total Stockholders’ Deficit
		Shares			Amount
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		4,647,550	1			16,009		—		16,010
Stock-based compensation expense		—	—			12,193		—		12,193
Issuance of common stock for settlement of RSUs		751,502	—			—		—		—
Tides Foundation common stock warrant expense and other		—	—			900		—		900
Issuance of common stock in connection with employee stock purchase plan		264,244	—			2,661		—		2,661
Net loss		—	—			—		(21,045)		(21,045)
Balances as of June 30, 2020		119,267,694	$	12		$	463,133	$	(193,002)	$	270,143

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2020		2019			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	Net loss	$	(23,792)	$	(11,158)	Net loss	$	(24,373)	$	(21,045)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for transaction losses	Provision for transaction losses	2,654		2,078		Provision for transaction losses	1,907		1,606
Depreciation and amortization	Depreciation and amortization	7,444		4,498		Depreciation and amortization	5,748		4,786
Amortization of debt issuance costs	Amortization of debt issuance costs	43		39		Amortization of debt issuance costs	39		26
Amortization of discount on purchases of marketable securities		(311)		(948)
Amortization of premium (discount) on purchases of marketable securities, net						Amortization of premium (discount) on purchases of marketable securities, net	22		(257)
Amortization of operating lease asset	Amortization of operating lease asset	2,927		3,059		Amortization of operating lease asset	1,774		1,945
Tides Foundation common stock warrant expense	Tides Foundation common stock warrant expense	564		439		Tides Foundation common stock warrant expense	375		376
Stock-based compensation expense	Stock-based compensation expense	19,527		10,858		Stock-based compensation expense	24,760		12,671

Impairment expense						Impairment expense	7,389		0
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Trade and client receivables	Trade and client receivables	(12,490)		(7,103)		Trade and client receivables	(16,835)		(4,773)
Prepaid expenses and other assets	Prepaid expenses and other assets	(284)		(1,407)		Prepaid expenses and other assets	(2,871)		(968)
Operating lease liability	Operating lease liability	(1,420)		(979)		Operating lease liability	(861)		(925)
Accounts payable	Accounts payable	5,087		697		Accounts payable	2,168		4,403
Accrued expenses and other liabilities	Accrued expenses and other liabilities	10,448		(799)		Accrued expenses and other liabilities	(273)		7,232
Deferred revenue	Deferred revenue	3,015		2,727		Deferred revenue	3,451		1,585
Net cash provided by operating activities	Net cash provided by operating activities	13,412		2,001		Net cash provided by operating activities	2,420		6,662
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	Purchases of marketable securities	(70,215)		(131,950)		Purchases of marketable securities	(29,967)		(47,748)
Proceeds from maturities of marketable securities	Proceeds from maturities of marketable securities	89,000		72,500		Proceeds from maturities of marketable securities	64,500		64,000
Purchases of property and equipment	Purchases of property and equipment	(6,210)		(10,230)		Purchases of property and equipment	(334)		(5,627)
Internal-use software and platform development costs	Internal-use software and platform development costs	(5,567)		(4,054)		Internal-use software and platform development costs	(3,581)		(3,559)
Net cash provided by (used in) investing activities		7,008		(73,734)
Net cash provided by investing activities						Net cash provided by investing activities	30,618		7,066
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in escrow funds payable	Changes in escrow funds payable	19,409		16,407		Changes in escrow funds payable	30,040		20,832
Proceeds from exercises of stock options and common stock warrants		23,343		13,974
Proceeds from exercises of stock options						Proceeds from exercises of stock options	5,727		16,010

Proceeds from borrowings on debt	Proceeds from borrowings on debt	18,000		50,000		Proceeds from borrowings on debt	0		18,000

Repayment of debt	Repayment of debt	(23,729)		(53,786)		Repayment of debt	(3,786)		(21,786)
Proceeds from employee stock purchase plan	Proceeds from employee stock purchase plan	2,661		3,577		Proceeds from employee stock purchase plan	2,688		2,661

Net cash provided by financing activities	Net cash provided by financing activities	39,684		30,172		Net cash provided by financing activities	34,669		35,717
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	60,104		(41,561)		NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	67,707		49,445
Cash, cash equivalents, and restricted cash—beginning of period	Cash, cash equivalents, and restricted cash—beginning of period	159,603		230,067		Cash, cash equivalents, and restricted cash—beginning of period	232,463		159,603
Cash, cash equivalents, and restricted cash—end of period	Cash, cash equivalents, and restricted cash—end of period	$	219,707	$	188,506	Cash, cash equivalents, and restricted cash—end of period	$	300,170	$	209,048
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest	Cash paid for interest	$	640	$	1,027	Cash paid for interest	$	283	$	499
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:	SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:					SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Property and equipment purchased but not yet paid	Property and equipment purchased but not yet paid	$	395	$	905	Property and equipment purchased but not yet paid	$	39	$	478
Internal-use software and platform development costs incurred but not yet paid						Internal-use software and platform development costs incurred but not yet paid	$	36	$	170

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

UPWORK INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1—Description of Business

Upwork Inc. ~~(the “Company”~~, which is referred to as the Company or ~~“Upwork”)~~Upwork, operates a work marketplace that connects businesses, ~~(“clients”)~~which are referred to as clients, with independent talent. Independent talent (“on the Company’s work marketplace, which are referred to as freelancers,” and, together with clients, ~~“users”). The Company was originally incorporated in the state~~as users, include independent professionals and agencies of ~~Delaware in December 2013 prior to~~varying sizes and ~~in connection with the combination (the “Elance-oDesk Combination”) of Elance, Inc. (“Elance”)~~are an increasingly sought-after, critical, and oDesk Corporation (“oDesk”). The Company changed its name to Elance-oDesk, Inc. shortly before the Elance-oDesk Combination in March 2014, and later to Upwork Inc. in May 2015. In 2015, the Company relaunched as Upwork and commenced consolidation of its 2 operating platforms. In 2016, following completionexpanding segment of the ~~platform consolidation, the Company began operating under a single platform.~~global workforce. The Company is currently headquartered in ~~Santa Clara,~~San Francisco, California.

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

Note 2—Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, (“which is referred to as U.S. ~~GAAP”)~~GAAP, and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019 (the “Annual Report”),~~2020, which is referred to as the Annual Report, filed with the SEC on ~~March 2, 2020.~~February 24, 2021.

The condensed consolidated balance sheet as of December 31, ~~2019~~2020 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP.

The condensed consolidated financial statements include the accounts of Upwork ~~Inc.~~ and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, changes in stockholders’ equity and cash flows for the interim periods, but do not purport to be indicative of the results of operations or financial condition to be anticipated for the full year ending December 31, ~~2020.~~2021.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods presented. Such estimates include, but are not limited to: the useful lives of assets; assessment of the recoverability of long-lived assets; goodwill impairment; standalone selling price of material rights and the period of time over which to defer and recognize the consideration allocated to the material rights; allowance for doubtful accounts; liabilities relating to transaction losses; ~~the valuation of warrants;~~ stock-based compensation; and accounting for income taxes. Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The Company evaluates its estimates, assumptions, and judgments on an ongoing basis using historical experience and other factors and revises them when facts and circumstances dictate.

~~Due~~The Company shifted to a flexible work model for its workforce and is evaluating its current need for office space. During the three months ended June 30, 2021, the Company executed a sub-sublease agreement to sublease the entirety of its former headquarters in Santa Clara, California. As a result, during the three months ended June 30, 2021, the Company incurred an impairment charge of $7.4 million related to the ~~COVID-19 pandemic, there has been uncertainty~~associated operating lease asset and ~~disruption~~property and equipment. The Company may determine to either close or sublease certain of its other offices, either of which may result in further impairment charges. See Note 5 for additional information regarding this impairment.

Notwithstanding the ~~global economy. The~~foregoing, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

~~Impacts of Recently Adopted Accounting Pronouncements on 2019 Interim Reporting~~

On December 31, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), ASU No. 2016-02, Leases (“Topic 842”), and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“Topic 230”) effective as of January 1, 2019. As a result, interim results for reporting periods beginning on or after January 1, 2019 will differ from amounts previously reported on the Company’s quarterly reports on Form 10-Q. The following table summarizes the impacts of adopting these standards on the Company’s previously issued condensed consolidated statements of operations for

~~the three and nine months ended September 30, 2019 and condensed consolidated statement of cash flows for the nine months ended September 30, 2019 (in thousands):~~

Balances,
Previously Issued Topic
606
Topic
842 (1)
Topic
230 Balances,
as Reported
Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2019
Revenue $ 78,786 $ (771) $ 0 $ 0 $ 78,015
Operating expense—General and administrative 16,519 0 (51) 0 16,468
Net loss (2,827) (771) 51 0 (3,547)
Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2019
Revenue $ 221,966 $ (1,692) $ 0 $ 0 $ 220,274
Operating expense—General and administrative 46,309 0 (116) 0 46,193
Net loss (9,582) (1,692) 116 0 (11,158)
Net loss per share, basic and diluted (0.09) (0.01) 0 0 (0.10)
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2019
Operating activities
Net loss $ (9,582) $ (1,692) $ 116 $ 0 $ (11,158)
Amortization of operating lease asset 0 0 3,059 0 3,059
Trade and client receivables (11,885) 4,782 0 0 (7,103)
Prepaid expenses and other assets (1,439) 0 32 0 (1,407)
Operating lease liability 0 0 (979) 0 (979)
Accrued expenses and other liabilities 5,814 (4,385) (2,228) 0 (799)
Deferred revenue 1,432 1,295 0 0 2,727
Financing activities—changes in funds held in escrow, including funds in transit (16,407) 0 0 16,407 0
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH (57,968) 0 0 16,407 (41,561)
Cash, cash equivalents, and restricted cash—beginning of period 129,128 0 0 100,939 230,067
Cash, cash equivalents, and restricted cash—end of period 71,160 0 0 117,346 188,506

~~(1)~~ ~~Amounts include other adjustments made in conjunction with the adoption of Topic 842.~~

Recently Adopted Accounting Pronouncements

The significant accounting policies applied in the Company’s audited consolidated financial statements, as disclosed in the Annual Report, are applied consistently in these unaudited interim condensed consolidated financial ~~statements, except as noted below.~~

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses

~~are recorded. The Company adopted ASU No. 2016-13 and related updates on January 1, 2020. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.~~

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Others (Topic 350): Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The Company adopted ASU No. 2017-04 on January 1, 2020. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The Company adopted ASU No. 2018-13 on January 1, 2020. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU No. 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. The Company adopted ASU No. 2018-15 on January 1, 2020 using the prospective adoption method. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

The Company has reviewed all ~~other~~ accounting pronouncements issued during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and concluded they were either not applicable or not expected to have a material impact on the Company’s condensed consolidated financial statements.

Note 3—Revenue

Disaggregation of Revenue

See “Note 9—Segment and Geographical Information” for the Company’s revenue disaggregated by type of service and geographic area.

Remaining Performance Obligations

As of ~~September~~June 30, ~~2020,~~2021, the Company had approximately ~~$20.0~~$24.4 million of remaining performance obligations. The Company’s remaining performance obligations consist of transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with freelancers subject to tiered service fees, subscriptions, memberships, “Connects” (virtual tokens that allow freelancers to bid on projects on the Company’s platform), and certain incentive payments made to the Company by payment processors. As of ~~September~~June 30, ~~2020,~~2021, the Company expects to recognize approximately ~~$15.9~~$19.2 million over the next 12 months, with the remaining balance recognized thereafter.

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; and (ii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation under the series guidance.

Contract Balances

The following table provides information about the balances of the Company’s trade and client receivables, net of allowance and contract liabilities included in deferred revenue and other liabilities, noncurrent (in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Trade and client receivables, net of allowance	Trade and client receivables, net of allowance	$	39,853	$	30,156	Trade and client receivables, net of allowance	$	62,232	$	47,018
Contract liabilities	Contract liabilities					Contract liabilities
Deferred revenue	Deferred revenue	15,892		13,799		Deferred revenue	19,164		16,801
Deferred revenue (component of other liabilities, noncurrent)	Deferred revenue (component of other liabilities, noncurrent)	4,074		3,153		Deferred revenue (component of other liabilities, noncurrent)	5,265		4,177

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, changes in the contract liabilities balances were a result of normal business activity and deferral, and subsequent recognition, of revenue related to arrangements with freelancers subject to tiered service fees and related allocation of transaction price to material ~~rights, and a change in estimate related to the period of time over which to recognize the consideration allocated to the material~~ rights.

Revenue recognized during the three and ~~nine~~six months ended ~~September~~June 30, 2021 that was included in deferred revenue as of March 31, 2021 and December 31, 2020 was $6.1 million and $9.6 million, respectively. Revenue recognized during the three and six months ended June 30, 2020 that was included in deferred revenue as of ~~June 30,~~March 31, 2020 and December 31, 2019 was ~~$5.2~~$4.9 million and $10.9 million, respectively. Revenue recognized during the three and nine months ended September 30, 2019 that was included in deferred revenue as of June 30, 2019 and January 1, 2019 was $3.9 million and $9.3$8.0 million, respectively.

117

Note 4—Fair Value Measurements

The Company defines fair value as the exchange price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance describes three levels of inputs that may be used to measure fair value:

•Level I—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets;

•Level II—Observable inputs other than Level I prices, such as unadjusted quoted prices for similar assets or liabilities in active markets, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level III—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.

The categorization of a financial instrument within the fair value hierarchy is based upon the lowest level of input that is significant to its fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the assets or liabilities.

The Company’s financial instruments that are carried at fair value consist of Level I and Level II assets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The following tables set forth the fair value of the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):


		September 30, 2020									June 30, 2021
		Level I		Level II		Level III		Total			Level I		Level II		Level III		Total

Cash equivalents—money market funds		$	73,457	$	0	$	0	$	73,457
Cash equivalents										Cash equivalents
Money market funds										Money market funds	$	119,806	$	0	$	0	$	119,806

Marketable securities	Marketable securities									Marketable securities
Commercial paper	Commercial paper	0		47,947		0		47,947		Commercial paper	0		35,983		0		35,983
Treasury bills		4,497		0		0		4,497

U.S. government securities	U.S. government securities	14,607		0		0		14,607		U.S. government securities	5,007		0		0		5,007
Total financial assets	Total financial assets	$	92,561	$	47,947	$	0	$	140,508	Total financial assets	$	124,813	$	35,983	$	0	$	160,796


		December 31, 2019									December 31, 2020
		Level I		Level II		Level III		Total			Level I		Level II		Level III		Total
Cash equivalents—money market funds		$	35,286	$	0	$	0	$	35,286
Cash equivalents										Cash equivalents
Money market funds										Money market funds	$	65,723	$	0	$	0	$	65,723
Commercial paper										Commercial paper	0		5,999		0		5,999
Marketable securities	Marketable securities									Marketable securities
Commercial paper	Commercial paper	0		50,794		0		50,794		Commercial paper	0		50,965		0		50,965
Treasury Bills										Treasury Bills	4,499		0		0		4,499
U.S. government securities	U.S. government securities	34,687		0		0		34,687		U.S. government securities	20,106		0		0		20,106
Total financial assets	Total financial assets	$	69,973	$	50,794	$	0	$	120,767	Total financial assets	$	90,328	$	56,964	$	0	$	147,292

For each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the gross unrealized gains and losses on the Company’s marketable securities were immaterial. As of ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company considered any decreases in market value to be temporary in nature and did not consider any of the Company’s marketable

securities to be other-than-temporarily impaired. As such, the Company did not record any impairment charges with respect to its marketable securities during each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~

2020.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had debt obligations outstanding of ~~$12.6~~$7.0 million and ~~$18.3~~$10.8 million, respectively, under the Company’s Loan and Security Agreement, as amended, ~~(the “Loan Agreement”).~~which is referred to as the Loan Agreement. As of ~~September~~June 30, ~~2020,~~2021, the carrying value approximated fair value as borrowings under the Loan Agreement bore interest at variable rates, and the Company believes its credit risk quality is consistent with when the debt was originated. The Company considered the balances outstanding under the Loan Agreement to be Level II liabilities as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. See ~~“Note 7—Debt.”~~Note 7.

Note 5—Balance Sheet Components

Cash and Cash Equivalents, Restricted Cash, and Funds Held In Escrow, Including Funds In Transit

The following table reconciles cash and cash equivalents, restricted cash, and funds held in escrow that are restricted as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	88,436	$	48,392	Cash and cash equivalents	$	131,448	$	94,081
Restricted cash	Restricted cash	3,140		2,490		Restricted cash	3,640		3,340
Funds held in escrow, including funds in transit	Funds held in escrow, including funds in transit	128,131		108,721		Funds held in escrow, including funds in transit	165,082		135,042
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows	Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows	$	219,707	$	159,603	Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows	$	300,170	$	232,463

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Computer equipment and software	Computer equipment and software	$	4,780	$	3,613	Computer equipment and software	$	5,052	$	4,819
Internal-use software and platform development	Internal-use software and platform development	18,282		12,726		Internal-use software and platform development	24,126		20,727
Leasehold improvements	Leasehold improvements	14,612		10,576		Leasehold improvements	11,704		14,613
Office furniture and fixtures	Office furniture and fixtures	3,354		2,454		Office furniture and fixtures	3,239		3,354
Total property and equipment	Total property and equipment	41,028		29,369		Total property and equipment	44,121		43,513
Less: accumulated depreciation	Less: accumulated depreciation	(13,348)		(7,915)		Less: accumulated depreciation	(20,438)		(15,374)
Property and equipment, net	Property and equipment, net	$	27,680	$	21,454	Property and equipment, net	$	23,683	$	28,139

For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, depreciation expense related to property and equipment was $1.0 million and ~~$0.7~~$0.8 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, depreciation expense related to property and equipment was ~~$2.5~~$2.0 million and ~~$2.1~~$1.5 million, respectively.

For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company capitalized ~~$2.3~~$1.3 million and ~~$2.0~~$1.7 million of internal-use software and platform development costs, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company capitalized ~~$5.6~~$3.4 million and ~~$4.5~~$3.3 million of internal-use software and platform development costs, respectively.

For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, amortization expense related to the capitalized internal-use software and platform development costs was ~~$1.0~~$1.6 million and ~~$0.3~~$1.1 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, amortization expense related to the capitalized internal-use software and platform development costs was ~~$3.0~~$3.1 million and ~~$0.4~~$2.0 million, respectively.

The Company shifted to a flexible work model for its workforce and is evaluating its current need for office space. In April 2021, the Company executed a sub-sublease agreement to sublease the entirety of its former headquarters in Santa Clara, California. The sub-sublease agreement became effective in May 2021 upon receipt of the consent of the Company’s landlord and master lessor. The term of the sub-sublease commenced on June 1, 2021 and expires on

May 31, 2024 unless terminated earlier in accordance therewith. Rent payments begin on January 1, 2022 and approximate $0.1 million per month. Rent payments will be recorded within general and administrative expenses within the Company’s condensed consolidated statements of operations. Neither party has the option to renew or extend the sub-sublease agreement.

Under the sub-sublease agreement, the Company is not relieved of its original obligation with the master lessor that expires on October 15, 2028. The Company determined the sub-sublease agreement is an operating lease, which is consistent with the classification of the original sublease with the master lessor. As a result of the execution of the sub-sublease agreement, the Company determined that indicators of impairment existed with respect to the asset group that consisted of the Santa Clara office operating lease asset and associated leasehold improvements, furniture and fixtures, and hardware. 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 sublease with the master lessor, expected downtime prior to the commencement of future subleases, and a discount rate the Company believes reflects the level of risk associated with these future cash flows. The Company considers these assumptions to be Level III inputs in accordance with the fair value hierarchy described in Note 4.

During the three months ended June 30, 2021, the Company recorded an impairment charge of $7.4 million, of which $4.3 million was allocated to the Santa Clara office operating lease asset, $2.9 million was allocated to the associated leasehold improvements, and $0.2 million was allocated to the associated furniture and fixtures and hardware. The Company recorded this impairment charge within general and administrative expenses within its condensed consolidated statement of operations for the three and six months ended June 30, 2021.

Intangible Assets, Net

All of the Company’s identifiable intangible assets were ~~acquired in~~fully amortized as of March ~~2014 from the Elance-oDesk Combination.~~31, 2021. For ~~each of~~ the three months ended ~~September~~June 30, 2020, ~~and 2019,~~ amortization expense of intangible assets was $0.7 million. For ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, amortization expense of intangible assets was ~~$2.0 million.~~

$0.7 million and $1.3 million, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Accrued compensation and related benefits	Accrued compensation and related benefits	$	11,804	$	5,344	Accrued compensation and related benefits	$	12,100	$	14,007
Accrued freelancer costs	Accrued freelancer costs	967		622		Accrued freelancer costs	1,141		1,235
Accrued indirect taxes	Accrued indirect taxes	2,670		2,401		Accrued indirect taxes	3,037		3,818
Accrued vendor expenses	Accrued vendor expenses	8,826		5,485		Accrued vendor expenses	9,921		8,662
Accrued payment processing fees	Accrued payment processing fees	961		832		Accrued payment processing fees	2,079		1,219
Operating lease liability, current	Operating lease liability, current	2,969		3,214		Operating lease liability, current	4,613		3,725
Other	Other	569		444		Other	320		202
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	28,766	$	18,342	Total accrued expenses and other current liabilities	$	33,211	$	32,868

~~Operating Leases~~Stockholders’ Equity

On January ~~1, 2020,~~18, 2021, which is referred to as the CEO Award Grant Date, the compensation committee of the board of directors of the Company ~~commenced an operating lease~~approved a stock option grant, which is referred to as the CEO Award, exercisable for up to 1,500,000 shares of ~~1 additional floor~~the Company’s common stock to Hayden Brown, the Company’s President and Chief Executive Officer, under the Company’s 2018 Employee Incentive Plan, which is referred to as the 2018 EIP. The CEO Award is subject to a service-based vesting requirement, which is referred to as the Service Condition, and a performance-based vesting requirement, which is referred to as the Market Condition. In order for any shares subject to the CEO Award to be exercisable, both the Service Condition and the Market Condition must be satisfied with respect to such shares. The CEO Award vests with respect to the Service Condition in ~~its Chicago, Illinois office. As a result,~~16 equal quarterly installments following the CEO Award Grant Date, subject to Ms. Brown’s continuous service to the Company as

Chief Executive Officer, Executive Chairperson, or any C-level officer position. The CEO Award vests with respect to the Market Condition upon the achievement of certain volume weighted-average common stock price targets measured over any consecutive 90-day period between the CEO Award Grant Date and April 18, 2026. The 90-day volume weighted-average common stock price targets, and the number of shares of the CEO Award that become vested with respect to the Market Condition upon the achievement of each such target, are reflected in the following table:


Stock Price						Number of Shares Vested
$60						100,000
$70						200,000
$80						300,000
$90						400,000
$100						500,000

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. The Market Condition period and the valuation of each tranche of the CEO Award were determined using a ~~$1.7~~Monte Carlo simulation. Stock-based compensation expense for the CEO Award is recorded as a component of general and administrative expense in the Company’s condensed consolidated statement of operations. In the event the Market Condition is met prior to the expected achievement period, any then-unrecognized compensation expense associated with the shares that have vested with respect to both the Market Condition and the Service Condition will be recognized immediately in the Company’s condensed consolidated statements of operations.

For the three and six months ended June 30, 2021, the Company recorded stock-based compensation expense of $2.8 million ~~operating lease asset~~ and ~~$1.7~~$5.3 million, ~~operating lease liability on January 1, 2020,~~respectively, related to the CEO Award. As of June 30, 2021, total unrecognized stock-based compensation cost was $23.5 million, which is expected to be recognized over a weighted-average period of 2.2 years.

On February 17, 2021, which is referred to as the PSU Grant Date, the compensation committee of the board of directors of the Company approved performance stock unit awards, which are ~~included in operating lease asset and operating lease liability, noncurrent, respectively,~~referred to as PSU Awards, to certain members of the Company’s leadership team under the 2018 EIP. The number of performance stock units, which are referred to as PSUs, that are earned by the recipients, which is referred to as Earned PSUs, will be determined based on the Company’s revenue achievement during fiscal year 2021, which is referred to as the PSU Performance Condition. Upon attainment of the PSU Performance Condition, the Earned PSUs will be subject to a time-based vesting requirement conditioned on the recipient of the PSU Award continuing to provide service to the Company for four years from the PSU Grant Date, which is referred to as the PSU Service Condition. The Earned PSUs will vest with respect to 25% of the Earned PSUs on the one-year anniversary of the PSU Grant Date and 1/16th of the Earned PSUs on a quarterly basis thereafter.

Stock-based compensation expense associated with the PSU Awards is a component of operating expenses in the Company’s condensed consolidated ~~balance sheet as~~statements of ~~September 30, 2020. The lease has an initial term of five years with~~operations and will be recognized over the ~~option to renew for an additional five years at the end~~longer of the ~~initial lease term. Total minimum lease payments under~~expected achievement period for the ~~initial term are $2.1 million. For~~PSU Performance Condition and the ~~initial measurement of the present~~PSU Service Condition. The grant date fair value of the ~~lease payments~~PSU Awards was determined using the Company’s closing common stock price on the PSU Grant Date multiplied by the number of PSUs that were probable of being earned on the PSU Grant Date. At each interim reporting date prior to the date on which the compensation committee of the 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 ~~this lease,~~the PSU Awards.

During the three and six months ended June 30, 2021, the Company ~~used its incremental borrowing rate,~~recorded stock-based compensation expense of $0.9 million and $1.3 million related to the PSU Awards. As of June 30, 2021, total unrecognized stock-based compensation cost was $4.9 million, which is expected to be recognized over a ~~collateralized rate and approximates the rate at which the Company could borrow, on a secured basis for a similar term, an amount equal to its lease payments in a similar economic environment.~~

The Company includes lease payments associated with renewal options in its operating lease asset and liability only when it becomes reasonably certain that the Company will exercise the renewal option. The Company has not included renewal options for anyweighted-average period of ~~its operating leases in its determination of lease liabilities as of September 30, 2020.~~2.0 years.

1511

Note 6—Commitments and Contingencies

Letters of Credit

In conjunction with the Company’s operating lease agreements, as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had 3 irrevocable letters of credit outstanding in the aggregate amounts of $0.8 million and $1.0 million, ~~and $0.8 million,~~ respectively. NoThe letters of credit are collateralized by restricted cash in the same amount. NaN amounts had been drawn against these letters of credit as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Contingencies

The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. ~~From~~Potential contingencies may include various claims and litigation or non-income tax matters that arise from time to time in the normal course of ~~business, various claims and litigation have been asserted or commenced.~~business. Due to uncertainties inherent in ~~litigation and other claims,~~such contingencies, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability or damages. Any claims, litigation, or ~~litigation~~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 ~~litigation~~other contingencies are resolved.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 ~~has determined that the existence of~~believes a loss is probable were not material ~~loss~~ as of ~~these dates is neither probable nor reasonably possible.~~June 30, 2021 and December 31, 2020.

Indemnification

The Company has indemnification agreements with its officers, directors, and certain key employees to indemnify them while they are serving in good faith in their respective positions. In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to clients, business partners, vendors, and other parties, including, but not limited to, losses arising out of the Company’s breach of such agreements, claims related to potential data or information security breaches, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from the Company’s products and services or its acts or omissions. In addition, subject to the terms of the applicable agreement, as part of the Company’s Upwork Enterprise offering, the Company indemnifies clients that subscribe to worker classification services for losses arising from worker misclassification. 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.

1612

Note 7—Debt

The following table presents the carrying value of the Company’s debt obligations as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
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	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	$	7,500		$	11,250		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	$	3,750		$	6,250
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	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	5,142			7,071			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	3,214			4,500

Total debt	Total debt	12,642			18,321			Total debt	6,964			10,750
Less: unamortized debt discount issuance costs		(45)			(38)
Add (less): unamortized debt issuance and other costs, net								Add (less): unamortized debt issuance and other costs, net	13			(27)
Balance	Balance	12,597			18,283			Balance	6,977			10,723
Debt, current	Debt, current	(7,576)			(7,584)			Debt, current	(6,344)			(7,581)
Debt, noncurrent	Debt, noncurrent	$	5,021		$	10,699		Debt, noncurrent	$	633		$	3,142
Weighted-average interest rate	Weighted-average interest rate	5.20		%	6.93		%	Weighted-average interest rate	5.10		%	5.64		%

Under the Loan Agreement, the aggregate amount of the facility is up to $49.0 million, consisting of a term loan in the original principal amount of $15.0 million, ~~(the “First~~which is referred to as the First Term ~~Loan”),~~Loan, a term loan in the original principal amount of $9.0 million, ~~(the “Second~~which is referred to as the Second Term ~~Loan”~~Loan, and, together with the First Term Loan, as the ~~“Term Loans”),~~Term Loans, and a revolving line of credit, which permits borrowings of up to $25.0 million subject to customary conditions. In August 2020, the Company entered into an amendment to the Loan Agreement that, among other things, extended the maturity date of the revolving line of credit from September 2020 to September 2022 and eliminated a formula-based restriction that prohibited the Company from borrowing funds under the revolving line of credit in an amount that exceeded a specified percentage of eligible trade and client accounts receivable. The Company has granted its lender first-priority liens against substantially all of its assets, as collateral, excluding the Company’s intellectual property (but including proceeds therefrom) and the funds and assets held by the Company’s subsidiary, Upwork Escrow Inc. The Company has also agreed to a negative pledge on its intellectual property. The Loan Agreement also requires that the Company maintain an adjusted quick ratio of 1.75. The Loan Agreement also includes a restrictive covenant on dividend payments other than dividends paid solely in common stock. The Company was in compliance with its covenants under the Loan Agreement as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

~~Pursuant to the terms of the Loan Agreement, the Company commenced repayment on the Term Loans in April 2019.~~ During the three and ~~nine~~six months ended ~~September~~June 30, 2020, the Company repaid $1.3 million and $3.8 million related to the First Term Loan, respectively, and $0.6 million and $1.9 million related to the Second Term Loan, respectively. During the three and nine months ended September 30, 2019,2021, the Company repaid $1.3 million and $2.5 million related to the First Term Loan, respectively, and $0.6 million and $1.3 million related to the Second Term Loan, respectively. During the three and six months ended June 30, 2020, the Company repaid $1.3 million and $2.5 million related to the First Term Loan, respectively, and $0.6 million and $1.3 million related to the Second Term Loan, respectively. As of June 30, 2021 and December 31, 2020, 0 amounts were outstanding on the Company’s revolving line of credit.

1713

Note 8—Net Loss per Share

The following table sets forth the computation of the Company’s basic and diluted net loss per share for the periods presented (in thousands, except share and per share data):

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Numerator:
Net loss $ (2,747) $ (3,547) $ (23,792) $ (11,158)
Denominator:
Weighted-average shares used to compute net loss per share, basic and diluted 120,680,797 111,163,396 117,120,815 108,844,495
Net loss per share, basic and diluted $ (0.02) $ (0.03) $ (0.20) $ (0.10)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Net loss	$	(16,538)	$	(11,024)	$	(24,373)	$	(21,045)


Denominator:
Weighted-average shares used to compute net loss per share, basic and diluted	126,742,452		116,523,570		126,010,689		115,321,264

Net loss per share, basic and diluted	$	(0.13)	$	(0.09)	$	(0.19)	$	(0.18)

The following potentially dilutive shares were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive:


		As of September 30,			As of June 30,
		2020	2019		2021	2020
Options to purchase common stock	Options to purchase common stock	7,744,337	16,596,305	Options to purchase common stock	4,636,338	9,878,333
Common stock issuable upon exercise of common stock warrants	Common stock issuable upon exercise of common stock warrants	450,000	500,000	Common stock issuable upon exercise of common stock warrants	400,000	450,000
Common stock issuable upon vesting of restricted stock units	Common stock issuable upon vesting of restricted stock units	5,983,872	1,471,876	Common stock issuable upon vesting of restricted stock units	5,066,960	6,191,541
Common stock issuable in connection with employee stock purchase plan	Common stock issuable in connection with employee stock purchase plan	898,426	730,217	Common stock issuable in connection with employee stock purchase plan	287,448	964,974
Total	Total	15,076,635	19,298,398	Total	10,390,746	17,484,848

Note 9—Segment and Geographical Information

The Company operates as 1 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 periods presented (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Marketplace	Marketplace	$	88,040	$	69,912	$	241,286	$	196,095	Marketplace	$	114,460	$	78,464	$	219,130	$	153,246
Managed services	Managed services	8,708		8,103		26,189		24,179		Managed services	9,721		9,067		18,670		17,481
Total revenue	Total revenue	$	96,748	$	78,015	$	267,475	$	220,274	Total revenue	$	124,181	$	87,531	$	237,800	$	170,727

The Company generates its revenue from freelancers and clients. The following table sets forth total revenue by geographic area based on the billing address of its freelancers and clients for the periods presented (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Freelancers
United States $ 15,832 $ 12,870 $ 44,129 $ 36,999
India 8,796 7,046 24,148 20,444
Philippines 5,995 5,077 16,436 14,488
Rest of world 28,120 22,876 78,308 66,714
Total freelancers 58,743 47,869 163,021 138,645
Clients
United States 28,861 23,502 76,174 62,607
Rest of world 9,144 6,644 28,280 19,022
Total clients 38,005 30,146 104,454 81,629
Total revenue $ 96,748 $ 78,015 $ 267,475 $ 220,274


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Freelancers
United States	$	18,764	$	14,300	$	36,879	$	28,297
India	10,734		7,879		20,321		15,352
Philippines	7,993		5,304		15,066		10,441
Rest of world	36,377		25,833		70,066		50,188
Total freelancers	73,868		53,316		142,332		104,278
Clients
United States	37,353		24,354		70,614		47,313
Rest of world	12,960		9,861		24,854		19,136
Total clients	50,313		34,215		95,468		66,449
Total revenue	$	124,181	$	87,531	$	237,800	$	170,727

Substantially all of the Company’s long-lived assets were located in the United States as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

1915

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Risk Factors” and the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, as well as assumptions that may never materialize or that may be proven incorrect. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors,” and in other parts of this Quarterly Report.

Overview

~~We operate the world’s largest work marketplace that connects businesses with independent~~Independent talent as measured by gross services volume (“GSV”). GSV represents the total amount that clients spend on our marketplace offerings and our managed services offering as well as additional fees we charge to both clients and freelancers for other services. Freelancers areis an increasingly sought-after, critical, and expanding segment of the global workforce. We operate the world’s largest work marketplace that connects businesses, which we refer to as clients, with independent talent, as measured by gross services volume, which we refer to as GSV. We define freelancers as users ~~of our platform~~ that advertise and provide services to clients through our ~~platform,~~work marketplace, and we define clients as users ~~of our platform~~ that work with freelancers through our ~~platform. The freelancers~~work marketplace. Freelancers on our ~~platform~~work marketplace include independent professionals and agencies of varying sizes. The clients on our ~~platform~~work marketplace range in size from small businesses to Fortune 100 companies. With users in over 180 countries, our platform enabled $0.7 billion and $0.5 billion of GSV for the three months ended September 30, 2020 and 2019, respectively, and $1.8 billion and $1.5 billion of GSV for the nine months ended September 30, 2020 and 2019, respectively. For purposes of determining countries where we enable GSV, we include both the countries in which the clients that paid for the applicable services are located, as well as the countries in which the freelancers that provided those services are located.

We generate a majority of our revenue from fees charged to freelancers. We also generate revenue through fees charged to clients for transacting payments through our platform and fees for premium offerings, foreign currency exchange fees, purchases of “Connects” (virtual tokens that allow freelancers to bid on projects on our platform), and Upwork Payroll service fees. In addition, we provide a managed services offering where we engage freelancers to complete projects, directly invoice the client, and assume responsibility for work performed.

With our unique, remote-based business model, the COVID-19 pandemic has not impacted our clients’ access to highly-skilled independent professionals on our platform to complete short- and long-term projects. In the third quarter, we continued to identify opportunities to prioritize our advertising and marketing efforts in order to reach those new and existing clients seeking to engage with remote freelancers due to the COVID-19 pandemic and as companies shift to a remote work model. As a result, for the three months ended September 30, 2020 and 2019, we generated total revenue of $96.7 million and $78.0 million, respectively, representing a period-over-period increase of 24%. For the nine months ended September 30, 2020 and 2019, we generated total revenue of $267.5 million and $220.3 million, respectively, representing a period-over-period increase of 21%.

For the three months ended September 30, 2020, we generated a net loss of $2.7 million and adjusted EBITDA of $6.7 million, compared to a net loss of $3.5 million and adjusted EBITDA of $2.0 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, we generated a net loss of $23.8 million and adjusted EBITDA of $4.5 million, compared to a net loss of $11.2 million and adjusted EBITDA of $3.9 million for the nine months ended September 30, 2019. Our adjusted EBITDA of $4.5 million during the nine months ended September 30, 2020 was impacted by a $1.6 million expense that we incurred related to our changes in organizational structure to better align with our business strategies and streamline the delivery of our end-to-end user experiences, as well as marketing expense of $4.4 million related to brand awareness and performance marketing. Adjusted EBITDA is a financial measure that is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). See the section titled “Key Financial and Operational Metrics—Non-GAAP Financial Measures” below for a definition of adjusted EBITDA and information regarding our use of adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure prepared under U.S. GAAP.

Impact of the COVID-19 Pandemic on Our Business

~~In March 2020, the World Health Organization declared the outbreak of~~The COVID-19 ~~to be a~~ pandemic ~~which continues to spread throughout the United States~~ and the ~~world,~~resulting restrictions intended to prevent its spread have accelerated the secular shift toward remote and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, shelter-in-place orders, and business limitations and shutdowns. To support the health and well-being of our employees, clients, partners, and communities, nearly all of our employees are currently working remotely. With our unique, remote-based business model, the COVID-19 pandemic has not impacted our clients’ access to highly-skilled independent ~~professionals on our platform to complete short- and long-term projects.~~

We began seeing the impact of the pandemic on our results at the end of the first quarter, when we experienced a reduction in the growth rates of GSV and revenue. This trend continued into the beginning of the second quarter, driven by spend contraction by many of our clients, as the COVID-19 pandemic continued to disrupt their businesses. These trends stabilized in the second half of the second quarter, and then improved in the third quarter, contributing to an increase in the growth rates of GSV and revenue in the third quarter. Beginning in the second half of the second quarter, we also began to see an increase in client acquisition driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic and the execution of our strategic initiatives. This increase in client acquisition continued to accelerate in the third quarter and drove an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue.

~~In light of the COVID-19 pandemic and the global macroeconomic downturn and their effect on client spend on our platform,~~but we continue to ~~identify opportunities~~see businesses of all sizes use our work marketplace in a recurring way for larger, more complex projects. We expect our business to prioritize our advertising and marketing efforts in order to reach those new and existing clients seeking to engage with remote freelancers due to the COVID-19 pandemic and as companies shift to a remote work model. We are continuously evaluating the nature and extent to which the ongoing COVID-19 pandemic will continue to ~~have on our business, operating results,~~grow over time, and ~~financial condition.~~

~~While~~while we have not incurred significant disruptions to our business thus far from the COVID-19 pandemic, ~~at this time,~~ we ~~are unable~~continue to ~~fully assess~~monitor the ~~aggregate~~potential impact it ~~will~~could have on our business ~~due to~~as well as various uncertainties, which include, but are not limited to, the duration of the pandemic, its ~~affect~~effect on the economy, its impact toon our users, including their demand for talent on our work marketplace as the ~~businesses of our clients, actions that may be taken by governmental authorities related to the~~ pandemic subsides, and other factors identified in Part II, Item 1A “Risk Factors” in this Quarterly Report, including the risk factor titled “Our business ~~has~~ experienced, and may ~~continue to~~again experience, an adverse impact from the ongoing COVID-19 pandemic. In addition, users may reduce their use of our work marketplace as the pandemic continues to subside and the restrictions intended to prevent its spread are relaxed or lifted.”

Key Financial and Operational Metrics

~~We monitor~~As of and for the ~~following~~three and six months ended June 30, 2021, our key financial and ~~operational~~operating metrics ~~to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Our key metrics were~~are as ~~follows as of or for the periods presented:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(in thousands)
GSV $ 654,538 $ 532,812 $ 1,795,982 $ 1,538,191
Marketplace revenue $ 88,040 $ 69,912 $ 241,286 $ 196,095
Marketplace take rate 13.6 % 13.3 % 13.6 % 13.0 %
Net loss $ (2,747) $ (3,547) $ (23,792) $ (11,158)
Adjusted EBITDA (1)
$ 6,673 $ 1,973 $ 4,471 $ 3,939
follows:

~~(1)~~


	Three Months Ended June 30,						% Change		Six Months Ended June 30,						% Change
	2021			2020					2021			2020

	(in thousands, except percentages)
GSV	$	875,806		$	581,950		50	%	$	1,662,583		$	1,141,444		46	%
Marketplace revenue	$	114,460		$	78,464		46	%	$	219,130		$	153,246		43	%
Marketplace take rate	13.2		%	13.7		%	(0.5)	%	13.3		%	13.6		%	(0.3)	%
Net loss	$	(16,538)		$	(11,024)		(50)	%	$	(24,373)		$	(21,045)		(16)	%
Adjusted EBITDA1	$	7,269		$	(1,184)		714	%	$	14,180		$	(2,202)		744	%

1Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S. GAAP. See “Key Financial and Operational Metrics—Non-GAAP Financial Measures” below for a definition of adjusted EBITDA and for information regarding our use of adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure prepared under U.S. GAAP.

As of September 30,
2020 2019
(in thousands, except percentages)
Core clients 138.9 120.5
Client spend retention 100 % 104 %

~~As discussed below with respect to each key metric, we believe these~~


	As of June 30,						% Change
	2021			2020

	(active and core clients are in thousands)
Active clients	725			570			27	%
GSV per active client	$	4,198		$	3,897		8	%

Core clients	162			133			21	%
Client spend retention	114		%	100		%	14	%

We monitor the following key financial and operational metrics ~~are useful~~ to evaluate ~~period-over-period comparisons of~~ our business, measure our performance, identify trends affecting our business, formulate business plans, and in understanding our operating results, and management uses these metrics to track our performance. GSV represents the total amount that clients spend on our marketplace offerings and our managed services offering, as well as additional fees we charge to both clients and freelancers for other services. We believe that GSV is an important metric, as it represents the overall amount of business transacted through our platform, which in turn is a key driver of our financial results. We believe our marketplace revenue, which represents a majority of our revenue, will grow as GSV grows, although they could grow at different rates. We evaluate the correlation between marketplace revenue and GSV by measuring marketplace take rate, which is calculated as marketplace revenue divided by marketplace GSV. We use the number of core clients to track the number of clients that we consider are actively using our platform, and this metric in any given period drives both GSV and client spend retention. Similarly, client spend retention impacts the growth rate of GSV. In light of the COVID-19 pandemic, rapidly changing market and macroeconomic conditions continue to impact the businesses of many of our clients, which may lead to downward pressure on the number of core clients, client spend retention, GSV, and marketplace revenue. For information on how we define core clients and how we calculate client spend retention and marketplace take rate, see “—Core Clients,” “—Client Spend Retention,” and “—Marketplace Take Rate,” respectively, below.make strategic decisions. For a discussion of limitations in the measurement of our key financial and operational metrics, see “Risk Factors—We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics may not accurately reflect ~~the performance~~certain details of our business, are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business” in Part II, Item 1A of this Quarterly Report.

~~Core Clients~~

~~We define~~In order to provide better insight into our business and a ~~core client as~~better understanding of its performance, on a ~~client that has spent in the aggregate at least $5,000 since it began using our platform and also had spend activity on our platform during the 12 months preceding the date of measurement. We believe~~

~~that aggregate spend of at least $5,000 indicates that the client is actively using our platform. Historically, these core clients have been more likely to continue using our platform, although~~quarterly basis, we saw a contraction in spend from many core clients during the first half of the second quarter that we believe is a result of the COVID-19 pandemic’s impact on the businesses of these clients. This trend stabilized in the second half of the second quarter, and then improved in the third quarter, as spend from clients increased due to a greater need for remote work resulting from the COVID-19 pandemic. Additionally, we saw an increase in core client acquisitions, as we have seen new clients come to our platform due in part to the increase in remote work resulting from the COVID-19 pandemic and the execution of our strategic initiatives. We continue to see businesses of all sizes use our platform in a recurring way for larger, more complex projects, and we expectwill report the number of active clients and GSV per active client and will no longer be reporting core clients ~~to continue to increase over time.~~and client spend retention as operating metrics following this filing. We have added between approximately 4,000 and 6,000 core clients per quarter over the last two years. We expect to add approximately 5,000 core clients per quarter in the coming quarters, but the number of core clients could vary quarter by quarter depending, in part, on the extent to which the COVID-19 pandemic and any resulting macroeconomic downturn impacts our business, the businesses of ourbelieve active clients and ~~other factors identified in Part II, Item 1A “Risk Factors” in this Quarterly Report, including~~GSV per active client provide more relevant insight into our current business performance and align with how management views the risk factor titled “Our business has experienced, and may continue to experience, an adverse impact from the ongoing COVID-19 pandemic.” We believe that the number of core clients is an indicator of our growth and the overall health of our business because core clients are a primary driver of GSV and, therefore, marketplace revenue.business.

Gross Services Volume (GSV)

GSV includes both client spend and additional fees charged for other services. Client spend, which we define as the total amount that clients spend on both our marketplace offerings and our managed services offering, is the primary component of GSV. GSV ~~also includes additional fees charged to both clients and freelancers for other services, such as freelancer memberships, purchases of Connects, freelancer withdrawals, and foreign currency exchange.~~

~~GSV~~ is an important metric because it represents the amount of business transacted through our ~~platform. Our~~work marketplace.

Active Clients and GSV per Active Client

We define an active client as a client that has had spend activity on our work marketplace during the 12 months preceding the date of measurement. GSV per active client is calculated by dividing total GSV during the four quarters ended on the date of measurement by the number of active clients at the date of measurement. We believe that the number of active clients and GSV per active client are indicators of the growth and overall health of our business. The number of active clients is a primary driver of GSV and, therefore, marketplace revenue.

Marketplace Revenue

Marketplace revenue, which represents the majority of our revenue, is the primary driver of our business and provides comparability to other online marketplaces. Marketplace revenue is generated from our Upwork Basic, Plus, and Enterprise and other premium offerings and is primarily comprised of both the service fees paid by freelancers as a percentage of the total amount that freelancers charge clients for services accessed through our ~~platform. Therefore,~~work marketplace ~~revenue is correlated~~and, to ~~GSV,~~a lesser extent, payment processing and ~~we believe that our marketplace revenue will grow as GSV grows, although they could grow at different rates. For a discussion of how we measure and evaluate~~administration fees paid by clients.

Marketplace Take Rate

Marketplace take rate measures the correlation between marketplace revenue and GSV ~~see “—~~from our marketplace offerings and is a key indicator of how well we monetize spend from our Upwork Basic, Plus, and Enterprise and other premium offerings on our work marketplace. Marketplace ~~Take Rate” below. Growth~~take rate is calculated by dividing marketplace revenue by GSV from our marketplace offerings.

Core Clients

We define a core client as a client that has spent at least $5,000 in the aggregate since it began using our work marketplace and had spend activity on our work marketplace during the 12 months preceding the date of measurement. In order to provide more relevant insight into our current business performance and align with how

management views the business, we will no longer report the number of core clients and ~~increased client spend retention are~~will instead report the primary drivers of GSV growth, and we expect the client spend retention trends discussed in “—Client Spend Retention,” below, to affect the rate at which GSV grows. We derive a substantial portion of our GSV and revenue from small- and medium-sized businesses. In light of the COVID-19 pandemic, rapidly changing market and macroeconomic conditions continue to impact the businesses of many of our clients, which may lead to downward pressure on client spend on our platform and, in turn, GSV. This downward pressure has been offset by an increase in spend from clients as well as increased client acquisitions, as we have seen new clients come to our platform due to an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic and the execution of our strategic initiatives. We expect our GSV to fluctuate between periods due to a number of ~~factors, including the current COVID-19 pandemic and its impact on~~active clients in our clients’ businesses, the volume of projects that are posted by clients on our platform, the characteristics of those projects, such as size, duration, and pricing, and the availability and qualifications of freelancers to complete those projects.future filings.

Client Spend Retention

We calculate client spend retention by dividing our recurring client spend by our base client spend. We define base client spend as the aggregate client spend from all clients during the four quarters ended one year prior to the date of measurement. We define our recurring client spend as the aggregate client spend during the four quarters ended on the date of measurement from the same clients included in our measure of base client spend. ~~Our~~In order to provide more relevant insight into our current business ~~is recurring in nature even though clients are not contractually required to spend on a recurring basis. We believe that~~performance and align with how management views the business, we will no longer report client spend retention ~~is an indicator of the value of our platform~~ and ~~the overall health of our business because it impacts the growth rate of~~will instead report GSV ~~and, therefore, marketplace revenue.~~

~~Long-term and recurring use by freelancers and clients are the primary drivers of growth~~per active client in our marketplace and give us increased revenue visibility. While continued use of our platform by freelancers is a factor that impacts our ability to attract and retain clients, for most categories of services on our platform, we currently have a significant surplus of freelancers in relation to the number of clients actively engaging freelancers. This surplus has increased as

a result of the COVID-19 pandemic, as we have experienced an increase in the number of independent professionals applying to join our platform. As a result of this surplus, we primarily focus our efforts on retaining client spend and acquiring new clients, as opposed to acquiring new freelancers and retaining existing freelancers. Moreover, we generate revenue when clients engage and pay freelancers, and therefore, our key metrics and operating results are directly impacted by client spend. On the other hand, the number of freelancers retained between periods is merely one of many factors that may impact client spend in a particular period and is not a primary driver of our key metrics and operating results. For these reasons, we do not calculate or consider freelancer retention metrics in evaluating our business.

As of September 30, 2020, client spend retention was 100%, down from 104% as of September 30, 2019. We believe that this decline in client spend retention is due in part to the impact of the rapidly changing market and macroeconomic conditions caused by the COVID-19 pandemic, which has impacted the businesses of many of our clients, resulting in a contraction in spend from some of these clients in the nine months ended September 30, 2020. Additionally, client spend retention has declined—from its historically highest levels in 2018 and the first quarter of 2019—following an acceleration in client spend retention that occurred subsequent to the launch of our U.S.-to-U.S. domestic marketplace offering in the second half of 2017, which initiated a substantial increase in the average hourly earnings rate of freelancers. These hourly rates stabilized over the course of 2019, causing the reduction in retention rate. Moreover, following the launch of our U.S.-to-U.S. domestic marketplace offering, an increasing proportion of U.S. clients are engaging primarily U.S. freelancers. We are observing that U.S. clients that engage solely U.S. freelancers post higher-budget projects and pay higher rates initially but, to date, have exhibited lower client spend retention than the rest of our clients. As we acquire more large enterprise, global account, and mid-market clients in current and future periods, we expect them to continue to make positive contributions to our client spend retention in future years. However, client spend retention will be challenged by the reduction in recurring client spend as a result of the COVID-19 pandemic. For these and other reasons, client spend retention will continue to vary from period to period due to client size and spending behavior, among other factors, including the impact of the ongoing COVID-19 pandemic, the related governmental restrictions intended to prevent its spread, and the resulting macroeconomic downturn on the businesses and spending behavior of our clients.

~~Marketplace Revenue~~

Marketplace revenue, which represents the majority of our revenue, consists of revenue derived from our Upwork Basic, Plus, Business, and Enterprise offerings, and our other premium offerings. We generate marketplace revenue from both freelancers and clients. Our marketplace revenue is primarily comprised of the service fees paid by freelancers as a percentage of the total amount freelancers charge clients for services accessed through our platform, and to a lesser extent, payment processing and administration fees charged to clients. We also generate marketplace revenue from fees for premium offerings, freelancer membership fees, Connects purchases, and other services, such as foreign currency exchange fees and Upwork Payroll service fees.

Marketplace revenue is an important metric because it is the primary driver of our business model, and we believe it provides greater comparability to other online marketplaces. The growth rate of marketplace revenue fluctuates in relation to the growth rate of GSV. Therefore, marketplace revenue is correlated to GSV, and we believe that our marketplace revenue will grow as GSV grows, although they could grow at different rates. We expect our marketplace revenue growth rates to continue to vary from period to period due to a variety of other factors such as the impact of the COVID-19 pandemic and any resulting macroeconomic impact on the businesses and spending behavior of our current and prospective clients; the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) in any given quarter, or the number of Mondays (i.e., the day we bill and recognize revenue for a substantial portion of our client fees each week), in any given quarter; the lapping of significant launches of new products, pricing changes, and other monetization efforts; the performance of client spend retention; and the ability of the recent and continued investment in our enterprise sales team to accelerate the acquisition of, and achieve increased spend from, Upwork Enterprise clients, and the timing of those results. In the second and third quarters of 2020, we saw an increase in client acquisition that was driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic and the execution of our strategic initiatives. This increase in client acquisition continued to accelerate in the third quarter and drove an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue.

~~Marketplace Take Rate~~

Marketplace take rate measures the correlation between marketplace revenue and GSV and is calculated by dividing marketplace revenue by marketplace GSV. Marketplace take rate is an important metric because it is the key indicator of how well we monetize spend on our platform from our Upwork Basic, Plus, Business, and Enterprise offerings, and other premium offerings. We expect our marketplace take rate to vary from period to period as marketplace revenue and GSV vary as a result of a variety of factors, such as the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) in any given quarter, or the number of Mondays (i.e., the day we bill and recognize revenue for a substantial portion of our client fees each week), in any given quarter; pricing changes; the ability of the recent and continued investment in our enterprise sales team to accelerate the acquisition of, and achieve increased spend from, our Upwork Enterprise clients and the timing of those results; and ongoing efforts to improve processes on our platform, including, but not limited to, project proposals and purchases of Connects. In the nine months ended September 30, 2020, our marketplace take rate increased primarily as a result of an influx of new clients, which caused freelancers to bill at higher rates of our tiered service fee structure.filings.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, adjusted EBITDA is a non-GAAP measure that we believe is useful in evaluating our operating performance.

We define adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense, depreciation and amortization, interest expense, other (income) expense, net, income tax (benefit) provision, and, if applicable, other non-cash transactions. For the three and six months ended June 30, 2021, other non-cash transactions included an impairment charge of $7.4 million related to certain of our operating lease assets and associated property and equipment. Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S. GAAP.

The following table presents a reconciliation of net loss, the most directly comparable financial measure prepared in accordance with U.S. GAAP, to adjusted EBITDA for each of the periods indicated (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Net Loss $ (2,747) $ (3,547) $ (23,792) $ (11,158)
Add back (deduct):
Stock-based compensation expense 6,856 3,932 19,527 10,858
Depreciation and amortization 2,658 1,671 7,444 4,498
Interest expense 152 317 640 1,047
Other (income) expense, net (452) (462) 31 (1,773)
Income tax provision 18 — 57 28
Tides Foundation common stock warrant expense 188 62 564 439
Adjusted EBITDA $ 6,673 $ 1,973 $ 4,471 $ 3,939


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net Loss	$	(16,538)	$	(11,024)	$	(24,373)	$	(21,045)
Add back (deduct):
Stock-based compensation expense	13,534		7,134		24,760		12,671
Depreciation and amortization	2,554		2,478		5,748		4,786
Interest expense	110		258		309		488
Other (income) expense, net	17		(248)		(61)		483
Income tax provision	16		30		33		39
Tides Foundation common stock warrant expense	187		188		375		376
Impairment expense	7,389		—		7,389		—
Adjusted EBITDA	$	7,269	$	(1,184)	$	14,180	$	(2,202)

We use adjusted EBITDA as a measure of operational efficiency. We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:

•adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization, interest expense, other (income) expense, net, income tax (benefit) provision, and, if applicable, other non-cash transactions that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired;

•our management uses adjusted EBITDA in conjunction with financial measures prepared in accordance with U.S. GAAP for planning purposes, including the preparation of our annual operating budget, as a

measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance; and

•adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our core operating results, and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their U.S. GAAP results.

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are as follows:

•adjusted EBITDA excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

•although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

•adjusted EBITDA does not reflect: (a) changes in, or cash requirements for, our working capital needs; (b) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (c) tax payments that may represent a reduction in cash available to us; and

•other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of this measure for comparative purposes.

Because of these and other limitations, you should consider adjusted EBITDA along with other financial performance measures, including net loss and our other financial results prepared in accordance with U.S. GAAP.

Components of Our Results of Operations

~~Revenue~~

Marketplace Revenue. Marketplace revenue represents the majority of our revenue and is generated from our Upwork Basic, Plus, ~~Business,~~ and Enterprise ~~offerings,~~ and other premium offerings. Under these marketplace offerings, we generate revenue from both freelancers and clients. Marketplace revenue, which represents the majority of our total revenue, is primarily comprised of the service fees paid by freelancers as a percentage of the total amount that freelancers charge clients for services accessed through our platform and, to a lesser extent, payment processing and administration fees paid by clients.

We recently decided that it was not cost-effective to continue to commit sales and other resources to support our Upwork Business offering for new clients. We do not expect this decision to have a material impact on our marketplace revenue, as we will service those clients that we had previously targeted with our Upwork Business offering with our other marketplace offerings, such as Upwork Basic and Plus.

Although the COVID-19 pandemic did not have a material adverse impact on our financial results for the three and nine months ended September 30, 2020, the rapidly changing market and macroeconomic conditions caused by the COVID-19 pandemic have disrupted the business of many of our clients, which resulted in a reduction in spend on our platform from some of those affected clients. This trend stabilized in the second half of the second quarter, and then improved in the third quarter, as spend from clients increased due to a greater need for remote work resulting from the COVID-19 pandemic. This temporary reduction in spend was further offset by an increase in client acquisitions, as we have seen new clients come to our platform due to the increase in remote work resulting from the COVID-19 pandemic and the execution of our strategic initiatives. We are continuously evaluating the nature of and extent to which the COVID-19 pandemic will impact our business, operating results, and financial condition.

Managed Services Revenue. Through our managed services offering, we are responsible for providing services and engaging freelancers directly or as employees of third-party staffing providers to perform services for clients on our behalf. ~~The freelancers providing services in connection with our managed services include independent professionals and agencies of varying sizes.~~ Under U.S. GAAP, we are deemed to be the principal in these managed services arrangements and therefore recognize the entire GSV of managed services projects as managed services

revenue, as compared to recognizing only the percentage of the client spend that we receive, as we do with our marketplace offerings.

~~Cost of Revenue and Gross Profit~~

Cost of Revenue. Cost of revenue consists primarily of the cost of payment processing fees, amounts paid to freelancers to deliver services for clients under our managed services offering, personnel-related costs for our services and support personnel, third-party hosting fees, ~~for our use of Amazon Web Services (“AWS”),~~ and the amortization expense associated with capitalized internal-use software and platform development costs. We define personnel-related costs as salaries, bonuses, benefits, travel and entertainment, and stock-based compensation costs for employees and the costs related to other service providers we engage.

We expect cost of revenue to increase in absolute dollars in future periods due to higher payment processing fees, third-party hosting fees, and personnel-related costs in order to support growth on our platform. We expect third-party hosting fees to temporarily increase in 2020 as we migrate from the AWS data centers in California to the AWS data center in Oregon, as we will need to use both AWS facilities during the migration period. We plan to complete this migration in the first quarter of 2021 and believe this migration will ultimately reduce third-party hosting costs once completed.

Amounts paid to freelancers in connection with our managed services offering are tied to the volume of managed services used by our clients. The level and timing of all of these items could fluctuate and affect our cost of revenue in the future.

~~Gross Profit and Gross Margin.~~ Our gross profit and gross margin may fluctuate from period-to-period. Such fluctuations may be influenced by our revenue, the mix of payment methods that our clients choose, the timing and amount of investments to expand hosting capacity, our continued investments in our services and support teams, the timing and amounts paid to freelancers in connection with our managed services offering, and the amortization expense associated with capitalized internal-use software and platform development costs. In addition, gross margin will be impacted by fluctuations in our revenue mix between marketplace revenue and managed services revenue. For example, our managed services revenue grew at a slower rate than our marketplace revenue for the three and nine months ended September 30, 2020 compared to the same period in 2019, and we anticipate this trend to continue, as we primarily focus on increasing client usage of and spend on our marketplace offerings. We expect gross margin to remain consistent throughout 2020 primarily due to the costs we will incur as a result of our migration from the AWS data centers in California to the AWS data center in Oregon.

~~Operating Expenses~~

Research and Development. Research and development expense primarily consists of personnel-related costs and third-party hosting costs related to development. Research and development costs are expensed as incurred, except to the extent that such costs are associated with internal-use software and platform development that qualifies for capitalization. We believe continued investments in research and development are important to attain our strategic objectives and expect research and development expense to increase in absolute dollars for the foreseeable future, although this expense, expressed as a percentage of total revenue, may vary from period to period.

Sales and Marketing. Sales and marketing expense consists primarily of expenses related to personnel-related costs, including sales commissions, which we expense as they are incurred, and advertising and marketing activities. We continue to invest in our sales and marketing capabilities and in light of the COVID-19 pandemic are focused on increasing our investment in brand awareness and marketing campaigns. We expect this expense to increase in absolute dollars in future periods, although this expense expressed as a percentage of total revenue may vary from period-to-period.

General and Administrative. General and administrative expense consists primarily of personnel-related costs for our executive, finance, legal, human resources, corporate development, and operations functions; outside consulting, legal, and accounting services; impairment expense; and insurance. We expect to continue to invest in corporate infrastructure and to incur additional expenses associated with operating as a public company, including increased legal and accounting costs, investor relations costs, insurance premiums, and compliance costs. Additionally, in light of the COVID-19 pandemic and the governmental restrictions intended to prevent its spread, we are evaluating our needs for our current office space, and any reductions to our office space may impact the recoverability of our operating lease

asset, which could result in impairment charges being recognized in general and administrative expense. As a result, we expect general and administrative expense to increase in absolute dollars in future periods, although this expense, expressed as a percentage of total revenue, may vary from period to period.

Provision for Transaction Losses. Provision for transaction losses consists primarily of losses resulting from fraud and bad debt expense associated with our trade and client receivables balance and transaction losses associated with

chargebacks. Provisions for these items represent estimates of losses based on our actual historical incurred losses and other factors. We expect provisions for transaction losses to increase proportionally as GSV grows. As a result, we expect provision for transaction losses to increase in absolute dollars in future periods, although expressed as a percentage of total revenue, this expense may vary from period to period.

Interest Expense

Interest expense consists of interest on our outstanding borrowings.

Other (Income) Expense, Net

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

Results of Operations

The following table sets forth our condensed consolidated results of operations for the periods presented (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenue	Revenue									Revenue
Marketplace	Marketplace	$	88,040	$	69,912	$	241,286	$	196,095	Marketplace	$	114,460	$	78,464	$	219,130	$	153,246
Managed services	Managed services	8,708		8,103		26,189		24,179		Managed services	9,721		9,067		18,670		17,481
Total revenue	Total revenue	96,748		78,015		267,475		220,274		Total revenue	124,181		87,531		237,800		170,727
Cost of revenue(1)	Cost of revenue(1)	26,596		22,494		75,489		65,207		Cost of revenue(1)	33,083		25,408		63,524		48,893
Gross profit	Gross profit	70,152		55,521		191,986		155,067		Gross profit	91,098		62,123		174,276		121,834
Operating expenses	Operating expenses									Operating expenses
Research and development(1)	Research and development(1)	20,833		16,209		60,728		47,705		Research and development(1)	28,124		20,547		54,737		39,895
Sales and marketing(1)	Sales and marketing(1)	33,577		25,322		98,695		70,319		Sales and marketing(1)	45,817		34,440		85,421		65,118
General and administrative(1)	General and administrative(1)	18,047		16,468		52,973		46,193		General and administrative(1)	32,355		17,102		55,886		34,926
Provision for transaction losses	Provision for transaction losses	724		1,214		2,654		2,706		Provision for transaction losses	1,197		1,018		2,324		1,930
Total operating expenses	Total operating expenses	73,181		59,213		215,050		166,923		Total operating expenses	107,493		73,107		198,368		141,869
Loss from operations	Loss from operations	(3,029)		(3,692)		(23,064)		(11,856)		Loss from operations	(16,395)		(10,984)		(24,092)		(20,035)
Interest expense	Interest expense	152		317		640		1,047		Interest expense	110		258		309		488
Other (income) expense, net	Other (income) expense, net	(452)		(462)		31		(1,773)		Other (income) expense, net	17		(248)		(61)		483
Loss before income taxes	Loss before income taxes	(2,729)		(3,547)		(23,735)		(11,130)		Loss before income taxes	(16,522)		(10,994)		(24,340)		(21,006)
Income tax provision	Income tax provision	(18)		—		(57)		(28)		Income tax provision	(16)		(30)		(33)		(39)
Net loss	Net loss	$	(2,747)	$	(3,547)	$	(23,792)	$	(11,158)	Net loss	$	(16,538)	$	(11,024)	$	(24,373)	$	(21,045)

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Cost of revenue $ 203 $ 109 $ 579 $ 326
Research and development 2,567 1,503 7,286 4,569
Sales and marketing 1,212 635 3,452 1,860
General and administrative 2,874 1,685 8,210 4,103
Total stock-based compensation $ 6,856 $ 3,932 $ 19,527 $ 10,858


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cost of revenue	$	179	$	202	$	380	$	376
Research and development	3,988		2,769		7,285		4,719
Sales and marketing	1,613		1,312		2,891		2,240
General and administrative	7,754		2,851		14,204		5,336
Total stock-based compensation	$	13,534	$	7,134	$	24,760	$	12,671

3020

Comparison of the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

Revenue


(in thousands, except percentages)	(in thousands, except percentages)	Three Months Ended September 30,										Nine Months Ended September 30,										(in thousands, except percentages)	Three Months Ended June 30,										Six Months Ended June 30,
		2020			2019			Change				2020			2019			Change					2021			2020			Change				2021			2020			Change
Marketplace	Marketplace	$	88,040		$	69,912		$	18,128	26	%	$	241,286		$	196,095		$	45,191	23	%	Marketplace	$	114,460		$	78,464		$	35,996	46	%	$	219,130		$	153,246		$	65,884	43	%
Percentage of total revenue	Percentage of total revenue	91		%	90		%					90		%	89		%					Percentage of total revenue	92		%	90		%					92		%	90		%
Managed services	Managed services	$	8,708		$	8,103		605		7	%	$	26,189		$	24,179		2,010		8	%	Managed services	$	9,721		$	9,067		654		7	%	$	18,670		$	17,481		1,189		7	%
Percentage of total revenue	Percentage of total revenue	9		%	10		%					10		%	11		%					Percentage of total revenue	8		%	10		%					8		%	10		%
Total revenue	Total revenue	$	96,748		$	78,015		$	18,733	24	%	$	267,475		$	220,274		$	47,201	21	%	Total revenue	$	124,181		$	87,531		$	36,650	42	%	$	237,800		$	170,727		$	67,073	39	%

In the second quarter of 2021, we experienced strong client acquisition as we continue to execute on our strategic initiatives, including prioritizing our advertising efforts to reach new and existing clients seeking to engage with independent talent, investing in marketing to accelerate the acquisition of new clients and drive brand awareness, and investing in research and development to build new product features. Strong client acquisition in the second quarter, as well as in the preceding three quarters, contributed to the increase in active clients of 27% and contributed to the growth of GSV and marketplace revenue. For the three and six months ended ~~September~~June 30, 2020, total revenue was $96.7 million, an increase of $18.7 million, or 24%, as compared to the same period in 2019. For the nine months ended September 30, 2020, total revenue was $267.5 million, an increase of $47.2 million, or 21%, as compared to the same period in 2019.

~~For the three months ended September 30, 2020, marketplace revenue represented 91% of total revenue~~2021, GSV increased 50% and ~~increased by $18.1 million, or 26%~~46%, compared to the same period in 2019. For the nine months ended September 30, 2020, marketplace revenue represented 90% of total revenue and increased by $45.2 million, or 23%, compared to the same period in 2019. Marketplace revenue increased primarily due to an increase in GSV, which grew by 23% and 17% during the three and nine months ended September 30, 2020, respectively, as compared to the same periods in ~~2019, and a 15% increase in the number of core clients as of September 30, 2020 compared to September 30, 2019. We believe these increases in marketplace~~2020. Marketplace revenue GSV, and core clients were primarily due to investments in sales and marketing to acquire new clients and drive brand awareness, the launch of new offerings such as Upwork Plus, the recent changes made in the pricing and packaging of Connects purchases in 2019, and investments in research and development to build new product features, and we intend to continue to focus on these efforts. Additionally, marketplace revenue also increased as a result of an increase inwas fueled by client ~~acquisition that was driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic and execution of our strategic initiatives. This increase in client acquisition,~~spend, which began in the second quarter of 2020, accelerated in the third quarter and continued to drive an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue. Freelancer service fees generated $51.9 million and $42.6 million of marketplace revenue during the three months ended September 30, 2020 and 2019, respectively. Freelancer service fees generated $142.4 million and $125.7 million of marketplace revenue during the nine months ended September 30, 2020 and 2019, respectively. Client payment processing and administration fees generated $14.4 million and $12.2 million of marketplace revenue during the three months ended September 30, 2020 and 2019, respectively. Client payment processing and administration fees generated $39.4 million and $32.1 million of marketplace revenue during the nine months ended September 30, 2020 and 2019, respectively.

~~Managed services revenue represented 9% and 10% of total revenue~~ for the three and six months ended ~~September~~June 30, ~~2020~~2021, drove increases in freelancer service fees of 44% and ~~2019, respectively. Managed services revenue increased by $0.6 million, or 7%~~43%, ~~for the three months ended September 30, 2020~~respectively, as compared to the same ~~period~~periods in ~~2019. Managed services revenue represented 10% and 11% of total revenue for the nine months ended September 30,~~ 2020, and ~~2019, respectively. Managed services revenue increased by $2.0 million, or 8%~~client payment processing and administrative fees of 50% and 46%, ~~for the nine months ended September 30, 2020~~respectively, as compared to the same ~~period~~periods in ~~2019. Managed~~2020.

Marketplace revenue grew more slowly than GSV from our marketplace offerings, and for the three and six months ended June 30, 2021, our marketplace take rate was 13.2% and 13.3%, respectively, as compared to 13.7% and 13.6%, respectively, for the same periods in 2020. This trend was the result of a few factors. In particular, we have seen the initial client cohorts following the start of the COVID-19 pandemic mature into higher value clients and continue to increase their spend with particular freelancers, which resulted in a higher mix of freelancers at the lower rates of our tiered service fee structure. Additionally, in the fourth quarter of 2020, to drive GSV, we increased the number of free “Connects” (virtual tokens that allow freelancers to bid on projects on the Company’s platform) issued to freelancers, which drove revenue and GSV, but resulted in slightly lower revenue as a percentage of GSV during the three and six months ended June 30, 2021. We anticipate these trends to continue in the near term.

For the three and six months ended June 30, 2021, managed services revenue grew at a slower rate than our marketplace revenue, ~~in the three and nine months ended September 30, 2020 compared to the same periods in 2019,~~ and we anticipate this trend towill continue as we primarily focus on increasing client usage of and spend on our marketplace offerings.

Cost of Revenue and Gross Margin


(in thousands, except percentages)	(in thousands, except percentages)	Three Months Ended September 30,										Nine Months Ended September 30,										(in thousands, except percentages)	Three Months Ended June 30,										Six Months Ended June 30,
		2020			2019			Change				2020			2019			Change					2021			2020			Change				2021			2020			Change
Cost of revenue	Cost of revenue	$	26,596		$	22,494		$	4,102	18	%	$	75,489		$	65,207		$	10,282	16	%	Cost of revenue	$	33,083		$	25,408		$	7,675	30	%	$	63,524		$	48,893		$	14,631	30	%
Components of cost of revenue:	Components of cost of revenue:																					Components of cost of revenue:
Cost of freelancer services to deliver managed services	Cost of freelancer services to deliver managed services	7,093			6,745			348		5	%	21,327			20,143			1,184		6	%	Cost of freelancer services to deliver managed services	7,796			7,272			524		7	%	15,003			14,234			769		5	%
Other components of cost of revenue	Other components of cost of revenue	19,503			15,749			3,754		24	%	54,162			45,064			9,098		20	%	Other components of cost of revenue	25,287			18,136			7,151		39	%	48,521			34,659			13,862		40	%
Total gross margin	Total gross margin	73		%	71		%					72		%	70		%					Total gross margin	73		%	71		%					73		%	71		%

For the three and six months ended ~~September~~June 30, ~~2020,~~2021, cost of revenue increased ~~by $4.1~~primarily as a result of increases in payment processing fees of $6.4 million ~~or 18%,~~and $11.3 million, respectively, as compared to the same ~~period~~periods in ~~2019. The increase was~~2020, primarily due to ~~a $3.8 million, or 24%, increase in other components of cost of revenue, which was driven by an increase of $1.9 million in payment processing fees due to an increase in~~increased client ~~spend on our platform, $0.8 million in third-party hosting costs, $0.5 million in amortization of capitalized platform development costs, and $0.6 million in personnel-related and other costs.~~

~~For~~spend. Additionally, for the ~~nine~~six months ended ~~September~~June 30, 2020, cost of revenue increased by $10.3 million, or 16%, compared to the same period in 2019. The increase was primarily due to a $9.1 million, or 20%, increase in other components of cost of revenue, which was driven by an increase of $3.7 million in payment processing fees due to an increase in client spend on our platform, $2.3 million in2021, third-party hosting

costs ~~$1.9 million in amortization of capitalized platform development costs, and~~increased $1.1 million inand personnel-related ~~and other costs.~~

~~Research and Development~~

(in thousands, except percentages) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Change 2020 2019 Change
Research and development $ 20,833 $ 16,209 $ 4,624 29 % $ 60,728 $ 47,705 $ 13,023 27 %
Percentage of total revenue 22 % 21 % 23 % 22 %

~~For the three months ended September 30, 2020, research and development expense~~costs increased ~~by $4.6~~$0.9 million, ~~or 29%,~~ as compared to the same period in ~~2019. The increase was primarily due~~2020.

We expect cost of revenue to an increase in ~~personnel-related costs of $4.9 million, which resulted from personnel-related investments made~~absolute dollars in future periods as we continue to support growth on our work marketplace. Amounts paid to freelancers in connection with our managed services offering are tied to the ~~execution~~volume of managed services used by our ~~strategic initiatives, partially offset by~~clients. The level and timing of these items could fluctuate and affect our cost of revenue in the ~~capitalization~~future. Because our managed services revenue and marketplace revenue grow at different rates, we expect gross profit to increase in absolute dollars in future periods, although gross margin, expressed as a percentage of ~~$0.4 million of additional internal-use software~~total revenue, may vary from period to period.

Research and ~~platform development costs.~~Development


(in thousands, except percentages)	Three Months Ended June 30,										Six Months Ended June 30,
	2021			2020			Change				2021			2020			Change
Research and development	$	28,124		$	20,547		$	7,577	37	%	$	54,737		$	39,895		$	14,842	37	%
Percentage of total revenue	23		%	23		%					23		%	23		%

For the ~~nine~~three and six months ended ~~September~~June 30, ~~2020,~~2021, research and development expense increased ~~by $13.0~~due to our ongoing and significant investments to build new product features and launch new offerings. Specifically, investments we made to increase the size of our research and development workforce resulted in increases in personnel-related costs of $5.4 million ~~or 27%,~~and $11.2 million, respectively, as compared to the same ~~period~~periods in ~~2019. The increase was primarily due to an increase~~2020, as well as increases in personnel-related costs of $13.5 million, which resulted from personnel-related investments made in connection with the execution of our strategic initiatives, partially offset by the capitalization of $1.1 million of additional internal-use software ~~and platform development costs.~~

~~Sales and Marketing~~

(in thousands, except percentages) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Change 2020 2019 Change
Sales and marketing $ 33,577 $ 25,322 $ 8,255 33 % $ 98,695 $ 70,319 $ 28,376 40 %
Percentage of total revenue 35 % 32 % 37 % 32 %

For the three months ended September 30, 2020, sales and marketing expense increased by $8.3 million, or 33%, as compared to the same period in 2019. This increase was primarily due to year-over-year increases of $5.7 million in personnel-related costs to build out our enterprise sales team, including sales commissions that we expense as incurred, and $2.3 million in marketing and advertising costs due to our ongoing digital marketing programs and our television advertising campaign.

For the nine months ended September 30, 2020, sales and marketing expense increased by $28.4 million, or 40%, as compared to the same period in 2019. This increase was primarily due to year-over-year increases of $15.8 million in personnel-related costs to build out our enterprise sales team, including sales commissions that we expense as incurred, $11.4 million in marketing and advertising costs due to our ongoing digital marketing programs and our television advertising campaign, and $1.2 million in amortization of licensed software and facilities-relatedlicenses and other costs ~~resulting from ongoing business growth.~~

~~In an effort to accelerate our acquisition~~ of ~~Upwork Enterprise clients, we will continue to invest in our sales~~$0.8 million and ~~marketing capabilities~~$1.0 million, respectively, and ~~in light of the COVID-19 pandemic, are focused on increasing our investment in brand awareness and marketing campaigns.~~

~~General and Administrative~~

(in thousands, except percentages) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Change 2020 2019 Change
General and administrative $ 18,047 $ 16,468 $ 1,579 10 % $ 52,973 $ 46,193 $ 6,780 15 %
Percentage of total revenue 19 % 21 % 20 % 21 %

For the three months ended September 30, 2020, general and administrative expense increased by $1.6 million, or 10%, as compared to the same period in 2019. This increase was primarily due to an increase of $2.0 million in personnel-relatedoutside consulting costs ~~partially offset by reductions in facilities-related and other expenses~~ of $0.4 ~~million.~~million and $0.9 million, respectively.

~~For the nine months ended September 30, 2020, general~~We believe continued investments in research and ~~administrative expense increased by $6.8 million, or 15%, as compared~~development are important to ~~the same period in 2019. This increase was primarily due to an increase of $7.2 million in personnel-related costs, partially offset by reductions in facilities-related~~attain our strategic objectives, and ~~other expenses of $0.4 million.~~

In light of the COVID-19 pandemic and the governmental restrictions intended to prevent its spread, we are evaluating our needs for our current office space. We may determine to either close or sublease certain of our offices, either of which may impact the recoverability of our operating lease asset, which could result in impairment charges being recognized in general and administrative expense. As a result, we expect ~~general~~research and ~~administrative~~development expense to increase in absolute dollars in future periods, although this expense, expressed as a percentage of total revenue, may vary from period to period.

Sales and Marketing

~~Provision for Transaction Losses~~

(in thousands, except percentages) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Change 2020 2019 Change
Provision for transaction losses $ 724 $ 1,214 $ (490) (40) % $ 2,654 $ 2,706 $ (52) (2) %
Percentage of total revenue 1 % 2 % 1 % 1 %

For the three months ended September 30, 2020, provision for transaction losses decreased by $0.5 million, or 40%, as compared to the same period in 2019, and represented approximately 1% of revenue, as compared to 2% of revenue in the same period in 2019. For the nine months ended September 30, 2020, provision for transaction losses decreased by $0.1 million, or 2%, as compared to the same period in 2019, and represented approximately 1% of revenue for each period. We expect provisions for transaction losses to be between 1% and 2% of revenue and to increase proportionally as GSV grows; however, as a result of the COVID-19 pandemic, provision for transaction losses may increase as a percentage of revenue, although we did not experience this trend in the nine months ended September 30, 2020.

~~Interest Expense and Other (Income) Expense, Net~~

(in thousands, except percentages) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Change 2020 2019 Change
Interest expense $ 152 $ 317 $ (165) (52) % $ 640 $ 1,047 $ (407) (39) %
Other (income) expense, net (452) (462) 10 (2) % 31 (1,773) 1,804 (102) %


(in thousands, except percentages)	Three Months Ended June 30,										Six Months Ended June 30,
	2021			2020			Change				2021			2020			Change
Sales and marketing	$	45,817		$	34,440		$	11,377	33	%	$	85,421		$	65,118		$	20,303	31	%
Percentage of total revenue	37		%	39		%					36		%	38		%

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, interest~~2021, sales and marketing expense ~~decreased by $0.2~~increased due to increases in marketing and brand awareness campaigns of $9.5 million and ~~$0.4~~$16.5 million, respectively, as compared to the same periods in ~~2019~~2020, as well as increases in personnel-related costs of $1.1 million and $3.4 million, respectively.

In an effort to further our acquisition of, and achieve increased spend from, clients, we will continue to invest in marketing and brand awareness. In particular, we expect to increase our investment in brand marketing beginning in the second half of 2021.

General and Administrative


(in thousands, except percentages)	Three Months Ended June 30,										Six Months Ended June 30,
	2021			2020			Change				2021			2020			Change
General and administrative	$	32,355		$	17,102		$	15,253	89	%	$	55,886		$	34,926		$	20,960	60	%
Percentage of total revenue	26		%	20		%					24		%	20		%

For the three and six months ended June 30, 2021, general and administrative expense increased due to ~~lower balances outstanding on the Term Loans.~~

~~For each~~increases in personnel-related costs of ~~the three months ended September 30, 2020~~$7.5 million and ~~2019, other income, net was $0.5 million. For the nine months ended September 30, 2020, other expense, net was $0.1~~$13.0 million, respectively, as compared to ~~other income, net of $1.8 million for~~ the same ~~period~~periods in ~~2019, which was~~2020, primarily ~~driven by lower investment income received from marketable securities~~because of ~~$1.1 million, as well as additional foreign currency exchange losses of $0.7 million from higher volumes of foreign currency transactions resulting from additional foreign currencies added~~increased stock-based compensation expense related to executive compensation arrangements. Additionally, in the second quarter of ~~2019.~~2021, we incurred an impairment charge of $7.4 million related to certain of our operating lease assets and associated property and equipment.

We expect to continue to invest in corporate infrastructure, including increased stock-based compensation expense related to executive compensation arrangements, legal and accounting costs, insurance premiums, and compliance costs. Additionally, we shifted to a flexible work model for our workforce and are evaluating our current need for office space. As a result, we may determine to either close or sublease certain of our other offices, either of which could result in further impairment charges being recognized in general and administrative expense.

Provision for Transaction Losses


(in thousands, except percentages)	Three Months Ended June 30,										Six Months Ended June 30,
	2021			2020			Change				2021			2020			Change
Provision for transaction losses	$	1,197		$	1,018		$	179	18	%	$	2,324		$	1,930		$	394	20	%
Percentage of total revenue	1		%	1		%					1		%	1		%

For the three and six months ended June 30, 2021, provision for transaction losses represented 1% of total revenue. We expect provision for transaction losses to approximate 1% of revenue and to increase proportionally as GSV grows.

Interest Expense and Other (Income) Expense, Net


(in thousands, except percentages)	Three Months Ended June 30,								Six Months Ended June 30,
	2021		2020		Change				2021		2020		Change
Interest expense	$	110	$	258	$	(148)	(57)	%	$	309	$	488	$	(179)	(37)	%
Other (income) expense, net	17		(248)		265		(107)	%	(61)		483		(544)		(113)	%

For the three and six months ended June 30, 2021, interest expense decreased as a result of lower outstanding principal balances in 2021. For the three and six months ended June 30, 2021, other income, net was driven by net foreign currency transaction gains.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, marketable securities, and amounts available for borrowing under our Loan and Security Agreement, as amended, ~~(the “Loan Agreement”)~~which we refer to as the Loan Agreement, referred to below under “—Term and Revolving Loans.” In August 2020, we entered into an amendment to the Loan Agreement that, among other things, extended the maturity date of the revolving line of credit from September 2020 to September 2022 and eliminated a formula-based restriction that prohibited us from borrowing funds under the revolving line of credit in an amount that exceeded a specified percentage of eligible trade and client accounts receivable. Our cash equivalents and marketable securities primarily consist of money market funds, commercial paper, treasury bills, and U.S. government securities. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had ~~$88.4~~$131.4 million and ~~$48.4~~$94.1 million in cash and cash equivalents, respectively. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had ~~$67.1~~$41.0 million and ~~$85.5~~$75.6 million in marketable securities, respectively.

We believe our existing cash and cash equivalents, marketable securities, cash flow from operations (in periods in which we generate cash flow from operations), and amounts available for borrowing under the Loan Agreement will be sufficient to meet our working capital requirements for at least the next 12 months. To the extent existing cash and cash equivalents, cash from marketable securities, cash from operations (in periods in which we generate cash flow from operations), and amounts available for borrowing under the Loan Agreement are insufficient to fund our working capital requirements, or should we require additional cash for other purposes, we will need to raise additional funds. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked

securities, the ownership and economic interests of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we will be subject to additional debt service requirements and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could also be unfavorable to our equity investors. There can be no assurances that we will be able to raise additional capital on terms we deem acceptable, or at all. The inability to raise additional capital as and when required would have an adverse effect, which could be material, on our results of operations, financial condition and ability to achieve our business objectives.

We also believe that our principal sources of liquidity will allow us to manage the impact of the COVID-19 pandemic on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from users, as further described below in “Risk Factors—Our business ~~has~~ experienced, and may ~~continue to~~again experience, an adverse impact from the ongoing COVID-19 ~~pandemic”~~pandemic. In addition, users may reduce their use of our work marketplace as the pandemic continues to subside and the restrictions intended to prevent its spread are relaxed or lifted.” in Part II, Item 1A in this Quarterly Report. The challenges posed by the COVID-19 pandemic on our business are expected to continue to evolve. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the COVID-19 pandemic.

Escrow Funding Requirements

As a licensed internet escrow agent, we offer escrow services to users of our ~~platform~~work marketplace and, as such, we are required to hold our users’ escrowed cash and in-transit cash in trust as an asset and record a corresponding liability for escrow funds held on behalf of freelancers and clients on our balance sheet. We expect the balances of our funds held in escrow, including funds held in transit, and the related liability to grow as GSV grows and may vary from period to period. Escrow regulations require us to fund the trust with our operating cash to cover shortages due to the timing of cash receipts from clients for completed hourly billings. Freelancers submit their billings for hourly contracts to their clients on a weekly basis every Sunday, and the aggregate amount of such billings is added to escrow funds payable to freelancers on the same day. As of ~~September~~each Sunday of each week, we have not yet collected funds for hourly billings from clients as these funds are in transit. Therefore, in order to satisfy escrow funding requirements, every Sunday we fund the shortage of cash in trust with our own operating cash and typically collect this cash shortage from clients within the next several days. As a result, we expect our total cash and cash flows from operating activities to be impacted when a quarter ends on a Sunday. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, funds held in escrow were ~~$128.1~~$165.1 million and ~~$108.7~~$135.0 million, respectively. To the extent we have not yet collected funds for hourly billings from clients which are in transit due to timing differences in receipt of cash from clients and payments of cash to freelancers, we may, from time to time, utilize the revolving line of credit under our Loan Agreement to satisfy escrow funding requirements.

Term and Revolving Loans

Under our Loan Agreement, the aggregate amount of the facility is up to $49.0 million, consisting of a term loan in the original principal amount of $15.0 million, ~~(the “First~~which we refer to as the First Term ~~Loan”),~~Loan, a term loan in the original principal amount of $9.0 million, ~~(the “Second~~which we refer to as the Second Term ~~Loan”~~Loan, and, together with the First Term Loan, as the ~~“Term Loans”),~~Term Loans, and a revolving line of credit, which permits borrowings of up to $25.0 million subject to customary conditions. In August 2020, we entered into an amendment to the Loan Agreement that, among other things, extended the maturity date of the revolving line of credit from September 2020 to September 2022 and eliminated a formula-based restriction that prohibited us from borrowing funds under the revolving line of credit in an amount that exceeded a specified percentage of eligible trade and client accounts receivable. The First Term Loan matures in March 2022, and the Second Term Loan and revolving line of credit mature in September 2022. All borrowings under the Loan Agreement bear interest at floating rates, and, therefore, our borrowing costs are affected by changes in market interest rates.

Our obligations under the Loan Agreement are secured by first priority liens on substantially all of our assets excluding our intellectual property (but including proceeds therefrom) and the funds and assets held by our subsidiary Upwork Escrow Inc. (“, which we refer to as Upwork ~~Escrow”).~~Escrow. The Loan Agreement prohibits us from pledging our intellectual property. The Loan Agreement also includes a restriction on dividend payments, other than dividends payable solely in common stock. The Loan Agreement contains affirmative covenants, including a covenant requiring that we maintain an adjusted quick ratio, and also contains certain non-financial covenants. We were in compliance with our covenants under the Loan Agreement as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

~~Pursuant to the terms of the Loan Agreement, we commenced repayment on the Term Loans in April 2019.~~ During the three and ~~nine~~six months ended ~~September~~June 30, 2020, we repaid $1.3 million and $3.8 million related to the First Term Loan, respectively, and $0.6 million and $1.9 million related to the Second Term Loan, respectively. During the three and nine months ended September 30, 2019,2021, we repaid $1.3 million and $2.5 million related to the First Term Loan, respectively, and $0.6 million and $1.3 million related to the Second Term Loan, respectively. During the three and six months ended June 30, 2020, we repaid $1.3 million and $2.5 million related to the First Term Loan, respectively, and $0.6 million and $1.3 million related to the Second Term Loan, respectively. As of June 30, 2021 and December 31, 2020, no amounts were outstanding on our revolving line of credit.

3524

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):


		Nine Months Ended September 30,					Six Months Ended June 30,
		2020		2019			2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	13,412	$	2,001	Net cash provided by operating activities	$	2,420	$	6,662
Net cash provided by (used in) investing activities		7,008		(73,734)
Net cash provided by investing activities						Net cash provided by investing activities	30,618		7,066
Net cash provided by financing activities	Net cash provided by financing activities	39,684		30,172		Net cash provided by financing activities	34,669		35,717
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	60,104	$	(41,561)
Net increase in cash, cash equivalents, and restricted cash(1)						Net increase in cash, cash equivalents, and restricted cash(1)	$	67,707	$	49,445
(1) Includes increases in funds held in escrow, including funds in transit of $30.0 million and $20.8 million during the six months ended June 30, 2021 and 2020, respectively.						(1) Includes increases in funds held in escrow, including funds in transit of $30.0 million and $20.8 million during the six months ended June 30, 2021 and 2020, respectively.

Operating Activities

Our largest source of cash from operating activities is revenue generated from our ~~platform.~~work marketplace. Our primary uses of cash from operating activities are for personnel-related expenditures, marketing activities, including advertising, payment processing fees, amounts paid to freelancers to deliver services for clients under our managed services offering, and third-party hosting costs. In addition, because we are licensed as an internet escrow agent, our total cash and cash provided by (used in) operating activities may be impacted by the timing of the end of our fiscal quarter as discussed in the section titled “—Liquidity and Capital Resources—Escrow Funding Requirements.”

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net cash provided by operating activities was ~~$13.4~~$2.4 million, which resulted from non-cash charges of $42.0 million, offset by a net loss of ~~$23.8 million, offset by non-cash charges of $32.8~~$24.4 million and net cash ~~inflows~~outflows of ~~$4.4~~$15.2 million from changes in operating assets and liabilities. The change in operating assets and liabilities primarily resulted from the increase in trade and client receivables of $16.8 million.

For the six months ended June 30, 2020, net cash provided by operating activities was $6.7 million, which resulted from non-cash charges of $21.2 million and net cash inflows of $6.5 million from changes in operating assets and liabilities, partially offset by a net loss of $21.0 million. The change in operating assets and liabilities primarily resulted from the increase in accounts payable of ~~$5.1~~$4.4 million, which was a result of the timing of payments of invoices, and the increase in accrued expenses and other current liabilities of ~~$10.4~~$7.2 million, which was a result of additional accruals related to our ongoing marketing and brand awareness and other efforts, partially offset by a reduction in trade and client receivables of ~~$12.5~~$4.8 million. Due to fluctuations in revenue and the number of transactions on our platform, coupled with fluctuations in the timing of cash receipts from clients, our trade and client receivables will likely continue to fluctuate in the future.

For the nine months ended September 30, 2019, net cash provided by operating activities was $2.0 million, which resulted from non-cash charges of $20.0 million, partially offset by a net loss of $11.2 million and net cash outflows of $6.9 million from changes in operating assets and liabilities. The change in operating assets and liabilities primarily resulted from the increase in trade and client receivables of $7.1 million. Due to fluctuations in revenue and the number of transactions on our platform, coupled with fluctuations of the timing of cash receipts from clients, our trade and client receivables will likely continue to fluctuate in the future.

Investing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net cash provided by investing activities was ~~$7.0~~$30.6 million, which was primarily a result of proceeds from maturities of marketable securities of ~~$89.0~~$64.5 million, offset by investing ~~$70.2~~$30.0 million in various marketable securities, as well as ~~$5.6~~$3.6 million of internal-use software and platform development costs that we paid during the period.

For the six months ended June 30, 2020, net cash provided by investing activities was $7.1 million, which was primarily a result of proceeds from maturities of marketable securities of $64.0 million, partially offset by investing $47.7 million in various marketable securities, as well as $3.6 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of ~~$6.2~~$5.6 million primarily for leasehold improvements and furniture related to our office lease in Chicago, Illinois.

For the nine months ended September 30, 2019, net cash used in investing activities was $73.7 million, which was primarily a result of investing $132.0 million in various marketable securities during the first nine months of 2019, as well as $4.0 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of $10.2 million primarily for leasehold improvements and furniture related to our office leases in Santa Clara, California and Chicago, Illinois. These uses of cash were partially offset by sales of marketable securities of $72.5 million.

Financing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net cash provided by financing activities was ~~$39.7~~$34.7 million, which resulted primarily from an increase in escrow funds payable of ~~$19.4~~$30.0 million, cash received from stock option exercises of ~~$23.3~~$5.7 million, and proceeds received from our employee stock purchase plan of $2.7 million, partially offset by repayments of borrowings on debt of $3.8 million.

For the six months ended June 30, 2020, net cash provided by financing activities was $35.7 million, which resulted primarily from an increase in escrow funds payable of $20.8 million, cash received from stock option exercises of $16.0 million, and proceeds received from our employee stock purchase plan of $2.7 million, partially offset by net repayments of borrowings on debt of ~~$5.7 million.~~

For the nine months ended September 30, 2019, net cash provided by financing activities was $30.2 million, which resulted primarily from changes in escrow funds payable of $16.4 million, cash received from stock option exercises of $14.0 million and proceeds from our employee stock purchase program of $3.6 million, partially offset by net repayments of debt of $3.8 million.

Obligations and Other Commitments

Our principal commitments consist of obligations under our non-cancellable operating leases for office space and the Loan Agreement. The following table summarizes our contractual obligations as of ~~September~~June 30, ~~2020~~2021 (in thousands):


		Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years			Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
Leases(1)	Leases(1)	$	34,519	$	6,396	$	13,271	$	9,490	$	5,362	Leases(1)	$	29,745	$	6,496	$	13,553	$	5,613	$	4,083
Debt principal	Debt principal	12,642		7,571		5,071		—		—		Debt principal	6,964		6,321		643		—		—
Total contractual obligations	Total contractual obligations	$	47,161	$	13,967	$	18,342	$	9,490	$	5,362	Total contractual obligations	$	36,709	$	12,817	$	14,196	$	5,613	$	4,083

(1)Represents minimum operating lease payments under operating leases for office facilities, excluding potential lease renewals ~~net of~~and tenant improvement allowances.

In the ordinary course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification. In addition, we have entered into indemnification agreements with our directors and executive officers and certain key employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as our directors, executive officers, or employees. The terms of such obligations may vary. To date, we have not paid any material claims or been required to defend any actions related to our indemnification obligations.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had accrued liabilities related to ~~indirect taxes~~uncertain non-income tax positions based on management’s best estimate of its liability, which are reflected on our condensed consolidated balance sheets. We could be subject to examination in various jurisdictions related to income and non-income tax matters. The resolution of these types of matters, giving recognition to the recorded reserve, could have an adverse impact on our business.

Additionally, in light of the COVID-19 pandemic and the governmental restrictions intended to prevent its spread, we are evaluating our needs for our current office space. We may determine to either close or sublease certain of our offices, either of which may impact the recoverability of our operating lease asset, which could result in impairment charges being recognized in general and administrative expense.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2020,~~2021, we did not have any relationships with other entities or financial partnerships such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from these estimates and assumptions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe estimates and assumptions associated with the evaluation of revenue recognition criteria, including the determination of revenue reporting as gross versus net in our revenue arrangements, internal-use software and platform development costs, the fair values of stock-based awards, and income taxes have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Except as otherwise disclosed in “Note 2—Basis of Presentation and Summary of Significant Accounting Policies” of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” there have been no

material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, ~~2019 (our “Annual Report”).~~2020, which we refer to as our Annual Report.

Recent Accounting Pronouncements

See “Note 2—Basis of Presentation and Summary of Significant Accounting Policies” of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report for recently issued accounting pronouncements not yet adopted as of the date of this ~~report.~~

Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign currency exchange rates.

Interest Rate Risk

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not make investments for trading or speculative purposes. Because our cash and cash equivalents have a relatively short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes. Borrowings under our Loan Agreement have variable interest rates. We had ~~$12.6~~$7.0 million and ~~$18.3~~$10.8 million aggregate principal amount of borrowings outstanding under our Loan Agreement as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. We do not believe that a hypothetical increase or decrease in interest rates of 100 basis points would have a material impact on our operating results or financial condition.

Foreign Currency Risk

Our operating results and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. In addition to the U.S. dollar, we offer clients the option to settle invoices denominated in the U.S. dollar in the following currencies: Euro, British Pound, Australian dollar, Canadian dollar, Singapore dollar, South African rand, New Zealand dollar, Polish zloty, Swiss franc, Norwegian krone, Danish krone, Swedish krona, Turkish lira, Japanese yen, and Hong Kong dollar. When clients make payments in one of these currencies, we are exposed to foreign currency risk during the period between when payment is made and when the payment amounts settle. To mitigate this risk, we have entered into forward contracts. As such, the impact of foreign currency exchange rate fluctuations to our operating results have been insignificant to date.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, ~~(the “Exchange Act”),~~which we refer to as the Exchange Act, as of ~~September~~June 30, ~~2020.~~2021. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, ~~(the “SEC”).~~which we refer to as the SEC. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2020,~~2021, our disclosure controls and procedures were effective.

~~Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting~~

In the quarter ended June 30, 2020, we completed execution of our remediation plan and successfully remediated a material weakness in internal control over financial reporting related to the identification of a number of adjustments to our consolidated financial statements that resulted in a revision to previously issued financial statements as of and for the year-ended December 31, 2016. We identified the cause of these adjustments was due to growth in the business, which required additional qualified accounting personnel with an appropriate level of experience, and additional controls in the period end financial reporting process commensurate with the complexity of the business.

In response to the identified material weakness, management, with the oversight of the audit, risk, and compliance committee of our board of directors, hired additional accounting and finance employees with specific technical accounting and financial reporting experience necessary for a public company, including internal control over financial reporting. The execution of our remediation plan also included validation and testing of the design and operating effectiveness of certain new and enhanced internal controls in the period-end financial reporting process over a sustained period of financial reporting cycles.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business.

Item 1A. Risk Factors.

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, as well as the other information in this Quarterly Report, including our condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below, or of additional risks and uncertainties not presently known to us or that we currently deem immaterial, could materially and adversely affect our business, results of operations, financial condition, and growth prospects. In such an event, the market price of our common stock could decline and you could lose all or part of your investment.

Summary of Risk Factors

Some of the more material risks that we face include:

•Our growth depends on our ability to attract and retain a community of freelancers and clients, and the loss of our users, failure to maintain or grow spend of our current users, or failure to attract new users could adversely impact our business.

•If we fail to attract new users, new users fail to transact at the rates we expect, or we fail to maintain or increase activity by existing users in a cost-effective manner or at all, our revenue will grow more slowly than expected or may decline and our business will be adversely impacted.

•We have experienced growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we are unable to manage our growth effectively, our business, revenue and profits, and financial condition could be adversely affected.

•Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic. In addition, users may reduce their use of our work marketplace as the pandemic continues to subside and the restrictions intended to prevent its spread are relaxed or lifted.

•We face payment and fraud risks that could adversely impact our business.

•We have a limited operating history under our current business strategy and pricing model, and may continue to evolve our business strategy and pricing model, which makes it difficult to evaluate our business and future prospects.

•Changes to our pricing model have in the past adversely affected, and could in the future adversely affect, our business.

•If we are unable to maintain our payment partner relationships on favorable terms, or at all, our business could be adversely affected.

•Our revenue growth and ability to achieve and sustain profitability will depend in part on being able to increase the productivity, effectiveness, and efficiency of our sales force.

•Because we derive the substantial majority of our revenue from our marketplace offerings, our inability to generate revenue from our marketplace offerings would adversely affect our business operations, financial results, and growth prospects.

•We face intense competition and could lose market share to our competitors, including if we fail to continue to develop and enhance our existing products and services, which could adversely affect our business, operating results, and financial condition.

•If the market for freelancers and the services they offer develops more slowly than we expect, our growth may slow or stall, and our operating results could be adversely affected.

•If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.

•Because a substantial portion of the services offered by freelancers and sought by clients on our work marketplace is information technology services, a decline in freelancers offering information technology services or the market for information technology service providers on our work marketplace could adversely affect our business.

•Errors, defects, or disruptions in our work marketplace, including any security breach, other hacking or phishing attack, or other privacy or security incident, could diminish demand, adversely impact our financial results, and subject us to liability.

•Users circumvent our work marketplace, which adversely impacts our business.

•Our sales efforts are increasingly targeted at large enterprise, global account, and mid-market clients, and as a result we may encounter greater pricing, implementation, and customization challenges, we may incur additional costs, and we may have to delay revenue recognition for more complicated transactions, each of which could adversely impact our business and operating results.

•We and our users may be subject to new and existing laws and regulations, both in the United States and internationally.

•Having an international community of users and engaging freelancers internationally exposes us to risks that could have an adverse effect on our business, operating results, and financial condition.

•There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our work marketplace is challenged, and our business could be adversely affected by changes in laws regarding contractor classification.

•The success of our business relies on demand for freelancers and any change that affects demand for freelancers, including regulatory or tax changes, or adverse perception regarding use of freelancers, would adversely affect our business.

•We have a history of net losses, anticipate increasing our operating expenses in the future, and may not achieve or sustain profitability.

•Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict.

•The stock price of our common stock has been and may continue to be volatile, and you could lose all or part of your investment.

•Adverse or changing economic and political conditions may negatively impact our business.

•We may be adversely affected by natural disasters and other catastrophic events, including the current COVID-19 pandemic, by man-made problems such as terrorism, or failures of technology, that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Risks Related to our Business Operations, Execution, and ~~Industry~~Growth

Our growth depends on our ability to attract and retain a community of freelancers and clients, and the loss of our users, failure to maintain or grow spend of our current users, or failure to attract new users could adversely impact our business.

The size of our community of users, including both freelancers and clients, is critical to our success. Our ability to achieve significant growth in revenue in the future will depend, in large part, upon our ability to attract new users, including ~~new~~ large enterprise, global account, and mid-market clients, as well as freelancers that meet the criteria sought by such clients, to, and retain existing users on, our ~~platform.~~work marketplace. Moreover, if we retain users but they do not ~~spend~~

transact at the rates we expect, our growth will be negatively impacted. Achieving growth in, and retention of, our community of users may require us to increasingly engage in sophisticated, costly, and lengthy sales and marketing and internationalization or localization efforts that may not result in additional users that transact on our ~~platform~~work marketplace or effectively retain our current users that transact on our ~~platform,~~work marketplace, or may not do so in a cost-effective manner. For example, since 2019, we have made significant investments in sales and marketing to acquire new clients and drive brand awareness, and we expect to increase our investment in brand marketing beginning in the second half of 2021. We may also modify our pricing model, offerings, or other services and features to attract and retain such users. Such modifications may not have the intended effect of attracting and retaining users and may have unintended negative consequences, such as a loss of users or a reduction of user activity or spend on our ~~platform.~~work marketplace. For example, in 2019 and the first half of 2020, we experienced a decline in client spend retention, which we believe was related to the launch of our U.S.-to-U.S. domestic marketplace offering in the second half of 2017. In addition, there can be no assurance that our investment in sales and marketing will result in increased clients and revenues.

In ~~particular,~~addition, as discussed below, ~~in the risk factor titled “Our business has experienced, and may continue to experience, an adverse impact from the ongoing COVID-19 pandemic,”~~ the COVID-19 pandemic and the resulting global macroeconomic downturn ~~has~~ adversely affected our business for a period of time, and may ~~continue to~~ adversely affect ~~client spend on our platform. Moreover, in response~~it again, including to the ~~impact~~extent the pandemic worsens in regions in which a large number of freelancers are located. In particular, the COVID-19 pandemic, we have implemented, and may continue to implement, promotions in an effort to support those affected by the COVID-19 pandemic, and we may also implement other promotions, such as a reduction or elimination of certain fees normally charged to users, in an effort to retain users or respond to increased competitive conditions or to attract those seeking to engage freelancers for the first time, and any such changes may result in a reduction in revenue and adversely affect our business. In addition, any increaseincreases in user acquisition that we have experienced due in part to the shift toward remote work as a result of the COVID-19 pandemic may slow or decline once the impact of the COVID-19 pandemic is mitigated and users return more frequently to ~~work~~physical offices or are otherwise no longer subject to ~~governmental~~ restrictions related to the COVID-19 pandemic.

If we fail to attract new users, new users fail to transact at the rates we expect, or we fail to maintain or increase activity by existing users in a cost-effective manner or at all, our revenue will grow more slowly than expected or may decline and our business will be adversely impacted.

Freelancers have many different ways of marketing their services, securing clients, and obtaining payments from clients, including ~~meeting~~advertising to, and ~~contacting~~engaging with, prospective clients through ~~advertising to prospective clients online or offline through other methods, using~~ other online or offline platforms and methods, signing up for online or offline third-party agencies ~~signing up with~~and staffing firms, using other payment services, or finding full-time or part-time on-site or remote employment ~~through an agency or~~ directly with a business. If we fail to attract new freelancers, including freelancers located in specific geographic regions from which clients are seeking to engage remote freelancers, freelancers decrease their use of, or cease using, our ~~platform,~~work marketplace or prefer to take remote employment opportunities that are increasingly available as a result of the shift to remote work, the quality or types of services provided by freelancers that use our ~~platform~~work marketplace are not satisfactory to clients, or freelancers increase their fees for services more than clients are willing to pay, clients may decrease their use of, or cease using, our ~~platform~~work marketplace and our revenue may be adversely impacted.

Clients have similarly diverse options to find and pay service providers, such as engaging and paying service providers directly, finding service providers through other online or offline platforms or through staffing firms and agencies, using other payment services, or hiring temporary, full-time, or part-time employees directly or through an agency. For the years ended December 31, 2019 and 2018, we generated more than 10% of revenue from one client, to which we provide services through our managed services offering. Therefore, a decrease in revenue from this client could have an adverse effect on our operating results. Moreover, revenue from this client has grown at a slower rate than revenue generated from the rest of our business, and we anticipate this trend to continue, which could adversely affect our financial condition.

Beginning in the second half of 2019, we began evolving our offerings, products, brand positioning, and marketing to better address large enterprise, global account, and mid-market prospects and clients with larger, longer-term talent needs. And more recently, in the wake of the COVID-19 pandemic, we have prioritized our advertising, marketing, and certain product development efforts to reach those new and existing clients seeking to engage with remote freelancers in light of the ~~governmental~~ restrictions intended to prevent the spread of COVID-19. The evolution of these and other efforts, either individually or in the aggregate, may not be successful in producing sales or growing client spend from ~~the~~these target clients, and in the event these efforts result in the loss of or reduction in spend by other clients that is not offset by increased activity from ~~large enterprise, global account, and mid-market~~these target clients, they may result in a temporary or long-term deceleration in GSV growth. In addition, any increase in user acquisition resulting from the COVID-19 pandemic may slow or decline as the impact of the COVID-19 pandemic continues to subside.

Users can generally decide to cease using our ~~platform~~work marketplace and related services at any time. Users may stop using our ~~platform~~work marketplace and related services if the quality of the user experience on our ~~platform,~~work marketplace, including our support capabilities, ~~in the event of a problem,~~ does not meet their expectations or keep pace with the quality of the user experience generally offered by competitive products and services. Users may also choose, and in the past have chosen, to cease using our ~~platform~~work marketplace if they perceive that our pricing model, including associated fees, is not

in line with the value they derive from our ~~platform,~~work marketplace, or for other reasons, including cost-cutting measures or other effects of the COVID-19 pandemic. Moreover, as discussed below in the risk factor titled “Users ~~may~~ circumvent our ~~platform,~~work marketplace, which ~~could~~ adversely ~~impact~~impacts our business,” users ~~may~~ circumvent the payment services on our ~~platform~~work marketplace and pay freelancers directly or through another service, which is likely to happen more frequently during a macroeconomic downturn, ~~such as the one caused by the COVID-19 pandemic,~~ as users may be more cost sensitive ~~or reduce their spending altogether~~ during such period. In addition, expenditures by clients may be cyclical and may reflect overall macroeconomic conditions or budgeting patterns.

Additionally, three clients each accounted for more than 10% of our trade and client receivables as of December 31, 2020 and two clients each accounted for more than 10% of our trade and client receivables as of December 31, 2019. Although for the year ended December 31, 2020, we did not have any clients that accounted for more than 10% of our revenue, a decrease in spend from any of these clients could have an adverse effect on our operating results.

Any decrease in the attractiveness of our ~~platform,~~work marketplace, failure to retain users, or reduced spending by clients could lead to decreased activity, diminished network effects, or a drop in GSV on our ~~platform,~~work marketplace, which could adversely affect our business, revenue, financial condition, and operating results. We expect our GSV to fluctuate between periods due to a number of factors, including the volume and characteristics of projects that are posted by clients on our ~~platform,~~work marketplace, such as size, duration, pricing, the availability and qualification of freelancers to complete client projects, and other factors.

If users stop using, or reduce their use of, our ~~platform~~work marketplace and services for any reason, including the foregoing reasons, our revenue and business would be adversely affected.

We have ~~a history of net losses, anticipate increasing our operating expenses~~experienced growth in ~~the future, and may not achieve or sustain profitability.~~

We have a history of incurring net losses, and we expect to incur net losses for the foreseeable future. For the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, we incurred net losses of $23.8 million, $16.7 million, and $19.9 million, respectively. As of September 30, 2020, we had an accumulated deficit of $195.7 million. We have made,recent periods and expect to continue to ~~make, significant expenditures related~~invest in our growth for the foreseeable future. If we are unable to ~~the development and expansion of~~manage our growth effectively, our business, ~~including investing in marketing programs~~revenue and ~~activities, such as brand promotion efforts, including those designed to reach new~~profits, and existing clients seeking to engage with remote freelancers in light of the COVID-19 pandemic; enhancing our Upwork Enterprise and other premium offerings; expanding our services and features; broadening and deepening the categories on our platform; promoting client engagement of those freelancers that typically optimize to deliver larger projects, including through our Upwork Payroll offering; localizing our offerings in select locations; expanding our sales force; enhancing our U.S.-to-U.S. domestic marketplace offering and our mobile product offering; expanding our sales force; and in connection with legal, accounting, and other administrative expenses related to operating as a public company. These and other efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue

~~sufficiently, or at all, to offset these higher expenses. While our revenue has grown in recent years, we may not~~financial condition could be able to sustain the same level of growth in future periods, or at all. For example, we experienced a reduction in the growth of GSV and revenue in the second quarter of 2020, due to the effects of the COVID-19 pandemic. If our revenue declines or fails to grow at a rate faster than increases in our operating expenses, we will not be able to achieve and maintain profitability in future periods. As a result, we may continue to generate losses. We cannot ensure that we will achieve profitability in the future or that, if we do become profitable, we will be able to sustain profitability.adversely affected.

We have ~~a limited operating history under our current business strategy and pricing model, which makes it difficult to evaluate our business and future prospects.~~

We recently evolved, and will continue to evolve, our sales, marketing, and brand positioning efforts. Recently we have expanded our focus on large enterprise, global account, mid-market, and other clients with larger, longer-term talent needs. To better serve this market segment, in recent years we have expanded our Upwork Enterprise offering and, in 2019, launched our Upwork Business offering, both of which help enterprises and other larger businesses connect with freelancers and provide these larger clients with additional products and services. We recently decided that it was not cost-effective to continue to commit sales and other resources to support our Upwork Business offering for new clients. This decision resultedexperienced growth in a ~~reduction~~relatively short period of time. For example, our total revenue for the six months ended June 30, 2021 was $237.8 million, representing a period-over-period growth rate of 39% over the same period in ~~force of approximately one-third of our sales employees~~2020. This revenue growth was due in ~~November 2020.We also continue~~part to develop our current offerings and create and test additional premium offerings, features, and services to serve this and other market segments. Moreover, we made significant changes to our pricing model in 2016 and launched our U.S.-to-U.S. domestic marketplace offering in the second half of 2017. In 2019, we launched other pricing changes, including new paid membership types for clients, which were also recently amended, and new Connects pricing for freelancers. In addition, we regularly launch new offerings, including two recent offerings “Direct Contracts,” a service for freelancers to easily charge clients that are not registered users on Upwork’s platform, and “Project Catalog,” through which freelancers offer pre-scoped projects easily purchased via a click-and-buy experience. Not all offerings achieve market acceptance atshift toward remote work resulting from the ~~levels we expect~~COVID-19 pandemic and therefore may not be ~~cost-effective~~indicative of future growth. For example, future period-over-period revenue growth rates, when compared against the third and fourth quarters of 2020 and the first and second quarters of 2021, may fail to ~~maintain. As a result,~~meet the expectations of investors or securities analysts given the accelerated revenue growth experienced during such periods due to the COVID-19 pandemic and the resulting increased adoption of remote work and reduced seasonality experienced during such periods. Moreover, typical seasonality in the labor market may be exaggerated (for example, extended summer holidays) as the COVID-19 pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted, which may further impact period-over-period revenue growth rates. Over time, we plan to continue to expand our ~~current business strategy~~operations and ~~pricing model have~~personnel significantly. Sustaining our growth will place significant demands on our management as well as on our administrative, operational, and financial resources. To manage our growth, we must continue to improve our operational, financial, and management information systems and processes; expand, motivate, retain, and effectively manage and train our workforce; and effectively collaborate with our third-party partners, all of which can be more difficult with an increasingly remote workforce. If we are unable to manage our growth successfully without compromising our quality of service or our profit margins, or if new systems that we implement to assist in managing our growth do not ~~been fully proven, we have only a limited operating history under our current business strategy and pricing model to evaluate~~produce the expected benefits, our business, operating results, financial condition, and ~~future prospects, and we continue to evolve our business strategy and related pricing, which subject us to a number of uncertainties, including our~~ ability to ~~plan for~~successfully market our work marketplace and ~~model future growth~~serve our users could be adversely affected.

Our recent and ~~make accurate projections regarding our future performance. Our~~ historical ~~revenue~~ growth should not be considered indicative of our future ~~performance, particularly in light of the uncertainty caused by the COVID-19 pandemic and the resulting macroeconomic downturn.~~performance. We have encountered, and will ~~continue to~~ encounter in the future, risks, ~~difficulties,~~challenges, and uncertainties frequently experienced by growing companies in rapidly changing ~~industries, including~~and highly competitive industries. If our ~~ability to achieve market acceptance of our platform~~assumptions regarding these risks, challenges, and offerings and attract and retain users, as well as increasing competition and increasing expenses as we continue to grow our business. In addition, we have in the past, and may in the future, see unexpected or unintended effects, sometimes negative, as a result of changes to our pricing model, products and offerings, and sales, brand positioning, and marketing efforts, including a failure to attract new clients that spend on our platform or the loss of spend from existing clients. For example, since 2019, we have experienced a decline in client spend retention,uncertainties, which we ~~believe was related~~use to ~~the launch of our U.S.-to-U.S. domestic marketplace offering in the second half of 2017~~plan and more recently, due to the COVID-19 pandemic, as discussed in the section titled “Management’s Discussion and Analysis for Financial Condition and Results of Operations—Key Financial and Operational Metrics.” We cannot ensure that we will be successful in addressing these and other challenges we may face in the future, andoperate our business, ~~may be adversely affected~~are incorrect or change, or if we do not ~~manage~~address these ~~challenges successfully. In addition, we may not achieve sufficient revenue to achieve or maintain positive cash flow from operations or profitability in any given period, or at all.~~

~~Because we derive the substantial majority of~~risks successfully, our ~~revenue~~financial condition and operating results could differ materially from our ~~marketplace offerings, with most~~expectations and those of investors and securities analysts, our ~~marketplace revenue derived from our Upwork Basic, Plus,~~growth rates may slow, and ~~Enterprise offerings, our inability to generate revenue from our marketplace offerings would adversely affect~~ our business ~~operations, financial results, and growth prospects.~~

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~~matching features, could have~~Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic. In addition, users may reduce their use of our work marketplace as the pandemic continues to subside and the restrictions intended to prevent its spread are relaxed or lifted.

The COVID-19 pandemic adversely impacted our business for a ~~negative impact on our business. Demand~~period of time and has resulted in reductions in demand for our ~~marketplace offerings is affected by a number of factors beyond our control, including the timing of development and release of new~~ products and services by some of our ~~competitors,~~clients, including small- and medium-sized business clients, which have been most impacted by the resulting macroeconomic downturn and from which we derive a substantial portion of our ~~ability~~GSV and revenue. Conversely, beginning in 2020 we experienced an increase in GSV and revenue growth driven by an acceleration in the shift toward remote work, due in part to ~~respond to technological change and to innovate and grow, contraction in our market, client spending patterns, freelancer activity levels, macroeconomic effects, such as those resulting from~~the COVID-19 pandemic. These positive impacts may not continue following the COVID-19 pandemic and the ~~other risks identified herein.~~relaxation or lifting of restrictions intended to prevent its spread. Moreover, typical seasonality in the labor market may be exaggerated (for example, extended summer holidays) as the COVID-19 pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted, which may negatively impact our GSV and revenue growth.

The extent to which the ongoing COVID-19 pandemic will adversely affect our business, financial condition, results of operations, and cash flow will depend on future developments, which are highly uncertain and cannot reasonably be predicted with confidence at this time, including the duration, spread, and severity of the outbreak, or the occurrence of additional “waves” of the outbreak; the emergence of variant strains of the virus; the timing, availability, and efficacy of vaccinations; government responses to the pandemic and potential restrictions on our business and the businesses of our users; the impact of the pandemic on the U.S. and global economies and demand for our offerings; how quickly and to what extent normal economic and operating conditions resume; and the reaction of users and potential users to these developments, among others. The potential impacts of such developments include, but are not limited to:

•decline in demand on our work marketplace, resulting in lower GSV and lower revenue, following relaxation or lifting of restrictions intended to prevent the spread of COVID-19, including the impact of resulting exaggerated seasonality;

•reduced client spend on our products and services;

•diminished ability to acquire new clients, particularly large enterprise, global account, and mid-market clients;

•increased competition as new competitors enter our market segment due to the accelerated shift toward remote work;

•increased costs or reduced revenue as a result of ~~the macroeconomic downturn caused~~marketing and promotional efforts;

•increased risk of fraud or other illegal activity conducted by ~~the COVID-19 pandemic, we may experience an increase in the number of users requesting a reduction~~bad actors seeking to take advantage of our fees and an increase in transaction losses due to declined payment methods and chargebacks. If we are unable to continue to meet user demands, to expand the categories of services offered on our platform,users or ~~to achieve and maintain more widespread market acceptance of our marketplace offerings, our business operations, financial results, and growth prospects could be adversely affected.~~

If we are not able to develop and release new products and services, or develop and release successful enhancements, new features, and modifications to our existing products and services, our business could be adversely affected.

The market for our platform is characterized by rapid technological change, frequent product and service introductions and enhancements, changing user demands, and evolving industry standards. The introduction of products and services embodying new technologies can quickly make existing products and services obsolete and unmarketable. We invest substantial resources in researching and developing new products and services and enhancing our platform by incorporating additional features, improving functionality, and adding other improvements to meet our users’ evolving demands in our increasingly highly competitive industry. The success of any enhancements or improvements to, or new features of, our platform or any new products and services depends on several factors, including timely completion, competitive pricing, adequate quality testing, integration with new and existing technologies on our platform and third-party partners’ technologies, overall demand and market acceptance, and resulting user activity that is consistent with the intent of such products or services. We cannot be sure that we will succeed, on a timely or cost-effective basis, in developing, marketing, and delivering enhancements or new features to our platform or any new products and services that respond to continued changes in the market for talent or business services. Any enhancements or new features to our platform or any new products and services may not achieve, and if the past certain features and offerings have not achieved, market acceptance, been cost-effective, or produced the intended effect. Moreover, even if we are able to release new products and services, or launch enhancements and new features, if the impact of those efforts fails to meet or exceed the expectations of investors or securities analysts, the trading price of our common stock could be negatively impacted. In the past, we have experienced unintended negative effects, including reduced client spend retention, diminished fill rates, and user dissatisfaction from certain modifications to our products, services, and features. For example, since 2019, we have experienced a decline in client spend retention which we believe was related to the launch of our U.S.-to-U.S. domestic marketplace offering in the second half of 2017 and more recently,us due to the ~~COVID-19 pandemic, as discussed in the section titled “Management’s Discussion and Analysis for Financial Condition and Results of Operations—Key Financial and Operational Metrics.”~~

Because further development of our platform is complex, challenging, and dependent upon an array of factors, the timetable for the release of new products and services and enhancements to existing products and services is difficult to predict, and we may not offer new products and services as rapidly as users or prospective users of our platform require or expect. Any new products or services that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may not be properly integrated with new and existing technologies on our platform or third-party partners’ technologies, may not achieve the broad market acceptance necessary to generate sufficient revenue, or may adversely impact existing client spend and user growth and retention. Moreover, even if we introduce new products and services, we may experience a decline in revenue from our existing products and services that is not offset by revenue from the new products or services. In addition, we may lose existing users that choose to use competing products or services. This could result in a temporary or permanent decrease in revenue and adversely affect our business.

~~Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict.~~

Our quarterly operating results have fluctuated in the past and may fluctuate in the future, particularly during a macroeconomic downturn such as the one caused by the COVID-19 pandemic. Additionally, we have a limited operating history under our current business strategy and pricing model, and we make pricing, product, and other changes from time to time, all of which make it difficult to forecast our future results. As a result, you should not

rely upon our past quarterly operating results as indicators of future performance. You should take into account the risks, difficulties, and uncertainties frequently encountered by companies in highly competitive and rapidly evolving markets. Our operating results in any given quarter can be influenced by numerous factors, many of which are unpredictable or are outside of our control, including:

•~~ongoing~~ uncertainty and impact on the global economy and spending by large, medium and small companies relating to the COVID-19 pandemic, availability of qualified freelancers, and uncertainty regarding the timing and nature of any future economic recovery, as discussed further below;

•~~our ability to generate significant revenue from our Upwork Basic, Plus, and Enterprise offerings, and our other premium offerings;~~

•~~our ability to attract, retain and grow small- and medium-sized business clients;~~

•spending patterns of clients, including whether those clients that use our platform frequently or for larger projects, reduce their spend, stop using our platform, or change their method of payment to us, including in each case as a result of the implementation of macroeconomic or other external factors, new pricing or the introduction of new or modified products or services on our platform, such as the changes made in the pricing and packaging of Connects purchases in 2019, and any pricing or other changes made in response toaround the COVID-19 pandemic;

•longer sales cycles due to ~~our tiered pricing model for freelancer service fees, the mix~~slower decision-making, reduced budgets, or delays in ~~any period between freelancers that have billed larger amounts to clients on our platform, where we charge a lower rate on billings,~~planned work by existing and ~~freelancers that have billed clients less on our platform, where we charge a higher rate on billings;~~

•our ability to maintain and grow our community of users, including our ability to acquire large enterprise, global account, and mid-market clients with larger, longer-term talent needs and qualified freelancers;

•~~the success of our marketing and brand positioning efforts;~~

•~~the productivity and effectiveness of our sales force;~~

•~~the length and complexity of our sales cycles;~~

•our ability to attract and retain freelancers that provide the types and quality of services sought by clients on our platform, particularly freelancers that provide services for which client demand exceeds supply on our platform;

•~~the demand for and types and quality of skills and services that are offered on our platform by freelancers;~~

•~~our ability to introduce new products and services or enhance existing products and services without adversely affecting our existing revenue;~~

•~~our ability to generate significant revenue from new products and services;~~

•~~fluctuations in gross margin and managed services revenue due to our recognition of the entire GSV from our managed services offering as revenue, including the amounts paid to freelancers;~~

•~~the disbursement methods chosen by freelancers;~~

•~~the number of users circumventing our platform and our fees, which could increase during economic downturns, such as the current macroeconomic downturn resulting from the COVID-19 pandemic;~~

•~~fluctuations in the prices that freelancers charge clients on our platform;~~

•~~changes to our pricing model, including associated fees, and any resulting change to how we recognize revenue, or change in the number of projects that get posted or completed on our platform;~~

•~~spending patterns and project bidding behavior of freelancers with respect to the products and services available to them on our platform, such as membership fees and Connects purchases;~~

•~~our ability to respond to competitive developments, including new and emerging competitors, pricing changes, and the introduction of new products and services by our competitors;~~

•~~litigation, regulatory investigations or enforcement actions, and adverse judgments, settlements, or other litigation-related costs;~~

•~~data security or privacy breaches or incidents and associated remediation costs and reputational harm;~~

•seasonal spending patterns by clients or work patterns by freelancers and seasonality in the labor market, as well as the number of business days, the number of Mondays (i.e., the day we bill and recognize revenue for a substantial portion of our client fees each week), or the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) in any given quarter, as well as local, national, or international holidays;

•~~changes in the mix of products and services that our enterprise clients or other users demand;~~

•changes in the common law, or in the statutory, legislative, or regulatory environment, such as with respect to privacy, data security, wage and hour regulations, worker classification (including classification of independent contractors or similar workers and classification of employees as exempt or non-exempt), internet regulation, payment processing, global trade, or tax obligations;

•~~fluctuations in the mix of payment provider costs and the revenue generated from payment providers;~~

•the impact of sales, use, and other tax laws and regulations in jurisdictions in which we have users, including the requirement in certain jurisdictions to collect indirect taxes on user fees, to withhold and remit taxes related to income or earnings, or to pay any such taxes or resulting penalties as a result of our failure to comply with such requirements;

•changes to financial accounting standards and the interpretation of those standards that may affect the way we recognize and report our financial results, including changes in accounting rules governing recognition of revenue;

•~~revenue recognition fluctuations for arrangements subject to our tiered pricing model for freelancer service fees;~~

•~~the episodic nature of freelance work generally or changes to demand for freelance work due to political or regulatory changes or uncertainty;~~

•~~the impact of public health pandemics, especially the COVID-19 pandemic, or other global or regional events or conditions;~~

•~~fluctuations in transaction losses;~~

•~~fluctuations in trade and client receivables due to the timing of cash receipts from clients and the number of transactions on our platform;~~

•increases in, and timing of, operating expenses that we may incur to grow and expand our operations and to remain competitive, such as advertising and other marketing expenses, including those associated with evolving our brand positioning;

•~~the impact of new laws and regulations, or changes in interpretation of existing laws and regulations, on the products and services offered on our platform;~~

•~~the cost and time needed to develop and upgrade our platform to incorporate new technologies;~~

•~~the impact of outages of our platform and associated reputational harm;~~

•potential ~~costs to attract, onboard, retain, and motivate qualified talent to perform services for us;~~

•~~the impact of reductions in our workforce, including claims against us from departing employees or others;~~clients;

•any impairment charges on our operating lease asset and related leasehold improvements being recognized as a general and administrative expense due to a reduction to our office space and our potential sublease of such office space at a rental rate that is less than our rent expense for such office space, or any termination fees we may incur as a result of our termination of the operating lease for such office ~~space;~~

•~~costs~~space. For example, in the second quarter of 2021, as a result of our shift to a flexible work model for our workforce, we incurred an impairment charge of $7.4 million related to the ~~acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;~~

•~~general economic and political conditions and government regulations in the countries where we currently have significant numbers of users or where we currently operate or may expand in the future;~~

•~~fluctuations in currency exchange rates;~~

•~~changes in the mix of countries in which our users are located, which impacts the amount of revenue we derive from foreign exchange;~~

•~~operating lease expenses and other real estate expenses;~~

•~~lease termination fees or rent expense that is in excess of~~ sublease ~~income for a particular office space;~~

•~~non-cash accounting charges such as stock-based compensation expense and depreciation and amortization;~~

•~~losses and expenses from indemnification, dispute assistance, and similar contractual obligations we owe to clients; and~~

•~~expenses incurred in connection with The Upwork Foundation initiative.~~

~~The impact of one or more of the foregoing and other factors may cause our operating results and performance metrics to vary significantly. As such, we believe that quarter-to-quarter comparisons~~ of our operating results and performance metrics may not be meaningful and should not be relied upon as an indication of future performance. If we fail to meet or exceed the expectations of investors or securities analysts, the trading price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.

~~If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.~~

~~The Upwork brand did not exist before 2015. We believe that developing, maintaining, and enhancing awareness and integrity of our brand and reputation~~former headquarters in a cost-effective manner are important to achieving widespread acceptance and use of our platform and are important elements in attracting new users and retaining existing users. Successful promotion and positioning of our brand, products, and our business model depends on, among other things, the effectiveness of our marketing efforts and brand messaging, our ability to provide a reliable, trustworthy, and useful platform and products at competitive prices, the perceived value of our platform and products, and our ability to provide quality support. In order to reach the brand awareness and acceptance levels of some of our competitors, we will need to continuously invest in marketing programs that may not be successful in achieving meaningful awareness and acceptance levels, particularly during early phases of expansion into newer customer awareness segments. Further, brand promotion activities may not resonate with existing or potential users or yield increased revenue, including any brand promotion efforts in response to the COVID-19 pandemic, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation. For example, we invested heavily in advertising in the United States in 2019 and 2020 to increase our brand awareness, and it is not certain that these investments have had or will have sufficient positive impact on our brand to be cost effective. We have also recently evolved our marketing and brand positioning efforts to expand our focus on large enterprise, global account, mid-market, and other clients, with larger, longer-term talent and contracting needs and may not be successful in achieving the brand awareness and acceptance levels with this market segment, in a cost-effective manner, or without harming other areas of our business.

To protect our brand, we also expend substantial resources to register and defend our trademarks and to prevent others from using the same or substantially similar marks. Despite these efforts, we are not always successful in registering, maintaining, opposing cancellation actions, and preventing misappropriation of our own marks and other intellectual property or preventing registration of confusingly similar marks, or we may choose for business reasons to not take such actions, and we may suffer dilution, loss of reputation, genericization, or other harm to our brand. We also rely on our community of users in a variety of ways, including their willingness to give us feedback regarding our platform, and failure of our users to provide feedback on their experience on our platform or our failure to adequately address any concerns could negatively impact the willingness of them or prospective users to use our platform. For example, the recent changes made in the pricing and packaging of Connects purchases has and may continue to result in user dissatisfaction and negatively impact fill rates. If we fail to promote and maintain our brand successfully, address user concerns, or to maintain loyalty among our users, or if we incur substantial

~~expenses in unsuccessful attempts to promote and maintain our brand, we may fail to attract new users or retain our existing users and our business and financial condition may be adversely affected.~~

~~Our business has experienced, and may continue to experience, an adverse impact from the ongoing COVID-19 pandemic.~~

The COVID-19 pandemic has adversely impacted our business and has resulted in reductions in demand for our products and services by some of our clients, including our small- and medium-sized business clients, which have been most impacted by the resulting macroeconomic downturn and from which we derive a substantial portion of our GSV and revenue. If these clients continue to reduce their spending or cease operations entirely, the COVID-19 pandemic may have a material adverse effect on our business, financial condition, results of operations, and cash flows. The extent to which the ongoing COVID-19 pandemic will continue to adversely affect our business, financial condition, results of operations, and cash flow will depend on future developments, which are highly uncertain and cannot reasonably be predicted with confidence at this time, including the duration, spread, and severity of the outbreak, or the occurrence of additional “waves” of the outbreak; government responses to the pandemic and potential restrictions on our business and the businesses of our users; the impact of the pandemic on the U.S. and global economies and demand for our offerings; how quickly and to what extent normal economic and operating conditions resume; and the reaction of users and potential users to these developments, among others, and nearly all aspects of our business could be adversely affected. The potential impacts of such developments include, but are not limited to:

•~~reduced client demand for freelancer services through our platform, resulting in lower GSV and lower revenue;~~Santa Clara, California;

•reduced ~~client~~ spend ~~on our products and services;~~

•~~diminished ability to acquire new~~by clients ~~particularly large enterprise, global account, and mid-market clients;~~

•~~increased costs~~ or ~~reduced revenue as a result~~availability of ~~marketing and promotional efforts to reach and support those~~freelancers located in areas or regions more affected by ~~the COVID-19 pandemic;~~

•~~longer sales cycles due to slower decision-making, reduced budgets, or delays in planned work by existing and potential clients;~~

•~~decline in demand on our platform following relaxation or lifting of governmental restrictions intended to prevent the spread of COVID-19;~~

•increased obligations to satisfy our escrow funding requirements with our own funds or by drawing on our line of credit as a result of more frequent declines of client payment methods or increased client-issued chargebacks, which would negatively impact our cash flows and may result in higher credit card processing fees and higher interest payments under our Loan Agreement;

•~~increased risk of fraud or other illegal activity conducted by bad actors seeking to take advantage of our users or us due to the uncertainty around~~ the COVID-19 pandemic;

•reduced GSV and revenue as a result of increased user circumvention of our ~~platform;~~work marketplace;

•increased employee and contractor attrition and reduced availability of key personnel to conduct important business activities, such as providing support to users and developing new products or offerings;

•~~the diversion of resources~~reduced ability to retain, attract, train, and attention of our management and workforce away from important ongoing initiatives, including the introduction of new, or modifications to existing, offerings and products, as well as long-term strategic investments and business objectives;integrate highly skilled personnel;

•impacts on payment partners, disbursement partners, or other critical third-party partners that may cause delays in processing payments to freelancers or other important functions of our ~~platform,~~work marketplace, result in an increase in payment transaction costs, lead to loss of revenue, or cause a decline in quality or availability of services, negatively affect our reputation or user activity on our ~~platform,~~work marketplace, or increase our operating costs;

•delayed or missed client payments to us or freelancers on our ~~platform,~~work marketplace, which may also result in reductions in revenue, increased transaction losses, numbers of disputes with users, and costs as we seek to compel payment, which we may not be able to recover;

•reduced ~~spend by clients or availability of freelancers located in areas or regions more affected by the COVID-19 pandemic;~~

•~~reduced ability to attract, train, integrate, and retain highly-skilled personnel;~~

•~~reduced~~ GSV and revenue as a result of freelancers reducing the fees they charge to clients due to an excess number of freelancers joining our ~~platform;~~work marketplace;

•difficulty in business planning and forecasting due to significant uncertainty in the impact of the COVID-19 pandemic on all aspects of our business and on our clients and freelancers and other business partners;

•significant disruption of global financial markets, which may impact our ability to access capital now or in the future or make capital available only on terms less favorable to us;

•reduced sublease income as a result of our sublease tenants being unable or unwilling to make the rental payments set forth in their respective sublease agreement;

•~~any impairment charges on our operating lease asset being recognized as a general~~the diversion of resources and administrative expense due to a reduction to our office space and our potential sublease of such office space at a rental rate that is less than our rent expense for such office space, or any termination fees we may incur as a resultattention of our ~~termination~~management and workforce away from important ongoing initiatives, including the introduction of ~~the operating lease for such office space;~~new, or modifications to existing, offerings and products, as well as long-term strategic investments and business objectives;

•impairments to our goodwill or other long-term assets if their carrying value exceeds their fair value;

•~~reduced ability~~increased obligations to ~~maintain~~satisfy our ~~financial reporting systems~~escrow funding requirements with our own funds or by drawing on our line of credit as a result of more frequent declines of client payment methods or increased client-issued chargebacks, which would negatively impact our cash flows and ~~internal control over financial reporting, including our ability to ensure timely compliance with disclosure requirements under the Securities Exchange Act of 1934;~~may result in higher credit card processing fees; and

•de-globalization, which may result in clients being less willing to connect with non-U.S. users of our ~~platform.~~work marketplace.

Although the COVID-19 pandemic did not have a material adverse impact on our financial results for the ~~first three quarters of~~year ended December 31, 2020 or the six months ended June 30, 2021, the rapidly changing market and macroeconomic conditions caused by the COVID-19 pandemic have impacted the business of many of our clients, which resulted in a reduction in spend on our ~~platform~~work marketplace for some of those affected clients. There can be no assurance that the positive impacts from the COVID-19 pandemic, such as increased client acquisitions, increased client spend, and increased client ~~spend~~ retention, will continue to offset those parts of our business that have been adversely impacted. Many of these risk factors are unpredictable and outside of our control, and any of these factors could amplify the other risks and uncertainties described elsewhere in this Quarterly Report. It is uncertain what impact that the various legislative and other government responses being undertaken in the United States and other countries, including with respect to the approval and distribution of vaccines, in which our users are located will have on the economy, our industry, our partners, our users, and our company. In connection with the COVID-19 pandemic, we have also implemented measures to protect the health of our workforce, including by ~~requiring~~adopting a flexible work model for our workforce that we believe will result in most of our employees ~~to work~~working remotely ~~for an indefinite period of time; to~~even after the extent offices reopen, our efforts to comply with applicable health guidelines may not prove sufficient to protect the health of our employees and other visitors to our offices. This and other policiespandemic is over. These measures may negatively impact the health and safety of our employees, impact workforce productivity, increase the risk of data security breaches and other privacy and security incidents, and may cause other disruptions to our business. ~~There can be no assurance that~~As and to the extent offices reopen, our efforts to comply with applicable health guidelines may not prove sufficient to protect the health of our employees and other visitors to our offices, and our adoption of these measures ~~will be effective, however, or that we can adopt them without~~may adversely ~~affecting~~affect our business operations. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our ~~business as a result of the macroeconomic downturn that has occurred as a result and is likely to continue in the future. Furthermore,~~business. For example, any increase in client acquisition due to the shift toward remote work as a result of the COVID-19 pandemic may slow or decline once the impact of the COVID-19 pandemic is mitigated and users are no longer subject to ~~government~~ restrictions intended to prevent the spread of COVID-19.

5033

We face payment and fraud risks that could adversely impact our business.

Our work marketplace systems and controls relating to user authentication and fraud detection are complex. If our user authentication and fraud detection measures are not effective, our work marketplace may be perceived as not being secure, our reputation may be harmed, and our ~~users~~business may be adversely impacted. In addition, bad actors around the world use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized or fraudulent use of another’s identity, payment information, or other information; misrepresentation of the user’s identity or skills, including using accounts that they have purchased, sold, or leased; and the improper acquisition or use of credit or debit card details and banking or other payment account information. These types of illegal activities may increase as platforms like ours gain more prominence, including due to the ongoing shift toward remote work or in the event of a macroeconomic downturn, as bad actors seek to take increasing advantage of us or our users. This conduct on our site could result in any of the following, each of which could adversely impact our business:

•bad actors may use our work marketplace, including our payment processing and disbursement methods, to engage in unlawful or fraudulent conduct, such as money laundering, moving funds to regions or persons restricted by sanctions or export controls, terrorist financing, fraudulent sale of services, bribery, breaches of security, unauthorized acquisition of data, extortion or use of ransomware, distribution or creation of malware or viruses, piracy or misuse of software and other copyrighted or trademarked content, and other misconduct;

•we may be, and historically have been, held liable for the unauthorized use of credit or debit card details and banking or other payment account information and required by card issuers, banks, and other payment partners to return the funds at issue and pay a chargeback or return fee, and if our chargeback or return rate becomes excessive, credit card networks may also require us to pay fines or other fees or cease doing business with us and the California Department of Financial Protection and Innovation, which we refer to as the DFPI, may require us to hold larger cash reserves or take other action with respect to our internet escrow license;

•we may be subject to ~~new~~additional risk and ~~existing laws~~liability exposure, including for negligence, fraud, or other claims, if employees or third-party service providers, including freelancers that provide services to us, misappropriate our banking, payment, or other information or user information for their own gain or to facilitate the fraudulent use of such information;

•users that are subjected or exposed to the unlawful, fraudulent, or improper conduct of other users or other third parties may seek to hold us responsible for the conduct of or content posted by users, may lose confidence in our work marketplace, decrease or cease use of our work marketplace, seek to obtain damages and ~~regulations, both in~~costs, or publicize their negative experiences, and law enforcement or administrative agencies could seek to hold us responsible for the ~~United States~~conduct of or content posted by users, impose fines and ~~internationally.~~penalties, bring criminal action, or require us to change our business practices, and private or public enforcement may increase depending on interpretations of and possible changes to intermediary liability provisions such as Section 230 of the Communications Decency Act of 1996;

~~We and our users are~~•we may be subject to additional risk if clients fail to pay freelancers for services rendered, as freelancers may seek to hold us responsible for the clients’ conduct and may lose confidence in our work marketplace, may decrease or cease use of our work marketplace, may publicize their negative experiences, or seek to obtain damages and costs;

•if freelancers misstate their qualifications or location, provide misinformation about their skills, identity, or otherwise, perform services they are not qualified or authorized to provide, produce insufficient or defective work product or work product with a ~~wide variety~~viral or other harmful effect, clients or other third parties may seek to hold us responsible for the freelancers’ acts or omissions and may lose confidence in our work marketplace, decrease or cease use of ~~foreign~~our work marketplace, or seek to obtain damages and ~~domestic laws. Laws, regulations,~~costs; and ~~standards governing issues that~~

•we may affect us, such as worker classification, employment, worker health, payments, worker confidentiality obligations and whistleblowing, intellectual property, consumer protection, taxation, privacy, and data security are often complex and subject to varying interpretations, in many cases due to their lack of specificity, and,suffer reputational damage adversely impacting our business as a result of the occurrence of any of the above.

We do not have control over users of our work marketplace and cannot ensure that any measures we have taken to detect, prevent, and mitigate these risks will stop or minimize the use of our work marketplace for, or to further, illegal or improper purposes. We have received in the past, and are likely to continue to receive in the future, complaints and inquiries from clients, freelancers, and other third parties, including law enforcement, administrative agencies, and the press, concerning misuse of our work marketplace and wrongful conduct of other users. We have also brought claims against clients and other third parties for their ~~application~~misuse of our work marketplace, and may be required to bring similar claims in ~~practice~~the future. Even if these claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention and resources of our management, negatively impact our reputation, and adversely affect our business and operating results.

We have a limited operating history under our current business strategy and pricing model, and may ~~change or~~continue to evolve our business strategy and pricing model, which makes it difficult to evaluate our business and future prospects.

We recently evolved, and will continue to evolve, our sales, marketing, and brand positioning efforts, as well as our business strategy. Recently we have undertaken a rebranding effort and expanded our focus on large enterprise, global account, mid-market, and other clients with larger, longer-term talent needs. In an effort to better serve this market segment, in recent years we have expanded our Upwork Enterprise offering and, in 2019, launched our Upwork Business offering, both of which were designed to help enterprises and other larger businesses connect with freelancers and provide these larger clients with additional products and services. We also continue to develop ~~over~~our current offerings and create and test additional offerings, features, and services to serve this and other market segments. We regularly launch new offerings, including two recent offerings “Direct Contracts,” a service for freelancers to easily charge clients that are not registered users on Upwork’s work marketplace, and “Project Catalog,” a feature through which freelancers can market pre-scoped projects easily purchased via a click-and-buy experience. Creating new offerings is expensive and time ~~through judicial decisions or as new guidance or interpretations are provided by regulatory~~consuming, diverts the attention of our management, and ~~governing bodies, such as federal~~not all offerings achieve market acceptance at the levels we expect and ~~state administrative agencies. Many~~therefore may not be cost-effective to maintain. For example, in the fourth quarter of ~~these laws were adopted prior~~2020, we decided that it was no longer cost-effective for our sales team to sell our Upwork Business offering. This decision resulted in a reduction in force of approximately one-third of our sales employees in November 2020.

Changes in our offerings and pricing, and the continued evolution of our business strategy and related pricing, subject us to a number of uncertainties, including our ability to plan for and model future growth and make accurate projections regarding our future performance. Our historical revenue growth should not be considered indicative of our future performance. In particular, there can be no assurance that our increased revenue growth due in part to the advent of the internet, mobile, and related technologies and, as a result, do not contemplate or address the unique issues of the internet, mobile, and related technologies. Other laws and regulations may be adopted in response to internet, mobile, and related technologies. New and existing laws and regulations (or changes in interpretation of existing laws and regulations), including those concerning worker classification, independent contractors, employment, discrimination and harassment, payments, whistleblowing and worker confidentiality obligations, intellectual property, consumer protection, taxation, privacy, data security, benefits, unionizing and collective action, arbitration agreements and class action waiver provisions, unfair competition, terms of service, website accessibility, background checks (such as the Fair Credit Reporting Act, 15 U.S.C. § 1681), escheatment, and federal contracting may also be adopted, implemented, or interpreted to apply to us and other online services marketplaces or our users. Likewise, these laws affect our users, and their application, or uncertainty around their application, may affect demand for our marketplace.

~~New laws, regulations and orders enacted in response to~~shift toward remote work resulting from the COVID-19 pandemic will continue following relaxation or the resulting macroeconomic downturn may also affect our business in ways that we did not anticipate, and existing laws and regulations may be interpreted and enforced differently than they have in the past in response to the COVID-19 pandemic. These laws may change rapidly and compliance may be costly to us. For example, the governmentallifting of restrictions intended to prevent the spread of ~~COVID-19 currently enacted~~COVID-19. We have encountered, and will continue to encounter, risks, difficulties, and uncertainties frequently experienced by growing companies in ~~many jurisdictions may result in a loss of productivity~~rapidly changing industries, including our ability to achieve market acceptance of our ~~workforce~~work marketplace and ~~an increase in data security breaches~~offerings and ~~other privacy~~attract and ~~security incidents, among other things. On the other hand, a loosening of these restrictions~~retain users, as ~~certain geographic areas begin to reopen may result in a decline in user activity on our platform.~~

~~As our platform’s geographic scope expands~~well as increasing competition and expenses as we expand the categories of services offered on our platform, regulatory agencies or courts may claim that we, or our users, are subject to additional requirements, or are prohibited from conducting our business, or conducting business with us, in or with certain jurisdictions, either generally or with respect to certain services, or that we are otherwise required to change our business practices. It is also possible that certain provisions in agreements with our users or service providers, or between freelancers and clients, or the fees we charge, may be found to be unenforceable or not compliant with applicable law.

The level of regulatory scrutiny on larger companies, technology companies in general, and companies engaged in dealings with independent contractors, payments, or personal information in particular has increased significantly recently and may continue to ~~do so. Legislators may enact new laws or regulatory agencies may promulgate new rules or regulations that are adverse to~~grow our ~~business or the interests of our users, or they may view matters or interpret laws and regulations differently than they~~business. In addition, we have in the past seen, and may in the future see, unexpected or inunintended effects, sometimes negative, as a ~~manner adverse~~result of changes to our ~~business~~pricing model, products and offerings, and sales, brand positioning, and marketing efforts, including a failure to attract and retain quality freelancers or attract new clients that spend on our work marketplace or the ~~interests~~loss of spend from existing clients. For example, in 2019 and the first half of 2020, we experienced a decline in client spend retention, which we believe was related to the launch of our ~~users. Such legislative or regulatory scrutiny or action~~U.S.-to-U.S. domestic marketplace offering in the second half of 2017. Also, in 2016, we implemented a significant change to our pricing model, which, for a period of time following the pricing change, contributed to GSV growing at a faster rate than revenue. We cannot ensure that we will be successful in addressing these and other challenges we may ~~create or enhance different or conflicting obligations on us from one jurisdiction to another.~~

~~New approaches to policy-making~~face in the future, and ~~legislation may also produce unintended harms for~~ our business ~~which~~ may ~~impact~~be adversely affected if we do not manage these challenges successfully.

Changes to our ~~ability to operate our business~~pricing model have in the ~~manner in which we are accustomed. For example, there has been increased focus on worker classification~~past adversely affected, and ~~independent contractor regulations which led in part to the adoption of legislation in California, and it is possible that other jurisdictions will implement similar laws and regulations, as discussed~~could in the ~~risk factor titled “There may be adverse tax, legal,~~future adversely affect, our business.

We implemented a significant change to our pricing model in 2016, which, for a period of time following the change, contributed to GSV growing at a faster rate than revenue. From time to time we have made, and will continue to make, other ~~consequences if the contractor classification or employment status of freelancers that use our platform is challenged.” These laws~~changes, including in 2019 when we launched new paid membership types for clients and regulations may have a far-reaching impact, including on the independent professionals that use our platform and their clients. Any of these regulations could negatively impact our users, including perceptions regarding their use of our platform, or have a material adverse effect on the demandnew Connects pricing for freelancers, ~~on our platform or on the manner~~which resulted in ~~which we are able to operate our platform.~~user dissatisfaction and negatively impacted fill rates for

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~~As we look~~projects on our work marketplace. We anticipate further changes to ~~expand~~Connects pricing and policies in the future, which may have a negative impact on our ~~international footprint over~~revenue or marketplace take rate. From time to time, we will make further changes to our pricing model due to a variety of reasons, including due to changes to the market for our products and services or our business strategy, as new competitors enter our market segment, as we introduce or refine our offerings, as competitors introduce new products and services, and to grow our user base. Changes to any components of our pricing model, such as the recent changes made in the pricing and packaging of Connects purchases, have and may ~~become obligated~~continue to, ~~comply with additional laws and regulations~~among other things, result in user dissatisfaction, lead to a loss of ~~the countries or markets in which we operate or have users. We may be harmed if we are found to be subject to new or existing laws and regulations or if those laws are interpreted and applied to us~~users on our work marketplace, result in a manner that harms our business or is inconsistent with the application of U.S. laws, including those concerning worker classification, independent contractors, employment, payments, whistleblowing and worker confidentiality obligations, laws relatedchange to the ~~COVID-19 pandemic, intellectual property, consumer protection, taxation, privacy, data security, benefits, unionizing~~way we recognize revenue, reduce the amount of revenue we generate as a percentage of GSV, reduce the rate or size of projects that get posted or completed on our work marketplace, negatively impact fill rates for projects on our work marketplace, or otherwise negatively impact our reputation, operating results, financial condition, and collective action, arbitration agreements and class action waiver provisions, unfair competition, terms of service, website accessibility, background checks, and escheatment. In addition, contractual provisions that are designed to protect and mitigate against risks, including terms of service, services agreements, arbitration and class action waiver provisions, disclaimers of warranties, limitations of liabilities, releases of claims, and indemnification provisions, could be deemed unenforceable as to the application of these laws and regulations by a court, arbitrator, or other decision-making body. cash flows.

If we are unable to ~~comply~~maintain our payment partner relationships on favorable terms, or at all, our business could be adversely affected.

Our payment partners consist of payment processors and disbursement partners. We rely on banks and card processors to provide us with corporate banking services, escrow trust accounts, and clearing, processing, and settlement functions for the funding of all transactions on our work marketplace, and we do not always have a sufficient surplus of vendors in the event one relationship is terminated for any reason. We also rely on a network of disbursement partners to disburse funds to users.

Our payment partners are critical to our business. In order to maintain these relationships, we have in the past been, and may in the future be, forced to agree to terms that are unfavorable to us. If we are unable to maintain our agreements with current payment partners on favorable terms, or at all, or we are unable to enter into new agreements with new payment partners on favorable terms, or at all, our ability to disburse funds and our revenue and business may be adversely affected. This could occur for a number of reasons, including the following:

•our payment processors may be unable or unwilling to perform the services we require of them, such as processing payments to freelancers in a timely manner, including in a manner that is satisfactory to us as it relates to compliance with U.S. federal, state, and international laws and regulatory requirements;

•we may choose to cease doing business with our payment partners for a number of reasons, including due to allegations of fraud or other impropriety by them or their third-party partners;

•our payment partners may be subject to investigation, regulatory enforcement, or other proceedings that result in their inability or unwillingness to provide services to us or our unwillingness to continue to partner with them;

•our payment partners may be unable to effectively accommodate changing service needs, such as those which could result from rapid growth or higher volume or those which relate to international expansion and local jurisdictions;

•our payment partners could, and, in some cases, have notified us in the past that they would, increase the rates that they charge us or our users, especially in light of changes in those payment partners’ interpretation and enforcement of their rules, increased declines of client payment methods, or increased client-issued chargebacks;

•our payment partners could choose to terminate or not renew their agreements with us, or only be willing to renew on different or less advantageous terms;

•our payment partners could reduce the services provided to us, cease doing business with us, or cease doing business altogether;

•our payment partners could be subject to delays, limitations, or closures of their own businesses, networks, or systems, causing them to be unable to process payments or disburse funds for certain periods of time; or

•we may be forced to cease doing business with payment processors if card association operating rules, certification requirements and laws, regulations, or ~~manage~~rules governing electronic funds transfers to which we are subject, change or are interpreted to make it difficult or impossible for us to comply.

For example, in June 2020, Wirecard AG, a prepaid card issuer used by one of our payment partners to issue prepaid cards to our non-U.S. users, filed for insolvency and was ordered by the ~~complexity~~UK Financial Conduct Authority to cease all licensed activity. As a result, our non-U.S. users who previously chose to withdraw their funds to a prepaid card could not access their funds for several days. The order was eventually lifted, allowing those users to access their funds; however, this incident or any similar future incident concerning our payment partners or their respective vendors could cause our users to lose trust in our work marketplace and could have an adverse impact on our business.

Our revenue growth and ability to achieve and sustain profitability will depend in part on being able to increase the productivity, effectiveness, and efficiency of ~~global~~our sales force.

In order to increase our revenue from our premium offerings and achieve and sustain profitability, we must improve the effectiveness and efficiency of our sales force and generate additional revenue from new and existing users. For example, in the fourth quarter of 2020 we completed an evaluation of the efficiency, productivity, and effectiveness of our sales force at generating revenue from our Upwork Business offering, as well as our other premium offerings. As part of this evaluation, we undertook a reduction in force of approximately one-third of our sales employees in an effort to drive efficiencies in our sales organization. Efforts such as these may result in unintended consequences such as low employee morale and a decrease in the productivity and efficiency of our sales force.

There is significant competition for sales personnel with the skills and technical knowledge required to maintain a productive and efficient sales force. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, effectively deploying, and retaining sufficient numbers of sales and sales support personnel to support our growth. It is difficult to find, and we may be unable to retain, a sufficient number of sales personnel with the specific skills and technical knowledge needed to sell our Upwork Enterprise, and other premium offerings. Furthermore, hiring and effectively deploying sales personnel, particularly in new markets, is complex and requires additional costs that we may not recover if the sales personnel fail to achieve full productivity. Even if we are able to hire qualified personnel, doing so may be costly and lengthy, as new sales personnel require significant training and can take a number of months to achieve full productivity. In addition, new sales personnel do not always achieve productivity milestones within the timelines that we have projected, negatively impacting our ability to achieve our long-term financial projections associated with such personnel. Not all of our sales personnel and planned hires have or will become productive, or do so as quickly as we expect. When our new sales personnel do not become fully productive on the timelines that we have projected, or at all, our revenue will not increase at anticipated rates, or at all, and our ability to achieve long-term projections may be negatively impacted. The COVID-19 pandemic and restrictions intended to prevent its spread adversely affected the productivity of our sales force for a period of time, and may adversely affect it again as the COVID-19 pandemic continues to subside, as the productivity of our sales force may diminish as users return more frequently to physical offices or are otherwise no longer subject to restrictions related to the COVID-19 pandemic. If our sales personnel are not successful in obtaining new business or increasing sales to our existing user base, our business and results of operations will be adversely affected.

Our revenue growth depends in part on the success of our strategic relationships with third parties and their continued performance.

To grow our business, we need to continue to establish and maintain relationships with third parties, such as staffing providers, banks, software and technology vendors, and payment processing and disbursement providers. For example, we work with third-party staffing providers, upon which we are dependent to support our employment offering, Upwork Payroll. As our agreements with third-party partners terminate or expire, we may be unable to renew or replace these agreements on favorable terms, or at all. Moreover, we cannot guarantee that the parties with which we have strategic relationships will continue to offer the services for which we rely on them at economically reasonable terms or at all, devote the resources necessary to expand our reach, increase our distribution, or support an increased number of users and associated use cases. Our dependence on any single third-party supplier increases when our supply of a particular service is more heavily concentrated with that third-party. Some of our strategic partners offer, or could offer, competing products and services or also work with our competitors, the likelihood of which may increase due to the ongoing shift toward remote work. As a result of these factors, many of our third-party partners may choose to develop or support alternative products and services in addition to, or in lieu of, our work marketplace, either on their own or in collaboration with others, including our competitors. If we are

unsuccessful in establishing or maintaining our relationships with third parties on favorable terms, our ability to compete or to grow our total revenue could be impaired and our operating results may be adversely impacted. Even if we are successful in establishing and maintaining these relationships with third parties on comparable terms, we cannot ensure that these relationships will result in increased usage of our work marketplace or increased revenue.

Our business model subjects us to disputes with or between users of our work marketplace.

Our business model involves enabling connections between freelancers and clients that contract directly through our work marketplace. Freelancers and clients are free to negotiate any contract terms they choose, but we also provide optional service contract terms that they can elect to use. Disputes sometimes arise between freelancers and clients with regard to their contract terms, work relationship, or otherwise, including with respect to service standards, payment, confidentiality, work product, and intellectual property ownership and infringement. These disputes may occur more frequently during a macroeconomic downturn. If either party believes the contract terms were not met, our standard terms and some individually negotiated services agreements provide a mechanism for the parties to request assistance from us, and, for some contracts, if that is unsuccessful, they may choose to resolve the dispute with the help of a third-party arbitrator. Whether or not freelancers and clients decide to seek assistance from us, if these disputes are not resolved amicably, the parties might escalate to formal proceedings, such as by filing claims with a court or arbitral authority. Given our role in facilitating and supporting these arrangements, claims are sometimes brought against us directly as a result of these disputes and freelancers or clients bring us into any claims filed against each other, particularly when the other user is insolvent or facing financial difficulties, like those caused by the COVID-19 pandemic. Through our terms of service and services agreements for premium services, we disclaim responsibility and liability for any disputes between users (except with respect to specified dispute assistance programs and services); however, we cannot guarantee that these terms will be effective in preventing or limiting our involvement in user disputes or that these terms will be enforceable or otherwise effectively prevent us from incurring liability as a result of disputes between users. In addition, from time to time users assert claims against us regarding their experience on our work marketplace, including related to their search ranking results, their feedback ratings, our advertising or marketing, our dispute resolution process, or admission or non-admission to the work marketplace or other programs and badges, including those designed to highlight successful freelancers. Moreover, for some premium services, we provide enhanced services and assistance with respect to disputes over work product, and clients or freelancers may pursue claims against us if they are not satisfied with those enhanced services. Disputes between clients and freelancers and between users and our company may become more frequent based on conditions outside our control, such as a macroeconomic downturn. Such disputes, or any increase in the number of disputes, may result in an ~~international user base successfully~~adverse effect on our company, such as a loss of goodwill with users, reputational harm, lost GSV and revenue, and an increase in costs to us. Even if these claims do not result in litigation or are resolved in ~~a cost-effective manner,~~our favor, these claims, and the time and resources necessary to resolve them, could result in legal, settlement, or other financial costs; divert the resources of our management; and adversely affect our business and operating results.

Our business depends largely on our ability to attract and retain talented employees, including senior management and key personnel. If we lose the services of Hayden Brown, our President and Chief Executive Officer, or other members of our senior management team or key personnel, we may not be able to execute on our business strategy.

Our future success depends in large part on the continued services of senior management and other key personnel and our ability to retain and motivate them. In particular, we are dependent on the services of Hayden Brown, our President and Chief Executive Officer, and our future vision, strategic direction, work marketplace, and technology could be compromised if she were to take another position, become ill or incapacitated, or otherwise become unable to serve as our President and Chief Executive Officer. We rely on our leadership team and other key personnel in the areas of product, engineering, operations, security, marketing, sales, support, corporate development, and general and administrative functions. Our senior management and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason, and without notice, and we do not maintain any “key-person” life insurance policies. If we lose the services of senior management or other key personnel, if our succession plans prove inadequate, or if ~~these laws~~we are unable to retain, attract, train, and ~~regulations are found to apply to our users or cause a decline in demand for freelancer services,~~integrate the highly skilled personnel we need, our business, operating results, and financial condition could be adversely affected.

~~Our success,~~

There have been, and may continue to be, changes in our management team resulting from the hiring or ~~perceived success,~~departure of executives. For example, in December 2019, we announced that our prior President and Chief Executive Officer was resigning from this position, and that Hayden Brown, our prior Chief Marketing and Product Officer, would take the position of President and Chief Executive Officer effective January 1, 2020. Additionally, in August 2020, we announced that our prior Chief Financial Officer was resigning from this position and that Jeff McCombs would be appointed as our Chief Financial Officer. We have made, and may continue to make, other changes that have been and will be disruptive to our personnel, such as the reduction of a portion of our sales force in November 2020 and reorganizations of reporting lines of our workforce. These changes have resulted, and future personnel changes may result, in increased ~~visibility~~attrition or reduced productivity of our personnel, including senior management and key personnel, stemming from organizational restructuring, as new reporting relationships are established, and as other companies may increasingly target our executives. Any such changes may also ~~drive some third parties that view~~result in a loss of institutional knowledge, cause disruptions to our business, or distract or result in diminished morale in or the loss of workers.

Our future success also depends on our continuing ability to retain, attract, train, and integrate highly skilled personnel, including software engineers and sales personnel. We face intense competition for qualified personnel from numerous software and other technology companies. In addition, competition for qualified personnel, particularly software engineers, is particularly intense. We may not be able to retain our current key personnel or attract, train, integrate, or retain other highly skilled personnel in the future, all of which may be more difficult given our shift to a flexible work model for our workforce. We may incur significant costs to attract and retain highly skilled personnel, we may lose employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them, and our succession plans may be insufficient to ensure business continuity if we are unable to retain key personnel. To the extent we move into new geographies, including internationally, we may need to attract and recruit skilled personnel in those areas.

Volatility or lack of appreciation in our stock price may also affect our ability to attract new talent and retain our key personnel. Conversely, many of our senior management and other key personnel have become, or will soon become, vested in a ~~threat,~~substantial amount of stock or ~~otherwise problematic,~~stock options and may be more likely to ~~raise concerns about~~leave us if the shares they own, or the shares underlying their vested options, have appreciated in value relative to the original purchase or issue price of the shares or the exercise price of the options. If we are unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, on a timely basis or at all, or if we need to increase our compensation expense to retain our employees, our business, ~~model~~operating results, financial condition, and cash flows may be adversely affected.

Clients sometimes fail to ~~local policymakers~~pay their invoices, necessitating action by us to compel payment.

In connection with our Upwork Enterprise offering, and ~~regulators. These third parties~~for certain legacy clients, we advance payments to freelancers for invoiced services on behalf of the client and subsequently invoice the client for such services. In addition, in certain instances, we will advance payment on a freelancer invoice if the client issues a chargeback or their ~~trade association groups~~payment method is declined and the freelancer assigns us the right to recover any funds from the client. From time to time, clients fail to pay for these services rendered by a freelancer, and as a result, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the applicable agreement or our terms of service, including through arbitration or litigation. Furthermore, some clients may seek bankruptcy protection or other ~~organizations~~similar relief and fail to pay amounts due, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position, and cash flow. All of these risks are made more likely during a macroeconomic downturn and could result in increased costs to us as we advance payments to freelancers and seek to compel payment from our clients.

The requirements of being a public company may ~~take actions~~strain our resources, divert management’s attention, and ~~employ significant resources~~affect our ability to ~~shape~~attract and retain additional executive management and qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of The Nasdaq Global Select Market, and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and ~~regulatory regimes in countries where we have,~~financial compliance costs, makes some activities more difficult, time-consuming, or costly, and increases demand on our systems and resources. As a result, management’s attention may ~~seek to have, a significant number of users, in an effort to change such legal and regulatory regimes in ways intended to~~be diverted from other business concerns, which could adversely affect ~~or impede~~ our business and operating results.

In addition, changing laws, regulations, and standards relating to corporate governance, stockholder litigation, and public disclosure, including with respect to environmental and social matters, are creating uncertainty for public companies, increasing legal and financial compliance costs, making some activities more time-consuming, and increasing the likelihood and expense of litigation. We intend to continue to invest resources to comply with these evolving laws, regulations, and standards (or changing interpretations of them), which may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with these laws, regulations, and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us, and our business may be adversely affected. Complying with the public company rules and regulations, and being subject to heightened likelihood of litigation, makes it more expensive for us to obtain director and officer liability insurance, the costs of which can fluctuate significantly from year-to-year due to general market conditions in obtaining such insurance, but in recent years have risen significantly, consistent with the increase in market rates. As a result, we may be required to accept reduced coverage, incur substantially higher costs to obtain coverage, or may be unable to obtain coverage on economically reasonable terms, or at all. These factors could also make it more difficult for us to attract and retain qualified executives and qualified members of our board of directors, particularly to serve on our audit, risk and compliance committee, our compensation committee, and our nominating and governance committee.

In addition, as a result of our disclosure obligations as a public company, we could face pressure to focus on short-term results, which may adversely affect our ability to achieve long-term profitability.

Our management team has limited experience managing a public company.

Most members of our management team, including Hayden Brown, our President and Chief Executive Officer, have limited experience managing a publicly traded company in the positions they currently hold, interacting with public company investors, managing significant regulatory oversight and reporting obligations and the continuous scrutiny of securities analysts and investors, and complying with the increasingly complex laws pertaining to public companies. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.

We may be unable to integrate acquired businesses and technologies successfully or to achieve the expected benefits of such acquisitions. We may acquire or invest in additional companies, which may divert our management’s attention, result in additional dilution to our stockholders, and consume resources that are necessary to sustain our business.

Our business strategy may, from time to time, include acquiring complementary products, technologies, businesses, or other assets. We also may enter into relationships with other businesses to expand our work marketplace or our ability to provide our work marketplace in foreign jurisdictions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies. Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close, and any acquisition, investment, or business relationship may result in unforeseen or additional operating difficulties, risks, and expenditures. For one or more of those transactions, we may:

•issue additional equity securities that would dilute our stockholders’ ownership interest;

•use cash that we may need in the future to operate our business;

•become subject to different laws and regulations due to the nature or location of the acquired business, products, technologies, or other assets, or become subject to more stringent scrutiny or differing applications of laws and regulations to which we are currently subject as a result of such transactions;

•incur debt on terms unfavorable to us or that we are unable to repay;

•incur expenses or assume substantial liabilities;

•encounter difficulties retaining key personnel of the acquired company or integrating diverse software codes or business cultures;

•encounter difficulties in assimilating acquired operations and development cultures or otherwise fail to realize the anticipated benefits of such transactions;

•encounter diversion of management’s attention to other business concerns;

•become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges; or

•be required to adopt new, or change our existing, accounting policies.

Any of these risks could adversely impact our business and operating results.

Risks Related to Our Industry, Products, and Services

Because we derive the substantial majority of our revenue from our marketplace offerings—with most of our marketplace revenue derived from our Upwork Basic, Plus, and Enterprise offerings—our inability to generate revenue from our marketplace offerings would adversely affect our business operations, financial results, and growth prospects.

We derive, and expect to continue to derive in the near future, the substantial majority of our revenue from our marketplace offerings, with most of our marketplace revenue derived from our Upwork Basic, Plus, and Enterprise offerings. As such, market acceptance of our marketplace offerings is critical to our continued success, and any failure of our marketplace or offerings to meet users’ expectations with respect to user experience or the failure of specific features to be effective in attracting and retaining users, such as onboarding, search, project bidding, or matching features, could have a negative impact on our business. Demand for our marketplace offerings is affected by a number of factors beyond our control, including the timing of development and release of new products and services by our competitors, our ability to ~~utilize~~respond to technological change and to innovate and grow, contraction in our ~~platform.~~market, client spending patterns, freelancer activity levels, changes in adoption of remote work, macroeconomic effects, such as those resulting from the COVID-19 pandemic, and the other risks identified herein. If we are unable to meet user demands, to expand the categories of services offered on our work marketplace, or to achieve and maintain more widespread market acceptance of our marketplace offerings, our business operations, financial results, and growth prospects could be adversely affected.

We face intense competition and could lose market share to our competitors, which could adversely affect our business, operating results, and financial condition.

The market segment for freelancers and the clients that engage them is highly competitive, rapidly evolving, fragmented, and subject to changing technology, shifting needs, and frequent introductions of new competitors as well as new products and services. The level of competition within ~~and the frequency and likelihood of new competitors entering,~~ such market segment has intensified, and may intensify further, due to the ~~COVID-19 pandemic and the resulting increase in~~ongoing shift toward remote work, macroeconomic downturn, and increased unemployment rates. We compete with a number of online and offline platforms and services domestically and internationally to attract and retain users and expand our share of user spend. Our main competitors fall into the following categories:

•traditional contingent workforce and staffing service providers and other outsourcing providers, such as The Adecco Group, Randstad, Recruit, Allegis Group, and Robert Half International;

•online freelancer platforms that serve either a diverse range of skill categories, such as Fiverr, Guru, and Freelancer.com, or specific skill categories;

•other online providers of products and services for individuals or businesses seeking work or to advertise their services, including personal and professional social networks, such as LinkedIn and GitHub (each owned by Microsoft), employment marketplaces, platforms providing compliance services, recruiting websites, and project-based deliverable providers;

•software and business services companies focused on talent acquisition, management, invoicing, or staffing management products and services, such as Workday;

•payment businesses, such as PayPal and Payoneer, that can facilitate payments to and from businesses and service providers;

•businesses that provide specialized professional services, including consulting, accounting, marketing, and information technology services; and

•online and offline job boards, classified ads, and other traditional means of finding work and service providers, such as Craigslist, CareerBuilder, Indeed, Monster, and ZipRecruiter.

In addition, well-established internet companies, such as Google, LinkedIn, and Amazon, social media platforms, such as Facebook, and businesses that operate driving, delivery, and other commoditized marketplaces, such as Uber Technologies, have entered or may decide to enter into our market segment. Some of these companies have launched or may launch, or have acquired or may acquire companies or assets that offer products and services that directly compete with our ~~platform.~~work marketplace. For example, LinkedIn launched ProFinder in 2016 and Open for Business in 2019, ~~both~~and in 2021 announced it is developing a new offering called Marketplaces, each of which ~~are services~~is a service to connect LinkedIn members with one another for freelance service ~~relationships, and recently announced that it intends to create a series of online vertical marketplaces addressing specific skill categories.~~relationships. Many of these established internet companies and other competitors are considerably larger than we are and have considerably greater financial and other resources than we do.

Internationally, we compete against online and offline channels and products and services in most countries. Local competitors, or competitors that have invested more in international expansion, might have greater brand recognition than us in their local country and a stronger understanding of local culture and commerce. ~~They may~~Some competitors also offer their products and services in local languages and currencies that we do not offer. As our business grows internationally and we expand and grow our services offerings, we may increasingly compete with these international companies. We also compete against ~~locally-sourced~~locally sourced service providers and traditional, offline means of finding work and procuring services, such as staffing businesses, personal and professional networks, classified ads, and recruiters.

We also compete with companies that utilize emerging technologies and assets, such as blockchain, artificial intelligence, augmented reality, cryptocurrency, and machine learning. These competitors may offer products and services that may, among other things, provide automated alternatives to the services that freelancers provide on our ~~platform,~~work marketplace, use machine learning algorithms to connect businesses with service providers more effectively than we do, or otherwise change the way that businesses engage or pay service providers so as to make our ~~platform~~work marketplace less attractive to users. Many of the companies and services that utilize these technologies in our market are still new and not yet fully mature in their capabilities or network scale; however, we may face increased competition should these companies or services, or new entrants, succeed.

Many of our current and potential competitors, both online and offline, enjoy substantial competitive advantages, such as greater name recognition and more prominent brand reputation; pre-existing relationships with desirable clients; more experience with international operations and localization of their offerings; longer operating histories; greater financial, technical, and other resources; more users; newer technologies; and, in some cases, the ability to rapidly combine online platforms with traditional staffing and contingent worker solutions. Some of our current and potential competitors have recently undertaken, or may in the future undertake, an initial public offering or another equity or convertible debt issuance, which could improve their competitive position due to enhanced brand recognition and additional working capital. These companies may use these advantages to offer products and services similar to ours at a lower price, develop different or superior products and services to compete with our ~~platform,~~work marketplace, or respond more quickly and effectively than we do to new or changing opportunities, technologies, standards, regulatory conditions, or user preferences or requirements. In addition, while we compete intensely in more established markets, we also compete in developing technology markets that are characterized by dynamic and rapid technological change, many and different business models, and frequent disruption of incumbents by innovative online and offline entrants. The barriers to entry into these markets can be low, and businesses easily and quickly can launch online or mobile platforms and applications at nominal cost by using commercially available software or partnering with various established companies in these markets.

Moreover, current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others, including our current or future third-party partners. By doing so, these competitors may increase their ability to meet the needs of our existing or prospective users. These developments could limit our ability to obtain revenue from existing and new users. For all of these reasons, we may not be able to compete successfully against our current and future competitors. If we are unable to compete successfully against current and future competitors, our business, operating results, and financial condition would be adversely impacted.

If the market for freelancers and the services they offer develops more slowly than we expect, our growth may slow or stall, and our operating results could be adversely affected.

The market for online freelancers and the services they offer is relatively new, rapidly evolving, and unproven. Our future success will depend in large part on the continued growth and expansion of this market and the willingness of businesses to engage freelancers to provide services and freelancers to engage as independent service providers. It is difficult to predict the size, growth rate, and expansion of this market, whether any expansion will be long-term or temporary, particularly as the COVID-19 pandemic subsides and restrictions intended to prevent its spread are relaxed or lifted, the entry of products and services that are competitive to ours, the success of existing competitive products and services, or technological, macroeconomic, legal, regulatory, or other developments that will impact the overall demand for freelancer services. Furthermore, many businesses may be unwilling to engage freelancers for a variety of reasons, including perceived negative connotations with outsourcing work, quality of work, or privacy or data security concerns or the rapidly evolving regulations that may impact the demand for independent contractor services more generally, including as discussed further in the risk factor titled “There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our work marketplace is challenged.” Likewise, with the greater adoption of remote work and increased flexibility in employment relationships resulting from the COVID-19 pandemic, more talented freelancers may choose traditional employment over freelancing. If the market for freelancers and the services they offer does not achieve widespread adoption, or there is a reduction in demand for freelancer services, including as the COVID-19 pandemic continues to subside, it could result in decreased revenue and our business could be adversely affected.

If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.

The Upwork brand did not exist before 2015. We believe that developing, maintaining, evolving, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner are important to achieving widespread acceptance and use of our work marketplace and are important elements in attracting new users and retaining existing users. Successful promotion and positioning of our brand, products, and business model depend on, among other things, the effectiveness of our marketing efforts and brand messaging, our ability to provide a reliable, trustworthy, and useful work marketplace and products at competitive prices, the perceived value of our work marketplace and products, and our ability to provide quality support. In order to reach the brand awareness and acceptance levels of some of our competitors, we need to continuously invest in marketing programs that may not be successful in achieving meaningful awareness and acceptance levels, particularly during early phases of expansion into newer user awareness segments, such as international users. Further, brand promotion activities may not resonate with existing or potential users or yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building, evolving, and maintaining our brand and reputation. For example, since 2019, we have made significant investments in sales and marketing to acquire new clients and drive brand awareness, and we expect to increase our investment in brand marketing beginning in the second half of 2021. It is not certain that these investments have had or will have sufficient positive impact on our brand to be cost effective. Likewise, publicity efforts or news coverage may undermine our brand promotion efforts or harm our reputation or may not resonate with existing or potential users. We have also recently evolved, and will continue to evolve, our marketing and brand positioning efforts, including a rebranding effort which we undertook in the second quarter of 2021 and, for the past several years, expanding our focus on large enterprise, global account, mid-market, and other clients, with larger, longer-term talent and contracting needs. These efforts may not be successful in achieving the brand awareness and acceptance levels in a cost-effective manner, or without harming other areas of our business.

We also rely on our community of users in a variety of ways, including their willingness to give us feedback regarding our work marketplace, and failure of our users to provide feedback on their experience on our work marketplace or our failure to adequately address any concerns could negatively impact the willingness of them or prospective users to use our work marketplace. For example, the prior changes made in the pricing and packaging of Connects purchases resulted in user dissatisfaction and negatively impacted fill rates for projects on our work marketplace for a period of time. If we fail to promote and maintain our brand successfully, address user concerns, or to maintain loyalty among our users, or if we incur substantial expenses in unsuccessful attempts to promote and maintain our brand, we may fail to attract new users or retain our existing users and our business and financial condition may be adversely affected.

Because a substantial portion of the services offered by freelancers and sought by clients on our ~~platform~~work marketplace is information technology services, a decline in freelancers offering information technology services or the market for information technology service providers on our ~~platform~~work marketplace could adversely affect our business.

A significant portion of the services offered by freelancers and sought by clients on our ~~platform~~work marketplace relates to information technology. If, for any reason, the market for information technology services declines, including as a result of the relaxation or lifting of restrictions intended to prevent the spread of COVID-19, a macroeconomic downturn such as the one caused by the COVID-19 pandemic, increased use of artificial

intelligence, automation, ~~insufficient number of freelancers on our platform performing information technology services,~~ or otherwise, ~~or if the need for these services slows,~~ if talent is not available on our ~~platform~~work marketplace or willing to perform these services or businesses satisfy their needs for these services through alternative means, including through use of our competitors’ products or traditional employment relationships, or if the freelancers on our work marketplace are not located in specific geographic regions in which clients are seeking to engage remote freelancers, the growth in the number of users on our ~~platform~~work marketplace may slow or decline and as a result our revenue and business may be adversely impacted.

~~Adverse or changing economic conditions may negatively impact our business.~~

Our business depends on the overall demand for labor and on the economic health of current and prospective clients that use our platform. Any significant weakening of the economy in the United States or Europe or of the global economy, including the macroeconomic downturn caused by the COVID-19 pandemic and the resulting increase in unemployment rates, more limited availability of credit, a reduction in business confidence and activity, decreased government spending, economic and political uncertainty, financial turmoil affecting the banking system or financial markets, trade wars and higher tariffs, a more limited market for independent professional service providers or information technology services, and other adverse economic or market conditions may adversely impact our business and operating results. Global economic and political events or uncertainty may cause some of our current or potential clients to curtail spending on our platform, and may ultimately result in new regulatory and cost challenges to our operations. In addition, small- and medium-sized businesses have been disproportionately impacted by the macroeconomic downturn resulting from the COVID-19 pandemic and have reduced their spend on our platform. These adverse conditions have resulted, and may continue to result, in reductions in revenue, increased operating expenses, longer sales cycles, slower adoption of new technologies, and increased competition. There is also risk that when overall global economic conditions are positive, our business could be negatively impacted by a decreased demand for freelancers as businesses utilize more full-time employees relative to their use of independent contractors. We cannot predict the timing, strength, or duration of any economic slowdown, including the macroeconomic downturn caused by the COVID-19 pandemic, or any subsequent recovery generally. If the conditions in the general economy continue to deteriorate as a result of the COVID-19 pandemic or otherwise, our business, financial condition, and operating results could continue to be adversely affected.

~~Users may circumvent our platform, which could adversely impact our business.~~

Our business depends on users transacting through our platform. Despite our efforts to prevent them from doing so, users may, and we believe from time to time do, circumvent our platform and engage with or pay each other through other means to avoid the fees that we charge on our platform. Circumvention by users of our platform is also likely to have increased and may continue to increase in response to a macroeconomic downturn, such as the macroeconomic downturn resulting from the COVID-19 pandemic, as users may be more cost-sensitive with respect to our fees. In addition, enhancements and changes we make with respect to our products, services, and features may unintentionally cause, and may have unintentionally caused in the past, users to circumvent our platform. Moreover, the changes we make to decrease circumvention by users have in the past and could inadvertently result in user dissatisfaction, increased user circumvention, and a decline in user activity on our platform. The loss of revenue associated with circumvention of our platform may have an adverse impact on our business, cash flows, operating results, and financial condition. In addition, our efforts to reduce circumvention may be costly or disruptive to implement, fail to have the intended effect or have an adverse effect on our brand or user experience, cause users to cease using our platform, reduce the attractiveness of our platform, divert the attention of management, or otherwise harm our business.

~~We face payment and fraud risks that could adversely impact our business.~~

Requirements on our platform relating to user authentication and fraud detection are complex. If our user authentication and fraud detection measures are not effective, our platform may be perceived as not being secure, our reputation may be harmed, and our business may be adversely impacted. In addition, bad actors around the world use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized or fraudulent use of another’s identity, payment information, or other information; misrepresentation of the user’s identity or skills, including using accounts that they have purchased, sold, or leased; and acquisition or use of credit or debit card details and bank account information. These types of illegal activities may increase in the event of a macroeconomic downturn, such as the downturn resulting from the COVID-19 pandemic, as bad actors seek to take increasing advantage of us or our users. This conduct on our site could result in any of the following, each of which could adversely impact our business:

•bad actors may use our platform, including our payment processing and disbursement methods, to engage in unlawful or fraudulent conduct, such as money laundering, terrorist financing, fraudulent sale of services, bribery, breaches of security, leakage of data, piracy or misuse of software and other copyrighted or trademarked content, and other misconduct;

•we may be, and we historically have been, held liable for the unauthorized use of an account holder’s credit card or bank account number and required by card issuers or banks to return the funds at issue and pay a chargeback or return fee, and if our chargeback or return rate becomes excessive, credit card networks may also require us to pay fines or other fees and the California Department of Financial Protection and Innovation (the “DFPI”) may require us to hold larger cash reserves;

•we may be subject to additional risk and liability exposure, including for negligence, fraud, or other claims, if employees or third-party service providers, including freelancers that provide services to us, misappropriate our banking or other information or user information for their own gain or facilitate the fraudulent use of such information;

•users that are subjected or exposed to the unlawful, fraudulent, or improper conduct of other users or other third parties, or law enforcement or administrative agencies, may seek to hold us responsible for the conduct of users, may lose confidence in our platform, decrease or cease use of our platform, seek to obtain damages and costs, publicize their experience, or impose fines and penalties;

•we may be subject to additional risk if clients fail to pay freelancers for services rendered, as freelancers may seek to hold us responsible for the clients’ conduct and may lose confidence in our platform, may decrease or cease use of our platform, or seek to obtain damages and costs;

•if freelancers misstate their qualifications or location, provide misinformation about their skills, identity, or otherwise, perform services they are not qualified or authorized to provide, produce insufficient or defective work product, or work product with a viral or other harmful effect, clients or other third parties may seek to hold us responsible for the freelancers’ acts or omissions and may lose confidence in our platform, decrease or cease use of our platform, or seek to obtain damages and costs; and

•~~we may suffer reputational damage adversely impacting our business as a result of the occurrence of any of the above.~~

Despite measures we have taken to detect, prevent, and mitigate these risks, we do not have control over users of our platform and cannot ensure that any of our measures will stop or minimize the use of our platform for, or to further, illegal or improper purposes. We have received in the past, and are likely to continue to receive in the future, increased complaints and inquiries from clients, freelancers, and other third parties, including law enforcement, administrative agencies, and the press, concerning misuse of our platform and wrongful conduct of other users, especially as a result of increased fraudulent activity related to the COVID-19 pandemic. We have also brought claims against clients and other third parties for their misuse of our platform, and may be required to bring similar claims in the future. Even if these claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention and resources of our management and adversely affect our business and operating results.

Our sales efforts are increasingly targeted at large enterprise, global account, and mid-market clients, and as a result we may encounter greater pricing, implementation, and customization challenges, we may incur additional costs, and we may have to delay revenue recognition for more complicated transactions, each of which could adversely impact our business and operating results.

outreach, slowed down decision-making, delayed planned work on our platform, and sought to negotiate pricing and other terms that are less favorable to us. This has led, and may continue to lead, to diminished productivity and effectiveness of our sales force, longer sales cycles, and otherwise negatively impacting our sales efforts. Restrictions in place to prevent the spread of the COVID-19 coronavirus restrict our ability to travel and negotiate in person, which may also negatively impact our sales efforts. In addition, large enterprise, global account, and mid-market clients may require greater functionality and scalability that can lead to delays in sales or difficulties in growing client spend. We are often required to spend time and resources to better familiarize potential large enterprise, global account, and mid-market clients with the value propositions of our platform generally. Despite our efforts in familiarizing potential large enterprise, global account, and mid-market clients with the benefits of our platform, these potential clients may decide not to use our platform if, among other reasons, they do not feel that their procurement or compliance needs are or will be met. In addition, sales opportunities with large enterprise, global account, and mid-market companies may require us to devote greater sales and administrative support and professional services resources to individual clients, which could increase our costs, lengthen our sales cycle, and divert our own sales and professional services resources to a smaller number of larger clients. We may spend substantial time, effort, and money in our sales efforts without being successful in producing sales or growing client spend.

Even if we reach an agreement with a client to use our platform, the agreement may not be on pricing or other terms that are favorable to us. Moreover, a significant portion of the fees we typically receive from clients is contingent on the level of spend by the client. If a client negotiates pricing terms that are less favorable to us, does not engage freelancers on our platform, or uses freelancers for few projects or projects of low value, our revenue from the relationship may be minimal.

We also have in the past agreed, and may in the future agree, to take on additional risk for worker classification, privacy, security, work product, payments, or other matters for larger enterprise, global account, and mid-market clients, or to other terms that are less favorable to us in order to secure a client’s business or increase its spend, as discussed further in the risk factors titled “There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our platform is challenged.” All these factors can add further risk and expenses to business conducted with these clients even after a successful sale.

~~There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our platform is challenged.~~

Clients are generally responsible for properly classifying the freelancers they engage through our platform under our terms of service. Some clients opt to classify freelancers as employees for certain work, while many freelancers are classified as independent contractors.

We offer an optional service to our Upwork Enterprise and premium clients, through which service we help classify freelancers as employees of third-party staffing providers or independent contractors. For clients that subscribe to this service, subject to applicable law and the terms of our agreement with the client, we indemnify clients from misclassification risk and make warranties to the client (e.g., as to compliance with applicable laws). In addition, we offer a number of other premium services where we provide increased assistance to enable users to find and contract with one another with confidence they will receive the value for which they pay. Third-party staffing providers employ freelancers classified as employees for clients, and failure of these staffing providers to comply with all legal and tax requirements could adversely affect our business. Moreover, material business changes to one or more of our third-party staffing providers could lead to increased costs for clients or us, a reduced profit margin, a diminished user experience, or the inability to offer the staffing provider services in one or more jurisdictions. We also use our platform to find, classify, and engage freelancers to provide services for us and for our managed services offering. In general, any time a court or administrative agency determines that we or our clients that use our platform have misclassified a freelancer as an independent contractor, we or our users could incur tax and other liabilities for failing to properly withhold or pay taxes on the freelancer’s compensation as well as potential wage and hour and other liabilities depending on the circumstances and jurisdiction. We may be subject to administrative inquiries and audits concerning the taxation and classification of our workers and the users of our platform. We cannot be certain that any insurance coverage that we have or may obtain will extend to or be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

There is often uncertainty in the application of worker classification laws, and consequently there is risk to us and to users, both freelancers and clients, that independent contractors could be deemed to be misclassified under applicable law. The tests governing whether a service provider is an independent contractor or an employee are typically highly fact sensitive and vary by governing law. Laws and regulations that govern the status and misclassification of independent contractors are also subject to change as well as to divergent interpretations by various authorities, which can create uncertainty and unpredictability. For example, in California, we are aware of the state supreme court’s 2018 decision in ~~Dynamex Operations West, Inc. v. Superior Court of Los Angeles~~, as well as Assembly Bill 5 (“AB 5”), which went into effect January 1, 2020 and which has the stated purpose of codifying the Dynamex holding. Together, they change the standard in California for determining worker classification and are widely viewed as expanding the scope of the definition of employee for most purposes under California law. Given the enactment of AB 5, there is little guidance from the courts or the regulatory authorities charged with its enforcement and there is a significant degree of uncertainty regarding its application. In addition, AB 5 has been the subject of widespread national discussion and it is possible that other jurisdictions, including New York, Washington, Illinois and other states, may enact similar laws. Additionally, initiatives such as California’s Proposition 22 (2020) or other potential legislation could alter the legislative and regulatory landscape regarding how states, municipalities and the federal government may choose to regulate independent contractors broadly and specific sectors as well, which may affect how our users run their businesses depending on their locale. As a result, there is significant uncertainty regarding what the worker classification regulatory landscape will look like in future years, and compliance with any new legislation or regulations may be costly to us and expose us to litigation, fines, and penalties. In addition, any developments or changes in the regulatory environment impacting worker classification and independent contractors may reduce the demand for independent contractors more generally in one or more jurisdictions and have an adverse effect on our business, operating results, and financial condition.

A misclassification determination, allegation, claim, or audit creates potential exposure for users and for us, including but not limited to reputational harm and monetary exposure arising from or relating to failure to withhold and remit taxes, unpaid wages, and wage and hour laws and requirements (such as those pertaining to minimum wage and overtime); claims for employee benefits, social security contributions, and workers’ compensation and unemployment insurance; claims of discrimination, harassment, and retaliation under civil rights laws; claims under laws pertaining to unionizing, collective bargaining, and other concerted activity; and other claims, charges, or other proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations of joint employer liability. Such claims could result in monetary damages (including but not limited to wage-based damages or restitution, compensatory damages, liquidated damages, and punitive damages), interest, fines, penalties, costs, fees (including but not limited to attorneys’ fees), criminal and other liability, assessment, injunctive relief, or settlement. These types of claims have become more frequent in light of deteriorating macroeconomic conditions as a result of the COVID-19 pandemic, more prone to agency error in light of overwhelmed agencies, more commonly submitted on a fraudulent basis, and more difficult to oppose due to COVID-19 related delays. Claims naming our company may also have become and may continue to be more prevalent in light of legislative and regulatory responses to the COVID-19 pandemic, such as the Pandemic Unemployment Assistance (“PUA”) program and state programs implementing PUA. Such an allegation, claim, or adverse determination, including but not limited to with respect to the freelancers that provide services to us, or the requirement for us to indemnify a client, could also harm our brand and reputation, which could adversely impact our business. While these risks are mitigated, in part, by our contractual rights of indemnification against third-party claims, any limitations or obligations that we include in our contracts with clients to limit our exposure to claims could be determined to be unenforceable, could be costly to enforce or ineffective, or may otherwise prove inadequate.

~~Changes to our pricing model could adversely affect our business.~~

We implemented a significant change to our pricing model in 2016, which, for a period of time following the pricing change, contributed to GSV growing at a faster rate than revenue. From time to time we have made, and will continue to make, other changes, including in 2019 when we launched new paid membership types for clients and new Connects pricing for freelancers and we anticipate further changes to Connects pricing and policies in the future in an effort to improve fill rates on our platform, which may have a negative impact on our revenue. From time to time, we will make further changes to our pricing model due to a variety of reasons, including potentially in response to the COVID-19 pandemic, due to changes to the market for our products and services or our business

strategy, as new competitors enter our market segment, as we introduce or refine our offerings, and as competitors introduce new products and services. Changes to any components of our pricing model, such as the recent changes made in the pricing and packaging of Connects purchases, have and may continue to, among other things, result in user dissatisfaction, lead to a loss of users on our platform, result in a change to the way we recognize revenue, reduce the amount of revenue we generate as a percentage of GSV, reduce the rate or size of projects that get posted or completed on our platform, negatively impact fill rates, or otherwise negatively impact our operating results, financial condition, and cash flows.

If we or our third-party partners experience a security breach, other hacking or phishing attack, ransomware or other malware attack, or other privacy or security incident, whether intentionally or unintentionally caused by us or by third parties, our ~~platform~~work marketplace may be perceived as not being secure, our reputation may be harmed, demand for our ~~platform~~work marketplace may be reduced, our operations may be disrupted, we may incur significant legal costs, fines, or liabilities, and our business could be adversely affected.

Our business involves the storage, processing, and transmission of users’ proprietary, confidential, and personal information as well as the use of third-party partners and vendors who store, process, and transmit users’ proprietary, confidential, and personal information. We also maintain certain other proprietary and confidential information relating to our business and personal information of our personnel. Our systems, and the systems of our vendors and third-party partners, may be vulnerable to privacy or security incidents, such as computer viruses and other malicious software, physical or electronic break-ins, or vulnerabilities resulting from intentional or unintentional service provider actions, and similar disruptions that could make all or portions of our website or applications unavailable for periods of time. Any such privacy or security incident, whether intentionally or unintentionally caused by us or by third parties, that we experience could result in unauthorized access to, misuse of, or unauthorized acquisition of our, our personnel’s, or our users’ data; the loss, corruption, or alteration of this data; interruptions in our operations; or damage to our computers or systems or those of our users. Any of these could expose us to claims, litigation, fines, enforcement actions, other potential liability, and reputational harm. An increasing number of online services have disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their services. Additionally, ransomware or other malware, viruses, social engineering (including business email compromise and related wire-transfer fraud), and general hacking in our industry have become more prevalent and more complex. Bad actors often use uncertainty caused by a crisis, such as the COVID-19 pandemic, to try to take advantage of us, our users, and our vendors and third-party partners by using social engineering and other methods to persuade their victims to make fraudulent payments, or to download viruses, ransomware, or other malware into computer systems and networks. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we and our vendors and third-party partners may be unable to anticipate these techniques or to implement adequate preventative measures, despite our efforts to implement and maintain a robust information security program. If we or our vendors or third-party partners experience an actual or perceived breach or privacy or security incident, public perception of the effectiveness of our security measures and brand could be harmed, and we could lose users and business. Data security breaches and other privacy and security incidents may also result from non-technical means, such as, for example, actions taken by employees or contractors, such as freelancers that we engage on our ~~platform~~work marketplace to perform services for us.

Any compromise of our security or the security of our vendors or third-party partners could result in a violation of applicable privacy and other laws, regulatory or other governmental investigations, enforcement actions, litigation, and legal and financial exposure, including potential contractual liability. We may also need to expend significant resources to protect against, and to address issues created by, security breaches and other privacy and security incidents. While we maintain cyber liability insurance, these liabilities may exceed the amounts covered by our insurance; further, we cannot be certain that our insurance coverage will extend to or be adequate for liabilities actually incurred, or that insurance will continue to be available to us on economically reasonable terms, or at all.

Any such compromise could also result in damage to our reputation and a loss of confidence in our security measures. In addition, significant unavailability of our ~~platform~~work marketplace due to security breaches and other privacy and security incidents could cause users to decrease their use of or cease using our ~~platform.~~work marketplace. Any of these effects could adversely impact our business.

Depending on the nature of the information compromised, in the event of a security breach or other privacy or security incident, we may also have obligations to notify affected individuals and entities and regulators about the incident, and we may need to provide some form of remedy, such as a subscription to credit monitoring services, pay significant fines to one or more regulators, or pay compensation in connection with a class-action settlement (including under the ~~new~~ private right of action under the California Consumer Privacy Act of 2018, ~~(the “CCPA”))~~which we refer to as the CCPA). Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises our, our users’, our employees’, our contractors’, or other confidential, proprietary, or personal information.

The market for our work marketplace is characterized by rapid technological change, frequent product and service introductions and enhancements, changing user demands, and evolving industry standards. The introduction of products and services embodying new technologies can quickly make existing products and services obsolete and unmarketable. We invest substantial resources in researching and developing new products and services and enhancing our work marketplace by incorporating additional features, improving functionality, modernizing our technology, and adding other improvements to meet our users’ evolving demands in our increasingly highly competitive industry. For example, in 2020 we invested a significant amount of resources to launch a new product feature “Project Catalog,” through which freelancers can market pre-scoped projects easily purchased via a click-and-buy experience, and we continue to invest resources to modify and enhance this offering to improve the user experience. The success of any enhancements or improvements to, or new features of, our work marketplace or any new products and services, such as “Project Catalog,” depends on several factors, including timely completion, competitive pricing, adequate quality testing, integration with new and existing technologies on our work marketplace and third-party partners’ technologies, and overall demand and market acceptance consistent with the intent of such products or services. We cannot be sure that we will succeed, on a timely or cost-effective basis, in developing, marketing, and delivering enhancements or new features to our work marketplace or any new products and services that respond to continued changes in the market for talent or business services. Any enhancements or new features to our work marketplace or any new products and services may not achieve, and in the past certain features and offerings have not achieved, market acceptance, been cost-effective, or produced the intended effect. In the past, we have experienced unintended negative effects, including reduced client spend retention, diminished fill rates for projects on our work marketplace, and user dissatisfaction from certain modifications to our products, services, and features. For example, in 2019 and the first half of 2020, we experienced a decline in client spend retention which we believe was related to the launch of our U.S.-to-U.S. domestic marketplace offering in the second half of 2017.

Because further development of our work marketplace is complex, challenging, and dependent upon an array of factors, the timetable for the release of new products and services and enhancements to existing products and services is difficult to predict, and we may not offer new products and services as rapidly as users or prospective users of our work marketplace require or expect. Any new products or services that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may not be properly integrated with new and existing technologies on our work marketplace or third-party partners’ technologies, may not achieve the intended market acceptance, may not meet regulatory requirements or may only do so at increased costs or reduced functionality, or may adversely impact existing client spend and user growth and retention. Moreover, even if we introduce new products and services, we may experience a decline in revenue from our existing products and services that is not offset by revenue from the new products or services. In addition, we may lose existing users that choose to use competing products or services. This could result in a temporary or permanent decrease in revenue and adversely affect our business.

If internet search engines’ methodologies or other channels that we utilize to direct traffic to our website are modified to our disadvantage, or our search result page rankings decline for other reasons, our user growth could decline.

We depend in part on various internet search engines, such as Google, as well as other channels to direct a significant amount of traffic to our website. Our ability to maintain the number of visitors directed to our website is not entirely within our control. For example, our competitors’ search engine optimization and other efforts such as paid search may result in their websites receiving a higher search result page ranking than ours, internet search engines or other channels that we utilize to direct traffic to our website have in the past and could again revise their methodologies or implement other changes or penalties that adversely impact traffic to our website, or we may make changes to our website that adversely impact our search engine optimization rankings and traffic. As a result, links to our website may not be prominent enough to drive sufficient traffic to our website, and we may not be able to influence the results.

Search engines and other channels that we utilize to drive users to our website periodically change their algorithms, policies, and technologies, sometimes in ways that cause traffic to our website to decline. These changes can also result in an interruption in users’ ability to access our website or a drop in our search ranking, or have other adverse impacts that negatively affect our ability to maintain and grow the number of users that visit our website. We may also be forced to significantly increase marketing expenditures in the event that market prices for online advertising and paid listings escalate or our organic ranking decreases. Any of these changes could have an adverse impact on our business, user acquisition, and operating results.

Users circumvent our work marketplace, which adversely impacts our business.

Our business depends on users transacting through our work marketplace. Despite our efforts to prevent them from doing so, users circumvent our work marketplace and engage with or pay each other through other means to avoid the fees that we charge. Circumvention by users of our work marketplace is likely to increase during a macroeconomic downturn, as users may be more cost-sensitive with respect to our fees. In addition, enhancements and changes we make with respect to our products, services, and features may unintentionally cause, and may have unintentionally caused in the past, users to circumvent our work marketplace. Moreover, the changes we make to decrease circumvention by users have in the past and could inadvertently result in user dissatisfaction, increased user circumvention, and a decline in user activity on our work marketplace. The loss of revenue associated with circumvention of our work marketplace has an adverse impact on our business, cash flows, operating results, and financial condition. In addition, our efforts to reduce circumvention may be costly or disruptive to implement, fail to have the intended effect or have an adverse effect on our brand or user experience, cause users to cease using our work marketplace, reduce the attractiveness of our work marketplace, divert the attention of management, or otherwise harm our business.

Our ability to attract and retain users is dependent in part on ease of use and reliability of our work marketplace and the quality of our support, and any failure to offer high-quality support could adversely impact our business, operating results, and financial condition.

Our ability to attract and retain users is dependent in part on the ease of use and reliability of our work marketplace, including our ability to provide high-quality support. Our users depend on our support organization to resolve any issues relating to our work marketplace and to communicate effectively concerning their accounts. Our ability to provide effective support is largely dependent on our ability to attract, resource, and retain service providers who are not only qualified to support users of our work marketplace, but are also well versed in our work marketplace. Offering our website and user support only in English may negatively impact our relationships with our users, particularly users in non-English speaking countries. As we seek to continue to grow our international user base, our support organization will face additional challenges, including those associated with delivering support and documentation in languages other than English. Any failure to maintain high-quality support or effectively communicate with our users, or any market perception that we do not maintain high-quality support or act professionally, fairly, or effectively in our communications and actions with respect to users, could harm our reputation, adversely affect our ability to sell our work marketplace to existing and prospective users, and could adversely impact our business, operating results, and financial condition.

Our sales efforts are increasingly targeted at large enterprise, global account, and mid-market clients, and as a result, we face greater costs, longer sales cycles, and less predictability in completing some of our sales and in increasing spend by existing clients. For larger clients, use of our work marketplace may require approvals by multiple departments and executive-level personnel and require us to provide greater levels of services and client education regarding the uses, benefits, security, privacy, worker classification, payments, and compliance services offered on our work marketplace. Larger enterprises typically have longer decision-making and implementation cycles and may demand more customization, higher levels of support, a broader range of services, and greater payment flexibility. In addition, large enterprise, global account, and mid-market clients may require greater functionality and scalability that can lead to delays in sales or difficulties in growing client spend. We are often required to spend time and resources to better familiarize potential large enterprise, global account, and mid-market clients with the value propositions of our work marketplace generally. Despite our efforts in familiarizing potential large enterprise, global account, and mid-market clients with the benefits of our work marketplace, these potential clients may decide not to use our work marketplace if, among other reasons, they do not feel that their procurement or compliance needs are or will be met. In addition, sales opportunities with large enterprise, global account, and mid-market companies may require us to devote greater sales and administrative support and professional services resources to individual clients, which could increase our costs, lengthen our sales cycle, and divert our own sales and professional services resources to a smaller number of larger clients. We may spend substantial time, effort, and money in our sales efforts without being successful in producing sales or growing client spend.

Moreover, in the fourth quarter of 2020, we undertook a reduction in force of approximately one-third of our sales employees in an effort to drive efficiencies in our sales organization. Efforts such as these may result in unintended consequences such as low employee morale and a decrease in the productivity and efficiency of our sales force.

Even if we reach an agreement with a client to use our work marketplace, the agreement may not be on pricing or other terms that are favorable to us. Moreover, a significant portion of the fees we typically receive from clients is contingent on the level of spend by the client. If a client negotiates pricing terms that are less favorable to us, does not engage freelancers on our work marketplace, or uses freelancers for few projects or projects of low value, our revenue from the relationship may be minimal.

We also have in the past agreed, and may in the future agree, to take on additional risk for worker classification, privacy, security, work product, payments, or other matters for larger enterprise, global account, and mid-market clients, or to other terms that are less favorable to us in order to secure a client’s business or increase its spend, including as discussed further in the risk factor titled “There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our work marketplace is challenged.” All these factors can add further risk and expenses to business conducted with these clients even after a successful sale.

Errors, defects, or disruptions in our work marketplace could diminish demand, adversely impact our financial results, and subject us to liability.

Our work marketplace enables our users to manage important aspects of their businesses, and any errors, defects, or disruptions in our work marketplace, or other performance or availability problems with our work marketplace or infrastructure could harm our brand and reputation and may damage the businesses of users. As the usage of our work marketplace grows, we will need an increasing amount of technical infrastructure and continued infrastructure modernization, including network capacity and computing power, to continue to operate our work marketplace. It is possible that we may fail to continue to effectively scale and grow our technical infrastructure to accommodate these increased demands, which may adversely affect our user experience. We also rely on third-party software and infrastructure, including the infrastructure of the internet, to provide our work marketplace. Any failure of or disruption to this software and infrastructure could also make our work marketplace unavailable to our users. For example, for a short period of time in May 2019, due to an inadvertent error by a regulatory agency in Bangladesh, users in Bangladesh were unable to access our website and other websites that included “-rk.com” in their website addresses. Also, certain jurisdictions, such as India, Pakistan, Uganda, and Myanmar, have in the past voluntarily shut down the internet in response to civil unrest or prior to contested political elections and, in the event any such

governmental action were to take place again, it would adversely affect user activity on our work marketplace throughout the duration of such shut down. Our work marketplace is constantly changing with new updates, which may contain undetected errors when first introduced or released. Any errors, defects, disruptions in service, or other performance or stability problems with our work marketplace, or the inadequacy of our efforts to adequately prevent or timely remedy errors or defects, could result in negative publicity, loss of or delay in market acceptance of our work marketplace, loss of competitive position, our inability to timely and accurately maintain our financial records, inaccurate or delayed invoicing of clients, delay of payment to us or freelancers, claims by users for losses sustained by them, or investigation and corrective action taken by regulatory agencies. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help resolve the issue. Accordingly, any errors, defects, or disruptions in our work marketplace could adversely impact our brand and reputation, revenue, and operating results.

We rely on AWS to deliver our work marketplace to our users, and any disruption of service from AWS or material change to our arrangement with AWS could adversely affect our business. We are also subject to litigation relating to our use of AWS.

We currently host our work marketplace, serve our users, and support our operations using AWS, a provider of cloud infrastructure services. We do not have control over the operations of the facilities of AWS that we use. AWS’s facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cybersecurity attacks, terrorist attacks, power losses, telecommunications failures, and similar events or could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of any of these events, a decision to close the facilities or cease or limit providing services to us without adequate notice, or other unanticipated problems could result in interruptions to our work marketplace, including lengthy interruptions. Our work marketplace’s continuing and uninterrupted performance is critical to our success and users may become dissatisfied by any system failure that interrupts our ability to provide our work marketplace to them. We may not be able to easily switch our AWS operations to another cloud or other data center provider if there are disruptions or interference with our use of AWS, and, even if we do switch our operations, other cloud and data center providers are subject to the same risks. Sustained or repeated system failures could reduce the attractiveness of our work marketplace to users, cause users to decrease their use of or cease using our work marketplace, and adversely affect our business. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our work marketplace. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service and we cannot be certain that insurance will continue to be available to us on economically reasonable terms, or at all.

AWS does not have an obligation to renew its agreements with us on commercially reasonable terms, or at all. If we are unable to renew our agreements or unable to renew on commercially reasonable terms, our agreements are prematurely terminated, or we add additional infrastructure providers, we may experience costs or downtime in connection with the transfer to, or the addition of, new data center providers. If these providers charge high costs for or increase the cost of their services, we may have to increase the fees to use our work marketplace and our operating results may be adversely impacted. In the second quarter of 2021 we substantially completed the transition to a different AWS facility in an effort to reduce long-term costs, to gain access to servers with enhanced functionality, and increase operational resilience. The finalization of the migration is ongoing and during this transition, we may experience errors on our work marketplace or incur additional costs, particularly if we encounter an unforeseen issue or incident as we complete the migration.

In addition, we and other customers of AWS have been subject to litigation by third parties claiming that AWS and basic HTTP functions infringe their patents. Although we expect Amazon to indemnify us with respect to at least a portion of such claims, such litigation has been, and may in the future continue to be, time consuming, and may divert management’s attention and, if Amazon fails to fully indemnify us, adversely impact our operating results.

Failure to protect our intellectual property could adversely affect our business.

Our success depends in large part on our proprietary technology and data. We rely on various intellectual property rights, including patents, copyrights, trademarks, and trade secrets, as well as confidentiality provisions and contractual arrangements, to protect our proprietary rights. In addition, to protect our brand, we also expend substantial resources to register and defend our trademarks and to prevent others from using the same or substantially similar marks. As the adoption of remote work becomes more prevalent and competitors enter our

market segment, particularly due to the ongoing shift toward remote work, our exposure to unauthorized copying and use of our work marketplace, technology, intellectual property, and other proprietary information may increase. If we do not protect and enforce our intellectual property rights successfully or cost-effectively, our competitive position may suffer, which would adversely impact our operating results.

Our pending patent or trademark applications may not be approved, or competitors or others may challenge the validity, enforceability, or scope of our patents, the registrability or validity of our trademarks, or the trade secret status of our proprietary information. If we are unsuccessful in a dispute or litigation, we may be unable to stop competitors or others from using our marks or confusingly similar marks, and we may suffer dilution, loss of reputation, genericization, or other harm to our brand. Efforts to protect and enforce our intellectual property rights, even if successful, may be costly, negatively impact our brand, negatively affect worker productivity, and be time consuming and distracting to our management. There can be no assurance that additional patents or trademarks will be issued or that any patents or trademarks that are issued will provide significant protection for our intellectual property. In addition, our patents, copyrights, trademarks, trade secrets, and other intellectual property rights may not provide us a significant competitive advantage. There is no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when and where to file patents or register or renew trademarks and when and how to maintain and protect trade secrets, will be adequate to protect our business, or that common law protection will be sufficient for marks or in jurisdictions where we do not register the marks.

We may not pursue or file patent applications or apply for registration of copyrights or trademarks in the United States and foreign jurisdictions in which we have a presence with respect to our potentially patentable inventions, works of authorship, and marks and logos for a variety of reasons, including the cost of procuring such rights and the uncertainty involved in obtaining adequate protection from such applications and registrations. Moreover, recent amendments to, developing jurisprudence regarding, and possible changes to intellectual property laws and regulations, including U.S. and foreign patent law, may affect our ability to protect and enforce our intellectual property rights or defend against claims alleging we are infringing others’ rights. If the intellectual property rights that we develop are not sufficient to protect our proprietary technology and data, our brand, our business, financial condition and operating results could be adversely affected.

In addition, the laws of some countries do not provide the same level of protection for our intellectual property as do the laws of the United States. As our global reputation grows and we expand our international activities, our exposure to unauthorized copying and use of our work marketplace and proprietary information will likely increase. Despite our precautions, our intellectual property is vulnerable to unauthorized access through employee or third-party error or actions, theft, cybersecurity incidents, and other security breaches and incidents. It is possible for third parties to infringe upon or misappropriate our intellectual property, to copy our work marketplace, and to use information that we regard as proprietary to create products and services that compete with ours. Effective intellectual property protection may not be available to us in every country in which our work marketplace is available. In addition, many countries limit the enforceability of patents or other intellectual property rights against certain third parties, including government agencies or government contractors. In these countries, patents or other intellectual property rights may provide limited or no benefit. Further, certain countries impose additional conditions on the transfer of intellectual property rights from individuals to companies, which may make it more difficult for us to secure and maintain intellectual property protection in those countries. We may need to expend additional resources to defend our intellectual property rights domestically or internationally, which could be costly, time consuming, and distracting to management and could impair our business or adversely affect our domestic or international expansion. If we cannot adequately protect and defend our intellectual property, we may not remain competitive, and our business, operating results, and financial condition may be adversely affected.

We rely on trade secrets as an important aspect of our intellectual property program and to cover much of our technology and know-how. We seek to protect our trade secrets and obtain rights in intellectual property developed by service providers through confidentiality and invention assignment or intellectual property ownership agreements with our employees, contractors, and other parties. In addition, for employees of third-party staffing providers or other contractors, the employer agrees to enter into these agreements with individual workers. We also take other measures to protect our information and data, including implementing acceptable use policies, limiting access to our information and data through technological means, and monitoring and limiting the dissemination of our information and data outside of company-owned information systems. We cannot ensure that these agreements, or all the terms thereof, will be enforceable or compliant with applicable law, or these agreements and other measures will be

effective in controlling access to, use of, and distribution of our proprietary information or in effectively securing and maintaining exclusive ownership of intellectual property developed by our current or former employees and contractors. Most of our employees and all of the contractors with which we work are remote, which may make it more difficult to control use of confidential materials, increasing the risk that our source code or other confidential or trade secret information may be exposed. Further, these agreements with our employees, contractors, and other parties may not prevent other parties from independently developing technologies that are substantially equivalent or superior to our work marketplace. Any failure to protect intellectual property that we develop or our proprietary technology and data would adversely affect our business, operating results, and financial condition.

We spend significant time and resources securing and monitoring our intellectual property rights, and we may or may not be able to detect infringement by third parties. Our competitive position may be adversely impacted if our efforts to secure and protect our intellectual property are not successful, or we cannot detect infringement or enforce our intellectual property rights quickly or at all. In some circumstances, we may choose not to pursue enforcement because an infringer may have a dominant intellectual property position or for other business reasons. In addition, competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. We have in the past been, and may in the future be, forced to rely on litigation, opposition, and cancellation actions, and other claims and enforcement actions to protect our intellectual property, including to dispute registration, use of marks that may be confusingly similar to our own marks, or use of technologies that infringe on our intellectual property. Similar claims and other litigation may be necessary in the future to enforce and protect our intellectual property rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses; counterclaims attacking the scope, validity, and enforceability of our intellectual property rights; or counterclaims and countersuits asserting infringement by us of third-party intellectual property rights. Our failure to secure, protect, and enforce our intellectual property rights could adversely affect our brand and our business, and we could lose the right to use certain intellectual property or lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others.

We are vulnerable to intellectual property infringement claims and challenges to our intellectual property rights brought against us by third parties.

We operate in a highly competitive industry, and there has been considerable activity in our industry to develop and enforce intellectual property rights. Intellectual property infringement claims against us or our users or third-party partners could result in monetary liability or a material disruption in the conduct of our business. We cannot be certain that aspects of our work marketplace, content, and brand names do not or will not infringe valid patents, trademarks, copyrights, or other intellectual property rights held by third parties, including our competitors. Also, we are now, have in the past been, and may in the future be, subject to legal proceedings and claims relating to the intellectual property of others, including our competitors, in the ordinary course of our business. The likelihood of intellectual property-related litigation and disputes may increase due to the increased attention on our market segment due to the ongoing shift to remote work. Companies, including non-practicing entities and our competitors, have also sent us demand letters and instituted proceedings alleging that we infringe their intellectual property, seeking licensing fees, royalties and damages, and demanding that we cease certain commercial activity. We may receive such demand letters and be subject to similar proceedings in the future. Our competitors and other third parties have in the past challenged, and may in the future challenge, our registration or use of our trademarks, including “Upwork,” and other intellectual property rights, and, if successful, such a challenge could adversely affect our brand and business. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have or trademarks or other rights that pre-date and take precedence over our own. We may also be obligated to indemnify certain clients on our work marketplace or strategic partners or others in connection with such infringement claims, or to obtain licenses from third parties or modify our work marketplace or marketing strategy, and each such obligation would require us to expend additional resources. Some of our infringement indemnification obligations related to intellectual property are contractually capped at a very high amount or not capped at all.

Any litigation or other disputes relating to allegations of intellectual property infringement could subject us to significant legal costs and liability for damages, invalidate our proprietary rights, or force us to do one or more of the following:

•cease conducting certain operations in some or all jurisdictions, or stop using technology that contains the allegedly infringing intellectual property;

•stop using the name “Upwork” or other trademarks in some or all jurisdictions;

•incur significant legal expenses;

•pay substantial damages or ongoing royalty payments to the party whose intellectual property rights we may be found to be infringing;

•pay substantial amounts in settlement to a party that asserts allegations of intellectual property infringement;

•prevent us from offering aspects of our work marketplace or make expensive and disruptive changes to our work marketplace or our methods of doing business; or

•attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results. We expect that the occurrence of infringement claims is likely to grow as the market segment for freelancers and the clients that engage them grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could require us to expend additional financial and management resources.

Our work marketplace contains open source software components, and failure to comply with the terms of the underlying licenses could restrict our ability to market or operate our work marketplace.

Our work marketplace incorporates certain open source software. An open source license typically permits the use, modification, and distribution of software in source-code form subject to certain conditions. Some open source licenses contain conditions that any person who distributes a modification or derivative work of software that was subject to an open source license make the modified version subject to the same open source license. Distributing software that is subject to this kind of open source license can lead to a requirement that certain aspects of our work marketplace be distributed or made available in source code form. Although we do not believe that we have used open source software in a manner that might condition its use on our distribution of any portion of our work marketplace in source code form, the interpretation of open source licenses is complex and, despite our efforts, it is possible that we may be liable for copyright infringement, breach of contract, or other claims if our use of open source software is adjudged not to comply with the applicable open source licenses.

Moreover, we cannot ensure that our processes for controlling our use of open source software in our work marketplace will be effective. If we have not complied with the terms of an applicable open source software license, we may need to seek licenses from third parties to continue offering our work marketplace and the terms on which such licenses are available may not be economically feasible, to re-engineer our work marketplace to remove or replace the open source software, to discontinue offering our work marketplace if re-engineering could not be accomplished on a timely basis, to pay monetary damages, or to make available the source code for aspects of our proprietary technology, any of which could adversely affect our business, operating results, and financial condition.

In addition to risks related to license requirements, use of open source software can involve greater risks than those associated with use of third-party commercial software, as open source licensors generally do not provide warranties or assurances of title, performance, or non-infringement, nor do they control the origin of the software. There is typically no support available for open source software, and we cannot ensure that the authors of such open source software will implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated with the use of open source software, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business.

Our user growth and engagement on mobile devices depend upon third parties maintaining open application marketplaces and effective operation with mobile operating systems, networks, and standards that we do not control.

Mobile devices are increasingly used for marketplace transactions. A significant and growing portion of our users access our work marketplace through mobile devices, including through the use of mobile applications. Our mobile applications rely on third parties maintaining open application store platforms, including the Apple App Store and Google Play, which make current and new applications or new versions of our mobile applications available for download and use on mobile devices. We cannot assure you that the platforms through which we distribute our applications will maintain their current structures or terms of access, that such marketplaces will continue to make our mobile applications or newer versions of our mobile applications available for download, or that such marketplaces will not charge us fees to list our applications for download, or charge us new or additional fees to offer products and services through our applications. Additionally, there is no guarantee that popular mobile devices will continue to support our work marketplace, that the use of mobile devices for payments or other transactions on our work marketplace will be available on commercially reasonable terms, or that mobile device users will use our work marketplace rather than competing products. We are dependent on the interoperability of our work marketplace with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade the functionality of our website or applications or give preferential treatment to competitors could adversely affect the usage of our work marketplace on mobile devices. Additionally, in order to deliver high-quality mobile products, it is important that our products are designed effectively and work well with a range of mobile devices, technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these devices, technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use our work marketplace on their mobile devices, our users find our mobile offering is not cost-effective, our users find our mobile offering does not meet their needs, our competitors develop products and services that are perceived to operate more effectively on mobile devices, or our users choose not to access or use our work marketplace on their mobile devices or use mobile products that do not offer access to our work marketplace, our user growth, user engagement, and business could be adversely impacted.

Risks Related to Legal and Regulatory Matters

We and our users may be subject to new and existing laws and regulations, both in the United States and internationally.

We and our users are subject to a wide variety of foreign and domestic laws. Laws, regulations, and standards governing issues that may affect us, such as worker classification, employment, worker health, payments, worker confidentiality obligations and whistleblowing, intellectual property, consumer protection, taxation, privacy, and data security are often complex and subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their enforcement and application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal and state administrative agencies. Many of these laws were adopted prior to the advent of the internet, mobile, and related technologies and, as a result, do not contemplate or address the unique issues of the internet, mobile, and related technologies. Other laws and regulations may be adopted in response to internet, mobile, and related technologies. New and existing laws and regulations (or changes in interpretation of existing laws and regulations), including those concerning worker classification, independent contractors, employment, discrimination and harassment, payments, whistleblowing and worker confidentiality obligations, intellectual property, consumer protection, taxation, privacy, data security, benefits, unionizing and collective action, arbitration agreements and class action waiver provisions, unfair competition, terms of service, website accessibility, background checks (such as the Fair Credit Reporting Act, 15 U.S.C. § 1681), escheatment, and federal contracting may also be adopted, implemented, or interpreted to apply to us and other online services marketplaces or our users. Likewise, these laws affect our users, and their application, or uncertainty around their application, may affect demand for our work marketplace.

New laws, regulations and orders enacted in response to the COVID-19 pandemic or the resulting macroeconomic downturn may also affect our business in ways that we did not anticipate, and existing laws and regulations may be interpreted and enforced differently than they have in the past in response to the pandemic. These laws may change

rapidly and compliance may be costly to us. For example, the restrictions intended to prevent the spread of COVID-19 currently enacted in many jurisdictions may result in a loss of productivity of our workforce and an increase in data security breaches and other privacy and security incidents, among other things. On the other hand, a loosening of these restrictions as certain geographic areas begin to reopen may result in a decline in user activity on our work marketplace.

As our work marketplace’s geographic scope expands, including efforts to increase adoption by users outside the United States and extending our physical presence internationally, and as we expand the categories of services offered on our work marketplace, regulatory agencies or courts may claim, or we may independently determine, that we, or our users, are subject to additional requirements, or are prohibited from conducting our business, or conducting business with us, in or with certain jurisdictions, either generally or with respect to certain services, or that we are otherwise required to change our business practices. If we determine additional legal requirements apply to our business, we may expend resources to comply or obtain licenses to come into compliance with such requirements, and such efforts may be a distraction to the business or require adverse changes to the manner in which we conduct our business or our work marketplace and may themselves cause regulatory agencies to scrutinize our business. It is also possible that certain provisions in agreements with our users or service providers, or between freelancers and clients, or the fees we charge, may be found to be unenforceable or not compliant with applicable law.

New approaches to policy-making and legislation may also produce unintended harms for our business, which may impact our ability to operate our business in the manner in which we are accustomed. For example, there has been increased focus on worker classification and independent contractor regulations which led in part to the adoption of legislation in California, and it is possible that other jurisdictions will implement similar laws and regulations, as discussed in the risk factor titled “There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our work marketplace is challenged.” These laws and regulations may have a far-reaching impact, including on the independent professionals that use our work marketplace and their clients. Any of these regulations could negatively impact our users, including perceptions regarding their use of our work marketplace, or have a material adverse effect on the demand for freelancers on our work marketplace or on the manner in which we are able to operate our work marketplace.

As we look to expand our international footprint over time, we may become obligated to comply with additional laws and regulations of the countries or markets in which we operate or have users. We may be harmed if we are found to be subject to new or existing laws and regulations or if those laws are interpreted and applied to us in a manner that harms our business or is inconsistent with the application of U.S. laws, including those concerning worker classification, independent contractors, employment, payments, whistleblowing and worker confidentiality obligations, intellectual property, consumer protection, taxation, privacy, data security, benefits, unionizing and collective action, arbitration agreements and class action waiver provisions, unfair competition, terms of service, website accessibility, background checks, and escheatment. In addition, contractual provisions that are designed to protect and mitigate against risks, including terms of service, services agreements, arbitration and class action waiver provisions, disclaimers of warranties, limitations of liabilities, releases of claims, and indemnification provisions, could be deemed unenforceable as to the application of these laws and regulations by a court, arbitrator, or other decision-making body. If we are unable to comply with these laws and regulations or manage the complexity of global operations and supporting an international user base successfully or in a cost-effective manner, or if these laws and regulations are found to apply to our users or cause a decline in demand for freelancer services, our business, operating results, and financial condition could be adversely affected.

Our success, or perceived success, and increased visibility may also drive some third parties that view our business model to be a threat, or otherwise problematic, to raise concerns about our business model to local policymakers and regulators. These third parties and their trade association groups or other organizations may take actions and employ

significant resources to shape the legal and regulatory regimes in countries where we have, or may seek to have, a significant number of users, in an effort to change such legal and regulatory regimes in ways intended to adversely affect or impede our business and the ability of users to utilize our work marketplace.

Having an international community of users and engaging freelancers internationally exposes us to risks that could have an adverse effect on our business, operating results, and financial condition.

Even though we currently have a limited physical presence outside of the United States, our users have a global footprint that subjects us to the risks of being found to do business internationally. We have users on our work marketplace located in over 180 countries, including some markets where we have limited experience, where challenges can be significantly different from those we have faced in more developed markets, and where business practices may create greater internal control risks. Further, certain skills and services are offered by freelancers concentrated in countries with higher risks of instability and geopolitical uncertainty, such as Russia and Ukraine, both of which have experienced recent political unrest. In addition, we engage freelancers located in many countries to provide services for our managed services offering and to us for internal projects. Because our website is generally accessible by users worldwide, we have received in the past, and may continue to receive, notices from jurisdictions claiming that we or our users are required to comply with their laws. Laws outside of the United States regulating the internet, payments, escrow, data protection, data residency, privacy, taxation, terms of service, website accessibility, consumer protection, intellectual property ownership, services intermediaries, payment intermediaries, labor and employment, wage and hour, worker classification, worker health, background checks, and recruiting and staffing companies, among others, which could be interpreted to apply to us, are often less favorable to us than those in the United States, giving greater rights to competitors, users, and other third parties. Compliance with international laws and regulations may be more costly than expected, may require us to change our business practices or restrict our product offerings, and the imposition of any such laws or regulations on us, our users, or third parties that we or our users utilize to provide or use our services, may adversely impact our revenue and business. In addition, we may be subject to multiple overlapping legal or regulatory regimes that impose conflicting requirements which could lead to additional compliance costs and enhanced legal risks. Moreover, all of these risks will be exacerbated if we expand our operations internationally, including extending our physical presence outside the United States or investing in localization efforts.

Risks inherent in conducting business with an international user base, engaging freelancers globally, localizing our work marketplace, and expanding our operations internationally include, but are not limited to:

•being deemed to conduct business or have operations in the jurisdictions where users, including freelancers that provide services to us, are resident and being subject to their laws and regulatory requirements, including those concerning taxation;

•new, changed, or conflicting regulatory requirements;

•varying worker classification standards, regulations, and approaches to enforcement and requirements and expectations of employment;

•compliance with U.S. and foreign laws designed to combat money laundering and the financing of terrorist activities;

•the imposition of taxes on transactions between us and our users or among our users, or the imposition of liability on us for the failure to collect and remit taxes owed by our users;

•compliance with U.S. and foreign laws and regulations regarding privacy, data protection, information security, and the collection, storing, retention, sharing, use, processing, transfer, disclosure, and protection of personal information and other content;

•the cost and burden of complying with a wide variety of laws that may be deemed to apply to us, including those relating to labor and employment matters (including but not limited to requirements with respect to works councils or similar labor organizations, worker classification, and taxation on income or earnings, including the obligation to withhold and remit taxes), payments, consumer and data protection, privacy, network security, encryption, data residency, and taxes, as well as securing expertise in local law and related practices;

•costs of localizing services, including adding the ability for clients to pay in local currencies;

•tariffs, export and import restrictions, restrictions on foreign investments, sanctions, changes to existing trade arrangements between various countries, and other trade barriers or protection measures;

•regional or global public health crises, such as the COVID-19 pandemic;

•difficulties in, and costs of, staffing, managing, and operating international operations or support functions;

•macroeconomic and political conditions, including in certain foreign jurisdictions such as the evolving relations between the United States and China and instability and geopolitical uncertainty in Russia and Ukraine;

•economic weakness or currency-related challenges or crises;

•fluctuations in foreign currency exchange rates;

•lack of acceptance of localized services or of services generally because they are not localized;

•private, corporate or state-sponsored espionage, ransomware, or cyberterrorism;

•weaker intellectual property protection;

•organizing or similar activity by workers, local unions, works councils, or other labor organizations in the U.S. or elsewhere;

•our ability to adapt to business practices and client requirements in different cultures; and

•geopolitical instability and security risks, such as armed conflict and civil or military unrest, political instability, human rights concerns, and terrorist activity in countries where we have users.

The risks described above may also make it costly or difficult for us to expand our operations internationally. Analysis of, and compliance with, global laws and regulations may substantially increase our cost of doing business. We may be unable to keep current with changes in laws and regulations as they develop. Although we have implemented policies and procedures designed to analyze whether these laws apply and, if applicable, support compliance with these laws and regulations, there can be no assurance that we will always maintain compliance, that our interpretations are or will remain correct, or that all of our employees, contractors, partners, users, and agents will comply. Any violations could result in enforcement actions or other proceedings, fines, civil and criminal penalties, damages, interest, costs and fees (including but not limited to legal fees), injunctions, loss of intellectual property rights, or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of global operations and support an international user base successfully and in a cost-effective manner, our business, operating results, and financial condition could be adversely affected.

There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our work marketplace is challenged.

Clients are generally responsible for properly classifying the freelancers they engage through our work marketplace under our terms of service. Some clients opt to classify freelancers as employees for certain work, while many freelancers are classified as independent contractors.

We offer an optional service to our Upwork Enterprise and premium clients, through which we help classify freelancers as employees of third-party staffing providers or independent contractors. For clients that subscribe to this service, subject to applicable law and the terms of our agreement with the client, we indemnify clients from misclassification risk and make warranties to the client, such as to compliance with applicable laws. In addition, we offer a number of other premium services where we provide increased assistance to users to find and contract with one another. Third-party staffing providers employ freelancers classified as employees for clients, and failure of these staffing providers to comply with all legal and tax requirements could adversely affect our business. Moreover, material business changes to one or more of our third-party staffing providers could lead to increased costs for clients or us, a reduced profit margin, a diminished user experience, or the inability to offer the staffing provider services in one or more jurisdictions. We also use our work marketplace to find, classify, and engage freelancers to provide services for us and for our managed services offering. In general, any time a court or administrative agency determines that we or our clients that use our work marketplace have misclassified a freelancer as an independent

contractor, we or our users could incur tax and other liabilities for failing to properly withhold or pay taxes on the freelancer’s compensation as well as potential wage and hour and other liabilities depending on the circumstances and jurisdiction. We have in the past been, and may in the future be, subject to administrative inquiries and audits concerning the taxation and classification of our workers and the users of our work marketplace. We cannot be certain that any insurance coverage that we have or may obtain will extend to or be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

A misclassification determination, allegation, claim, or audit creates potential exposure for users and for us, including but not limited to reputational harm and monetary exposure arising from or relating to failure to withhold and remit taxes, unpaid wages, and wage and hour laws and requirements (such as those pertaining to minimum wage and overtime); claims for employee benefits, social security contributions, and workers’ compensation and unemployment insurance; claims of discrimination, harassment, and retaliation under civil rights laws; claims under laws pertaining to unionizing, collective bargaining, and other concerted activity; and other claims, charges, or other proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations of joint employer liability. Such claims could result in monetary damages (including but not limited to wage-based damages or restitution, compensatory damages, liquidated damages, and punitive damages), interest, fines, penalties, costs, fees (including but not limited to attorneys’ fees), criminal and other liability, assessment, injunctive relief, or settlement. For example, particularly around the onset of the COVID-19 pandemic, these types of claims were more frequent in light of then-deteriorating macroeconomic conditions, more prone to agency error in light of overwhelmed agencies, more commonly submitted on a fraudulent basis, and more difficult to successfully oppose or appeal due to COVID-19 related delays, and such events may increase in frequency again if similar circumstances recur. Claims naming our company became and may again become prevalent in light of legislative and regulatory responses to the COVID-19 pandemic. Such a claim, allegation, or adverse determination, including but not limited to with respect to the freelancers that provide services to us, or the requirement for us to indemnify a client, could also harm our brand and reputation, which could adversely impact our business. While these risks are mitigated, in part, by our contractual rights of indemnification against third-party claims, any limitations or obligations that we include in our contracts with clients to limit our exposure to claims could be determined to be unenforceable, could be costly to enforce or ineffective, or may otherwise prove inadequate.

The regulatory landscape regarding contractor classification is rapidly changing, and changes in these laws could adversely affect demand for our services and platform and adversely affect our business.

Worker classification and independent contractor issues, including AB 5, have been the subject of widespread national discussion and it is possible that other jurisdictions, including the federal government, several states such as New York, Washington, Illinois, and others, as well jurisdictions outside the United States, such as the United Kingdom and the European Union, which we refer to as the EU, through its work on the Platform Workers Directive and other legislative and regulatory instruments, may enact similar laws. Additionally, initiatives such as California’s Proposition 22 (which was passed in 2020) alter, and other potential legislation could alter, the legislative and regulatory landscape regarding how governments may choose to regulate independent contractors broadly and specific sectors as well, which may affect how our users run their businesses. In addition, legislation may be passed with retroactive effect, such as AB 5. As a result, there is significant uncertainty regarding the worker classification regulatory landscape and what it will look like in future years, and compliance with any new

legislation or regulations may be costly and difficult or they may be impossible to comply with in a commercially reasonable manner. In addition, any developments or changes in the regulatory environment impacting worker classification and independent contractors may reduce the demand for independent contractors more generally in one or more jurisdictions and have an adverse effect on our business, operating results, and financial condition.

The applicability of sales, use, and other tax laws or regulations on our business is uncertain. Adverse tax laws or regulations could be enacted or existing laws could be interpreted as applying or otherwise applied to us or users of our work marketplace, which could subject us or our users to additional tax liability and related interest and penalties, and adversely impact our business.

The application of federal, state, local, and international tax laws to services provided over the internet is evolving. In addition to income taxes, in the United States and various foreign jurisdictions, we may also be subject to non-income based taxes, such as payroll, sales, use, value-added, and goods and services taxes (including the “digital service tax”), and we may also be subject to increased obligations as a withholding agent. Many of the fundamental statutes and regulations that impose these taxes were established before the adoption and growth of the internet and ecommerce. In addition, governments are increasingly looking for ways to increase revenue, which has resulted in aggressive enforcement and new interpretations of existing tax laws, enacting new laws and promulgating new regulations (particularly those establishing an economic nexus as a basis to collect taxes from companies with no local presence), discussions about tax reform, and other legislative action to increase tax revenue, including through indirect taxes. New income, payroll, sales, use, value-added, goods and services, platform, intermediary, digital services, or other tax laws, statutes, rules, regulations, or ordinances are regularly enacted and could be enacted at any time (possibly with retroactive effect), could be applied solely or disproportionately to services provided over the internet, could target certain products and services offered on our work marketplace, or could otherwise affect our or our users’ tax obligations or financial position and operating results. Many countries in the EU, as well as the United Kingdom, India, and a number of other countries and organizations, such as the Organisation for Economic Co-operation and Development, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could impact our tax obligations. The impact and burden of these regulations and proposed regulations on our business and the businesses of our users is uncertain, but may have a negative impact on our business.

We currently collect and remit indirect taxes on our fees in a number of jurisdictions and may begin collecting and remitting indirect taxes in additional jurisdictions. Our collection of indirect taxes on our fees in these jurisdictions may cause our users to use other platforms or other alternatives that do not collect indirect taxes on their fees, which may in turn affect our financial results. In addition, tax authorities may raise questions about, challenge or disagree with our determination as to whether we are obligated to collect indirect taxes or our calculation, reporting, or collection of taxes and may require us to remit additional taxes and interest, and could impose associated penalties and fees. Should any new taxes become applicable or the application of existing taxes be deemed to apply to us or our users, or if the taxes we pay are found to be deficient, our business could be adversely impacted. We have in the past been, and may in the future be, audited by tax authorities with respect to non-income taxes, and we may have exposure to additional non-income tax liabilities, which could have an adverse effect on our operating results and financial condition. In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, the effectiveness of our tax planning strategies, or changes in tax laws or their interpretation. Such changes could have an adverse impact on our operating results and financial condition.

determine that it would not be commercially feasible or cost-effective to seek reimbursement, the indemnification obligation may be deemed unenforceable, or the functionality and indemnification provisions may cause users to seek out other platforms. If we are required to collect and pay back taxes and associated interest and penalties, or we are unsuccessful in collecting such amounts from our users, we could incur potentially substantial unplanned expenses, thereby adversely impacting our operating results and cash flows. In addition, tax laws and regulations may subject us to audit by tax regulators and require us to provide certain data and information, including user information, from our work marketplace to tax regulators in certain jurisdictions. If we are obligated to provide such information to tax regulators in any jurisdiction, users may choose to use other platforms or other alternatives, which may in turn adversely affect our operating results and financial condition.

As a result of these and other factors, the ultimate amount of tax obligations we owe may differ from the amounts recorded in our financial statements and any such difference may adversely impact our operating results in future periods in which we change our estimates of our tax obligations or in which the ultimate tax outcome is determined.

Changes in laws or regulations relating to privacy or the protection, collection, storage, processing, transfer, or use of personal information, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could adversely affect our business.

We receive, collect, store, process, transfer, and use personal information and other user data. There are numerous federal, state, local, and international laws and regulations regarding privacy, data protection, information security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other ~~content.~~data. The scope of these laws and regulations is changing, subject to differing interpretations, and may be inconsistent among states and countries, or conflict with other laws and regulations. We are also subject to the terms of our privacy policies and legal and contractual obligations to third parties related to privacy, data protection, and information security. The regulatory framework for privacy and data protection worldwide is, and is likely to remain for the foreseeable future, uncertain and complex, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Further, any significant change to applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of the data of our users, employees, contractors, or others, or their interpretation or enforcement, or any changes regarding the manner in which the express or implied consent of users for the collection, use, retention, or disclosure of such data must be obtained, including in response to the COVID-19 pandemic, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete in a cost-effective manner, or at all, and may limit our ability to store and process user data or develop new services and features.

We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and information security that are proposed and enacted in various jurisdictions. For example, European legislators adopted the General Data Protection Regulation, ~~(the “GDPR”),~~which we refer to as the GDPR, which became effective in May 2018 and superseded the existing ~~European Union (“EU”)~~EU data protection legislation, imposes more stringent EU data protection requirements, and provides for significant penalties for noncompliance. The GDPR created new compliance obligations applicable to our business, users, vendors, and third-party partners, which expose us to increased financial penalties for noncompliance, including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million, whichever is higher, for the most serious violations. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR has been and will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and there is a risk that we may be subject to governmental investigations or enforcement actions, fines and penalties, claims, litigation, and reputational harm in connection with any European activities.

Moreover, on July 16, 2020, the Court of Justice of the European Union, ~~(the “CJEU”)~~which we refer to as the CJEU, declared the EU-U.S. Privacy Shield to be an invalid mechanism for transferring personal information from the EU to the United States. In addition, while the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal information transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. The use of standard contractual clauses for the transfer of personal information

specifically to the United States remains under review by a number of European data protection supervisory authorities. German and Irish supervisory authorities have indicated that the standard contractual clauses alone provide inadequate protection for ~~EU-US~~EU-U.S. data transfers. On August 10, 2020, the U.S. Department of Commerce and the European Commission announced new discussions to evaluate the potential for an enhanced EU-U.S. Privacy Shield framework to comply

with the July 162020 judgment of the CJEU. The CJEU’s decision (and certain regulatory guidance issued in its wake) and recent statements by EU supervisory authorities have led to uncertainty regarding the legality of EU-U.S. data flows in general and those conducted under the Privacy Shield in particular. The CJEU’s decision may continue to create new compliance obligations applicable to our business, users, vendors, and third-party partners, which could cause us to change our business practices. As further guidance is issued by European authorities, the full rights and responsibilities resulting from the CJEU’s decision may continue to change.

As supervisory authorities continue to issue further guidance on personal information, we could suffer additional costs, complaints, or regulatory investigations or fines, and if we are otherwise unable to transfer personal information between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.

Further, in connection with its process of leaving the EU, the United Kingdom has enacted the Data Protection Act 2018, ~~(the “Data~~which we refer to as the Data Protection ~~Act”)~~Act, that is substantially consistent with the GDPR. From the beginning of 2021 (when the transitional period following Brexit ~~expires)~~(as defined below) expired), we will have to continue to comply with the GDPR and also the Data Protection Act, with each regime having the ability to fine up to the greater of €20 million (£17 million) or 4% of global annual turnover. The relationship between the United Kingdom and the EU remains uncertain, for example, how data transfers between the United Kingdom and the EU and other jurisdictions will be treated and the role of the United Kingdom’s supervisory authority. These changes will lead to additional costs as we try to ensure compliance with new privacy legislation and will increase our overall risk exposure.

Additionally, in June 2018, California passed the CCPA, which provides new privacy rights for consumers and new operational requirements for companies. The CCPA became effective on January 1, 2020 and enforcement began on July 1, 2020, along with related regulations which came into force ~~on August 14, 2020.~~thereafter. Fines for noncompliance may be up to $7,500 per violation without limitations. Additionally, on November 3, 2020 Californians passed a ballot initiative called the California Privacy Rights Act, ~~(the “CPRA”)~~ which ~~extends~~we refer to as the CPRA, which will (upon becoming effective in 2023) extend the CCPA and ~~imposes~~impose additional data protection obligations on companies doing business in California, including additional consumer rights processes and opt outs for certain uses of sensitive data. The costs of compliance with, and other burdens imposed by, the GDPR, CCPA, and CPRA may limit the use and adoption of our products and services and could have an adverse impact on our business. Because the GDPR, the UK’s Data Protection Act, the CCPA, and the CPRA are in force or recently passed, their application in practice may change or develop over time through judicial decisions or as new regulations, guidance or interpretations are provided by regulatory and governing bodies, such as federal and state administrative agencies, and our interpretations of these laws and efforts to comply with the rules and regulations of these laws may be deemed invalid. Additionally, the CCPA has prompted a number of proposals for new federal and state-level privacy legislation, such as in ~~Nevada, Virginia,~~ New ~~Hampshire,~~York and other jurisdictions. If passed, these new laws could add additional complexity, impact our business strategies, increase our potential liability, increase our compliance costs, and adversely affect our business. For example, Virginia recently passed the Virginia Consumer Data Protection Act into law on March 2, 2021, which will go into effect on January 1, 2023.

On July 8, 2021, Colorado enacted the Colorado Privacy Act (“CPA”), making Colorado the third state to pass comprehensive consumer privacy legislation, following California and Virginia. The CPA will go into effect on July 1, 2023. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users, employees, contractors, or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise have an adverse effect on our reputation and business. Our ability to comply with a global patchwork of competing privacy regimes may be inhibited by the competing nature of those regimes. It is possible that, as new regulatory requirements come into law, especially those which may diverge, even slightly, from existing regulatory frameworks, such as the United

Kingdom’s Data Protection Law, we may incur costs related to compliance, or may need to seek remedies to ensure such competing regimes are interpreted and enforced fairly. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the overall demand for, our ~~platform.~~work marketplace.

Additionally, if third parties we work with violate applicable laws, regulations, or agreements, such violations may put the data of our users, employees, contractors, and others at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability, cause our users to lose trust in us, and otherwise have an adverse effect on our reputation and business. Further, public scrutiny of or complaints about technology companies or their data handling or data protection practices, even if unrelated to our business, industry, or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional

regulatory requirements, or to modify their enforcement or investigation activities, which may disrupt the conduct of our business, increase our liability, increase our costs and risks, and adversely affect our business.

~~Having an international community of users and engaging freelancers internationally exposes us to risks that could have an adverse effect on our business, operating results, and financial condition.~~

Even though we currently have a limited physical presence outside of the United States, our users have a global footprint that subjects us to the risks of being found to do business internationally. We have users on our platform located in over 180 countries, including some markets where we have limited experience, where challenges can be significantly different from those we have faced in more developed markets, and where business practices may create greater internal control risks. Further, certain skills and services are offered by freelancers concentrated in countries with higher risks of instability and geopolitical uncertainty, such as Russia and Ukraine. In addition, we engage freelancers located in many countries to provide services for our managed services offering and to us for internal projects. Because our website is generally accessible by users worldwide, we have received in the past, and may continue to receive, notices from jurisdictions claiming that we or our users are required to comply with their laws. Laws outside of the United States regulating the internet, payments, escrow, data protection, data residency, privacy, taxation, terms of service, website accessibility, consumer protection, intellectual property ownership, services intermediaries, payment intermediaries, labor and employment, wage and hour, worker classification, worker health, background checks, and recruiting and staffing companies, among others, which could be interpreted to apply to us, are often less favorable to us than those in the United States, giving greater rights to competitors, users, and other third parties. Compliance with international laws and regulations may be more costly than expected, may require us to change our business practices or restrict our product offerings, and the imposition of any such laws or regulations on us, our users, or third parties that we or our users utilize to provide or use our services, may adversely impact our revenue and business. In addition, we may be subject to multiple overlapping legal or regulatory regimes that impose conflicting requirements which could lead to additional compliance costs and enhanced legal risks.

~~Risks inherent in conducting business with an international user base and engaging freelancers globally include, but are not limited to:~~

•~~new or changed regulatory requirements;~~

•~~varying worker classification standards, regulations, and approaches to enforcement;~~

•~~compliance with U.S. and foreign laws designed to combat money laundering and the financing of terrorist activities;~~

•~~the imposition of taxes on transactions between us and our users or among our users, or the imposition of liability on us for the failure to collect and remit taxes owed by our users;~~

•the cost and burden of complying with a wide variety of laws that may be deemed to apply to us, including those relating to labor and employment matters (including but not limited to requirements with respect to works councils or similar labor organizations, worker classification, and taxation on income or earnings, including the obligation to withhold and remit taxes), consumer and data protection, privacy, network security, encryption, data residency, and taxes, as well as securing expertise in local law and related practices;

•~~regional or global public health crises, such as the COVID-19 pandemic;~~

•~~economic weakness or currency-related challenges or crises;~~

•~~fluctuations in foreign currency exchange rates;~~

•~~costs of localizing services, including adding the ability for clients to pay in local currencies;~~

•~~lack of acceptance of localized services or of services generally because they are not localized;~~

•~~difficulties in, and costs of, staffing, managing, and operating international operations or support functions;~~

•~~weaker intellectual property protection;~~

•~~organizing or similar activity by workers, local unions, works councils, or other labor organizations;~~

•~~our ability to adapt to business practices and client requirements in different cultures;~~

•~~corporate or state-sponsored espionage or cyberterrorism;~~

•~~macroeconomic and political conditions in certain foreign jurisdictions; and~~

•~~geopolitical instability and security risks, such as armed conflict and civil or military unrest, political instability, human rights concerns, and terrorist activity in countries where we have users.~~

The risks described above may also make it difficult for us to expand our operations internationally. Analysis of, and compliance with, global laws and regulations may substantially increase our cost of doing business. We may be unable to keep current with changes in laws and regulations as they develop. Although we have implemented policies and procedures designed to analyze whether these laws apply and, if applicable, support compliance with these laws and regulations, there can be no assurance that we will always maintain compliance, that our interpretations are or will remain correct, or that all of our employees, contractors, partners, users, and agents will comply. Any violations could result in enforcement actions or other proceedings, fines, civil and criminal penalties, damages, interest, costs and fees (including but not limited to legal fees), injunctions, loss of intellectual property rights, or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of global operations and supporting an international user base successfully and in a cost-effective manner, our business, operating results, and financial condition could be adversely affected.

~~If we are unable to maintain our payment partner relationships on favorable terms, or at all, or if our payment partners cease providing services to us, our business could be adversely affected.~~

Our payment partners consist of payment processors and disbursement partners. We rely on banks and card processors to provide us with corporate banking services, escrow trust accounts, clearing, processing, and settlement functions for the funding of all transactions on our platform, and we do not always have duplication in vendors in the event one relationship is terminated for any reason. We also rely on a network of disbursement partners to disburse funds to users.

•~~we may choose to cease doing business with our payment partners for a number of reasons, including due to allegations of fraud or other impropriety by them or their third-party partners;~~

~~interpretation and enforcement of their rules, increased declines of client payment methods or increased client-issued chargebacks due to the COVID-19 pandemic;~~

•~~our payment partners may be unable to effectively accommodate changing service needs, such as those which could result from rapid growth or higher volume or those which relate to local jurisdictions;~~

•~~our payment partners could choose to terminate or not renew their agreements with us, or only be willing to renew on different or less advantageous terms;~~

•~~our payment partners could reduce the services provided to us, cease doing business with us, or cease doing business altogether;~~

•our payment partners could be subject to delays, limitations, or closures of their own businesses, networks, or systems, especially in light of the COVID-19 pandemic, causing them to be unable to process payments or disburse funds for certain periods of time; or

•we may be forced to cease doing business with payment processors if card association operating rules, certification requirements and laws, regulations, or rules governing electronic funds transfers to which we are subject change or are interpreted to make it difficult or impossible for us to comply.

For example, in June 2020, Wirecard AG, a prepaid card issuer used by one of our payment partners to issue prepaid cards to our users, filed for insolvency and was ordered by the UK Financial Conduct Authority to cease all licensed activity. As a result, our non-U.S. users who previously chose to withdraw their funds to a prepaid card could not access their funds for several days. The order was eventually lifted, allowing those customers to access their funds. This incident or any similar future incident concerning our payment partners or their respective vendors could cause our customers to lose trust in our platform and could have an adverse impact on our business.

~~Errors, defects, or disruptions in our platform could diminish demand, adversely impact our financial results, and subject us to liability.~~

Our platform enables our users to manage important aspects of their businesses, and any errors, defects, or disruptions in our platform, or other performance problems with our platform or infrastructure, including disruptions caused by the COVID-19 pandemic or responses to the pandemic, could harm our brand and reputation and may damage the businesses of users. As the usage of our platform grows, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to operate our platform. It is possible that we may fail to continue to effectively scale and grow our technical infrastructure to accommodate these increased demands, which may adversely affect our user experience. We also rely on third-party software and infrastructure, including the infrastructure of the internet, to provide our platform. Any failure of or disruption to this software and infrastructure could also make our platform unavailable to our users. For example, for a short period of time in May 2019, due to an inadvertent error by a regulatory agency in Bangladesh, users in Bangladesh were unable to access our website and other websites that included “-rk.com” in their website addresses. Also, certain jurisdictions, such as India and Pakistan, have in the past voluntarily shut down the internet in response to civil unrest and, in the event any such governmental action were to take place again, it would adversely affect user activity on our platform throughout the duration of such shut down. Our platform is constantly changing with new updates, which may contain undetected errors when first introduced or released. Any errors, defects, disruptions in service, or other performance or stability problems with our platform, or the inadequacy of our efforts to adequately prevent or timely remedy errors or defects, could result in negative publicity, loss of or delay in market acceptance of our platform, loss of competitive position, our inability to timely and accurately maintain our financial records, inaccurate or delayed invoicing of clients, delay of payment to us or freelancers, claims by users for losses sustained by them, or investigation and corrective action taken by the DFPI or other regulatory agencies. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help resolve the issue. Accordingly, any errors, defects, or disruptions in our platform could adversely impact our brand and reputation, revenue, and operating results.

~~Our revenue growth and ability to achieve and sustain profitability will depend in part on being able to increase the productivity, effectiveness, and efficiency of our sales force.~~

example, we have only recently begun generating revenue from our Upwork Business offering in addition to our other premium offerings. Given that it is a relatively new offering, we recently completed an evaluation of the efficiency, productivity, and effectiveness of our sales force at generating revenue from our Upwork Business offering, as well as our other premium offerings. As part of this evaluation, we have recently undertaken a reduction in force of approximately one-third of our sales employees in an effort to drive efficiencies in our sales organization, as discussed in the risk factor titled “Litigation could have a material adverse impact on our operating results and financial condition.” There can be no assurance that these measures will increase the productivity or efficiency of our sales force.

There is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of sales and sales support personnel to support our growth. It is difficult to find sales personnel with the specific skills and technical knowledge needed to sell our Upwork Enterprise, and other premium offerings. We may be unable to hire or retain a sufficient number of qualified sales personnel. Furthermore, hiring sales personnel, particularly in new markets, requires additional costs that we may not recover if the sales personnel fail to achieve full productivity. Even if we are able to hire qualified personnel, doing so may be costly and lengthy, as new sales personnel require significant training and can take a number of months to achieve full productivity. In addition, new sales personnel do not always achieve productivity milestones within the timelines that we have projected, negatively impacting our ability to achieve our long-term financial projections associated with such personnel. Not all of our recent hires and planned hires have or will become productive as quickly as we expect and when our new sales personnel do not become fully productive on the timelines that we have projected, or at all, our revenue will not increase at anticipated rates, or at all, and our ability to achieve long-term projections may be negatively impacted. The productivity of our sales force has also been diminished by the effects of the COVID-19 pandemic and governmental restrictions intended to prevent its spread, as large enterprise, global account, and mid-market clients have been less responsive to our sales efforts. If our sales personnel are not successful in obtaining new business or increasing sales to our existing user base, our business and results of operations will be adversely affected.

~~If the market for freelancers and the services they offer develops more slowly than we expect, our growth may slow or stall, and our operating results could be adversely affected.~~

The market for online freelancers and the services they offer is relatively new, rapidly evolving, and unproven. Our future success will depend in large part on the continued growth and expansion of this market and the willingness of businesses to engage freelancers to provide services. It is difficult to predict the size, growth rate, and expansion of this market, whether any expansion will be long-term or temporary, the entry of products and services that are competitive to ours, the success of existing competitive products and services, or technological, macroeconomic, legal, regulatory, or other developments that will impact the overall demand for freelancer services. Furthermore, many businesses may be unwilling to engage freelancers for a variety of reasons, including perceived negative connotations with outsourcing work, quality of work, or privacy or data security concerns or the rapidly evolving regulations that may impact the demand for independent contractor services more generally, as discussed further in the risk factor titled “There may be adverse tax, legal, and other consequences if the contractor classification or employment status of freelancers that use our platform is challenged.” If the market for freelancers and the services they offer does not achieve widespread adoption, or there is a reduction in demand for freelancer services, it could result in decreased revenue and our business could be adversely affected.

We have experienced growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we are unable to manage our growth effectively, our business, revenue and profits, and financial condition could be adversely affected.

We have experienced growth in a relatively short period of time. For example, our total revenue for the nine months ended September 30, 2020 was $267.5 million, representing a period-over-period growth rate of 21% over the same period in 2019. Over time, we plan to continue to expand our operations and personnel significantly. Sustaining our growth will place significant demands on our management as well as on our administrative, operational, and financial resources. To manage our growth, we must continue to improve our operational, financial, and management information systems; expand, motivate, and effectively manage and train our workforce; and effectively collaborate with our third-party partners, all of which can be more difficult with an increasingly remote workforce. If we are unable to manage our growth successfully without compromising our quality of service or our profit margins, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, our business, operating results, financial condition, and ability to successfully market our platform and serve our users could be adversely affected.

Our recent and historical growth should not be considered indicative of our future performance. We have encountered, and will encounter in the future, risks, challenges, and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks, challenges, and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our financial condition and operating results could differ materially from our expectations, our growth rates may slow, and our business would be adversely impacted.

The applicability of sales, use, and other tax laws or regulations on our business is uncertain. Adverse tax laws or regulations could be enacted or existing laws could be interpreted as applying or otherwise applied to us or users of our platform, which could subject us or our users to additional tax liability and related interest and penalties, and adversely impact our business.

The application of federal, state, local, and international tax laws to services provided over the internet is evolving. In addition to income taxes, in the United States and various foreign jurisdictions, we may also be subject to non-income based taxes, such as payroll, sales, use, value-added, and goods and services taxes (including the “digital service tax”), and we may also be subject to increased obligations as a withholding agent. Many of the fundamental statutes and regulations that impose these taxes were established before the adoption and growth of the internet and ecommerce. In addition, governments are increasingly looking for ways to increase revenue, which has resulted in aggressive enforcement and new interpretations of existing tax laws, enacting new laws and promulgating new regulations, discussions about tax reform, and other legislative action to increase tax revenue, including through indirect taxes. New income, payroll, sales, use, value-added, goods and services, platform, intermediary, digital services, or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time (possibly with retroactive effect), could be applied solely or disproportionately to services provided over the internet, could target certain products and services offered on our platform, or could otherwise affect our or our users’ tax obligations or financial position and operating results. Many countries in the EU, as well as the United Kingdom, India, and a number of other countries and organizations, such as the Organisation for Economic Cooperation and Development, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could impact our tax obligations. The impact and burden of these regulations and proposed regulations on our business and the businesses of our users is uncertain, but may have a negative impact on our business.

We currently collect and remit indirect taxes on our fees in a number of jurisdictions and from time to time we may begin collecting and remitting indirect taxes in additional jurisdictions. Our collection of indirect taxes on our fees in these jurisdictions may cause our users to use other platforms or other alternatives that do not collect indirect taxes on their fees, which may in turn affect our financial results. In addition, tax authorities may raise questions about, challenge or disagree with our calculation, reporting, or collection of taxes and may require us to remit additional taxes and interest, and could impose associated penalties and fees. Should any new taxes become applicable or the application of existing taxes be deemed to apply to us or our users, or if the taxes we pay are found to be deficient, our business could be adversely impacted. We have in the past been, and may in the future be, audited by tax authorities with respect to non-income taxes, and we may have exposure to additional non-income tax liabilities, which could have an adverse effect on our operating results and financial condition. In addition, our future effective

tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, the effectiveness of our tax planning strategies, or changes in tax laws or their interpretation. Such changes could have an adverse impact on our operating results and financial condition.

Moreover, state, local, and foreign tax jurisdictions have differing rules and regulations governing sales, income, use, value-added, payroll, services, and other taxes, and these rules and regulations can be complex and are subject to varying interpretations and enforcement positions that may change over time. Existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us or our users (possibly with retroactive effect), which could require us or our users to pay additional tax amounts on prior sales and going forward, as well as require us or our users to pay fines, penalties, and interest for past amounts. Although our terms of service require our users to pay all applicable sales and other taxes and to indemnify us for any requirement that we pay any withholding amount to the appropriate authorities, our platform does not include functionality to easily enable users to charge any applicable taxes to one another, users may be unwilling or unable to pay back taxes and associated interest or penalties and may fail to indemnify us, we may determine that it would not be commercially feasible or cost-effective to seek reimbursement, the indemnification obligation may be deemed unenforceable, or the functionality and indemnification provisions may cause users to seek out other platforms. If we are required to collect and pay back taxes and associated interest and penalties, or we are unsuccessful in collecting such amounts from our users, we could incur potentially substantial unplanned expenses, thereby adversely impacting our operating results and cash flows. In addition, tax laws and regulations may subject us to audit by tax regulators and require us to provide certain data and information, including user information, from our platform to tax regulators in certain jurisdictions. If we are obligated to provide such information to tax regulators in any jurisdiction, users may choose to use other platforms or other alternatives, which may in turn adversely affect our operating results and financial condition.

We may be subject to escrow, payment services, and money transmitter regulations that may adversely affect our business.

Our subsidiary, Upwork Escrow, is licensed as an internet escrow agent under California’s Escrow Law and is subject to regulations applicable to internet escrow agents promulgated by the DFPI. While we have received two inquiries, each prior to 2014, from regulatory authorities inquiring whether we are engaging in payment activities ~~through Upwork Escrow or oDesk (which is now Upwork Global Inc. (“Upwork Global”))~~, these inquiries were resolved in our favor and did not require us to obtain a license in the applicable jurisdiction.

Although we are a licensed internet escrow agent and we believe that our operations comply with existing U.S. federal, state, and international laws and regulatory requirements related to escrow, money transmission, and the handling or moving of money, the laws or regulations may change, ~~and~~ interpretations of existing laws and regulations may also ~~change.~~change, and our operations and offerings may change resulting in new or different regulatory requirements being applicable to or preferable for our business. As a result, ~~Upwork Escrow or Upwork Global~~we could be required to be licensed as an escrow agent or a money transmitter (or other similar licensee) in other U.S. states or other jurisdictions or may choose to obtain ~~such a license~~different or additional licenses even if not required. Such a decision could also require ~~Upwork Escrow or Upwork Global~~us to register as a money services business under federal laws and regulations. It is also possible that ~~Upwork Escrow or Upwork Global~~we could become subject to regulatory enforcement or other proceedings in those states or other jurisdictions with escrow, money transmission, or other similar statutes or regulatory requirements related to the handling or moving of money, and such risk may increase if we are required or choose to pursue additional or different licenses, which could in turn have a significant impact on our business, even if we were to ultimately prevail in such proceedings. ~~Upwork Escrow or Upwork Global~~We may also be required to become licensed as a payment institution (or obtain a similar license) under the European Payment Services Directive or other international laws and ~~regulations.~~regulations or may choose to obtain such a license even if not required. Any developments or inconsistencies in the requirements, interpretations or applicability of the laws or regulations related to escrow, money transmission, or the handling or moving of money; material changes to the mandate, purview or regulatory approach at the DFPI; or increased scrutiny of our business may lead to additional compliance costs and administrative overhead.

The application of laws and regulations related to escrow, money transmission, and the handling or moving of money is subject to significant complexity and uncertainty, particularly as those laws relate to new and evolving business models. If ~~Upwork Escrow or Upwork Global is~~we are ultimately deemed to be in violation of one or more escrow or money transmitter or other similar statutes or regulatory requirements related to the handling or moving of

money in any U.S. state or other jurisdiction, we may be subject to the imposition of fines or restrictions on our business, our ability to offer some or all of our services in the relevant jurisdiction may be limited or suspended, and we may be subject to civil or criminal liability and our business, operating results, financial condition, reputation, and brand could be adversely affected.

Litigation could have a material adverse impact on our operating results and financial condition.

From time to time, we are involved in litigation and make and receive demands and claims threatening possible litigation. The outcome of any litigation (including class actions and individual lawsuits or arbitration), regardless of its merits, is inherently uncertain. Regardless of the merits or ultimate outcome of any claims that have been or may be brought against us or that we may bring against others, pending or future litigation could result in a diversion of management’s attention and resources and reputational harm, and we may be required to incur significant expenses

defending against these claims or pursuing claims against third parties. If we are unable to prevail in litigation, we could incur substantial liabilities. We may also determine that the most cost-effective and efficient way to resolve a dispute is to enter into a settlement agreement, and terms of any such settlement agreements are increasingly limited by legislation. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong as determining reserves for pending litigation is a complex, fact-intensive process that is subject to judgment calls. Any adverse determination related to litigation or adverse terms contained in a settlement agreement could require us to change our technology or our business practices in costly ways, prevent us from offering certain products or services, require us to pay monetary damages, fines, or penalties, or require us to enter into royalty or licensing arrangements, and could adversely affect our operating results and cash flows, harm our reputation, or otherwise negatively impact our business.

Failure to comply with anti-corruption, anti-money laundering, and sanctions laws, including the U.S. Foreign Corrupt Practices Act, ~~(the “FCPA”),~~which we refer to as the FCPA, and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.

We have voluntarily implemented an anti-money laundering compliance program designed to address the risk of our ~~platform~~work marketplace being used to facilitate money laundering, terrorist financing, or other illicit activity. Our program may not be sufficient to prevent our site from being used to improperly move money or may be found not to satisfy the expectations of our partners or regulators. In addition, if we or a regulator determines that we are required to comply with the Bank Secrecy Act (BSA), 31 USC 5311, we may be required to enhance or alter our anti-money laundering compliance program. We also have policies, procedures, and ~~sophisticated~~ technology designed to allow us to comply with U.S. economic sanctions laws and prevent our ~~platform~~work marketplace from being used to facilitate business in countries, regions, or with persons or entities included on designated lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Control, ~~(“OFAC”)~~which we refer to as OFAC, and equivalent foreign authorities. We may be subject to fines or other penalties in one or more jurisdictions levied by federal or state or local regulators, including state attorneys general, as well as those levied by foreign regulators in the event that we engage in any conduct, intentionally or not, that facilitates money laundering, terrorist financing, or other illicit activity, or that violates sanctions or otherwise constitutes sanctionable activity. Regulators and our partners continue to increase their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program, including the procedures that we use to verify the identity of our users and to monitor our ~~platform~~work marketplace for suspicious or potential illegal activity. In addition, any policies and procedures that we implement to comply with OFAC regulations may not be effective, including in preventing users from using our services within the OFAC-sanctioned countries ~~of North Korea, Syria,~~ and ~~Iran, and the Crimea region of Ukraine.~~regions. Attempts by individuals or entities that have been designated by OFAC or are located in a country subject to an embargo by the United States to utilize our service or take advantage of us or our users may also be exacerbated during a macroeconomic downturn, such as the one caused by the COVID-19 pandemic. Given the technical limitations in developing controls to prevent, among other things, the ability of users to publish on our ~~platform~~work marketplace false or deliberately misleading information or to develop sanctions-evasion methods, it is possible that we may inadvertently and without our knowledge provide services to individuals or entities that have been designated by OFAC or are located in a country subject to an embargo by the United States that may not be in compliance with the economic sanctions regulations administered by OFAC.

Consequences for failing to comply with applicable rules and regulations could include fines, criminal and civil lawsuits, forfeiture of significant assets, or other enforcement actions. We could also be required to make costly and burdensome changes to our business practices or compliance programs as a result of regulatory ~~scrutiny.~~scrutiny, voluntary changes we may make to our business strategy, or the expansion of our operations internationally, including expanding our presence outside the United States. In addition, any perceived or actual breach of compliance by us, our users, or payment partners with respect to applicable laws, rules, and regulations could have a significant impact on our reputation and could cause us to lose existing users, prevent us from obtaining new users, cause other payment partners to terminate or not renew their agreements with us, negatively impact investor sentiment about our company, require us to expend significant funds to remedy problems caused by violations and to avert further violations, and expose us to legal risk and potential liability, all of which may adversely affect our business, operating results, and financial condition and may cause the price of our common stock to decline. Further, even if we maintain proper controls and remain in compliance with OFAC regulations, should any of our competitors not

implement sufficient OFAC controls and be found to have violated OFAC regulations, user perception of online freelance marketplaces in general may decrease and our business, brand, and reputation may be adversely affected.

For example, our and other freelancing platforms and websites have been the subject of additional scrutiny and press attention relating to North Korea. A State Department advisory issued in July 2018 stated that “there are cases where North Korean companies exploit the anonymity provided by freelancing websites to sell their IT services to unwitting buyers.” Additionally, press reports have stated that North Korean operatives have used various social media applications and freelancing websites, including ours. Accordingly, although we have controls in place to detect and prevent such OFAC violations and our systems show no access from persons in North Korea, nor from any other OFAC-sanctioned jurisdictions, we may face higher levels of scrutiny by users, partners, and regulators due to the publishing of this advisory and those or similar press reports.

We are also subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and the UK Bribery Act 2010, and may be subject to other anti-bribery, anti-money laundering, and sanctions

laws in countries in which we conduct activities or have users. We face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit companies and their agents and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties, or private-sector recipients for the purpose of obtaining or retaining business, directing business to any person, or securing any advantage. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. We may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities, and we may be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we prohibit or do not explicitly authorize such activities. We have implemented an anti-corruption compliance policy, but we cannot ensure that all of our employees, users, and agents, as well as those contractors to which we outsource certain of our business operations, will not take actions in violation of our policies or agreements and applicable law, for which we may be ultimately held responsible.

Any violation of the FCPA, other applicable anti-corruption laws, or other anti-bribery, anti-money laundering, or sanctions laws, could result in investigations and actions by federal or state attorneys general or foreign regulators, loss of export privileges, severe criminal or civil fines and penalties or other sanctions, forfeiture of significant assets, whistleblower complaints, and adverse media coverage, which could have an adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.

~~If internet search engines’ methodologies or other channels that we utilize~~We may be required to ~~direct traffic~~comply with governmental export control laws and regulations. Our failure to comply with these laws and regulations could have an adverse effect on our ~~website are modified to our disadvantage, or our search result page rankings decline for other reasons, our user growth could decline.~~business and operating results.

We ~~depend~~may be subject to U.S. export controls and sanctions regulations that prohibit the shipment or provision of certain products and services to certain countries, governments, and persons. While we take precautions to prevent aspects of our work marketplace from being exported in ~~part~~violation of these laws, including implementing internet protocol address blocking, we cannot guarantee that the precautions we take will prevent violations of export control and sanctions laws. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the persons working for us.

In addition, various countries regulate the import and export of certain encryption and other technology, including imposing import and export permitting and licensing requirements, and have enacted laws that could limit our ability to distribute aspects of our work marketplace or could limit our users’ ability to access our work marketplace in those countries. Changes in our work marketplace, or future changes in export and import regulations may prevent our international users from utilizing our work marketplace or, in some cases, prevent the export or import of our work marketplace to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our work marketplace by existing or potential users with international operations. Any decreased use of our work marketplace or limitation on ~~various internet search engines,~~our ability to export or sell our products would likely adversely affect our business, operating results, and financial results.

Risks Related to Finance, Accounting, and Tax Matters

We have a history of net losses, anticipate increasing our operating expenses in the future, and may not achieve or sustain profitability.

We have a history of incurring net losses, and we expect to incur net losses for the foreseeable future. For the six months ended June 30, 2021 and years ended December 31, 2020 and 2019, we incurred net losses of $24.4 million, $22.9 million, and $16.7 million, respectively. As of June 30, 2021, we had an accumulated deficit of $219.2 million. We have made, and expect to continue to make, significant expenditures related to the development and expansion of our business, including investing in marketing programs and activities, such as ~~Google,~~brand promotion efforts, including those designed to reach new and existing clients seeking to engage with remote freelancers in light of the ongoing shift toward remote work; expanding our sales force; enhancing our Upwork Enterprise and other premium offerings; expanding our services and features; expanding our international user base; localizing our offerings in select locations; broadening and deepening the categories on our work marketplace; promoting client engagement of those freelancers that typically optimize to deliver larger projects, including through our Upwork Payroll offering; enhancing our mobile product offering and our U.S.-to-U.S. domestic marketplace offering; and in connection with legal, accounting, and other administrative expenses related to operating as ~~well as other channels to direct~~ a significant amount of traffic to our website. Our ability to maintain the number of visitors directed to our website is not entirely within our control. For example, our competitors’ search engine optimizationpublic company. These and other efforts ~~such as paid search~~ may ~~result in their websites receiving a higher search result page ranking~~prove more expensive than ~~ours, internet search engines or other channels that~~ we ~~utilize to direct traffic to our website could revise their methodologies in a manner that adversely impacts traffic to our website, or~~currently anticipate, and we may ~~make changes~~not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. While our ~~website that adversely impact our search engine optimization rankings and traffic. As a result, links to our website may not be prominent enough to drive sufficient traffic to our website, and~~revenue has grown in recent years, we may not be able to ~~influence~~sustain the ~~results.~~

~~Search engines~~same level of growth in future periods, or at all. For example, we experienced a reduction in the growth of GSV and ~~other channels that we utilize~~revenue in the second quarter of 2020 due to ~~drive~~the effects of the COVID-19 pandemic and could experience a similar reduction in GSV and revenue growth once the impact of the COVID-19 pandemic is mitigated and users return more frequently to physical offices or are otherwise no longer subject to restrictions related to the COVID-19 pandemic. If our ~~website periodically change their algorithms, policies, and technologies, sometimes in ways that cause traffic~~revenue declines or fails to ~~our website to decline. These changes can also result in an interruption in users’ ability to access our website or~~grow at a ~~drop~~rate faster than increases in our search ranking, or have other adverse impacts that negatively affect our ability to maintain and grow the number of users that visit our website. We may also be forced to significantly increase marketing expenditures in the event that market prices for online advertising and paid listings escalate or our organic ranking decreases. Any of these changes could have an adverse impact on our business, user acquisition, and operating ~~results.~~

~~Our user growth and engagement on mobile devices depend upon third parties maintaining open application marketplaces and effective operation with mobile operating systems, networks, and standards that~~expenses, we ~~do not control.~~

Mobile devices are increasingly used for marketplace transactions. A significant and growing portion of our users access our platform through mobile devices, including through the use of mobile applications. Our mobile applications rely on third parties maintaining open application store platforms, including the Apple App Store and Google Play, which make current and new applications or new versions of our mobile applications available for download and use on mobile devices. We cannot assure you that the platforms through which we distribute our applications will maintain their current structures or terms of access, that such marketplaces will continue to make our mobile applications available for download, or that such marketplaces will not charge us fees to list our applications for download, or charge us fees to offer products and services through our applications. Additionally, there is no guarantee that popular mobile devices will continue to support our platform, that the use of mobile devices for payments or other transactions on our platform will be available on commercially reasonable terms, or

that mobile device users will use our platform rather than competing products. We are dependent on the interoperability of our platform with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade the functionality of our website or applications or give preferential treatment to competitors could adversely affect the usage of our platform on mobile devices. Additionally, in order to deliver high-quality mobile products, it is important that our products are designed effectively and work well with a range of mobile devices, technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these devices, technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use our platform on their mobile devices, our users find our mobile offering is not cost-effective, our users find our mobile offering does not meet their needs, our competitors develop products and services that are perceived to operate more effectively on mobile devices, or our users choose not to access or use our platform on their mobile devices or use mobile products that do not offer access to our platform, our user growth, user engagement, and business could be adversely impacted.

We rely on AWS to deliver our platform to our users, and any disruption of service from AWS or material change to our arrangement with AWS could adversely affect our business. We are also subject to litigation relating to our use of AWS.

We currently host our platform, serve our users, and support our operations using AWS, a provider of cloud infrastructure services. We do not have control over the operations of the facilities of AWS that we use. AWS’s facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, and similar events or could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of any of these events, a decision to close the facilities or cease or limit providing services to us without adequate notice, or other unanticipated problems could result in interruptions to our platform, including lengthy interruptions. Our platform’s continuing and uninterrupted performance is critical to our success and users may become dissatisfied by any system failure that interrupts our ability to provide our platform to them. We may not be able to ~~easily switch our AWS operations~~achieve and maintain profitability in future periods. As a result, we may continue to ~~another cloud~~generate losses. We cannot ensure that we will achieve profitability in the future or ~~other data center provider if there are disruptions or interference with our use of AWS, and, even~~that, if we do ~~switch our operations, other cloud and data center providers are subject~~become profitable, we will be able to the same risks. Sustained or repeated system failures could reduce the attractiveness of our platform to users, cause users to decrease their use of or cease using our platform, and adversely affect our business. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our platform. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service and we cannot be certain that insurance will continue to be available to us on economically reasonable terms, or at all.sustain profitability.

Our quarterly operating results have fluctuated in the first quarter of 2021 to a different AWS facility than the one we are currently using in an effort to reduce long-term costs, to gain access to servers with enhanced functionality, and increase operational resilience. During this transition, we may experience resulting downtime, cause errors in our platform or services, including escrow or payment services, or incur additional costs, particularly if we encounter an unforeseen issue or incident during the migration. We expect to incur increased costs during the migration, as we will need to use two AWS data facilities at one time during the transition period.

In addition, we and other customers of AWS have been subject to litigation by third parties claiming that AWS and basic HTTP functions infringe their patents. Although we expect Amazon to indemnify us with respect to at least a portion of such claims, the litigation has been,past and may ~~continue to be, time consuming, and may divert management’s attention and, if Amazon fails to fully indemnify us, adversely impact our operating results.~~

~~Our revenue growth depends~~fluctuate in ~~part on~~ the ~~success of our strategic relationships with third parties and their continued performance.~~

To grow our business, we anticipate that we will need to continue to establish and maintain relationships with third parties, such as staffing providers, banks, software and technology vendors, and payment processing and disbursement providers. For example, we work with third-party staffing providers, upon which we are dependent to support our employment offering, Upwork Payroll. As our agreements with third-party partners terminate or expire, we may be unable to renew or replace these agreements on favorable terms, or at all. Moreover, we cannot guarantee that the parties with which we have strategic relationships will continue to offer the services for which we rely on them at economically reasonable terms or at all, devote the resources necessary to expand our reach, increase our distribution, or support an increased number of users and associated use cases. Our dependence on any single third-party supplier increases when our supply of a particular service is more heavily concentrated with that third-party. Some of our strategic partners are experiencing delays, disruptions, or closures due to the COVID-19 pandemic, which may result in disruptions to the services they provide to us and our users. Further, some of our strategic partners offer, or could offer, competing products and services or also work with our competitors, the likelihood of which may increase due to the COVID-19 pandemic and the resulting macroeconomic downturn, increased unemployment rates, and increased adoption of remote work. As a result of these factors, many of our third-party partners may choose to develop alternative products and services in addition to, or in lieu of, our platform, either on their own or in collaboration with others, including our competitors. If we are unsuccessful in establishing or maintaining our relationships with third parties on favorable terms, our ability to compete or to grow our total revenue could be impaired and our operating results may be adversely impacted. Even if we are successful in establishing and maintaining these relationships with third parties on comparable terms, we cannot ensure that these relationships will result in increased usage of our platform or increased revenue.

~~Our business model subjects us to disputes with or between users of our platform.~~

Our business model involves enabling connections between freelancers and clients that contract directly through our platform. Freelancers and clients are free to negotiate any contract terms they choose, but we also provide optional service contract terms that they can elect to use. Disputes sometimes arise between freelancers and clients with regard to their contract terms, work relationship, or otherwise, including with respect to service standards, payment, confidentiality, work product, and intellectual property ownership and infringement. These disputes may occur more frequentlyfuture, particularly during a macroeconomic downturn such as the one caused by the COVID-19 pandemic. ~~If either party believes the contract terms were not met,~~Additionally, we have a limited operating history under our ~~standard terms~~current business strategy and ~~some individually negotiated services agreements provide a mechanism for the parties to request assistance from us,~~pricing model, and ~~for some contracts, if that is unsuccessful, they may choose to resolve the dispute with the help of a third-party arbitrator. Whether or not freelancers~~we make pricing, product, and clients decide to seek assistance from us, if these disputes are not resolved amicably, the parties might escalate to formal proceedings, such as by filing claims with a court or arbitral authority. Given our role in facilitating and supporting these arrangements, claims are sometimes brought against us directly as a result of these disputes and freelancers or clients bring us into any claims filed against each other particularly when the other user is insolvent or facing financial difficulties, like those caused by the COVID-19 pandemic. Through our terms of service and services agreements for premium services, we disclaim responsibility and liability for any disputes between users (except with respect to specified dispute assistance programs and services); however, we cannot guarantee that these terms will be effective in preventing or limiting our involvement in user disputes or that these terms will be enforceable or otherwise effectively prevent us from incurring liability as a result of disputes between users. In addition,changes from time to time, ~~users assert claims against us~~all of which make it difficult to forecast our future results. As a result, you should not rely upon our past quarterly operating results as indicators of future performance. You should take into account the risks, difficulties, and uncertainties frequently encountered by companies in highly competitive and rapidly evolving markets. Our operating results in any given quarter can be influenced by numerous factors, many of which are unpredictable or are outside of our control, including:

•uncertainty regarding ~~their experience~~demand for our work marketplace following the COVID-19 pandemic;

•ongoing uncertainty and impact on the global economy and spending by large, medium, and small companies relating to the COVID-19 pandemic, the shift to remote work, availability of qualified freelancers, and uncertainty regarding the timing and nature of any future economic recovery, as discussed further below;

•our ability to generate significant revenue from our Upwork Basic, Plus, and Enterprise offerings, and our other premium offerings;

•due to our tiered pricing model for freelancer service fees, the mix in any period between freelancers that have billed larger amounts to clients on our platform, including related to their search ranking results, their feedback ratings, our advertising or marketing, our dispute resolution process, or admission or non-admission to the platform or other programs and badges, including those designed to highlight successful freelancers. Moreover, for some premium services,work marketplace, where we ~~provide enhanced services and assistance with respect to disputes over work product, and clients or freelancers~~charge a lower rate on ~~their engagements may pursue claims against us if they are not satisfied with those enhanced services. Disputes between clients~~billings, and freelancers and between users and our company may become more frequent in light of deteriorating macroeconomic conditions as a result of the COVID-19 pandemic. An increase in the number of disputes may result in an adverse effectthat have billed clients less on our ~~company, such as~~work marketplace, where we charge a ~~loss~~higher rate on billings;

•our ability to maintain and grow our community of ~~goodwill~~users, including our ability to acquire large enterprise, global account, and mid-market clients with ~~users, reputational harm, lost GSV~~larger, longer-term talent needs and ~~revenue, and an increase in costs~~qualified freelancers;

•spending patterns of clients, including whether those clients that use our work marketplace frequently or for larger projects, reduce their spend, stop using our work marketplace, or change their method of payment to us. Even if these claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could result in legal, settlement, or other financial costs; divert the resources of our management; and adversely affect our business and operating results.

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~~Our ability to attract~~us, including in each case as a result of the implementation of macroeconomic or other external factors such as increased competition, pricing changes, or the introduction of new or modified products or services on our work marketplace, such as changes made in the pricing and ~~retain users is dependent in part on ease~~packaging of ~~use and reliability of our platform and the quality of our support, and any failure to offer high-quality support could adversely impact our business, operating results, and financial condition.~~Connects;

~~Our ability to attract and retain users is dependent in part on the ease of use and reliability of our platform, including~~ •our ability to ~~provide high-quality support. Our users depend on~~respond to competitive developments, including new and emerging competitors, pricing changes, and the introduction of new products and services by our ~~support organization to resolve any issues relating to our platform and to communicate effectively concerning their accounts. Our ability to provide effective support is largely dependent on~~ competitors;

•our ability to attract, ~~resource,~~retain and ~~retain service providers who are not only qualified to support users of our platform, but are also well versed in our platform. As we seek to continue to~~ grow ~~our international user base, our support organization will face additional challenges, including those associated with delivering support~~small- and documentation in languages other than English. Any failure to maintain high-quality support or effectively communicate with our users, or any market perception that we do not maintain high-quality support or act professionally, fairly, or effectively in our communications and actions with respect to users, could harm our reputation, adversely affect our ability to sell our platform to existing and prospective users, and could adversely impact ourmedium-sized business ~~operating results, and financial condition.~~clients;

~~Our business depends largely on~~ •our ability to attract and retain ~~talented employees, including senior management~~freelancers that provide the types and ~~key personnel. If we lose the~~quality of services ~~of Hayden Brown, our President and Chief Executive Officer, or other members of our senior management team or key personnel, we may not be able to execute~~sought by clients on our ~~business strategy.~~

~~Our future success depends in large part on the continued~~work marketplace, particularly freelancers that provide services of senior management and other key personnel and our ability to retain and motivate them. In particular, we are dependent on the services of Hayden Brown, our President and Chief Executive Officer, and our technology, platform, future vision, and strategic direction could be compromised if she were to take another position, become ill or incapacitated, or otherwise become unable to serve as our President and Chief Executive Officer. We relyfor which client demand exceeds supply on our leadership team in the areas of product, engineering, operations, security, marketing, sales, support, corporate development, and general and administrative functions. Our senior management and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason, and without notice, and we do not maintain any “key-person” life insurance policies. If we lose the services of senior management or other key personnel, if our succession plans prove inadequate, or if we are unable to attract, train, integrate, and retain the highly-skilled personnel we need, our business, operating results, and financial condition could be adversely affected.work marketplace;

From time to time, there have been and may be changes in our management team resulting from the hiring or departure of executives. For example, in December 2019, we announced that our prior President and Chief Executive Officer, Stephane Kasriel, was resigning from this position on December 31, 2019, and that Hayden Brown, our prior Chief Marketing and Product Officer, would take the position of President and Chief Executive Officer effective January 1, 2020. Additionally, on August 4, 2020, we announced that our prior Chief Financial Officer, Brian Kinion, was resigning from this position and that Jeff McCombs would be appointed as our Chief Financial Officer effective August 4, 2020. We have made, and may continue to make, other changes that have been and will be disruptive to our personnel, such as the reduction of a portion of our sales force in November 2020. These changes have resulted, and may continue to result, in increased attrition of our personnel, including senior management and key employees, stemming from the resulting organizational restructuring, as new reporting relationships are established, and as other companies may increasingly target our executives. Any such changes may also result in a loss of institutional knowledge, cause disruptions to our business or distract or result in diminished morale in or the loss of workers.

~~Volatility or lack of appreciation in our stock price may also affect~~ •our ability to attract ~~new talent~~ and retain freelancers in geographic regions in which clients are seeking to engage remote freelancers;

•the success of our ~~key employees. For~~marketing and brand positioning efforts;

•the productivity and effectiveness of our sales force;

•the length and complexity of our sales cycles;

•the demand for and types and quality of skills and services that are offered on our work marketplace by freelancers;

•our ability to introduce new products and services or enhance existing products and services without adversely affecting our existing revenue;

•ongoing uncertainty regarding U.S. and global political conditions;

•the number of users circumventing our work marketplace and our fees, which could increase during economic downturns;

•our ability to generate significant revenue from new products and services;

•fluctuations in gross margin and managed services revenue due to our recognition of the entire GSV from our managed services offering as revenue, including the amounts paid to freelancers;

•the disbursement methods chosen by freelancers;

•fluctuations in the prices that freelancers charge clients on our work marketplace;

•changes to our pricing model, including associated fees, and any resulting change in our ability to generate revenue, such as the pricing and packaging of Connects purchases, or how we recognize revenue;

•ransomware, data security, or privacy breaches or incidents and associated remediation costs and reputational harm;

•spending patterns and project bidding behavior of freelancers with respect to the products and services available to them on our work marketplace, such as membership fees and Connects purchases;

•revenue recognition fluctuations for arrangements subject to our tiered pricing model for freelancer service fees;

•litigation, regulatory investigations or enforcement actions, and adverse judgments, settlements, or other litigation-related costs;

•seasonal spending patterns by clients or work patterns by freelancers, seasonality in the labor market, exaggerated impact of typical seasonality in the labor market (for example, ~~due in part to~~extended summer holidays) as the COVID-19 pandemic subsides and the ~~market price~~resulting relaxation or lifting of restrictions intended to prevent its spread as well as the number of business days, the number of Mondays (i.e., the day we recognize revenue for a substantial portion of our common stock has been and may continue to be volatile, and employees may be more likely to leave us if the market price of our common stock declines or if the exercise price of the options that they hold are above or near the market price of our common stock. Conversely, many of our senior personnel and other key employees have become, or will soon become, vested in a substantial amount of stock or stock options and may be more likely to leave us if the shares they own,client fees each week) or the ~~shares underlying their vested options, have appreciated in value relative to~~number of Sundays (i.e., the ~~original purchase price of the shares or the exercise price of the options. If~~day we are unable to retain our employees, or if we need to increase our compensation expenses to retain our employees, our business, operating results, financial condition, and cash flows could be adversely affected.

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~~Our future success also depends~~bill and recognize revenue for the majority of our freelancer service fees each week) in any given quarter, as well as local, national, or international holidays;

•any impairment charges on our ~~continuing ability to attract, train, integrate,~~operating lease asset and retain highly-skilled personnel, including software engineers and sales personnel. We face intense competition for qualified personnel from numerous software and other technology companies. In addition, competition for qualified personnel, particularly software engineers, is particularly intense in the San Francisco Bay Area, where our headquarters are located. We may not be able to retain our current key employees or attract, train, integrate, or retain other highly-skilled personnel in the future, all of which may be more difficult during the COVID-19 pandemic and the governmental restrictions intended to prevent its spread. We may incur significant costs to attract and retain highly-skilled personnel, we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them, and our succession plans may be insufficient to ensure business continuity if we are unable to retain key personnel. To the extent we move into new geographies, we would need to attract and recruit skilled personnel in those areas. If we are unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, on a timely basis or at all, our business may be adversely affected.

~~Our management team has limited experience managing a public company.~~

~~The requirements of~~related leasehold improvements being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain additional executive management and qualified board members, particularly now that we are a large accelerated filer. The additional requirements we must comply with may further strain our resources and divert management’s attention from other business concerns.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of The Nasdaq Global Select Market, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources, particularly now that we are a large accelerated filer. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants, or may have difficulty attracting and retaining sufficient employees, which would increase our costs and expenses.

As a result of no longer being an emerging growth company, we have incurred, and will continue to incur, significant additional expenses that we did not previously incur in complying with the Sarbanes-Oxley Act and rules implemented by the SEC. The cost of compliance with Section 404 of the Sarbanes-Oxley Act (“Section 404”) has required, and will continue to require, us to incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements.

We have also previously taken advantage of the reduced disclosure requirements of the Jumpstart Our Business Startups Act applicable to emerging growth companies regarding executive compensation disclosures and exemption from the requirements of holding advisory “say-on-pay” votes on executive compensation. We are no longer eligible for such reduced disclosure requirements and exemptions and, as such, we are required to hold a “say-on-pay” vote and a periodic “say-on-frequency” vote at our annual meetings of stockholders. We expect that the increased disclosure requirements will require additional attention from management and will result in increased costs to us,

~~which could include higher legal fees, accounting fees, and fees associated with investor relations activities, among others.~~

In addition, changing laws, regulations, and standards relating to corporate governance, stockholder litigation, and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, making some activities more time-consuming, and increasing the likelihood and expense of litigation. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and,recognized as a result, their application in practice may evolve or otherwise change over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters, higher costs necessitated by ongoing revisions to disclosure and governance practices, and increased expenses and management attention due to actual or threatened litigation. We intend to invest resources to comply with evolving laws, regulations and standards (or changing interpretations of them), and this investment may result in increased general and administrative ~~expenses and~~expense due to a ~~diversion of management’s time and attention from revenue-generating activities~~reduction to ~~compliance activities. If~~ our ~~efforts to comply with these laws, regulations, and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us,~~office space and our ~~business may be adversely affected. Being~~potential sublease of such office space at a ~~public company and complying with the associated rules and regulations, and being subject to heightened likelihood of litigation, makes it more expensive~~rental rate that is less than our rent expense for ~~us to obtain director and officer liability insurance, the costs of which can fluctuate significantly from year-to-year due to general market conditions in obtaining~~ such ~~insurance, but in recent years have risen significantly, consistent with the increase in market rates. As a result,~~office space, or any termination fees we may ~~be required to accept reduced coverage,~~ incur substantially higher costs to obtain coverage, or may be unable to obtain coverage on economically reasonable terms, or at all. These factors could also make it more difficult for us to attract and retain qualified executives and qualified members of our board of directors, particularly to serve on our audit, risk, and compliance committee, our compensation committee, and our nominating and governance committee.

As a result of disclosure of information in filings required of a public company, our business and financial condition has become more visible, which may result in threatened or actual litigation, including by competitors. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

~~In addition,~~ as a result of our ~~disclosure obligations~~termination of the operating lease for such office space. For example, in the second quarter of 2021, as a ~~public company, we could face pressure to focus on short-term results, which may adversely affect our ability to achieve long-term profitability.~~

~~Litigation could have a material adverse impact on our operating results and financial condition.~~

From time to time, we are involved in litigation. The outcome of any litigation (including class actions and individual lawsuits or arbitration), regardless of its merits, is inherently uncertain. Regardless of the merits or ultimate outcome of any claims that have been or may be brought against us or that we may bring against others, pending or future litigation could result in a diversion of management’s attention and resources and reputational harm, and we may be required to incur significant expenses defending against these claims or pursuing claims against third parties. If we are unable to prevail in litigation, we could incur substantial liabilities. We may also determine that the most cost-effective and efficient way to resolve a dispute is to enter into a settlement agreement. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our ~~estimates could be wrong as determining reserves~~shift to a flexible work model for ~~pending litigation is a complex, fact-intensive process that is subject to judgment calls. Any adverse determination~~our workforce, we incurred an impairment charge of $7.4 million related to litigation or adverse terms contained in a settlement agreement could require us to change our technology or our business practices in costly ways, prevent us from offering certain products or services, require us to pay monetary damages, fines, or penalties, or require us to enter into royalty or licensing arrangements, and could adversely affect our operating results and cash flows, harm our reputation, or otherwise negatively impact our business.

~~We are vulnerable to intellectual property infringement claims and challenges to our intellectual property rights brought against us by third parties.~~

We operate in a highly competitive industry, and there has been considerable activity in our industry to develop and enforce intellectual property rights. Intellectual property infringement claims against us or our users or third-party partners could result in monetary liability or a material disruption in the ~~conduct~~sublease of our business. We cannot be certain that aspects of our platform, content, and brand names do not or will not infringe valid patents, trademarks, copyrights, or other intellectual property rights held by third parties, including our competitors. Also, we are now, haveformer headquarters in the past been, and may in the future be, subject to legal proceedings and claims relating to the intellectual property of others, including our competitors, in the ordinary course of our business. Companies, including non-practicing entities and our competitors, have also sent us demand letters alleging that we infringe their intellectual property, including proposals that we license certain of their patents, and we may receive such demand letters in the future. Our competitors and other third parties have in the past challenged, and may in the future challenge, our registration or use of our trademarks, including “Upwork,” and other intellectual property rights, and, if successful, such a challenge could adversely affect our business. Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to cease selling or using products and services that incorporate the intellectual property that we allegedly infringe; make substantial payments for legal fees, settlement payments, or other costs or damages; obtain a license to sell or use the relevant technology, which may not be available on reasonable terms or at all; redesign the allegedly infringing products and services to avoid infringement, which could be costly, time-consuming, distracting to management, or impossible; or result in the invalidation of our own patents, trademarks, or copyrights. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. We may also be obligated to indemnify certain clients on our platform or strategic partners or others in connection with such infringement claims, or to obtain licenses from third parties or modify our platform, and each such obligation would require us to expend additional resources. Some of our infringement indemnification obligations related to intellectual property are contractually capped at a very high amount or not capped at all.

•~~cease conducting certain operations in some or all jurisdictions, or stop using technology that contains the allegedly infringing intellectual property;~~Santa Clara, California;

•~~stop using~~ the ~~name “Upwork” or other trademarks in some or all jurisdictions;~~

•~~incur significant legal expenses;~~

•~~pay substantial damages or ongoing royalty payments to the party whose intellectual property rights we may be found to be infringing;~~

•~~pay substantial amounts in settlement to a party that asserts allegations~~impact of ~~intellectual property infringement;~~

•~~prevent us from offering aspects of our platform or make expensive changes to our platform or our methods of doing business; or~~

•~~attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.~~

~~Failure to protect our intellectual property could adversely affect our business.~~

Our success depends in large part on our proprietary technology and data. We rely on various intellectual property rights, including patents, copyrights, trademarks, and trade secrets, as well as confidentiality provisions and contractual arrangements, to protect our proprietary rights. As the adoption of remote work becomes more prevalent and competitors enter our market segment, our exposure to unauthorized copying andsales, use, ~~of our platform, technology, intellectual property,~~ and other ~~proprietary information may increase. If we do not protect~~tax laws and ~~enforce our intellectual property rights successfully or cost-effectively, our competitive position may suffer, which would adversely impact our operating results.~~

Our pending patent or trademark applications may not be approved, or competitors or others may challenge the validity, enforceability, or scope of our patents, the registrability or validity of our trademarks, or the trade secret status of our proprietary information. If we are unsuccessfulregulations in a dispute or litigation, we may be unable to stop competitors or others from using our marks or confusingly similar marks, and we may suffer dilution, loss of reputation, genericization, or other harm to our brand. Efforts to protect and enforce our intellectual property rights, even if successful, may be costly, negatively impact our brand, negatively affect worker productivity, and be time consuming and distracting to our management. There can be no assurance that additional patents will be issued or that any patents that are issued will provide significant protection for our intellectual property. In addition, our patents, copyrights, trademarks, trade secrets, and other intellectual property rights may not provide us a significant competitive advantage. There is no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when to file patents or register or renew trademarks and when and how to maintain and protect trade secrets, will be adequate to protect our business.

~~We may not pursue or file patent applications or apply for registration of copyrights or trademarks in the United States and foreign~~ jurisdictions in which we have ~~a presence with respect to our potentially patentable inventions, works of authorship, and marks and logos for a variety of reasons,~~users, including the ~~cost of procuring~~requirement in certain jurisdictions to collect indirect taxes on user fees, to withhold and remit taxes related to income or earnings, or to pay any such rights and the uncertainty involved in obtaining adequate protection from such applications and registrations. Moreover, recent amendments to, developing jurisprudence regarding, and possible changes to intellectual property laws and regulations, including U.S. and foreign patent law, may affect our ability to protect and enforce our intellectual property rights. If the intellectual property rights that we develop are not sufficient to protect our proprietary technology and data, our brand, our business, financial condition and operating results could be adversely affected.

~~In addition, the laws of some countries do not provide the same level of protection for our intellectual property~~taxes or resulting penalties as ~~do the laws of the United States. As our global reputation grows and we expand our international activities, our exposure to unauthorized copying and use~~a result of our ~~platform and proprietary information will likely increase. Despite our precautions, our intellectual property is vulnerable~~failure to unauthorized access through employee or third-party error or actions, theft, cyber security incidents, and other security breaches and incidents. It is possible for third parties to infringe upon or misappropriate our intellectual property, to copy our platform, and to use information that we regard as proprietary to createcomply with such requirements;

•changes in the mix of products and services that ~~compete~~our enterprise clients or other users demand;

•changes in the law or interpretation of law, or in the statutory, legislative, or regulatory environment, such as with ~~ours. Effective intellectual property protection~~respect to privacy, data security, wage and hour regulations, worker classification (including classification of independent contractors or similar workers and classification of employees as exempt or non-exempt), internet regulation, payments, payment processing, global trade, or tax obligations;

•fluctuations in the mix of payment provider costs and the revenue generated from payment providers;

•the episodic nature of freelance work generally or changes to demand for freelance work or interest in freelancing due to political or regulatory changes or uncertainty;

•increases in, and timing of, operating expenses that we may ~~not be available~~incur to usgrow and expand our operations and to remain competitive, such as advertising and other marketing expenses, including those associated with evolving our brand positioning and as we seek to grow our international user base;

•the cost and time needed to develop and upgrade our work marketplace to incorporate new technologies or develop new or improved offerings;

•the impact of public health pandemics, especially the COVID-19 pandemic, or other global or regional events or conditions;

•fluctuations in ~~every country~~trade and client receivables due to the timing of cash receipts from clients and the number of transactions on our work marketplace;

•potential costs to attract, onboard, retain, and motivate qualified talent to perform services for us;

•the impact of outages of our work marketplace and associated reputational harm;

•changes in the mix of countries in which our ~~platform is available. In addition, many countries limit~~users are located, which impacts the ~~enforceability~~amount of ~~patents~~revenue we derive from foreign exchange;

•the impact of reductions in our workforce, including claims against us from departing employees or ~~other intellectual property rights against certain third parties,~~others;

•changes to financial accounting standards and the interpretation of those standards that may affect the way we recognize and report our financial results, including government agencies or government contractors. In these countries, patents or other intellectual property rights may provide limited or no benefit. Further, certain countries impose additional conditions onchanges in accounting rules governing recognition of revenue;

•costs related to the ~~transfer~~acquisition of intellectual property rights from individuals to companies, which may make it more difficult for us to secure and maintain intellectual property protection in those countries. We may need to expend additional resources to defend our intellectual property rights domestically or internationally, which could be costly, time consuming, and distracting to management and could impair our business or adversely affect our domestic or international expansion. If we cannot adequately protect and defend our intellectual property, we may not remain competitive, and our business, operating results, and financial condition may be adversely affected.

We rely on trade secrets as an important aspect of our intellectual property program and to cover much of our technology and know-how. We seek to protect our trade secrets through confidentiality and invention assignmentbusinesses, talent, technologies, or intellectual property, ~~ownership agreements with our employees, contractors~~including potentially significant amortization costs and ~~other parties. In addition, for employees~~possible write-downs;

•general economic and political conditions and government regulations in the countries where we currently have significant numbers of ~~third-party staffing providers~~users or ~~other contractors,~~where we currently operate or may expand in the employer agrees to enter into these agreements with individual workers. We also take other measures to protect our information and data, including implementing acceptable use policies, limiting access to our information and data through technological means, and monitoringfuture;

•fluctuations in transaction losses;

•fluctuations in currency exchange rates;

and limiting the dissemination of our information and data outside of company-owned information systems. We cannot ensure that these agreements, or all the terms thereof, will be enforceable or compliant with applicable law, or these agreements and other measures will be effective in controlling access to, use of, and distribution of our proprietary information or in effectively securing and maintaining exclusive ownership of intellectual property developed by our current or former employees and contractors. Most of our employees and all of the contractors with which we work are off-site, which may make it more difficult to control use of confidential materials, increasing the risk that our source code or other confidential or trade secret information may be exposed. Further, these agreements with our employees, contractors, and other parties may not prevent other parties from independently developing technologies that are substantially equivalent or superior to our platform. Any failure to protect intellectual property that we develop or our proprietary technology and data would adversely affect our business, operating results, and financial condition.

We spend significant time and resources securing and monitoring our intellectual property rights, and we may or may not be able to detect infringement by third parties. Our competitive position may be adversely impacted if we cannot detect infringement or enforce our intellectual property rights quickly or at all. In some circumstances, we may choose not to pursue enforcement because an infringer may have a dominant intellectual property position or for other business reasons. In addition, competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. We have in the past been, and may in the future be, forced to rely on litigation, opposition, and cancellation actions, and other claims and enforcement actions to protect our intellectual property, including to dispute registration, use of marks that may be confusingly similar to our own marks, or use of technologies that infringe on our intellectual property. Similar claims and other litigation may be necessary in the future to enforce and protect our intellectual property rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses; counterclaims attacking the scope, validity, and enforceability of our intellectual property rights; or counterclaims and countersuits asserting infringement by us of third-party intellectual property rights. Our failure to secure, protect, and enforce our intellectual property rights could adversely affect our brand and our business, and we could lose the right to use certain intellectual property or lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others.

Our business strategy may, from time to time, include acquiring complementary products, technologies, or businesses. At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any acquisition, investment, or business relationship may result in unforeseen or additional operating difficulties, risks, and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, services, personnel, or operations of the acquired companies particularly if the key personnel of the acquired companies choose not to work for us, if an acquired company’s software is not easily adapted to work with ours, if expected synergies fail to materialize, or otherwise. Such transactions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for the development of our business. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown or additional risks and liabilities.

We may in the future seek to acquire or invest in additional businesses, products, technologies, or other assets. We also may enter into relationships with other businesses to expand our platform or our ability to provide our platform in foreign jurisdictions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies. Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close. For one or more of those transactions, we may:

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•~~issue additional equity securities that would dilute our stockholders’ ownership interest;~~operating lease expenses and other real estate expenses;

•~~use cash~~lease termination fees or rent expense that ~~we may need~~is in ~~the future to operate our business;~~excess of sublease income for a particular office space;

•~~become subject~~non-cash accounting charges such as stock-based compensation expense, including those related to ~~different laws~~executive compensation arrangements, and ~~regulations due to the nature or location of the acquired business, products, technologies, or other assets, or become subject to more stringent scrutiny or differing applications of laws~~depreciation and ~~regulations to which we are currently subject as a result of such transactions;~~

•~~incur debt on terms unfavorable to us or that we are unable to repay;~~

•~~incur expenses or assume substantial liabilities;~~

•~~encounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures;~~

•~~encounter difficulties in assimilating acquired operations and development cultures or otherwise fail to realize the anticipated benefits of such transactions;~~

•~~encounter diversion of management’s attention to other business concerns;~~

•~~become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges;~~amortization; and

•~~be required~~losses and expenses from indemnification, dispute assistance, and similar contractual obligations we owe to ~~adopt new, or change our existing, accounting policies.~~clients.

~~Any~~The impact of one or more of the foregoing and other factors may cause our operating results and performance metrics to vary significantly. As such, we believe that quarter-to-quarter comparisons of our operating results and performance metrics may not be meaningful and should not be relied upon as an indication of future performance. If we fail to meet or exceed the expectations of investors or securities analysts, the trading price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.

We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics may not accurately reflect certain details of our business, are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

We track certain performance metrics, including active clients and GSV per active client, both of which we have just recently begun reporting, as well as GSV, the number of core clients, client spend retention, and marketplace take rate with internal tools, which are not independently verified by any third-party. Our internal tools have a number of limitations and our methodologies for tracking these ~~risks~~metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal tools we use to track these metrics undercount or overcount performance or contain algorithmic or other technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we measure data (or the data that we measure) may affect our understanding of certain details of our business, which could affect our longer-term strategies. If our performance metrics are not accurate representations of our business, user base, or traffic levels; if we discover material inaccuracies in our metrics; or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed, we may be subject to legal or regulatory actions, and our operating and financial results could be adversely affected. In addition, from time to time we may change the performance metrics that we track, including metrics that we report, and any new performance metrics will also be subject to the foregoing limitations and risks. For example, in order to provide more relevant insight into our current business performance and align with how management views the business, following this Quarterly Report, we will no longer report the performance metrics tracking the number of core clients and client spend retention, and instead will report performance metrics tracking the number of active clients and GSV per active client.

Our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which could adversely impact our ~~business and~~ operating results.

We may expand the geographic scope of our product and marketing efforts, operations, and personnel to support our global user base. Our corporate structure and associated transfer pricing policies contemplate future growth into international markets, and consider the functions, risks, and assets of the various entities involved in the intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to the intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions or specific affiliates. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties. This could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our operating results could be adversely affected.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in our ~~condensed~~ consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Quarterly Report. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity as of the date of the financial statements, and the amount of revenue and expenses, during the periods presented, that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our ~~condensed~~ consolidated financial statements include those related to determination of revenue recognition, the useful lives of assets, assessment of the recoverability of long-lived assets, goodwill impairment, allowance for doubtful accounts, reserves relating to transaction losses, the valuation of warrants, stock-based compensation, and accounting for income taxes. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of industry or financial analysts and investors, resulting in a decline in the trading price of our common stock.

~~Additionally, we regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us.~~ As a result of new standards, changes to existing standards, and changes in interpretation, we might be required to change our accounting policies, alter our operational policies and implement new or enhance existing systems so that they reflect current financial reporting standards, or we may be required to restate our published financial statements. Such changes to existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial position, and profit, or cause an adverse deviation from our revenue and operating profit target, which may negatively impact our financial results.

We ~~have recently~~ remediated a material weakness in our internal control over financial reporting last year and if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

A material weakness is a deficiency or combination of deficiencies in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would

not be prevented or detected on a timely basis. As previously disclosed, we identified a number of adjustments relating to previously issued consolidated financial statements that resulted in a revision to our consolidated financial statements as of and for the year ended December 31, 2016 and determined that this control deficiency constituted a material weakness in our internal control over financial reporting. We successfully remediated the material weakness during the quarter ended June 30, 2020.

If we experience additional material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations or prevent fraud, which may adversely affect investor confidence in us and, as a result, the value of our common stock. We cannot assure you that all of our existing material weaknesses have been identified, or that we will not in the future identify additional material weaknesses. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business and results of operations and could adversely impact our business, operating results, and financial condition.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC. Furthermore, investor perceptions of our company may suffer if, in the future, material weaknesses are found, and this could cause the price of our common stock to decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Global Select Market.

~~Our corporate structure~~

If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.

As we expand our international footprint, we will become more exposed to the effects of fluctuations in currency exchange rates. Although we expect an increasing number of sales contracts to be denominated in currencies other than the U.S. dollar in the future, all of our sales contracts are and ~~intercompany arrangements are~~have historically been denominated in U.S. dollars. However, we offer clients the option to settle invoices denominated in U.S. dollars in the local currencies of several non-U.S. countries, and therefore, a portion of our revenue is subject to foreign currency risk. While we currently use derivative instruments to hedge certain exposures to fluctuations in foreign currency exchange rates, the ~~tax laws~~use of ~~various jurisdictions,~~such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, a strengthening of the U.S. dollar could increase the real cost of transacting on our work marketplace to clients located outside of the United States and we could ~~be obligated to pay additional taxes,~~result in a loss of such clients, which could adversely ~~impact our operating results.~~

We may expand the geographic scope of our operations and personnel to support our global user base. Our corporate structure and associated transfer pricing policies contemplate future growth into international markets, and consider the functions, risks, and assets of the various entities involved in the intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to operateaffect our business, ~~in a manner consistent with our corporate structure~~operating results, financial condition, and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to the intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash ~~flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.~~flows.

Our ability to use our net operating loss carryforwards and certain other tax attributes ~~may be~~is limited.

As of December 31, ~~2019,~~2020, we had net operating loss carryforwards for U.S. federal income tax purposes and state income tax purposes of ~~$220~~$343.1 million and ~~$50~~$72.9 million, respectively, available to offset future taxable income. Our federal net operating loss carryforward amounts began to expire in 2019, including $14.5 million that expired in 2019, $15.1 million that expired in 2020, and $21.6 million that will expire in ~~2020,~~2021, and will continue to expire in ~~2021~~2022 and future years. The state net operating loss carryforward amounts will begin to expire in 2028. Realization of these net operating loss carryforwards depends on future income, and there is a risk that our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could materially and adversely affect our operating results.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, ~~(the “Internal Revenue Code”),~~ if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss

carry-forwards and other tax attributes to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.

~~Clients sometimes fail to pay their invoices, necessitating action by us to compel payment.~~

In connection with our Upwork Enterprise and Business offerings, and for certain legacy clients, we advance payments to freelancers for invoiced services on behalf of the client and subsequently invoice the client for such services. In addition, in certain instances, we will advance payment on a freelancer invoice if the client issues a chargeback or their payment method is declined and the freelancer assigns us the right to recover any funds from the client. From time to time, clients fail to pay for these services rendered by a freelancer, and as a result, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the applicable agreement or our terms of service, including through arbitration or litigation. We may experience an increase in the failure of clients to pay for services in the event of a macroeconomic downturn, such as a downturn resulting from the COVID-19 pandemic, as clients become unable or unwilling to pay for services rendered. Furthermore, some clients may seek bankruptcy protection or other similar relief and fail to pay amounts due, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position, and cash flow. All of these risks are made more likely during a macroeconomic downturn, such as the one caused by the COVID-19 pandemic, and could result in increased costs to us as we advance payments to freelancers and seek to compel payment from our clients.

~~Our platform contains open source software components, and failure to comply with the terms of the underlying licenses could restrict our ability to market or operate our platform.~~

Our platform incorporates certain open source software. An open source license typically permits the use, modification, and distribution of software in source-code form subject to certain conditions. Some open source licenses contain conditions that any person who distributes a modification or derivative work of software that was subject to an open source license make the modified version subject to the same open source license. Distributing software that is subject to this kind of open source license can lead to a requirement that certain aspects of our platform be distributed or made available in source code form. Although we do not believe that we have used open source software in a manner that might condition its use on our distribution of any portion of our platform in source code form, the interpretation of open source licenses is complex and, despite our efforts, it is possible that we may be liable for copyright infringement, breach of contract, or other claims if our use of open source software is adjudged not to comply with the applicable open source licenses.

Moreover, we cannot ensure that our processes for controlling our use of open source software in our platform will be effective. If we have not complied with the terms of an applicable open source software license, we may need to seek licenses from third parties to continue offering our platform and the terms on which such licenses are available may not be economically feasible, to re-engineer our platform to remove or replace the open source software, to discontinue offering our platform if re-engineering could not be accomplished on a timely basis, to pay monetary damages, or to make available the source code for aspects of our proprietary technology, any of which could adversely affect our business, operating results, and financial condition.

We track certain performance metrics, including GSV, the number of core clients, client spend retention, and marketplace take rate with internal tools, which are not independently verified by any third-party. Our internal tools

have a number of limitations and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal tools we use to track these metrics undercount or overcount performance or contain algorithmic or other technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we measure data (or the data that we measure) may affect our understanding of certain details of our business, which could affect our longer-term strategies. If our performance metrics are not accurate representations of our business, user base, or traffic levels; if we discover material inaccuracies in our metrics; or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed, we may be subject to legal or regulatory actions, and our operating and financial results could be adversely affected. In addition, from time to time we may change the performance metrics that we track, including metrics that we report, and any new performance metrics will also be subject to the foregoing limitations and risks.

Our loan and security agreement provides our lender with a first-priority lien against substantially all of our assets (excluding our intellectual property), and contains financial covenants and other restrictions on our actions, which could limit our operational flexibility and otherwise adversely affect our financial condition.

Our Loan Agreement, restricts our ability to, among other things:

•incur additional indebtedness;

•sell certain assets;

•declare dividends or make certain distributions; and

•undergo a merger or consolidation or other transactions.

In addition, the interest rates we pay under our Loan Agreement are derived from the prime rate, which may increase in the future. Interest rate increases will result in us having to make higher interest payments and reduce the amount of working capital available to us. Our Loan Agreement also prohibits us from falling below an adjusted quick ratio. Our ability to comply with this covenant is dependent upon our future business performance as well as future expenditures, such as an acquisition, strategic investment, or other business endeavor.

Our failure to comply with the covenants or payment requirements, or the occurrence of other events specified in our Loan Agreement, could result in an event of default under the Loan Agreement, which would give our lender the right to terminate their commitments to provide additional loans under the Loan Agreement and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, we have granted our lender first-priority liens against substantially all of our assets, as collateral, excluding

our intellectual property (but including proceeds therefrom) and the funds and assets held by Upwork Escrow. We have also agreed to a negative pledge on our intellectual property. Failure to comply with the covenants or other restrictions in the Loan Agreement could result in a default. If the debt under our Loan Agreement was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient assets to repay it, which would have an immediate adverse effect on our business and operating results. This could potentially cause us to cease operations and result in a complete loss of your investment in our common stock.

We may require additional capital to fund our business and support our growth, including in connection with any future acquisitions or strategic investments, and any inability to generate or obtain such capital may adversely affect our operating results and financial condition.

In order to support our growth and respond to business challenges, such as developing new features or enhancements to our ~~platform,~~work marketplace, acquiring new technologies, and improving our infrastructure, we have made significant financial investments in our business and we intend to continue to make such investments. In addition, we may, from time to time, seek to acquire or strategically invest in other complementary products, technologies, or businesses. As a result, we may need to engage in equity or debt financings, in lieu of or in addition to borrowing funds under our Loan Agreement, to obtain the funds required for these investments, acquisitions, and other business endeavors. If we raise additional funds through equity or convertible debt issuances, our existing stockholders may suffer significant dilution and these securities could have rights, preferences, and privileges that are superior to those of holders of our common stock. If we obtain additional funds through debt financing, we may not be able to obtain such financing on terms favorable to us. Such terms may involve additional restrictive covenants making it difficult to engage in capital raising activities and pursue business opportunities, including potential acquisitions and strategic

investments. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired and our business may be adversely affected, requiring us to delay, reduce, or eliminate some or all of our operations. Moreover, the COVID-19 pandemic has caused, and may continue to cause, significant disruptions of global financial markets, which may impact our ability to access capital now and in the future, and capital may be available only on terms less favorable to us.

We may be required to comply with governmental export control laws and regulations. Our failure to comply with these laws and regulations could have an adverse effect on our business and operating results.

We may be subject to U.S. export controls and sanctions regulations that prohibit the shipment or provision of certain products and services to certain countries, governments, and persons targeted by U.S. sanctions. While we take precautions to prevent aspects of our platform from being exported in violation of these laws, including implementing internet protocol address blocking, we cannot guarantee that the precautions we take will prevent violations of export control and sanctions laws. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the persons working for us.

In addition, various countries regulate the import and export of certain encryption and other technology, including imposing import and export permitting and licensing requirements, and have enacted laws that could limit our ability to distribute aspects of our platform or could limit our users’ ability to access our platform in those countries. Changes in our platform, or future changes in export and import regulations may prevent our international users from utilizing our platform or, in some cases, prevent the export or import of our platform to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by existing or potential users with international operations. Any decreased use of our platform or limitation on our ability to export or sell our products would likely adversely affect our business, operating results, and financial results.

Our reported financial results may be adversely affected by changes in U.S. GAAP.

U.S. GAAP is subject to interpretation by the Financial Accounting Standards Board, ~~(the “FASB”),~~ the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change and could result in variability of our financial results. Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.

In particular, in May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (Topic 605), Revenue Recognition (Topic 605). The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On December 31, 2019, Topic 606 became effective for us retroactive to January 1, 2019. Under Topic 606, more estimates, judgments, and assumptions are required within the revenue recognition process than were previously required. This includes more enhanced disclosures in our condensed consolidated financial statements to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with our users. Under Topic 606, we are required to estimate the standalone selling price of certain performance obligations that represents a material right, which requires significant judgment. Our reported financial position and financial results may be harmed if our estimates or judgments prove to be wrong, assumptions change, or actual circumstances differ from those in our assumptions. Any difficulties in applying Topic 606 could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm our business.

~~If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.~~

dollars. However, we offer clients the option to settle invoices denominated in U.S. dollars in the local currencies of several non-U.S. countries, and therefore, a portion of our revenue is subject to foreign currency risk. While we currently use derivative instruments to hedge certain exposures to fluctuations in foreign currency exchange rates, the use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, a strengthening of the U.S. dollar could increase the real cost of transacting on our platform to clients located outside of the United States and could result in a loss of such clients, which could adversely affect our business, operating results, financial condition, and cash flows.

~~We may be adversely affected by the withdrawal of the United Kingdom from the European Union.~~

In January 2020, the United Kingdom formally withdrew from the EU (“Brexit”). Upon its withdrawal, pursuant to an agreement reached between the United Kingdom and the EU, a transition period came into effect until at least December 31, 2020, during which period EU rules will continue to be applicable to and in the United Kingdom. The transition period can be extended, but the United Kingdom has currently indicated that they will not request an extension. During the transitional period, the United Kingdom and the EU are to negotiate the terms of their future trading relationship. However, uncertainty remains as to what further post-Brexit agreements will be agreed to by the United Kingdom and the EU, if any. The ongoing uncertainty on the status of such agreements sustains the possibility of the United Kingdom leaving the EU without any agreement in place, a so-called “hard Brexit,” which would likely cause significant economic disruption and further depress consumer confidence and the economy of the United Kingdom. Our results of operations derived from revenue earned from clients and freelancers in the United Kingdom may be adversely affected by the uncertainty surrounding the future relationship between the United Kingdom and the EU, and those effects would be increased in the event of a hard Brexit. Brexit could also contribute to instability in global financial and foreign exchange markets, including volatility in the value of the Euro and the British Pound, which are currencies in which we transact business. In addition, we could be adversely impacted by changes in trade policies, labor, tax or other laws and regulations, and intellectual property rights and supply chain logistics. All or any one of these factors could adversely affect our business, revenue, financial condition, and results of operations.

We may be adversely affected by natural disasters and other catastrophic events, including the current COVID-19 pandemic, by man-made problems such as terrorism, or failures of technology, that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

A significant natural disaster, such as an earthquake, blizzard, hurricane, fire, flood, or other catastrophic event, such as a power loss or telecommunications failure, or other technological failure resulting in the permanent destruction of data, could have a material adverse impact on our business, financial condition, and operating results. In the event of natural disaster or other catastrophic event, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in development of our platform, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our operating results. Certain of our departments are situated primarily in one office location and any natural disaster or catastrophic event to such office or the surrounding communities where our employees live may impact productivity or revenue generating activities by employees based in that office. Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity and catastrophic fires. In addition, natural disasters and other catastrophic events could affect our partners’ ability to perform services for users on a timely basis. In the event any such partners’ information technology systems or service abilities are hindered by any of the events discussed above, our ability to provide our platform and other services may be impaired, resulting in missing financial targets for a particular quarter or year, or longer period. Further, if a natural disaster or other catastrophic event occurs in a region from which we derive a significant portion of our revenue, users in that region may delay or forego use of our platform or other services, which may adversely impact our operating results. In addition, acts of terrorism, civil disorder, public health pandemics (including the COVID-19 pandemic), or military conflict could cause disruptions in our business or the business and activity of our partners, users, or the economy as a whole. These disruptions may be more severe than in the case of natural disasters. All of the aforementioned risks may be augmented if our or our partners’ business continuity and disaster recovery plans prove to be inadequate. To the extent that any of the above results in delays or reductions in platform availability, activities or other services, our business, financial condition, and operating results would be adversely affected.

Risks Related to Ownership of Our Common Stock

~~The stock price of our common stock has been and may continue to be volatile, and you could lose all or part of your investment.~~

The market price of our common stock has been and may continue to be volatile, particularly in light of the macroeconomic uncertainty created by the COVID-19 pandemic. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control and some of which will be impacted by the COVID-19 pandemic and the resulting governmental restrictions intended to prevent its spread and macroeconomic downturn, including:

•~~actual or anticipated fluctuations in our revenue and other operating results;~~

•~~changes in the financial projections we may provide to the public or our failure to meet these projections;~~

•~~overall performance of the equity markets;~~

•~~the economy as a whole and market conditions in our industry;~~

•~~recruitment or departure of key personnel;~~

•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

•~~lawsuits threatened or filed against us or our key personnel, litigation involving our industry, or both, or lawsuits threatened or filed against our users relating to their use of our platform;~~

•~~developments or disputes concerning our or other parties’ products, services, or intellectual property rights;~~

•~~acquisitions, strategic partnerships, joint ventures, or capital commitments;~~

•~~negative publicity related to the real or perceived quality or security of our platform, as well as the failure to timely launch new products and services that gain market acceptance;~~

•~~rumors and market speculation involving us or other companies in our industry and/or other industries;~~

•~~announcements by us or our competitors of new or terminated products or services, commercial relationships, or significant technical innovations;~~

•new laws or regulations or new interpretations of existing laws or regulations applicable to our business, including those governing worker classification, taxation of workers, or withholding and remitting taxes on income or earnings;

•~~sales of shares of our common stock by us or our stockholders, including sales of large blocks of our stock relative to the size of our public float;~~

•~~changes in accounting standards, policies, guidelines, interpretations, or principles;~~

•~~political changes or events, such as Brexit or U.S. government shutdowns; and~~

•~~other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.~~

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies, and technology companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies and are attributable, in part, to outside factors such as the COVID-19 pandemic and its impact on the global economy. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

Sales of substantial amounts of our common stock in the public markets, particularly sales by our directors, executive officers, and significant stockholders, or the perception that these sales could occur, could cause the market price of our common stock to decline and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market. The perception that these sales might occur may also cause the market price of our common stock to decline. ~~We had a total of 121,775,309 shares~~A substantial portion of our common stock ~~outstanding as~~is held by stockholders that acquired their shares prior to the initial public offering of ~~September 30, 2020.~~our common stock. We are unable to predict the timing of when such stockholders will sell all or a portion of their common stock or the effect on the market price of our common stock of any such sales. All shares of our common stock are freely tradable, generally without restrictions or further registration under the Securities Act of 1933, as amended, ~~(the “Securities Act”)~~which we refer to as the Securities Act, subject to certain exceptions for shares held by our “affiliates” as defined in Rule 144 under the Securities Act.

In addition, ~~as of September 30, 2020, we had outstanding (i) stock options that, if fully exercised, would result in~~ the issuance of 7,744,337 shares of common stock and (ii) 5,983,872 unvested RSUs. We have filed registration statements on Form S-8 to register shares reserved for future issuance under our equity compensation plans. The shares issued upon exercise of outstanding stock options or settlement or outstanding RSUs will be available for immediate resale in the United States on the open market.

Moreover, certain holders of our common stock have rights, subject to certain conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders.

We may also issue our shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, an acquisition, investments, or otherwise. We also expect to grant additional equity awards to employees, directors, and consultants under our 2018 Equity Incentive Plan and rights to purchase our common stock under our 2018 Employee Stock Purchase Plan. Any such issuances could result in substantial dilution to our existing stockholders and cause the market price of our common stock to decline.

The stock price of our common stock has been and may continue to be volatile, and you could lose all or part of your investment.

The market price of our common stock has been and may continue to be volatile, particularly in light of the macroeconomic uncertainty created by the COVID-19 pandemic. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control and some of which will be impacted by the COVID-19 pandemic and the resulting restrictions intended to prevent its spread and macroeconomic downturn, including:

•actual or anticipated fluctuations in our revenue and other operating results;

•changes in the financial projections we may provide to the public or our failure to meet these projections;

•overall performance of the equity markets;

•the economy as a whole and market conditions in our industry;

•lawsuits threatened or filed against or by us or against our key personnel, litigation involving our industry, or lawsuits threatened or filed against our users relating to their use of our work marketplace;

•recruitment or departure of key personnel;

•speculative trading practices by stockholders and other market participants;

•increased interest and trading in our stock from retail investors;

•developments or disputes concerning our or other parties’ products, services, or intellectual property rights;

•negative publicity related to the real or perceived quality or security of our work marketplace, as well as the failure to timely launch new products and services that gain market acceptance;

•acquisitions, strategic partnerships, joint ventures, or capital commitments;

•rumors and market speculation involving us or other companies in our industry and/or other industries;

•sales of shares of our common stock by us or our stockholders, including sales of large blocks of our stock relative to the size of our public float;

•announcements by us or our competitors of new or terminated products or services, commercial relationships, or significant technical innovations;

•changes in accounting standards, policies, guidelines, interpretations, or principles;

•political changes or events, such as the ongoing U.S. and global political and international relations environment; and

•other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.

technology companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies and are attributable, in part, to outside factors such as the COVID-19 pandemic and its impact on the global economy. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

The concentration of our stock ownership with insiders could limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

As of ~~September~~June 30, ~~2020,~~2021, our executive officers, directors, 5% or greater stockholders, and affiliated entities together beneficially owned a meaningful portion of our common stock. As a result, these stockholders, acting together, could have substantial influence over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing, or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and might ultimately affect the market price of our common stock.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common stock and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If industry analysts cease coverage of us or fail to publish reports on us regularly, the trading price and trading volume for our common stock would be negatively affected. As of ~~September~~June 30, ~~2020,~~2021, there were ~~seven~~six securities analysts that cover us and publish reports on us regularly. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. If one or more of these analysts cease coverage of us, which has occurred previously, or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

~~Even if our stock is actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results.~~

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by restrictions under the terms of our Loan Agreement. We anticipate that for the foreseeable future we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and limit the market price of our common stock.

Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and amended and restated bylaws include provisions that:

•provide that our board of directors is classified into three classes of directors with staggered three-year terms;

•permit the board of directors to establish the number of directors and fill any vacancies and ~~newly-created~~newly created directorships;

•require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;

•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

•provide that only the chairperson of our board of directors, our chief executive officer, president, lead independent director, or a majority of our board of directors will be authorized to call a special meeting of stockholders;

•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

•provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and

•establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

In addition, our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, ~~(the “DGCL”)~~which we refer to as the DGCL, our restated certificate of incorporation, or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. Our amended and restated bylaws also provide that the federal district courts of the United States would be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities ~~Act (the “Federal Forum Provision”).~~Act. Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision.

These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.

Moreover, Section 203 of the DGCL may discourage, delay, or prevent a change of control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.

General Risks

Adverse or changing economic conditions may negatively impact our business.

Our business depends on the overall demand for labor and on the economic health of current and prospective clients that use our work marketplace. Any significant weakening of the economy in the United States or Europe or of the global economy, including the macroeconomic downturn caused by the COVID-19 pandemic and the resulting labor shortage and rise in inflation, more limited availability of credit, a reduction in business confidence and activity, decreased government spending, economic and political uncertainty, financial turmoil affecting the banking system or financial markets, trade wars and higher tariffs, a more limited market for independent professional service providers or information technology services, shifts away from remote work, and other adverse economic or market conditions may adversely impact our business and operating results. Global economic and political events or uncertainty, including the current geopolitical uncertainty in Russia and Ukraine, may cause some of our current or potential users to curtail their use of our work marketplace, and may ultimately result in new regulatory and cost challenges to our operations. In addition, small- and medium-sized businesses have been disproportionately impacted by the macroeconomic downturn caused by the COVID-19 pandemic, some of which have reduced their spend on our work marketplace. These adverse conditions have resulted, and may continue to result, in reductions in revenue, increased operating expenses, longer sales cycles, and increased competition. There is also risk that when overall global economic conditions are positive, our business could be negatively impacted by a decreased demand for freelancers as businesses utilize more full-time employees relative to their use of independent contractors. We cannot predict the timing, strength, or duration of any economic slowdown, or any subsequent recovery generally. If the conditions in the general economy deteriorate, as a result of the COVID-19 pandemic or otherwise, our business, financial condition, and operating results could be adversely affected.

8572

operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

A significant natural disaster, such as an earthquake, blizzard, hurricane, fire, flood, or other catastrophic event, such as a power loss or telecommunications failure, or other technological failure resulting in the permanent destruction of data, could have a material adverse impact on our business, financial condition, and operating results. In the event of natural disaster or other catastrophic event, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in development of our work marketplace, lengthy interruptions in service, security breaches, and loss of critical data, all of which could have an adverse effect on our operating results. Certain of our departments are situated primarily in one geographical area and any natural disaster or catastrophic event to such area or the surrounding communities where our employees live may impact productivity or revenue generating activities by employees based in that office. Our corporate headquarters and many key personnel are located in the San Francisco Bay Area, a region known for seismic activity and catastrophic fires. In addition, natural disasters and other catastrophic events could affect our partners’ ability to perform services for users on a timely basis. In the event any such partners’ information technology systems or service abilities are hindered by any of the events discussed above, our ability to provide our work marketplace and other services may be impaired, resulting in missing financial targets for a particular quarter or year, or longer period. Further, if a natural disaster or other catastrophic event occurs in a region from which we derive a significant portion of our revenue, users in that region may delay or forego use of our work marketplace or other services, which may adversely impact our operating results. In addition, acts of terrorism, civil disorder, public health pandemics (including the COVID-19 pandemic), or military conflict could cause disruptions in our business or the business and activity of our partners, users, or the economy as a whole. These disruptions may be more severe than in the case of natural disasters. All of the aforementioned risks may be exacerbated if our or our partners’ business continuity and disaster recovery plans prove to be inadequate. To the extent that any of the above results in delays or reductions in platform availability, activities or other services, our business, financial condition, and operating results would be adversely affected.

We may be adversely affected by the withdrawal of the United Kingdom from the EU Single Market and Customs Union.

In January 2020, the United Kingdom formally withdrew from the EU, which we refer to as Brexit. Upon its withdrawal, pursuant to an agreement reached between the United Kingdom and the EU, a transition period came into effect which ended on December 31, 2020, from which time the United Kingdom withdrew from the EU Single Market and Customs Union. On December 24, 2020, the EU and the United Kingdom agreed the terms of a trade and cooperation agreement which sets out the terms of their future relationship, which we refer to as the Trade Agreement. The Trade Agreement was approved by the UK Parliament, and applied provisionally until the end of April 2021, when the European Parliament approved the Trade Agreement. The Trade Agreement offers United Kingdom and EU businesses preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas. However, economic relations between the United Kingdom and the EU will now be on more restricted terms than before and there remains uncertainty around the post-Brexit regulatory environment, as the provisions of the Trade Agreement do not cover the services sector. The diverging regulatory environments also add additional complexity to our compliance programs. This uncertainty could cause significant economic disruption and further depress consumer confidence and the economy of the United Kingdom. Our results of operations derived from revenue earned from clients and freelancers in the United Kingdom may be adversely affected by such uncertainty. Brexit could also contribute to instability in global financial and foreign exchange markets, including volatility in the value of the Euro and the British Pound, which are currencies in which we transact business. In addition, we could be adversely impacted by changes in trade policies, labor, tax or other laws and regulations, and intellectual property rights and supply chain logistics. All or any one of these factors could adversely affect our business, revenue, financial condition, and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

8673

Item 6. Exhibits.

Incorporated by Reference

Filed or
Furnished Herewith

Exhibit Number

Description

Form

File No.

Exhibit

Filing Date

~~10.1~~

~~Offer Letter, dated~~ ~~July10,~~ ~~2020, by and between Upwork Inc. and Jeff McCombs.~~

~~10.2~~

~~Change in Control and Severance Agreement, dated August 4, 2020, by and between Upwork Inc. and Jeff McCombs.~~

~~10.3~~

~~Transition Agreement, dated August 4, 2020, by and between Upwork Inc. and Brian Kinion.~~

~~10.4~~

~~Fourth Amendment to Loan and Security Agreement, dated August 13, 2020, by and between Upwork Inc. and Silicon Valley Bank.~~

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

_________________________

* The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

8774

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.


	UPWORK INC.

Date: ~~November 4, 2020~~July 29, 2021	By:	/s/ Hayden Brown
		Hayden Brown
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November 4, 2020~~July 29, 2021	By:	/s/ Jeff McCombs
		Jeff McCombs
		Chief Financial Officer (Principal Financial and Accounting Officer)

8875


Nine Months Ended September 30, 2020	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
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	6,744,484	1		23,342		—		23,343
Stock-based compensation expense	—	—		18,927		—		18,927
Issuance of common stock for settlement of RSUs	1,162,183	—		—		—		0
Tides Foundation common stock warrant expense and other	—	—		1,011		—		1,011
Issuance of common stock in connection with employee stock purchase plan	264,244	—		2,661		—		2,661
Net loss	—	—		—		(23,792)		(23,792)
Balances as of September 30, 2020	121,775,309	$	12	$	477,311	$	(195,749)	$	281,574


Nine Months Ended September 30, 2019	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
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	—	—		—		(11,799)		(11,799)
Issuance of common stock upon exercise of stock options and common stock warrants	5,041,302	—		14,145		—		14,145
Stock-based compensation expense	—	—		10,714		—		10,714
Issuance of common stock for settlement of RSUs	123,562	—		—		—		0

Issuance of common stock in connection with employee stock purchase plan	280,308	—		3,577		—		3,577
Net loss	—	—		—		(11,158)		(11,158)
Balances as of September 30, 2019	111,899,493	$	11	$	415,669	$	(166,456)	$	249,224


	Balances, Previously Issued		Topic 606		Topic 842 (1)		Topic 230		Balances, as Reported
Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2019
Revenue	$	78,786	$	(771)	$	0	$	0	$	78,015
Operating expense—General and administrative	16,519		0		(51)		0		16,468
Net loss	(2,827)		(771)		51		0		(3,547)


Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2019
Revenue	$	221,966	$	(1,692)	$	0	$	0	$	220,274
Operating expense—General and administrative	46,309		0		(116)		0		46,193
Net loss	(9,582)		(1,692)		116		0		(11,158)
Net loss per share, basic and diluted	(0.09)		(0.01)		0		0		(0.10)

Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2019
Operating activities
Net loss	$	(9,582)	$	(1,692)	$	116	$	0	$	(11,158)
Amortization of operating lease asset	0		0		3,059		0		3,059
Trade and client receivables	(11,885)		4,782		0		0		(7,103)
Prepaid expenses and other assets	(1,439)		0		32		0		(1,407)
Operating lease liability	0		0		(979)		0		(979)
Accrued expenses and other liabilities	5,814		(4,385)		(2,228)		0		(799)
Deferred revenue	1,432		1,295		0		0		2,727

Financing activities—changes in funds held in escrow, including funds in transit	(16,407)		0		0		16,407		0
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(57,968)		0		0		16,407		(41,561)
Cash, cash equivalents, and restricted cash—beginning of period	129,128		0		0		100,939		230,067
Cash, cash equivalents, and restricted cash—end of period	71,160		0		0		117,346		188,506