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 30, 2018~~

March 31, 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~~
Delaware			46-4337682
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
~~441 Logue Avenue~~ ~~Mountain View, California~~ 475 Brannan Street, Suite 430			~~94043~~
San Francisco,		California	94107
(Address of principal executive offices)			(Zip Code)

(650) 316-7500

(Registrant’s telephone number, including area code)

2625 Augustine Drive, Suite 601

Santa Clara, California 95054

(Former name, former address and former fiscal year, if changed since last report)

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, 2018, the number of~~April 30, 2021, there were 126,144,849 shares of the registrant’s common stock ~~outstanding was 106,299,106.~~

outstanding.

~~Table of Contents~~

TABLE OF CONTENTS

	~~Page~~
~~PART I.~~		~~FINANCIAL INFORMATION~~	Page
Special Note Regarding Forward-Looking Statements			1

PART I—FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)	1
		Condensed Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017~~ 2020	1 2
		Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~ 2020	2 3
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020	4
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~ 2020	3 5
		Notes to Condensed Consolidated Financial Statements	4 6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	17 15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	28 29
Item 4.		Controls and Procedures	28 29
~~PART II.~~		~~OTHER INFORMATION~~
~~Item 1.~~ PART II—OTHER INFORMATION			~~Legal Proceedings~~	30
Item ~~1A.~~ 1.		~~Risk Factors~~ Legal Proceedings	30
Item 1A.		Risk Factors	30
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	57 75
Item 6.		Exhibits	58 76
Signatures			59 77

~~SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS~~

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This ~~Form 10-Q~~Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this ~~Form 10-Q,~~Quarterly Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, ~~market~~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.

~~Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:~~

●

~~trends in total revenue, cost of revenue, and gross profit or gross margin and other key metrics;~~

●

~~our investments in our platform;~~

●

~~trends in operating expenses, including research and development expense, sales and marketing expense, and general and administrative expense, and expectations regarding~~We have based these ~~expenses as a percentage of total revenue;~~

●

~~our ability to meet our working capital and capital expenditure needs for at least the next 12 months; and~~

●

~~other statements regarding our future operations, financial condition, and prospects and business strategies.~~

~~Such~~ forward-looking statements ~~are based~~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 ~~but not limited to, risks detailed~~those described in ~~the~~Part II, Item 1A, “Risk Factors” ~~section~~in this Quarterly Report and the impact of ~~this Form 10-Q.~~the COVID-19 pandemic. Readers are urged to carefully review and consider the various disclosures made in this ~~Form 10-Q~~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 ~~Form 10-Q~~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 ~~Form 10-Q~~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 ~~Form 10-Q~~Quarterly Report or to conform statements to actual results or revised expectations, except as required by law.

~~iii~~

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—~~FINANCI~~ALFINANCIAL INFORMATION

Item 1. Financial Statements.

UPWORK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	September 30,			December 31,
	2018			2017				March 31, 2021		December 31, 2020
ASSETS							ASSETS
Current assets:
Cash	$	27,055		$	21,595
Current assets							Current assets
Cash and cash equivalents							Cash and cash equivalents	$	104,316	$	94,081
Marketable securities							Marketable securities	65,513		75,570
Funds held in escrow, including funds in transit		107,479			87,195		Funds held in escrow, including funds in transit	161,403		135,042
Trade and client receivables – net of allowance of $2,703 as of September 30, 2018 and $1,577 as of December 31, 2017, respectively		41,592			30,762
Trade and client receivables – net of allowance of $1,792 and $1,661 as of March 31, 2021 and December 31, 2020, respectively							Trade and client receivables – net of allowance of $1,792 and $1,661 as of March 31, 2021 and December 31, 2020, respectively	51,894		47,018
Prepaid expenses and other current assets		5,326			4,574		Prepaid expenses and other current assets	10,742		9,090
Total current assets		181,452			144,126		Total current assets	393,868		360,801
Property and equipment, net		6,260			3,514		Property and equipment, net	27,868		28,139
Goodwill		118,219			118,219		Goodwill	118,219		118,219
Intangible assets, net		6,671			8,672		Intangible assets, net	0		667
Operating lease asset							Operating lease asset	18,818		19,729
Other assets, noncurrent		6,240			658		Other assets, noncurrent	1,560		1,672
Total assets	$	318,842		$	275,189		Total assets	$	560,333	$	529,227
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:

LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities							Current liabilities
Accounts payable	$	5,471		$	462		Accounts payable	$	12,080	$	6,455
Escrow funds payable		107,479			87,195		Escrow funds payable	161,403		135,042
Debt, current		29,594			10,342		Debt, current	7,586		7,581
Accrued expenses and other current liabilities		16,911			16,030		Accrued expenses and other current liabilities	26,762		32,868
Deferred revenue		717			614		Deferred revenue	18,157		16,801
Total current liabilities		160,172			114,643		Total current liabilities	225,988		198,747
Debt, noncurrent		19,304			23,491		Debt, noncurrent	1,263		3,142
Operating lease liability, noncurrent							Operating lease liability, noncurrent	19,714		20,506
Other liabilities, noncurrent		6,110			1,936		Other liabilities, noncurrent	7,867		7,522
Total liabilities		185,586			140,070		Total liabilities	254,832		229,917
Commitments and contingencies (Note 5)
Redeemable convertible preferred stock, $0.0001 par value; 76,141,345 shares authorized as of September 30, 2018 and December 31, 2017; 61,279,079 shares issued and outstanding as of September 30, 2018 and December 31, 2017; aggregate liquidation preference of $120,047 as of September 30, 2018 and December 31, 2017		166,486			166,486
Stockholders’ deficit:
Common stock, $0.0001 par value; 150,000,000 shares authorized as of September 30, 2018 and December 31, 2017; 36,945,317 and 33,740,323 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		4			3

Commitments and contingencies (Note 6)							Commitments and contingencies (Note 6)	0		0

Stockholders’ equity							Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 125,962,107 and 124,795,222 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively							Common stock, $0.0001 par value; 490,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 125,962,107 and 124,795,222 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	13		12
Additional paid-in capital		104,900			92,222		Additional paid-in capital	508,147		494,122

Accumulated deficit		(138,134	)		(123,592	)	Accumulated deficit	(202,659)		(194,824)
Total stockholders’ deficit		(33,230	)		(31,367	)
Total liabilities, redeemable convertible preferred stock, and stockholders' deficit	$	318,842		$	275,189
Total stockholders’ equity							Total stockholders’ equity	305,501		299,310
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	560,333	$	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,

2018

2017

2018

2017

Revenue

$
64,113

$
52,262

$
186,012

$
147,793

Cost of revenue

20,504

16,894

60,578

47,847

Gross profit

43,609

35,368

125,434

99,946

Operating expenses:

Research and development

14,377

11,514

40,680

32,519

Sales and marketing

18,967

13,626

55,054

37,327

General and administrative

11,707

8,952

34,102

25,415

Provision for transaction losses

1,892

1,073

4,612

2,857

Total operating expenses

46,943

35,165

134,448

98,118

Income (loss) from operations

(3,334
)

203

(9,014
)

1,828

Interest expense

589

199

1,674

629

Other expense, net

3,423

260

3,845

75

Income (loss) before income taxes

(7,346
)

(256
)

(14,533
)

1,124

Income tax provision

—

(45
)

(9
)

(56
)
Net income (loss)

$
(7,346
)

$
(301
)

$
(14,542
)

$
1,068

Undistributed earnings allocable to preferred stockholders

—

—

—

(1,068
)
Net loss attributable to common stockholders

$
(7,346
)

$
(301
)

$
(14,542
)

$
—

Net loss per share attributable to common stockholders, basic and diluted

$
(0.20
)

$
(0.01
)

$
(0.41
)

$
—

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted

36,070

33,299

35,129

32,760


	Three Months Ended March 31,
	2021		2020
Revenue	$	113,619	$	83,196
Cost of revenue	30,441		23,485
Gross profit	83,178		59,711
Operating expenses
Research and development	26,613		19,348
Sales and marketing	39,604		30,678
General and administrative	23,531		17,824
Provision for transaction losses	1,127		912
Total operating expenses	90,875		68,762
Loss from operations	(7,697)		(9,051)
Interest expense	199		230
Other (income) expense, net	(78)		731
Loss before income taxes	(7,818)		(10,012)
Income tax provision	(17)		(9)
Net loss	$	(7,835)	$	(10,021)

Net loss per share, basic and diluted	$	(0.06)	$	(0.09)
Weighted-average shares used to compute net loss per share, basic and diluted	125,279		114,119

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

STOCKHOLDERS’ EQUITY

(In ~~thousands)~~

thousands, except share amounts)

(Unaudited)

Nine Months Ended September 30,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$
(14,542
)

$
1,068

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Provision for transaction losses

4,612

2,857

Depreciation and amortization

3,542

3,135

Amortization of debt issuance costs

64

40

Change in fair value of redeemable convertible preferred stock warrant liability

3,610

41

Stock-based compensation expense

5,667

4,817

Loss (gain) on disposal of fixed assets

33

(3
)
Changes in operating assets and liabilities:

Trade and client receivables

(15,137
)

(7,239
)
Prepaid expenses and other assets

(658
)

183

Accounts payable

5,006

662

Accrued expenses and other liabilities

(490
)

7,833

Deferred revenue

103

56

Net cash provided by (used in) operating activities

(8,190
)

13,450

CASH FLOWS FROM INVESTING ACTIVITIES:

Increase in restricted cash

(94
)

(1
)
Purchases of property and equipment

(1,598
)

(1,509
)
Internal-use software and platform development costs

(2,670
)

(392
)
Net cash used in investing activities

(4,362
)

(1,902
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in funds held in escrow, including funds in transit

(20,283
)

(12,016
)
Changes in escrow funds payable

20,283

12,016

Proceeds from exercises of stock options and common stock warrant

7,011

1,494

Proceeds from exercise of redeemable convertible preferred stock warrant

—

260

Proceeds from borrowings on debt

15,000

15,000

Payment of debt issuance costs

—

(84
)
Repayment of debt

—

(17,000
)
Payments of deferred offering costs

(3,999
)

(14
)
Net cash provided by (used in) financing activities

18,012

(344
)
NET INCREASE IN CASH

5,460

11,204

Cash, beginning of year

21,595

27,326

Cash, end of period

$
27,055

$
38,530

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes

$
7

$
12

Cash paid for interest

1,573

663

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Property and equipment purchased but not yet paid

166

77

Reclassification of redeemable convertible preferred stock warrant liability to redeemable convertible preferred stock

—

144

Unpaid deferred offering costs

1,583

—


Three Months Ended March 31, 2021	Common Stock		Additional Paid-in Capital			Accumulated Deficit		Total Stockholders’ Equity
		Shares			Amount
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		748,396	1			2,596		—		2,597
Stock-based compensation expense		—	—			11,264		—		11,264
Issuance of common stock for settlement of RSUs		418,489	—			—		—		0
Tides Foundation common stock warrant expense and other		—	—			165		—		165

Net loss		—	—			—		(7,835)		(7,835)
Balances as of March 31, 2021		125,962,107	$	13		$	508,147	$	(202,659)	$	305,501


Three Months Ended March 31, 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		949,887	—			3,165		—		3,165
Stock-based compensation expense		—	—			5,327		—		5,327
Issuance of common stock for settlement of RSUs		312,653	—			—		—		0
Tides Foundation common stock warrant expense and other		—	—			841		—		841

Net loss		—	—			—		(10,021)		(10,021)
Balances as of March 31, 2020		114,866,938	$	11		$	440,703	$	(181,978)	$	258,736

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,835)	$	(10,021)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for transaction losses	901		767
Depreciation and amortization	3,194		2,308
Amortization of debt issuance costs	19		13
Amortization of premium (discount) on purchases of marketable securities, net	10		(174)
Amortization of operating lease asset	911		969
Tides Foundation common stock warrant expense	188		188
Stock-based compensation expense	11,226		5,537

Changes in operating assets and liabilities:
Trade and client receivables	(5,584)		(5,891)
Prepaid expenses and other assets	(1,542)		(464)
Operating lease liability	(401)		(459)
Accounts payable	5,540		994
Accrued expenses and other liabilities	(6,291)		3,881
Deferred revenue	1,540		650
Net cash provided by (used in) operating activities	1,876		(1,702)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(20,976)		(26,789)
Proceeds from maturities of marketable securities	31,000		33,000
Purchases of property and equipment	(70)		(1,288)
Internal-use software and platform development costs	(2,298)		(1,999)
Net cash provided by investing activities	7,656		2,924
CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in escrow funds payable	26,360		14,834
Proceeds from exercises of stock options	2,597		3,165



Proceeds from borrowings on debt	0		15,000

Repayment of debt	(1,893)		(1,893)



Net cash provided by financing activities	27,064		31,106
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	36,596		32,328
Cash, cash equivalents, and restricted cash—beginning of period	232,463		159,603
Cash, cash equivalents, and restricted cash—end of period	$	269,059	$	191,931
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest	$	105	$	239
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Property and equipment purchased but not yet paid	$	173	$	2,435
Internal-use software and platform development costs incurred but not yet paid	$	0	$	40

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

UPWORK INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1—~~Organization and~~ Description of Business

Upwork Inc. ~~(the “Company”~~, which is referred to as the Company or ~~“Upwork”)~~Upwork, operates ~~an online~~a work marketplace that ~~enables~~connects businesses, ~~(“clients”)~~which are referred to ~~find and~~as clients, with independent talent. Independent talent on the Company’s work ~~with highly-skilled independent professionals (“~~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 of Elance, Inc.~~are an increasingly sought-after, critical, and oDesk Corporation (the “Elance-oDesk Combination”). The Company changed its name to Elance-oDesk, Inc. (“Elance-oDesk”) 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 two 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 ~~Mountain View,~~San Francisco, California.

~~The~~

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 taken as a whole.~~

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 ~~Form 10-Q~~Quarterly Report should be read in conjunction with the consolidated financial statements and ~~accompanying~~ notes thereto included in ~~our final prospectus~~the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which is referred to as the Annual Report, filed with the SEC on ~~October 3, 2018 (the “Prospectus”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”).~~

February 24, 2021.

The condensed consolidated balance sheet as of December 31, ~~2017~~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~~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 ~~are~~do not ~~necessarily~~purport to be indicative of the results of operations or financial condition to be anticipated for the full year ending December 31, ~~2018.~~

~~Initial Public Offering~~

In October 2018, the Company completed its initial public offering (the “IPO”), in which the Company issued and sold an aggregate of 7,840,908 shares of the Company’s common stock, including 1,022,727 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, and selling stockholders sold 6,507,288 shares of the Company’s common stock, including 848,776 shares pursuant to the exercise of the underwriters’ option to purchase additional shares. The shares were sold at the IPO price of $15.00 per share. The Company received aggregate net proceeds of $109.4 million from the IPO after deducting underwriting discounts and commissions. Because the IPO closed in October 2018, the condensed consolidated financial statements as of September 30, 2018 and for the periods then ended, do not reflect the impact of the IPO. See ~~Note 14—Subsequent Events~~.

~~Income Taxes~~

~~The Company recorded immaterial provision for income taxes in all periods presented. The Company continues to maintain a full valuation allowance against its net deferred tax assets.~~

As of September 30, 2018, the Company had unrecognized tax benefits of $10.8 million, none of which would currently affect the Company’s effective tax rate if recognized due to the Company’s net deferred tax assets being fully offset by a valuation allowance. The Company does not anticipate that the amount of unrecognized tax benefits relating to tax positions existing at September 30, 2018 will significantly increase or decrease within the next 12 months. There was no interest expense or penalties related to unrecognized tax benefits recorded through September 30, 2018.

A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position would not require the use of cash.

2021.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering the U.S. corporate income tax rates and implementing a territorial tax system. The corporate tax rate was reduced from 35% to 21% for tax years beginning after December 31, 2017 and certain provisions exist on which to allow accelerated expensing of equipment for a portion of 2017 and for future years. These changes primarily impacted the value of the Company’s deferred tax assets with a corresponding offset to valuation allowance, both of which were recognized in the year ended December 31, 2017.

The Tax Act also limits the amount of net operating losses that can be used to reduce taxable income to 80% for net operating losses generated for periods beginning after December 31, 2017. Existing net operating losses, arising in years on or before December 31, 2017 are not affected by the Tax Act. The Company expects to finalize the assessment of the accounting for the income tax effects of the Tax Act, as it relates to its current structure, including provisions that are effective for tax years beginning in 2018 during the three months ended December 31, 2018. The Company’s preliminary assessment is subject to revisions to any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service, the Financial Accounting Standards Board (“FASB”), and other standard-setting and regulatory bodies. Adjustments may materially impact the Company’s provision for income taxes and the assessment of the accounting for the tax effects of the Tax Act will not extend beyond one year from the enactment date.

~~Significant Accounting Policies~~

~~There have been no changes to the Company’s significant accounting policies that are described in the Prospectus.~~

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,~~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 to the COVID-19 pandemic and the restrictions intended to prevent its spread, the Company is evaluating its current need for office space. The Company may determine to either close or sublease certain of its offices, either of which may result in impairment charges primarily related to the Company’s operating lease asset and associated leasehold improvements.

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

may change as new events occur and additional information is obtained. Actual results could differ materially ~~differ~~ from these ~~estimates.~~

estimates under different assumptions or conditions.

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.

Recent Accounting Pronouncements Not Yet Adopted

As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

The Company has ~~elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.~~

~~In May 2014, the FASB~~reviewed all accounting pronouncements issued ~~Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (“ASC 606”). ASC 606 supersedes the revenue recognition requirements in ASC 605, and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also includes Subtopic 340-40, ~~Other Assets and Deferred Costs—Contracts with Customers~~ (“Subtopic 340-40” and together with ASC 606, the “new revenue standard”), which requires the deferral of incremental costs of obtaining a contract with a customer. In August 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. In 2016, the FASB issued amendments on this guidance with the same effective date and transition guidance. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption.

The Company is required to adopt the new revenue standard for the year ending December 31, 2019. Interim reporting under ASC 606 will not be required until 2020. To date, the Company has established an implementation team and is in the process of evaluating the impact of the new revenue standard on its accounting policies, processes, and system requirements. Furthermore, the Company has made and will continue to make investments in systems to enable timely and accurate reporting under the new revenue standard.

The Company is continuing to evaluate adoption methods and the potential impact that the implementation of this standard will have on its condensed consolidated financial statements, including the identification of performance obligations, evaluation of material right considerations, principal agent considerations, the timing of revenue recognition, and related disclosures, but has not yet determined whether the effects of adoption will be material to its condensed consolidated financial statements.

~~In February 2016, FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~, related to how an entity should recognize lease assets and lease liabilities. The guidance specifies that an entity that is a lessee under lease agreements should recognize lease assets and lease liabilities for those leases classified as operating leases under previous FASB guidance. Accounting for leases by lessors is largely unchanged under the new guidance. In 2018, the FASB also approved an amendment that would permit the option to adopt the new

~~standard prospectively as of the effective date, without adjusting comparative periods presented. The new standard becomes effective for the Company for the year ending on December 31, 2020~~.~~The Company is currently evaluating the impact of adopting this new guidance on its condensed consolidated financial statements~~.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payment~~, to clarify how certain cash receipts and payments are presented and classified in the statement of cash flows. The new guidance becomes effective for the Company for the year ending December 31, 2019, although early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on its condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~, that will require that the amounts generally described as restricted cash and restricted cash equivalents would be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The new guidance also requires certain disclosures to supplement the statement of cash flows. The guidance becomes effective for the Company for the year ending on December 31, 2019, although early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on its 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. Under ASU No. 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount and recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss not exceeding the total amount of goodwill allocated to that reporting unit. The guidance becomes effective for the Company on a prospective basis for its annual or any interim goodwill impairment tests during the ~~year ending on December~~three months ended March 31, 2021 ~~although early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on its condensed consolidated financial statements.~~

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives~~ and ~~Hedging (Topic 815)~~: ~~Targeted Improvements~~concluded they were either not applicable or not expected to ~~Accounting for Hedging Activities~~, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU No. 2017-12 is effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has not yet evaluated the impact of this standard on its financial statements and related disclosures.

~~In June 2018, the FASB issued ASU No. 2018-07,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~. ASU No. 2018-07 expands the scope of Topic 718, Compensation-Stock Compensation to include share-based payment transactions for acquiring goods and services from non-employees. These awards are measured at the grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. The guidance is effective for the Company for the fiscal year ending on December 31, 2020, although early adoption is permitted but not earlier than the Company’s adoption of ASC 606, and the guidance requires a modified retrospective application to awards that have not been settled as of the adoption date. The Company has not yet evaluated the impact of this standard on its financial statements and related disclosures.

~~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. ASU No. 2018-13 is effective for the Company for the fiscal year ending on December 31, 2021, although early adoption is permitted. The Company has not yet evaluated the impact of this standard on its financial statements and related disclosures.

~~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 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. ASU No. 2018-15 is effective for the Company for the fiscal year ending on December 31, 2021, although early adoption is permitted. The Company has not yet evaluated the impact of this standard on its financial statements and related disclosures.

~~Recently Adopted Accounting Pronouncement~~

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. The Company adopted this standard as of January 1, 2018. ASU 2016-09 eliminates the requirement to delay the recognition of excess tax benefits until they reduce current taxes payable. Under this standard, previously unrecognized excess tax benefits shall be recognized on a modified retrospective basis. ASU No. 2016-09 also requires excess tax benefits and deficiencies to be recognized prospectively in the Company’s provision for income taxes rather than additional paid-in capital.

Additionally, the Company elected to account for forfeitures as they occur rather than estimate expected forfeiture using a modified retrospective transition method. Finally, ASU No. 2016-09 requires excess tax benefits to be presented as a component of operating cash flows rather than financing cash flows. The Company elected to adopt this requirement prospectively and accordingly, prior periods have not been adjusted. The adoption of this standard was immaterial to the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in the ASU. The Company adopted this standard as of January 1, 2018. The adoption of this standard had nomaterial impact on the Company’s condensed consolidated financial ~~statements~~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 March 31, 2021, the Company had approximately $22.5 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 March 31, 2021, the Company expects to recognize approximately $18.2 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):


	March 31, 2021		December 31, 2020
Trade and client receivables, net of allowance	$	51,894	$	47,018
Contract liabilities
Deferred revenue	18,157		16,801
Deferred revenue (component of other liabilities, noncurrent)	4,361		4,177

During the three months ended March 31, 2021, changes in the contract liabilities balances were a result of normal business activity and deferral of revenue related to arrangements with freelancers subject to tiered service fees and related allocation of transaction price to material rights.

Revenue recognized during the three months ended March 31, 2021 that was included in deferred revenue as of ~~and for~~December 31, 2020 was $6.2 million. Revenue recognized during the three ~~and nine~~ months ended ~~September 30, 2018.~~

March 31, 2020 that was included in deferred revenue as of December 31, 2019 was $5.1 million.

Note 3—4—Fair Value Measurements

~~The Company measures its redeemable convertible preferred stock warrant liability at fair value on a recurring basis.~~

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 ~~liability.~~

liabilities.

The Company’s financial instruments that are carried at fair value consist of Level ~~III liabilities. The Company’s redeemable convertible preferred stock warrant liability is classified within~~I and Level ~~III because the warrants are valued using a Black-Scholes valuation model, for which some inputs are unobservable in the market. The valuation methodology~~II assets as of March 31, 2021 and ~~underlying assumptions are discussed further in~~ ~~Note 8 – Preferred and Common Stock Warrants~~.

December 31, 2020. The following tables set forth the fair value of the Company’s financial ~~liabilities~~assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

September 30, 2018

Level I

Level II

Level III

Total

Financial Liabilities:

Redeemable convertible preferred stock warrant liability

$
—

$
—

$
4,714

$
4,714

Total financial liabilities

$
—

$
—

$
4,714

$
4,714

December 31, 2017

Level I

Level II

Level III

Total

Financial Liabilities:

Redeemable convertible preferred stock warrant liability

$
—

$
—

$
1,104

$
1,104

Total financial liabilities

$
—

$
—

$
1,104

$
1,104

~~The increase~~


	March 31, 2021
	Level I		Level II		Level III		Total
Cash equivalents
Money market funds	$	90,036	$	0	$	0	$	90,036

Marketable securities
Commercial paper	0		50,971		0		50,971
Treasury bills	4,500		0		0		4,500
U.S. government securities	10,042		0		0		10,042
Total financial assets	$	104,578	$	50,971	$	0	$	155,549


	December 31, 2020
	Level I		Level II		Level III		Total
Cash equivalents
Money market funds	$	65,723	$	0	$	0	$	65,723
Commercial paper	0		5,999		0		5,999
Marketable securities
Commercial paper	0		50,965		0		50,965
Treasury Bills	4,499		0		0		4,499
U.S. government securities	20,106		0		0		20,106
Total financial assets	$	90,328	$	56,964	$	0	$	147,292

For each of the three months ended March 31, 2021 and 2020, the gross unrealized gains and losses on the Company’s marketable securities were immaterial. As of March 31, 2021 and 2020, the Company considered any decreases in ~~Level III from December 31, 2017~~market value to ~~September 30, 2018 was due solely to the remeasurement~~be temporary in nature and did not consider any of the Company’s ~~redeemable convertible preferred stock warrant liability, which was $3.6 million for~~marketable securities to be other-than-temporarily impaired. As such, the ~~nine~~Company did not record any impairment charges with respect to its marketable securities during each of the three months ended ~~September 30, 2018,~~March 31, 2021 and 2020.

As of March 31, 2021 and December 31, 2020, the Company had debt obligations outstanding of $8.9 million and $10.8 million, respectively, under the Company’s Loan and Security Agreement, as amended, which is ~~included~~referred to as the Loan Agreement. As of March 31, 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 March 31, 2021 and December 31, 2020. See “Note 7—Debt.”

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 ~~other expense, net~~escrow that are restricted as reported in the ~~Company’s~~condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of ~~operations~~.

~~Note 4—Balance Sheet Components~~

cash flows as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	104,316	$	94,081
Restricted cash	3,340		3,340
Funds held in escrow, including funds in transit	161,403		135,042
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows	$	269,059	$	232,463

Property and Equipment, Net

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


	September 30, 2018			December 31, 2017				March 31, 2021		December 31, 2020
Computer equipment and software	$	5,250		$	5,385		Computer equipment and software	$	5,006	$	4,819
Internal-use software and platform development costs		4,988			2,318
Internal-use software and platform development							Internal-use software and platform development	22,798		20,727
Leasehold improvements		2,973			2,189		Leasehold improvements	14,612		14,613
Office furniture and fixtures		1,952			1,550		Office furniture and fixtures	3,354		3,354
Total property and equipment		15,163			11,442		Total property and equipment	45,770		43,513
Less: Accumulated depreciation		(8,903	)		(7,928	)
Less: accumulated depreciation							Less: accumulated depreciation	(17,902)		(15,374)
Property and equipment, net	$	6,260		$	3,514		Property and equipment, net	$	27,868	$	28,139

~~Depreciation~~

For the three months ended March 31, 2021 and 2020, depreciation expense related to property and equipment was ~~$0.6~~$1.0 million and ~~$0.4~~$0.7 million, ~~for~~respectively.

For the three months ended ~~September 30, 2018~~March 31, 2021 and ~~2017, respectively.~~

~~Depreciation expense related to property and equipment was $1.5~~2020, the Company capitalized $2.1 million and ~~$1.1 million for the nine months ended September 30, 2018 and 2017, respectively.~~

~~The Company capitalized $0.8 million and $0.2~~$1.6 million of internal-use software and platform development costs, ~~during~~respectively.

For the three months ended ~~September 30, 2018~~March 31, 2021 and ~~2017, respectively, and $2.7 million and $0.4 million during the nine months ended September 30, 2018 and 2017, respectively. There was no~~2020, amortization expense ~~during the three and nine months ended September 30, 2017~~ related to the internal-use software and platform development costs. During the three months ended September 30, 2018, the Company placed into service approximately $0.6 million of the underlying assets. Amortization expense related to thecapitalized internal-use software and platform development costs ~~for the three~~was $1.5 million and ~~nine months ended September 30, 2018 was immaterial.~~

$0.9 million, respectively.

Intangible Assets, Net

All of the Company’s identifiable intangible assets were acquired in March 2014 from the ~~Elance-oDesk Combination. Intangible assets, net consisted~~combination of Elance, Inc. and oDesk Corporation. For each of the ~~following (in thousands):~~

September 30, 2018

Gross
Carrying Amount

Accumulated
Amortization

Net Carrying
Amount

Trade names

$
2,293

$
2,293

$
—

User relationships

18,678

12,007

6,671

Developed technology

10,356

10,356

—

Domain names

529

529

—

Total

$
31,856

$
25,185

$
6,671

December 31, 2017

Gross
Carrying Amount

Accumulated
Amortization

Net Carrying
Amount

Trade names

$
2,293

$
2,293

$
—

User relationships

18,678

10,006

8,672

Developed technology

10,356

10,356

—

Domain names

529

529

—

Total

$
31,856

$
23,184

$
8,672

~~Total~~three months ended March 31, 2021 and 2020, amortization expense of intangible assets was $0.7 million for the three months ended September 30, 2018 and 2017 and $2.0 million and $2.1 million for the nine months ended September 30, 2018 and 2017, respectively. Amortization expense was included in general and administrative expenses.million. As of ~~September 30, 2018,~~March 31, 2021, all of the ~~remaining useful life for user relationships was 2.5 years. As of December 31, 2017, the remaining useful life for user relationships was 3.3 years.~~

~~The estimated future amortization expense for the acquired~~Company’s identifiable intangible assets ~~is as follows (in thousands):~~

were fully amortized.

September 30, 2018

Remainder of 2018

$
670

2019

2,668

2020

2,668

2021

665

Total

$
6,671

Accrued Expenses and Other Current Liabilities

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


	September 30, 2018		December 31, 2017			March 31, 2021		December 31, 2020
Accrued compensation and related benefits	$	7,239	$	8,399	Accrued compensation and related benefits	$	9,203	$	14,007
Accrued freelancer costs		615		134	Accrued freelancer costs	963		1,235
Accrued indirect taxes		1,634		1,861	Accrued indirect taxes	2,522		3,818
Accrued vendor expenses		5,696		4,198	Accrued vendor expenses	8,036		8,662
Accrued payment processing fees		683		593	Accrued payment processing fees	1,618		1,219
Operating lease liability, current					Operating lease liability, current	4,116		3,725
Other		1,044		845	Other	304		202
Total accrued expenses and other current liabilities	$	16,911	$	16,030	Total accrued expenses and other current liabilities	$	26,762	$	32,868

~~Note 5—Commitments and Contingencies~~

~~Operating Leases~~

~~The Company leases office space under four non-cancelable operating lease agreements,~~

Stockholders’ Equity

On January 18, 2021, which ~~expire from 2019 through 2024. The terms~~is referred to as the CEO Award Grant Date, the compensation committee of the ~~office leases contain rent escalation clauses, rent holidays,~~board of directors of the Company approved a stock option grant, which is referred to as the CEO Award, exercisable for up to 1,500,000 shares of 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 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 ~~tenant improvement allowances.~~any C-level officer position. The ~~Company recognizes rent~~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 ~~on a straight-line basis~~associated with the CEO Award will be recognized over the ~~non-cancelable lease term and records~~longer of the ~~difference between cash payments~~expected achievement period for the Market Condition and the ~~recognition~~Service Condition. The Market Condition period and the valuation of ~~rent~~each tranche of the CEO Award were determined using a Monte Carlo simulation. Stock-based compensation expense for the CEO Award is recorded as a ~~deferred rent liability. Where leases contain escalation clauses, rent holidays, or tenant improvement allowances, the Company applies them~~component of general and administrative expense in the ~~determination~~Company’s condensed consolidated statement of ~~straight-line rent~~operations. In the event the Market Condition is met prior to the expected achievement period, any then-unrecognized compensation expense ~~over~~associated with the ~~lease term. In September 2015,~~shares that have vested with respect to both the ~~Company entered into an agreement to sublease a portion~~Market Condition and the Service Condition will be recognized immediately in the Company’s condensed consolidated statements of its office space in San Francisco and recognized sublease income of $0.3 million and $0.8 million during the three and nine months ended September 30, 2017. The sublease agreement was terminated in November 2017.

In September 2018, the Company entered into an agreement to extend its non-cancellable operating lease for its San Francisco office through 2024. From September 1, 2019 through August 31, 2024, total minimum lease payments under the lease agreement are $15.7 million, with lease payments ranging from $1.0 million to $2.2 million per year from 2019 to 2024.

Also in September 2018, the Company entered into an agreement for a non-cancellable operating lease for new office space in Chicago through 2024. From June 1, 2019 through October 31, 2024, total minimum lease payments under the lease agreement are $5.1 million, with lease payments ranging from $0.5 million to $1.0 million per year from 2019 to 2024.

~~Future aggregate minimum lease payments under the non-cancelable operating leases were as follows (in thousands):~~

operations.

September 30, 2018

Remainder of 2018

$
1,036

2019

3,569

2020

4,223

2021

3,981

2022

4,095

2023

4,214

2024

3,039

Total minimum lease payments

$
24,157

~~Rent expense was $1.1 million and $0.9 million for~~For the three months ended ~~September 30,~~March 31, 2021, the Company recorded stock-based compensation expense of $2.5 million related to the CEO Award. As of March 31, 2021, total unrecognized stock-based compensation cost was $26.3 million, which is expected to be recognized over a weighted-average period of 1.9 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 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 ~~2017, respectively. Rent~~1/16th of the Earned PSUs on a quarterly basis thereafter.

Stock-based compensation expense ~~was $3.0 million~~associated with the PSU Awards is a component of operating expenses in the Company’s condensed consolidated statements of operations and ~~$2.8 million~~will be recognized over the longer of the expected achievement period for the ~~nine~~PSU Performance Condition and the PSU Service Condition. The grant date fair value of the PSU Awards was determined using the Company’s closing common stock price on the PSU Grant Date multiplied by the number of PSUs that were probable of being earned on the PSU Grant Date. At each interim reporting date prior to the date on which the compensation committee of the board of directors certifies the PSU Performance Condition, the number of PSUs that are probable of being earned is reassessed and any changes are reflected in the total stock-based compensation expense associated with the PSU Awards.

During the three months ended ~~September 30, 2018~~March 31, 2021, the Company recorded stock-based compensation expense of $0.4 million related to the PSU Awards. As of March 31, 2021, total unrecognized stock-based compensation cost was $5.5 million, which is expected to be recognized over a weighted-average period of 1.7 years.

Note 6—Commitments and ~~2017, respectively.~~

Contingencies

Letters of Credit

In conjunction with the Company’s operating lease agreements, as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017, in conjunction with the operating lease agreements,~~2020, the Company had ~~two~~3 irrevocable letters of credit outstanding in the aggregate amount of ~~$0.6 million and $0.8 million, respectively.~~$1.0 million. The letters of credit are collateralized by restricted cash in the same ~~amount and expire in 2019.~~amount. No amounts ~~have~~had been drawn against these letters of credit as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017.~~

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 30, 2018~~March 31, 2021 and December 31, ~~2017,~~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 ~~this date is neither probable nor reasonably possible.~~

March 31, 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.~~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 and intellectual property claims made by third parties relating to the use of the Company’s platform.~~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~~.

provision.

Note 6—7—Debt

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

	September 30, 2018			December 31, 2017
First term loan—18 months of interest-only payments ending in March 2019 followed by 36 equal monthly installments of principal plus interest, maturing March 2022; interest at Prime plus 0.25% per annum	$	15,000		$	15,000
Second term loan—11 months of interest-only payments ending in October 2018 followed by 47 equal monthly installments of principal plus interest, maturing September 2022. As of September 30, 2018, the Company achieved trailing six-month EBITDA of at least $1.0 million; as a result, the interest-only repayment period extended to March 2019, followed by 42 equal monthly installments of principal plus interest; bears interest at Prime plus 5.25% per annum		9,000			9,000
Line of credit—interest at Prime with accrued interest due monthly; matures September 2020		25,000			10,000
								March 31, 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	$	5,000		$	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	3,857			4,500

Total debt		49,000			34,000		Total debt	8,857			10,750
Less: Unamortized debt discount issuance costs		(102	)		(167	)
Less: unamortized debt discount issuance costs							Less: unamortized debt discount issuance costs	(8)			(27)
Balance		48,898			33,833		Balance	8,849			10,723
Debt, current		(29,594	)		(10,342	)	Debt, current	(7,586)			(7,581)
Debt, noncurrent	$	19,304		$	23,491		Debt, noncurrent	$	1,263		$	3,142
Weighted-average interest rate		6.08	%		5.93	%	Weighted-average interest rate	4.39		%	5.64		%

~~In September 2017,~~

Under the ~~Company entered into a Loan and Security Agreement (the “Loan Agreement”), which was subsequently amended in November 2017 and September 2018. The~~ Loan Agreement, ~~consisted initially~~the aggregate amount of the facility is up to $49.0 million, consisting of a term loan ~~(the “First Term Loan”)~~in the original principal amount of $15.0 million, ~~and~~which is referred to as the First Term Loan, a ~~$15.0 million revolving line of credit based on eligible trade and client accounts receivable, for an aggregate facility~~term loan in the original principal amount of ~~$30.0 million. However, upon~~$9.0 million, which is referred to as the Company achieving adjusted net revenue of at least $49.0 million in a trailing three-month period on or before June 30, 2018, the revolving line of credit increased to $25.0 million with a corresponding increase to the aggregate facility amount to $40.0 million. The Loan Agreement was amended in November 2017 to include a second term loan of $9.0 million

~~(the “Second~~Second Term Loan,” and, together with the First Term Loan, as the ~~“Term Loans”),~~Term Loans, and a revolving line of credit, which ~~in turn, increased the aggregate maximum amount of the facility~~permits borrowings of up to ~~$49.0 million. The Company incurred debt issuance costs of $0.2~~$25.0 million ~~which was primarily classified as a deduction~~subject to ~~the long-term portion of the Term Loan. In November 2017, the Company drew revolving loan borrowings of $10.0 million and Term Loan borrowings of $9.0 million.~~customary conditions. 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 is also ~~subject to~~requires that the Company ~~maintaining~~maintain an adjusted quick ratio of ~~1.30 and achieving minimum EBITDA levels over trailing periods ranging from three to twelve months.~~1.75. The Loan Agreement also includes a restrictive covenant on dividend payments other than dividends paid solely in common stock.

In September 2018, the Company entered into a second amendment (the “Second Amendment”) to the Loan Agreement which expanded the types of eligible trade and client accounts receivable considered for the determination of the borrowing base of the revolving line of credit. The Second Amendment also provided for a reduction in the interest rate for the Second Term Loan, from prime plus 5.25% to prime plus 0.25%, from and after the occurrence of an initial public offering by the Company with net proceeds of more than $50.0 million. Because the IPO occurred in October 2018, the change in interest rate had no effect on the Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018. To the extent the Company has 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, the Company plans, from time to time, to utilize the revolving line of credit to satisfy escrow funding requirements. In September 2018, the Company drew down $15.0 million under the revolving line of credit for such purpose. In October 2018, the Company repaid a total of $25.0 million of indebtedness owed under the Loan Agreement. ~~See Note 14—Subsequent Events.~~

~~The amortization expense related to the debt discount was immaterial for the three and nine months ended September 30, 2018 and 2017.~~ The Company was in compliance with ~~all financial-related~~its covenants under the Loan Agreement as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017.~~

~~Note 7—Redeemable Convertible Preferred Stock~~

~~Redeemable convertible preferred stock as of September 30, 2018 and December 31, 2017 consisted~~2020.

Pursuant to the terms of the ~~following (in thousands, except share data):~~

Shares
Authorized

Shares
Issued and
Outstanding

Net
Carrying Value

Aggregate
Liquidation
Preference

Series A-1

10,141,345

9,142,770

$
72,181

$
91,427

Series A-2

60,000,000

47,124,931

65,853

5

Series B-1

5,854,982

4,866,360

27,628

27,787

Series B-2

145,018

145,018

824

828

Total redeemable convertible preferred stock

76,141,345

61,279,079

$
166,486

$
120,047

~~Note 8—Preferred and Common Stock Warrants~~

~~Redeemable Convertible Preferred Stock Warrants~~

As a result of the Elance-oDesk Combination, a redeemable convertible preferred stock warrant that was originally issued by Elance prior to the Elance-oDesk Combination became exercisable to purchase up to 26,000 and 57,181 shares of the Company’s Series A-1 and Series A-2 redeemable convertible preferred stock, respectively, at an exercise price of $3.13 per share. In June 2017, the warrant was exercised in full.

Further, as a result of the Elance-oDesk Combination, another redeemable convertible preferred stock warrant that was originally issued by Elance prior to the Elance-oDesk Combination became exercisable to purchase up to 124,506 and 273,825 shares of the Company’s Series A-1 and Series A-2 redeemable convertible preferred stock, respectively, at an exercise price of $3.13 per share. The warrant was outstanding and exercisable as of September 30, 2018 and December 31, 2017.

The Company estimated the fair value of each redeemable convertible preferred stock warrant using the Black-Scholes valuation model. The redeemable convertible preferred stock liability, included in other noncurrent liabilities, was $4.7 million as of September 30, 2018, and $1.1 million as of December 31, 2017. The following assumptions were used to calculate the fair value of the then-outstanding warrants as of September 30, 2018 and December 31, 2017:

September 30, 2018

December 31, 2017

Dividend yield

0%

0%

Expected term (in years)

2.00

2.75

Risk-free interest rates

2.8%

1.8%

Expected volatility

36.8%

34.6%

~~Common Stock Warrant~~

As a result of the Elance-oDesk Combination, a common stock warrant that was originally issued by oDesk prior to the Elance-oDesk Combination became exercisable to purchase up to 45,286 shares of the Company’s common stock at an exercise price of $0.06 per share. The warrant was outstanding and exercisable as of December 31, 2017 with the fair value of the warrant reflected in additional paid-in capital in the condensed consolidated balance sheets. In May 2018,Loan Agreement, the Company ~~issued 45,286 shares of common stock upon the exercise of this common stock warrant.~~

In April 2018, the Company established The Upwork Foundation initiative. The program will include a donor-advised fund created through the Tides Foundation. In May 2018, the Company issued a warrant to purchase 500,000 shares of its common stock at an exercise price of $0.01 per share to the Tides Foundation.

This warrant is exercisable as to 1/10th of the shares on each anniversary of the IPO, with proceeds from the sale of such shares to be donated in accordance with the Company’s directive. The IPO occurred in October 2018; as such, the issuance of this warrant has had no effectcommenced repayment on the ~~Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018.~~

~~Note 9—Common Stock~~

Holders of common stock are entitled to one vote per share and are entitled to dividends on a pro rata basis with the holders of redeemable convertible preferred stock whenever funds are legally available and when, as, and if declared by the Company’s board of directors, subject to the rights of the holders of the Company’s redeemable convertible preferred stock.

As of September 30, 2018 and December 31, 2017, the Company was authorized to issue 150,000,000 shares of common stock. As of September 30, 2018 and December 31, 2017, the Company had reserved shares of common stock, on an as-converted basis, for future issuance as follows:

September 30, 2018

December 31, 2017

Options issued and outstanding

24,312,203

23,607,746

Warrant to purchase redeemable convertible preferred stock

398,331

398,331

Warrant to purchase common stock

500,000

45,286

Conversion of redeemable convertible preferred stock

61,279,079

61,279,079

Remaining shares reserved for future issuances under 2014 Plan

197,859

3,962,024

Total

86,687,472

89,292,466

~~Note 10—Stock-Based Compensation~~

~~The following table summarizes activity under the Company’s stock option plans:~~

Options Outstanding

Shares
Available for
Grant

Number of
Shares
Underlying
Outstanding
Options

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value
(in thousands)

Balances at December 31, 2017

3,962,024

23,607,746

$
3.10

7.39

$
22,260

Authorized

100,000

—

Granted

(4,468,523
)

4,468,523

5.88

Exercised

—

(3,159,708
)

2.22

Forfeited and cancelled

604,358

(604,358
)

3.72

Balances at September 30, 2018

197,859

24,312,203

$
3.71

7.36

$
269,431

~~In July 2018, the Company’s board of directors granted Stephane Kasriel, Chief Executive Officer, an option to purchase 1,860,000 shares of common stock at an exercise price of $6.61 per share,~~ with vesting contingent on continuous service and the achievement of various business milestones, including the completion of the IPO. Because the IPO had not been completed as of September 30, 2018, vesting had not commenced and, as a result, there has been no effect on the Company’s condensed consolidated financial statements as of and for the period ended September 30, 2018. In addition to the IPO milestone, vesting of this award is contingent upon the achievement of certain financial milestones, such as positive EBITDA and GSV growth rates from 2019 through 2023.

~~Stock-Based Compensation~~

~~The following table summarizes the components of stock-based compensation expense recognized~~Term Loans in ~~the condensed consolidated statements of operations (in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

Cost of revenue

$
59

$
48

$
164

$
241

Research and development

623

432

1,711

1,271

Sales and marketing

355

312

1,026

967

General and administrative

949

734

2,766

2,338

Total stock-based compensation

$
1,986

$
1,526

$
5,667

$
4,817

Stock-based compensation expense related to non-employee stock option grants was immaterial for the three and nine months ended September 30, 2018 and 2017. The amount of stock-based compensation capitalized to internal-use software and platform development costs for the three and nine months ended September 30, 2018 and 2017 was immaterial.

~~Secondary Market Transactions~~

~~Certain common stockholders (who were employees or former employees of the Company) sold the Company’s common stock in secondary market transactions to third parties.~~April 2019. During the second quarter of 2017, an aggregate of 195,000 shares of common stock were sold for $0.9 million at an average price of $4.50 per share. The incremental value between the sale price and the fair value of the common stock at each date of sale resulted in aggregate stock-based compensation expense of $0.2 million for the nine months ended September 30, 2017. There were no secondary transactions during the three months ended ~~September 30, 2018~~March 31, 2021, the Company repaid $1.3 million and ~~2017. There was an immaterial secondary market transaction during~~$0.6 million related to the ~~nine~~First Term Loan and Second Term Loan, respectively. During the three months ended ~~September 30, 2018.~~

March 31, 2020, the Company repaid $1.3 million and $0.6 million related to the First Term Loan and Second Term Loan, respectively.

Note ~~11—~~8—Net Loss per Share ~~Attributable to Common Stockholders~~

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Numerator:

Net income (loss)

$
(7,346
)

$
(301
)

$
(14,542
)

$
1,068

Less: Undistributed earnings allocable to preferred stockholders

—

—

—

(1,068
)
Net loss attributable to common stockholders

$
(7,346
)

$
(301
)

$
(14,542
)

$
—

Denominator:

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted

36,069,502

33,298,773

35,129,250

32,760,339

Net loss per share attributable to common stockholders, basic and diluted

$
(0.20
)

$
(0.01
)

$
(0.41
)

$
—


	Three Months Ended March 31,
	2021		2020
Numerator:
Net loss	$	(7,835)	$	(10,021)


Denominator:
Weighted-average shares used to compute net loss per share, basic and diluted	125,279,109		114,118,958

Net loss per share, basic and diluted	$	(0.06)	$	(0.09)

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

September 30,

2018

2017

Options to purchase common stock

24,312,203

22,825,933

Common stock issuable upon conversion of redeemable convertible preferred stock

61,279,079

65,547,568

Common stock issuable upon exercise of common stock warrant

500,000

45,286

Common stock issuable upon exercise and redeemable conversion of preferred stock warrants

398,331

398,331

Total

86,489,613

88,817,118


	As of March 31,
	2021	2020
Options to purchase common stock	5,578,018	13,181,714
Common stock issuable upon exercise of common stock warrants	400,000	450,000
Common stock issuable upon vesting of restricted stock units	5,849,692	6,132,421
Common stock issuable in connection with employee stock purchase plan	498,084	1,454,352
Total	12,325,794	21,218,487

Note ~~12—~~9—Segment and Geographical Information

The Company ~~has determined it~~ operates as ~~one~~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 March 31,
	2018		2017		2018		2017			2021		2020
Marketplace	$	56,766	$	46,186	$	164,180	$	130,124	Marketplace	$	104,670	$	74,782
Managed services		7,347		6,076		21,832		17,669	Managed services	8,949		8,414
Total	$	64,113	$	52,262	$	186,012	$	147,793
Total revenue									Total revenue	$	113,619	$	83,196

The Company generates its revenue from freelancers and clients. Marketplace revenue included freelancer service fees of $36.5 million and $31.0 million for the three months ended September 30, 2018 and 2017, respectively, and client payment processing and administrative fees of $9.0 million and $7.3 million for the three months ended September 30, 2018 and 2017, respectively. Marketplace revenue included freelancer service fees of $108.5 million and $88.6 million for the nine months ended September 30, 2018 and 2017, respectively, and client payment processing and administrative fees of $25.8 million and $20.6 million for the nine months ended September 30, 2018 and 2017, respectively.

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,
	2018		2017		2018		2017			Three Months Ended March 31,
Freelancers:
										2021		2020
Freelancers									Freelancers
United States	$	10,273	$	6,839	$	28,930	$	19,184	United States	$	18,115	$	13,997
India		6,561		5,712		19,134		16,183	India	9,587		7,473
Philippines		4,377		3,795		12,535		10,839	Philippines	7,073		5,137
Rest of world		20,168		17,519		59,352		50,767	Rest of world	33,689		24,355
Total freelancers		41,379		33,865		119,951		96,973	Total freelancers	68,464		50,962
Clients:
Clients									Clients
United States		16,504		14,339		50,153		39,703	United States	33,261		22,959
Rest of world		6,230		4,058		15,908		11,117	Rest of world	11,894		9,275
Total clients		22,734		18,397		66,061		50,820	Total clients	45,155		32,234
Total	$	64,113	$	52,262	$	186,012	$	147,793
Total revenue									Total revenue	$	113,619	$	83,196

Substantially all of the Company’s long-lived assets were located in the United States as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017.~~

~~Note 13—401(k) Plan~~

The Company offers the Upwork Retirement Savings Plan (“Retirement Plan”), a defined contribution plan that allows employees to contribute a portion of their salary, subject to the annual limits. Under the Retirement Plan, eligible employees may defer a portion of their pretax salaries, but not more than the statutory limits. The Retirement Plan provides for a discretionary employer matching cash contribution. The Company makes matching cash contributions equal to 50% of each dollar a participant contributed, subject to a maximum contribution of $5,000 per year. The Company’s total expense for the matching contributions was $0.3 million and $0.2 million for the three months ended September 30, 2018 and 2017, respectively. The Company’s total expense for the matching contributions was $1.4 million and $1.0 million for the nine months ended September 30, 2018 and 2017, respectively.

2020.

~~Note 14—Subsequent Events~~

In August 2018, the Company’s board of directors adopted the 2018 Equity Incentive Plan (the “2018 Plan”) and ceased granting awards under the 2014 Equity Incentive Plan. The 2018 Plan became effective in connection with the IPO. The Company reserved 10,500,000 shares of its common stock for issuance under the 2018 Plan. Any remaining shares available for issuance under the 2014 Equity Incentive Plan on the effective date of the 2018 Plan were added to the shares of common stock reserved for issuance under the 2018 Plan. On October 3, 2018, the Company granted approximately 327,000 restricted stock units (“RSUs”) to certain employees, service providers and members of the Company’s board of directors. Of the total RSUs granted, approximately 55,000 were approved and granted to certain members of the Company’s board of directors and will vest within one year from the date of the grant. The RSUs granted to the Company’s employees will vest over four years from the date of the grant.

In October 2018, prior to the IPO, the Company repaid the $15.0 million of indebtedness owed under its Loan Agreement, which was initially drawn to satisfy its escrow funding requirements as of September 30, 2018. See ~~Note 6—Debt~~.

The Company completed its IPO in October 2018, in which the Company issued and sold 7,840,908 shares of common stock at a public offering price of $15.00 per share. The following table shows, on a pro forma basis, the effect of the IPO as if the IPO had been completed as of September 30, 2018 (in thousands):

As of September 30, 2018

Consolidated Balance Sheet Data:

Actual

Pro Forma Adjustments

Pro Forma

Cash

$
27,055

$
99,381

$
126,436

Total current assets

181,452

99,381

280,833

Other assets

6,240

(5,648
)

592

Total assets

318,842

93,733

412,575

Debt, current

29,594

(10,000
)

19,594

Total current liabilities

160,172

(10,000
)

150,172

Other liabilities, noncurrent

6,110

(4,714
)

1,396

Total liabilities

185,586

(14,714
)

170,872

Redeemable convertible preferred stock

166,486

(166,486
)

—

Common stock

4

7

11

Additional paid-in capital

104,900

274,926

379,826

Total stockholders' equity (deficit)

(33,230
)

274,933

241,703

Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)

318,842

93,733

412,575

14

~~A description of the pro forma adjustments, as well as their location in the above table, are as follows:~~

~~Cash:~~ ~~Received~~ ~~net proceeds of $109.4 million after deducting underwriting discounts and commissions of $8.2 million.~~

~~Other assets:~~ ~~Reclassification of $5.6 million deferred offering costs against additional paid-in capital, which is a component of total stockholders’ equity.~~

~~Debt, current:~~ ~~Repayment of $10.0 million of indebtedness under the loan agreement from net proceeds.~~

~~Other liabilities, noncurrent:~~ ~~Reclassification of $4.7 million related to the redeemable convertible preferred stock liability to additional paid-in capital, a component of total stockholders’ equity.~~

~~Redeemable convertible preferred stock:~~ ~~Automatic conversion into 61,279,079 shares of common stock on a one-for-one basis.~~

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

~~The~~Operations.

You should read the following discussion and analysis of our financial condition and results of operations ~~should be read in conjunction~~together with ~~our~~the section titled “Risk Factors” and the condensed consolidated financial statements and related notes ~~appearing~~included elsewhere in this ~~Form 10-Q and our Prospectus. As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following~~Quarterly Report. This discussion ~~and analysis~~ contains forward-looking statements based upon current expectations that involve risks and uncertainties, as well as assumptions that ~~if they~~may never materialize or ~~prove incorrect, could cause our~~that may be proven incorrect. Our actual results tomay differ materially from those ~~expressed or implied by such~~anticipated in these forward-looking ~~statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and~~statements as a result of various factors, including those discussed in the ~~section~~sections titled “Special Note Regarding Forward-Looking Statements” and “Risk ~~Factors” under Part II, Item 1A in this Form 10-Q~~Factors,” and in ~~our Prospectus.~~

other parts of this Quarterly Report.

Overview

Independent talent is an increasingly sought-after, critical, and expanding segment of the global workforce. We operate the world’s largest ~~online global~~work marketplace that ~~enables~~connects businesses, which we refer to ~~find and work~~as clients, with ~~highly-skilled freelancers~~independent talent, as measured by gross services volume, ~~(“GSV”).~~which we refer to as GSV. GSV represents the total amount that clients spend on both our marketplace offerings and our managed services offering as well as additional fees we charge to ~~users~~both clients and freelancers for other services. ~~Freelancers are an increasingly sought-after, critical, and expanding segment of the global workforce.~~ 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 ~~500~~100 companies.

~~Our platform reduces inefficiencies associated~~ With users in over 180 countries, our work marketplace enabled $0.8 billion and $0.6 billion of GSV for the three months ended March 31, 2021 and 2020, respectively, representing a period-over-period increase of 41%. 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 revenue from both freelancers and clients, with ~~searching for, contracting~~a majority of our revenue generated from service fees charged to freelancers. We also generate revenue from fees charged to both clients and ~~collaborating with, and paying highly-skilled~~ freelancers for ~~short-term and longer-term projects. As early innovators in this space, we have built an expansive and unique repository~~other services, such as for transacting payments through our work marketplace, premium offerings, purchases of ~~data~~“Connects” (virtual tokens that allow freelancers to bid on projects on our ~~platform, which, when combined~~platform), foreign currency exchange, and our Upwork Payroll offering. 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.

In the first quarter of 2021, we continued to identify opportunities to prioritize our advertising and marketing efforts in order to reach new and existing clients seeking to engage with ~~our machine learning capabilities, enables us to better connect clients with the best freelancers for their projects.~~independent talent. As a result, ~~clients are able~~we continued to ~~obtain specialized talent~~experience strong client acquisition, and our first quarter results were fueled by both new and existing clients. For the three months ended March 31, 2021 and 2020, we generated total revenue of $113.6 million and $83.2 million, respectively, representing a period-over-period increase of 37%.

In the first quarter, we also made significant investments in ~~less time~~research and atdevelopment to build new product features and launch new offerings and in operations and personnel, and we intend to continue to focus on these efforts. For the three months ended March 31, 2021, we generated a ~~lower cost~~net loss of $7.8 million and adjusted EBITDA of $6.9 million, compared to ~~traditional channels.~~

~~We serve~~a net loss of $10.0 million and adjusted EBITDA loss of $1.0 million for the three months ended March 31, 2020. 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, which we refer to as U.S. GAAP. See the section titled “Key Financial and Operational Metrics—Non-GAAP Financial Measures” below for a ~~powerful marketing channel for freelancers~~definition of adjusted EBITDA and information regarding our use of adjusted EBITDA and a reconciliation of adjusted EBITDA to ~~find rewarding, engaging,~~net loss, the most directly comparable financial measure prepared under U.S. GAAP.

Impact of the COVID-19 Pandemic on Our Business

The COVID-19 pandemic and ~~flexible~~the resulting restrictions intended to prevent its spread have accelerated the secular shift toward remote and independent work. ~~Freelancers using~~While we have not incurred significant disruptions to our ~~platform benefit~~business thus far from ~~access~~the COVID-19 pandemic, we continue to ~~quality~~monitor the potential impact it could have on our business as well as various uncertainties, which include, but are not limited to, the duration of the pandemic, its effect on the economy, its impact to the businesses of our clients, actions that may be taken by governmental authorities related to the pandemic, and ~~secure~~other factors identified in Part II, Item 1A “Risk Factors” in this Quarterly Report, including the

risk factor titled “Our business experienced, and ~~timely payments while enjoying~~may again experience, an adverse impact from the freedom to run their own businesses, create their own schedules, and work from their preferred locations. Moreover, freelancers have real-time visibility into opportunities that are highest in demand, so that they can invest their time and focus on developing sought-after skills.

Our platform provides clients with fast, secure, and efficient access to high-quality talent with over 5,000 skills across over 70 categories, such as content marketing, customer service, data science and analytics, graphic design, mobile development, sales, and web development. We offer a direct-to-talent approach, reducing reliance on intermediaries such as staffing firms, recruiters, and traditional agencies while providing features that help instill trust in remote work. Our platform also enables clients to streamline workflows, such as talent sourcing, outreach, and engagement.ongoing COVID-19 pandemic. In addition, users may reduce their use of our ~~platform provides access to essential functionality for remote engagements, including communication and collaboration, time tracking, invoicing, and payments.~~

work marketplace as the pandemic subsides.”

Key Financial and Operational Metrics

We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic ~~decisions (in thousands):~~

decisions. Our key metrics were as follows as of or for the periods presented:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Gross services volume (GSV)

$
449,472

$
353,495

$
1,284,004

$
996,650

Marketplace revenue

$
56,766

$
46,186

$
164,180

$
130,124

Adjusted EBITDA

$
(61
)

$
2,762

$
195

$
9,780


	Three Months Ended March 31,						Change
	2021			2020			$		%

	(in thousands, except percentages)
GSV	$	786,777		$	559,493		$	227,284	41	%
Marketplace revenue	$	104,670		$	74,782		$	29,888	40	%
Marketplace take rate	13.5		%	13.6		%	N/A		(0.1)	%
Net loss	$	(7,835)		$	(10,021)		$	2,186	22	%
Adjusted EBITDA (1)	$	6,911		$	(1,018)		$	7,929	779	%

(1)Adjusted 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 March 31,
	2021		2020		Change

	(in thousands, except percentages)
Core clients	152.4		128.8		23.6	18	%
Client spend retention	106	%	102	%	N/A	4	%

As discussed below with respect to each key metric, we believe these key financial and operational metrics are useful to evaluate period-over-period comparisons of our business and in understanding our operating ~~results. The number~~results, and management uses these metrics to track our performance. For a discussion of ~~core~~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 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. GSV represents the total amount that clients ~~in any given period drives~~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 ~~which~~is an important metric, as it represents the overall amount of business transacted through our ~~platform, and client spend retention. Client spend retention impacts the growth rate~~work marketplace, which in turn is a key driver of ~~GSV.~~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. ~~For a discussion of limitations in~~We evaluate the ~~measurement of core clients,~~correlation between marketplace revenue and GSV ~~and client spend retention, see “Risk Factors—~~by measuring marketplace take rate, which is calculated as marketplace revenue divided by marketplace GSV. We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.”

~~Core Clients~~

We define a core client as a client that has spent in the aggregate at least $5,000 since it began using our platform and also had spend-activity during the twelve months preceding the date of measurement. This includes the total amount spent by the client on both

the Elance and oDesk platforms for the periods prior to the consolidation of the two platforms. We believe $5,000 is an important spend milestone as it indicates that the client is actively using our platform. Historically, these core clients have been more likely to continue using our platform. We believe thatuse the number of core clients ~~is a key indicator~~to track the number of clients that we consider are actively using our work marketplace, and this metric in any given period drives both GSV and client spend retention. Similarly, client spend retention impacts the growth ~~and the overall health~~rate of ~~our business because~~GSV. For information on how we define core clients ~~are a primary driver of GSV,~~ and ~~therefore,~~how we calculate client spend retention and marketplace ~~revenue. We had 101,000~~take rate, see “—Core Clients,” “—Client Spend Retention,” and ~~82,600 core clients as of September 30, 2018 and September 30, 2017, respectively.~~

“—Marketplace Take Rate,” respectively, below.

Gross Services Volume

(GSV)

GSV includes both client spend and additional fees charged for other services. Client ~~spend—~~spend, which we define as the total amount that clients spend on both our marketplace offerings and our managed services ~~offering—~~offering, is the primary component of ~~our~~ GSV. GSV also includes additional fees charged ~~by us~~to both clients and freelancers for other services and

offerings, such as ~~freelancer withdrawals~~for transacting payments through our work marketplace, user memberships, purchases of Connects, and foreign currency exchange.

GSV is an important metric because it represents the amount of business transacted through our ~~platform. Growth in the number of core clients and increased client spend retention are the primary drivers of GSV growth. In addition, our~~work marketplace. 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.~~work marketplace. Therefore, marketplace revenue is correlated to GSV, and we believe that our marketplace revenue will grow as GSV grows, although they could grow at different rates. For a discussion of how we measure and evaluate the correlation between marketplace revenue and GSV, see “—Marketplace Take Rate” below. Growth in the number of core clients and increased client spend retention are 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 the first quarter, we continued to invest in advertising, marketing, and brand awareness campaigns in order to reach new and existing clients seeking to engage with independent talent. As a result, we continued to experience strong client acquisition, and our first quarter results were fueled by both new and existing clients. For the three months ended March 31, 2021, our work marketplace enabled $0.8 billion of GSV, representing a period-over-period growth rate of 41%. We expect our GSV ~~growth rates~~ to fluctuate between periods due to a number of factors, including the ~~volume~~current COVID-19 pandemic and ~~characteristics~~its impact on our clients’ businesses; the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) 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; and the volume of projects that are posted by clients on our ~~platform,~~work marketplace, the characteristics of those projects, such as size, duration, and pricing, and the availability and qualifications of freelancers to complete those projects.

Marketplace Revenue

Marketplace revenue, which represents the majority of our revenue, consists of revenue derived from our Upwork Basic, Plus, and Enterprise and other ~~factors.~~

premium offerings. We generate marketplace revenue from both freelancers and clients. Our marketplace revenue is primarily comprised of service fees paid by freelancers as a percentage of the total amount freelancers charge clients for services accessed through our work marketplace, and to a lesser extent, payment processing and administration fees charged to clients. We also generate marketplace revenue from fees for premium offerings, freelancer memberships, purchases of Connects, and other services, such as foreign currency exchange and our Upwork Payroll offering.

Marketplace revenue is the primary driver of our business and provides 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. Our first quarter results were fueled by both existing and new clients, who drove an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue. We expect our marketplace revenue growth rates to continue to vary from period to period due to a variety of other factors such as the impact of the COVID-19 pandemic and any resulting macroeconomic impact on the businesses and spending behavior of our current and prospective clients; the number of Sundays (i.e., the day we bill and recognize revenue for the majority of our freelancer service fees each week) or the number of Mondays (i.e., the day we 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 investments in marketing, brand awareness campaigns, and sales to acquire, and achieve increased spend from, clients and the timing of those results.

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 work marketplace from our Upwork Basic, Plus, and Enterprise 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) or the number of Mondays (i.e., the day we 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 investments in marketing, brand awareness campaigns, and sales to acquire, and

achieve increased spend from, clients and the timing of those results; and ongoing efforts to improve processes on our work marketplace, including project proposals and purchases of Connects, among others.

Core Clients

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. 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 also had spend activity on our work marketplace 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 work marketplace. Historically, these core clients have been more likely to continue using our work marketplace. In the first quarter of 2021, we continued to prioritize our advertising and marketing efforts in order to reach new and existing clients seeking to engage with independent talent. As a result of these efforts, we saw an increase in core client acquisitions. We continue to see businesses of all sizes use our work marketplace in a recurring way for larger, more complex projects, and we expect the number of core clients to continue to increase over time but could vary quarter by quarter depending, in part, on the extent to which the COVID-19 pandemic and any resulting macroeconomic downturn impacts our business, the businesses of our clients, and other factors identified in Part II, Item 1A “Risk Factors” in this Quarterly Report, including the risk factor titled “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 subsides.”

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 business is recurring in nature even though clients are not contractually required to spend on a recurring basis. We believe that client spend retention is ~~a key~~an indicator of the value of our ~~platform~~work marketplace and the overall health of our business because it impacts the growth rate of GSV, and, therefore, marketplace revenue.

~~The growth in our marketplace is driven by long-term~~

Long-term and recurring use by freelancers and clients ~~which leads to~~are the primary drivers of growth in our marketplace and give us increased revenue ~~visibility for us.~~visibility. While continued use of our ~~platform~~work marketplace by freelancers is a factor that impacts our ability to attract and retain clients, ~~our platform~~we currently ~~has~~have a significant surplus of freelancers in relation to the number of clients actively engaging ~~freelancers.~~freelancers for most categories of services on our work marketplace. As a result of this surplus, ~~of freelancers relative to core clients,~~ 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,~~Additionally, 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 ~~directly related to~~a primary driver of our key metrics and operating results. ~~For these reasons, we do not calculate or track freelancer retention metrics in order to manage our business. Our~~

As of March 31, 2021 and 2020, client spend retention was ~~108%~~106% and ~~95%~~102%, respectively. As a result of the COVID-19 pandemic and execution against our strategic initiatives, we experienced an acceleration in client spend from new and existing clients in 2020 that continued throughout the first quarter of 2021. As a result, we experienced an increase in client spend retention as of ~~September 30, 2018~~March 31, 2021 compared to March 31, 2020. As we acquire more large enterprise, global account, and ~~September 30, 2017, respectively.~~

~~Marketplace Revenue~~

~~Marketplace revenue, which represents~~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. Client spend retention will continue to vary from period to period due to client size and spending behavior, among other factors, including the ~~majority~~impact of the ongoing COVID-19 pandemic, the related restrictions intended to prevent its spread, and the resulting macroeconomic downturn on the businesses and spending behavior of our ~~revenue, consists of revenue derived from our Upwork Standard and Upwork Enterprise and 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. In addition, we generate marketplace revenue from our Upwork Standard offering by charging clients a payment processing and administration fee. We also generate marketplace revenue for other services, such as foreign currency exchange and premium offerings. 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.

~~Adjusted EBITDA~~

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, ~~and~~ income tax (benefit) ~~provision.~~

provision, and, if applicable, other

non-cash transactions. 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 ~~income (loss) to adjusted EBITDA,~~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,
	2018			2017			2018			2017			Three Months Ended March 31,
Net income (loss)	$	(7,346	)	$	(301	)	$	(14,542	)	$	1,068
Add back:
													2021		2020
Net Loss												Net Loss	$	(7,835)	$	(10,021)
Add back (deduct):												Add back (deduct):
Stock-based compensation expense		1,986			1,526			5,667			4,817	Stock-based compensation expense	11,226		5,537
Depreciation and amortization		1,287			1,033			3,542			3,135	Depreciation and amortization	3,194		2,308
Interest expense		589			199			1,674			629	Interest expense	199		230
Other expense, net		3,423			260			3,845			75
Provision for income tax		—			45			9			56
Other (income) expense, net												Other (income) expense, net	(78)		731
Income tax provision												Income tax provision	17		9
Tides Foundation common stock warrant expense												Tides Foundation common stock warrant expense	188		188
Adjusted EBITDA	$	(61	)	$	2,762		$	195		$	9,780	Adjusted EBITDA	$	6,911	$	(1,018)

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, ~~and~~ 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 is generated from our Upwork ~~Standard~~Basic, Plus, and ~~Upwork~~ Enterprise and other premium offerings. Under ~~our Upwork Standard offering,~~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.~~

~~Our Upwork Standard offering provides~~ ~~clients with access~~work marketplace and, to ~~freelance talent with verified work history on our platform and client feedback, the ability to instantly match with the right freelancers, and built-in collaboration features.~~ ~~For our Upwork Standard offering, we have~~ a ~~tiered freelancer service fee schedule based on cumulative lifetime billings by the freelancer to each client.~~

Freelancers on our Upwork Standard offering typically pay us 20% of the first $500, 10% for the next $9,500, and then 5% for any amount over $10,000 they bill to each client through our platform. We also generate revenue from freelancers through withdrawal and other fees, which are currently immaterial.

~~In addition, we generate marketplace revenue from our Upwork Standard offering by charging clients a~~lesser extent, payment processing and administration fee. Clients using our Upwork Standard offering pay either 2.75% of their client spend or a flat fee of $25 per month for unlimited payment transactions with qualifying payment methods. We also generate revenue from foreign currency exchange fees from clients, which are currently immaterial.

Our Upwork Enterprise offering and other premium offerings, which are designed for larger clients, include access to additional product features, premium access to top talent, professional services, custom reporting, and invoicing on a monthly basis. For our Upwork Enterprise offering, we charge clients a monthly or annual subscription fee and a service fee calculated as a percentage of the client’s spend on freelancer services, in addition to the service fees paid by ~~freelancers. Additionally, Upwork Enterprise~~clients.

The COVID-19 pandemic and the resulting restrictions intended to prevent its spread have accelerated the secular shift toward remote and independent work. In the first quarter of 2021, we continued to execute on opportunities to prioritize our advertising and marketing efforts in order to reach new and existing clients ~~can also subscribe to a compliance offering that includes worker classification services for an additional fee. Upwork Enterprise clients may also choose to use our platform~~seeking to engage ~~freelancers that~~with independent talent. As a result, we continued to experience strong client acquisition, and our first quarter results were ~~not sourced through~~fueled by both new and existing clients, who drove an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue. We are continuously evaluating the nature of and extent to which the COVID-19 pandemic will impact our ~~platform for a lower fee percentage.~~

One of our premium offerings, Upwork Payroll, is available to clients when freelancers are classified as employees for engagements on our online marketplace. The client enters into an Upwork Payroll agreement with us,business, operating results, and ~~we separately contract with unrelated third-party staffing providers who provide employment services to such clients. Revenue from Upwork Payroll is currently immaterial.~~

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 ~~delivering~~providing services in connection with our managed services include independent ~~professionals~~talent 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.

Managed services revenue grew at a slower rate than our marketplace revenue in the first quarter of 2021, and we anticipate this trend to continue, as we primarily focus on increasing client usage of and spend on 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 ~~the client~~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”)~~which we refer to as AWS, and the amortization expense associated with ~~acquired intangibles and~~ capitalized internal-use software and platform ~~development.~~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 ~~additional transaction volume~~growth on our ~~platform.~~ work marketplace. Compared to 2020, we expect third-party hosting fees to increase in 2021, as we complete our migration from the AWS data centers in California to the AWS data center in Oregon, because we will need to use both AWS facilities during the migration period. We plan to substantially complete this migration in the second quarter of 2021. Additionally, we are implementing disaster-relief protocols that will increase third-party hosting costs in future periods.

Amounts paid to freelancers ~~to deliver services under~~in connection with our managed services offering are tied to the volume of managed services used by our ~~client.~~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.~~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 ~~amount of services~~amounts paid to freelancers ~~deliver for clients under~~in connection with our managed services offering, and the amortization

expense associated with ~~acquired intangibles and~~ capitalized internal-use software and platform development ~~cost.~~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.~~

revenue grew at a slower rate than our marketplace revenue for the three months ended March 31, 2021 compared to the same period in 2020, and we anticipate this trend to continue, as we primarily focus on increasing client usage of and spend on our marketplace offerings. As a result, we expect gross profit to increase in absolute dollars in future periods, although gross margin, expressed as a percentage of total revenue, may vary from period to period.

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. WeIn the first quarter of 2021, we continued to make significant investments in research and development to build new product features and launch new offerings, and we believe continued investments in research and development are important to attain our strategic ~~objectives, and~~objectives. As a result, we expect research and development expense to increase in absolute dollars ~~but~~in future periods, although this expense, ~~may vary~~expressed as a percentage of total revenue, ~~for the foreseeable future.~~

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. In 2017 and 2018, we increased our marketing expenditures by investing in outdoor and radio advertising to drive greater brand awareness. Further, to grow our Upwork Enterprise offering, we hired additional sales personnel in 2017, with many of them starting late in the year, and in 2018. We ~~continued~~continue to invest in ~~our sales~~marketing, brand awareness campaigns, and ~~marketing capabilities in the three and nine months ended September 30, 2018 and~~sales. We expect this expense to increase in absolute dollars in future ~~periods. Sales and marketing~~periods, although this expense expressed as a percentage of total revenue may ~~fluctuate~~vary from ~~period-to-period based on total revenue levels and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over future periods.~~

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. General and administrative expense also includes~~functions; outside consulting, legal, and accounting ~~services,~~services; and insurance.

We expect to continue to invest in corporate infrastructure and to incur additional expenses associated with ~~transitioning to and~~ operating as a public company, including increased stock-based compensation expense related to executive compensation arrangements, legal and accounting costs, investor relations costs, ~~higher~~ insurance premiums, and compliance costs. Additionally, in light of the COVID-19 pandemic and the restrictions intended to prevent its spread, we are evaluating our current need for office space. In April 2021, we entered into a sublease providing for the sublease of the entirety of our former headquarters in Santa Clara, California. The sub-sublease requires the consent of our landlord and master lessor, both of which have not been obtained as of this filing. We are currently evaluating the impact this agreement could have on our condensed financial statements and, if fully executed, could result in the recognition of an impairment charge in an amount between $7.0 million and $8.0 million during the second quarter of 2021. Additionally, 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. As a result, we expect general and administrative expense to increase in absolute dollars in future periods, ~~but~~although this expense, ~~may vary~~expressed as a percentage of total ~~revenue.~~

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 ~~vary~~increase in absolute dollars in future ~~periods.~~

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 ~~expenses resulting~~interest income that we earn from ~~the revaluation of~~ our ~~warrant liability. Our warrant liability was converted to additional paid-in capital upon the completion of our IPO, which occurred subsequent to September 30, 2018.~~

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,
	2018			2017			2018			2017				Three Months Ended March 31,
Revenue:
														2021		2020
Revenue													Revenue
Marketplace	$	56,766		$	46,186		$	164,180		$	130,124		Marketplace	$	104,670	$	74,782
Managed services		7,347			6,076			21,832			17,669		Managed services	8,949		8,414
Total revenue		64,113			52,262			186,012			147,793		Total revenue	113,619		83,196
Cost of revenue⁽¹⁾		20,504			16,894			60,578			47,847		Cost of revenue(1)	30,441		23,485
Gross profit		43,609			35,368			125,434			99,946		Gross profit	83,178		59,711
Operating expenses:
Operating expenses													Operating expenses
Research and development⁽¹⁾		14,377			11,514			40,680			32,519		Research and development(1)	26,613		19,348
Sales and marketing⁽¹⁾		18,967			13,626			55,054			37,327		Sales and marketing(1)	39,604		30,678
General and administrative⁽¹⁾		11,707			8,952			34,102			25,415		General and administrative(1)	23,531		17,824
Provision for transaction losses		1,892			1,073			4,612			2,857		Provision for transaction losses	1,127		912
Total operating expenses		46,943			35,165			134,448			98,118		Total operating expenses	90,875		68,762
Income (loss) from operations		(3,334	)		203			(9,014	)		1,828
Loss from operations													Loss from operations	(7,697)		(9,051)
Interest expense		589			199			1,674			629		Interest expense	199		230
Other expense, net		3,423			260			3,845			75
Income (loss) before income tax provision		(7,346	)		(256	)		(14,533	)		1,124
Other (income) expense, net													Other (income) expense, net	(78)		731
Loss before income taxes													Loss before income taxes	(7,818)		(10,012)
Income tax provision		—			(45	)		(9	)		(56	)	Income tax provision	(17)		(9)
Net income (loss)	$	(7,346	)	$	(301	)	$	(14,542	)	$	1,068
Net loss													Net loss	$	(7,835)	$	(10,021)

~~———————~~

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Cost of revenue

$
59

$
48

$
164

$
241

Research and development

623

432

1,711

1,271

Sales and marketing

355

312

1,026

967

General and administrative

949

734

2,766

2,338

Total

$
1,986

$
1,526

$
5,667

$
4,817

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


	Three Months Ended March 31,
	2021		2020
Cost of revenue	$	201	$	174
Research and development	3,297		1,950
Sales and marketing	1,278		928
General and administrative	6,450		2,485
Total stock-based compensation	$	11,226	$	5,537

Comparison of the Three ~~and Nine~~ Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~

2020

Revenue


(in thousands, except percentages)	Three Months Ended September 30,							Nine Months Ended September 30,							(in thousands, except percentages)	Three Months Ended March 31,
	2018		2017		Change			2018		2017		Change				2021			2020			Change
Marketplace	$	56,766	$	46,186	$	10,580	23%	$	164,180	$	130,124	$	34,056	26%	Marketplace	$	104,670		$	74,782		$	29,888	40	%
Percentage of total revenue	89%		88%					88%		88%					Percentage of total revenue	92		%	90		%
Managed services	$	7,347	$	6,076	$	1,271	21%	$	21,832	$	17,669	$	4,163	24%	Managed services	$	8,949		$	8,414		535		6	%
Percentage of total revenue	11%		12%					12%		12%					Percentage of total revenue	8		%	10		%
Total revenue	$	64,113	$	52,262	$	11,851	23%	$	186,012	$	147,793	$	38,219	26%	Total revenue	$	113,619		$	83,196		$	30,423	37	%

~~Total revenue increased by $11.9 million, or 23%, to $64.1 million for~~

For the three months ended ~~September 30, 2018 as compared to the three months ended September 30, 2017.~~

~~Marketplace revenue represented 89% of~~March 31, 2021, total revenue ~~for the three months ended September 30, 2018,~~was $113.6 million, an increase of ~~$10.6~~$30.4 million, or ~~23%~~37%, as compared to the same period in 2020.

For the three months ended ~~September 30, 2017.~~March 31, 2021, marketplace revenue represented 92% of total revenue and increased by $29.9 million, or 40%, compared to the same period in 2020. Marketplace revenue increased primarily due to an increase in ~~GSV.~~ GSV, which grew by ~~27% period-over-period, primarily driven by a 22%~~41% during the three months ended March 31, 2021 as compared to the same period in 2020, and an 18% increase in the number of core clients ~~and higher client spend retention, which increased to 108%~~ as of ~~September 30, 2018 from 95% as of September 30, 2017.~~March 31, 2021 compared to March 31, 2020. We believe these increases in marketplace revenue, GSV, and core clients were primarily due to investments in marketing to ~~acquire~~accelerate the acquisition of new clients and drive brand awareness and investments in research and development to build new product features. ~~We believe there were primarily two factors driving~~Marketplace revenue also increased as a result of an increase in spend from existing clients and new client acquisition that was driven by the ~~trend~~shift toward remote work, due in recent periods that GSV grew faster than revenue. First, in our Upwork Standard offering, we charge freelancers a tiered service fee for each unique freelancer-client relationship. Over time, we have seen an increasing number of these unique relationships movepart to the ~~5% service fee tier.~~COVID-19 pandemic and execution of our strategic initiatives. This increase in client acquisition, which began in 2020 and accelerated throughout the first quarter of 2021, continued to drive an increase in freelancer billings, which, in turn, drove an increase in marketplace revenue. Freelancer service fees generated ~~$36.5~~$62.1 million and $44.1 million of marketplace revenue induring the three months ended ~~September 30, 2018~~March 31, 2021 and $31.0 million of revenue in the three months ended September 30, 2017. A larger share of these fees was derived from the 5% tier than in the same period in 2017, which contributed to GSV growing at a faster rate than revenue period-over-period. Second, in our Upwork Standard offering we charge clients a 2.75% payment processing and administration fee when a client pays using credit card; or we charge a small subscription fee, with no per transaction fee, if a client pays through Automated Clearing House (“ACH”). We have experienced an increase in ACH adoption since introducing this client fee.2020, respectively. Client payment processing and administration fees generated ~~$9.0~~$17.3 million and $12.2 million of marketplace revenue induring the three months ended ~~September 30, 2018~~March 31, 2021 and ~~$7.3 million of revenue in the three months ended September 30, 2017.~~

2020, respectively.

Managed services revenue represented ~~11%~~8% and 10% of total revenue for the three months ended ~~September 30, 2018 as compared to 12% for the three months ended September 30, 2017. The increase of $1.3 million, or 21%, was primarily due to an increase in the amount of freelancer~~March 31, 2021 and 2020, respectively. Managed services ~~engaged by a client through our managed services offering.~~

~~Total~~ revenue increased by ~~$38.2~~$0.5 million, or ~~26%, to $186.0 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.~~

Marketplace revenue represented 88% of total revenue for the nine months ended September 30, 2018, an increase of $34.1 million, or 26%, as compared to the nine months ended September 30, 2017. Marketplace revenue increased primarily due to an increase in GSV. GSV grew by 29% period-over-period, primarily driven by a 22% increase in the number of core clients, and higher client spend retention, which increased to 108% as of September 30, 2018 from 95% as of September 30, 2017. We believe these increases were primarily due to investments in marketing to acquire new clients and drive brand awareness and research and development to build new product features. Freelancer service fees generated $108.5 million of revenue in the nine months ended September 30, 2018 and $88.6 million of revenue in the nine months ended September 30, 2017. Client payment processing and administration fees generated $25.8 million of revenue in the nine months ended September 30, 2018 and $20.6 million of revenue in the nine months ended September 30, 2017.

Managed services revenue represented 12% of total revenue for the nine months ended September 30, 2018 as compared to 12% for the nine months ended September 30, 2017. The increase of $4.1 million, or 24%, was primarily due to an increase in the amount of freelancer services engaged by a client through our managed services offering.

~~Cost of Revenue and Gross Margin~~

(in thousands, except percentages)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change
Cost of revenue

$
20,504

$
16,894

$
3,610

21%

$
60,578

$
47,847

$
12,731

27%
Components of cost of revenue:

Costs of freelancer services to deliver managed services

6,120

4,985

1,135

23%

18,172

14,568

3,604

25%
Other components of cost of revenue

14,384

11,909

2,475

21%

42,406

33,279

9,127

27%
Total gross margin

68%

68%

67%

68%

~~Cost of revenue increased by $3.6 million, or 21%~~6%, for the three months ended ~~September 30, 2018 as~~March 31, 2021 compared to the same period in 2020. Managed services revenue grew at a slower rate than our marketplace revenue in the three months ended ~~September 30, 2017.~~March 31, 2021 compared to the same period in 2020, and we anticipate this trend to 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)	Three Months Ended March 31,
	2021			2020			Change
Cost of revenue	$	30,441		$	23,485		$	6,956	30	%
Components of cost of revenue:
Cost of freelancer services to deliver managed services	7,208			6,962			246		4	%
Other components of cost of revenue	23,233			16,523			6,710		41	%
Total gross margin	73		%	72		%

For the three months ended March 31, 2021, cost of revenue increased by $7.0 million, or 30%, compared to the same period in 2020. The increase was primarily due to ~~the~~a $6.7 million, or 41%, increase in other components of cost of revenue, which ~~included $1.3~~was driven by an increase of $4.9 million in payment processing fees due to an increase in client spend on our platform, ~~$0.5~~$1.2 million in third-party hosting costs, $0.3 million in amortization of capitalized platform development costs, and ~~$0.6~~$0.3 million in personnel-related ~~costs due to an increase in personnel to support our growth. Costs of freelancer services to deliver managed services increased by 23% to $6.1 million for~~and other costs.

Research and Development


(in thousands, except percentages)	Three Months Ended March 31,
	2021			2020			Change
Research and development	$	26,613		$	19,348		$	7,265	38	%
Percentage of total revenue	23		%	23		%

For the three months ended ~~September 30, 2018 from $5.0~~March 31, 2021, research and development expense increased by $7.3 million, ~~for the three months ended September 30, 2017. The increase was due to an increase of $1.3 million in managed services revenue for the three months ended September 30, 2018~~or 38%, as compared to the same period in ~~2017. In this period, we used more costly freelancer resources to provide managed services.~~

~~Cost of revenue increased by $12.7 million, or 27%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017.~~2020. The increase was primarily due to investments we made to increase the ~~increase~~size of our workforce in ~~other components~~connection with the execution of ~~cost of revenue,~~our strategic initiatives, which ~~included $4.7 million~~resulted in ~~payment processing fees due to an increase in client spend on our platform, $2.7 million in third-party hosting costs, and $1.7 million~~increases in personnel-related costs ~~due to an increase in personnel to support our growth. Costs~~ of ~~freelancer services to deliver managed services~~$5.8 million and outside consultant costs of $0.6 million, as well as licensed software and other costs of $0.9 million.

Sales and Marketing


(in thousands, except percentages)	Three Months Ended March 31,
	2021			2020			Change
Sales and marketing	$	39,604		$	30,678		$	8,926	29	%
Percentage of total revenue	35		%	37		%

For the three months ended March 31, 2021, sales and marketing expense increased by ~~25% to $18.2~~$8.9 million, for the nine months ended September 30, 2018 from $14.6 million for the nine months ended September 30, 2017. The increase was due to an increase of $4.1 million in managed services revenue for the nine months ended September 30, 2018or 29%, as compared to the same period in ~~2017. In this period, we used more costly freelancer resources to provide managed services.~~

Total gross margin was consistent at 68% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Total gross margin was 67% for the nine months ended September 30, 2018 as compared to 68% for the nine months ended September 30, 2017.

~~Research and Development~~

(in thousands, except percentages)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change
Research and development

$
14,377

$
11,514

$
2,863

25%

$
40,680

$
32,519

$
8,161

25%
Percentage of total revenue

22%

22%

22%

22%

Research and development expense increased by $2.9 million, or 25%, for the three months ended September 30, 2018, as compared to the three months ended September 30, 2017 and was consistent at 22% of total revenue. The increase was primarily due to an increase in personnel-related costs of $3.0 million, an increase of $0.2 million in amortization of licensed software, and an increase of $0.3 million in facilities-related and other costs, partially offset by $0.6 million of additional internal-use software and platform development costs capitalized in the three months ended September 30, 2018.

Research and development expense increased by $8.2 million, or 25%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017 and was consistent at 22% of total revenue. The increase was primarily due to an increase in personnel-related costs of $8.7 million, an increase of $0.6 million in amortization of licensed software, an increase of $0.7 million in facilities-related and other costs, and an increase of $0.4 million in third-party hosting costs, partially offset by $2.2 million of additional internal-use software and platform development costs capitalized in the nine months ended September 30, 2018.

~~Sales and Marketing~~

(in thousands, except percentages)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change
Sales and marketing

$
18,967

$
13,626

$
5,341

39%

$
55,054

$
37,327

$
17,727

47%
Percentage of total revenue

30%

26%

30%

25%

~~Sales and marketing expense increased by $5.3 million, or 39%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.~~2020. This increase was primarily due to increases of ~~$2.5 million in personnel-related costs to build out our enterprise sales team, including sales commissions that we expense as incurred, $2.4~~$8.3 million in marketing, ~~and advertising~~

~~costs associated with online and local marketing programs to drive~~ brand awareness, and ~~attract new users,~~advertising costs and ~~$0.4 million~~increases in bonus expense and other costs of ~~facilities-related costs.~~

~~Sales~~$0.6 million.

In an effort to further our acquisition of, and achieve increased spend from, clients, we will continue to invest in marketing, brand awareness campaigns, and sales.

General and Administrative


(in thousands, except percentages)	Three Months Ended March 31,
	2021			2020			Change
General and administrative	$	23,531		$	17,824		$	5,707	32	%
Percentage of total revenue	21		%	21		%

For the three months ended March 31, 2021, general and administrative expense increased by ~~$17.7~~$5.7 million, or ~~47%~~32%, ~~for the nine months ended September 30, 2018~~ as compared to the ~~nine months ended September 30, 2017.~~same period in 2020. This increase was primarily due to ~~increases~~an increase of ~~$8.5~~$5.4 million in personnel-related costs, including increased stock-based compensation expense related to ~~build out our enterprise sales team, including sales commissions that we expense as incurred, $7.8~~executive compensation arrangements, and $0.3 million in ~~marketing~~insurance, facilities-related, and ~~advertising costs associated with online~~other expenses.

In light of the COVID-19 pandemic and ~~local marketing programs~~the restrictions intended to ~~drive brand awareness~~prevent its spread, we are evaluating our current need for office space. In April 2021, we entered into a sublease providing for the sublease of the entirety of our former headquarters in Santa Clara, California. The sub-sublease requires the consent of our landlord and ~~attract new users~~master lessor, both of which have not been obtained as of this filing. We are currently evaluating the impact this agreement could have on our condensed financial statements and, ~~$1.4~~if fully executed, could result in the recognition of an impairment charge in an amount between $7.0 million and $8.0 million during the second quarter of ~~facilities-related costs for~~2021. Additionally, we may determine to either close or sublease certain of our ~~sales office.~~

~~General~~other offices, either of which could result in further impairment charges being recognized in general and ~~Administrative~~

(in thousands, except percentages)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change
General and administrative

$
11,707

$
8,952

$
2,755

31%

$
34,102

$
25,415

$
8,687

34%
Percentage of total revenue

18%

17%

18%

17%

~~General~~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


(in thousands, except percentages)	Three Months Ended March 31,
	2021			2020			Change
Provision for transaction losses	$	1,127		$	912		$	215	24	%
Percentage of total revenue	1		%	1		%

For the three months ended March 31, 2021, provision for transaction losses increased by ~~$2.8~~$0.2 million, or ~~31%~~24%, as compared to the same period in 2020, and represented approximately 1% of revenue for the three months ended ~~September 30, 2018~~March 31, 2021 and 2020. We expect provisions for transaction losses to approximate 1% of revenue and to increase proportionally as ~~compared to~~GSV grows.

Interest Expense and Other (Income) Expense, Net


(in thousands, except percentages)	Three Months Ended March 31,
	2021		2020		Change
Interest expense	$	199	$	230	$	(31)	(13)	%
Other (income) expense, net	(78)		731		(809)		(111)	%

For the three months ended ~~September 30, 2017. This increase~~March 31, 2021, other income, net was ~~primarily due to increases of $1.6~~$0.1 million, in personnel-related costs, which included adding additional personnel in our finance organization, $0.5 million in facilities-related and other costs, $0.3 million in licensed software costs, $0.2 million in non-income taxes and $0.2 million in professional expenses related to us preparing to become a public company.

~~General and administrative expense increased by $8.7 million, or 34%, for the nine months ended September 30, 2018~~ as compared to the nine months ended September 30, 2017. This increase was primarily due to increases of $5.0 million in personnel-related costs, which included adding additional personnel in our finance organization, $1.0 million in software licenses, $0.8 million in facilities-related and other ~~costs, $0.5 million in non-income taxes and $1.4 million in professional expenses related to us preparing to become a public company.~~

~~Provision for Transaction Losses~~

(in thousands, except percentages)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change
Provision for transaction losses

$
1,892

$
1,073

$
819

76%

$
4,612

$
2,857

$
1,755

61%
Percentage of total revenue

3%

2%

2%

2%

Provision for transaction losses increased by $0.8 million, or 76%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. The increase was due to a slight increase in aging of trade and client receivables due to growth in GSV and the resulting increase in allowances. Provision for transaction losses increased by $1.8 million, or 61%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. The period-over-period increase was due to growth in GSV and related trade and client receivables.

~~Interest Expense and Other Expense, Net~~

(in thousands, except percentages)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change
Interest expense

$
589

$
199

$
390

196%

$
1,674

$
629

$
1,045

166%
Other expense, net

3,423

260

3,163

1,217%

3,845

75

3,770

5,027%

Interest expense increased by $0.4 million, or 196%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Interest expense increased by $1.0 million, or 166%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. These increases were primarily due to an increase in outstanding borrowings in the three and nine months ended September 30, 2018 as compared to the three and nine months ended September 30, 2017. See ~~Note 6—Debt~~.

~~Other~~ expense, net ~~increased by $3.2~~of $0.7 million for the ~~three months ended September 30, 2018 as compared to the three months ended 2017. Other expense, net increased~~same period in 2020, which was primarily driven by ~~$3.8~~foreign currency exchange gains of $0.7 million for the nine months ended September 30, 2018 as compared to the nine months ended 2017. These increases were primarily due to the revaluation of our convertible preferred stock warrant liability. The value of the convertible preferred stock warrant liability increased significantly as of September 30, 2018 due to the proximity of our IPO and the final IPO offering price being significantly higher than the historical estimated fair value used to revalue the convertible preferred stock warrant liability. We will have one additional remeasurement of our redeemable convertible preferred stock warrant liability in the ~~fourth~~first quarter of ~~2018 to reflect the value of the warrant upon automatic conversion to common stock warrant on the closing date of our IPO.~~

2021.

Liquidity and Capital Resources

~~We have financed~~

Our principal sources of liquidity are our ~~operations~~cash and ~~capital expenditures primarily through sales of convertible preferred stock, bank borrowings,~~cash equivalents, marketable securities, and ~~utilization of cash generated from operations in the period in~~amounts available for borrowing under our Loan and Security Agreement, as amended, which we ~~generated~~refer to as the Loan Agreement, referred to below under “—Term and Revolving Loans.” Our cash ~~flows from operations.~~equivalents and marketable securities primarily consist of money market funds, commercial paper, treasury bills, and U.S. government securities. As of ~~September 30, 2018,~~March 31, 2021 and December 31, 2020, we had ~~$27.1~~$104.3 million and $94.1 million in ~~cash. In October 2018,~~cash and cash equivalents, respectively. As of March 31, 2021 and December 31, 2020, we ~~completed our IPO,~~had $65.5 million and $75.6 million in which we issued and sold an aggregate of 7,840,908 shares of our common stock, including 1,022,727 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, and selling stockholders sold 6,507,288 shares of common stock, including 848,776 shares pursuant to the exercise of the underwriters’ option to purchase additional shares. The shares were sold at the IPO price of $15.00 per share. We received aggregate net proceeds of $109.4 million from the IPO after deducting underwriting discounts and commissions. We used approximately $10.0 million of net proceeds from the IPO to repay indebtedness under the Loan Agreement.

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 ~~twelve~~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 ~~future activities,~~our working capital requirements, or should we ~~may~~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 ~~the incurrence of~~incurring additional indebtedness, we ~~may~~will be subject to ~~increased fixed payment obligations~~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.~~capital on terms we deem acceptable, or at all. The inability to raise additional capital as and when required would ~~adversely affect~~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 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 subsides” 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. As~~work marketplace and, as such, we are ~~licensed as an internet escrow agent and are therefore~~ required to hold our users’ escrowed cash and in-transit cash in trust as an asset and record a corresponding liability offor 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 ~~parent company’s~~ operating cash ~~if there is ever a shortage~~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 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 ~~any~~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 occurred on~~Sunday. As of March 31, 2021 and December 31, ~~2017 and September 30, 2018, and will occur on March 31, 2019 and June 30, 2019. As of December 31, 2017 and September 30, 2018,~~2020, funds held in escrow ~~including funds in transit,~~ were ~~$87.2~~$161.4 million and ~~$107.5~~$135.0 million, respectively. ~~We used $13.4 million of our cash on December 31, 2017 to temporarily fund that one week of hourly billings.~~ To the extent we have not yet collected funds for hourly billings from clients which are ~~in-transit~~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. To fund the shortage of cash in trust that occurred on September 30, 2018, we used $5.3 million of our operating cash together with $15.0 million that we drew down pursuant to the revolving line of credit under the Loan Agreement in September 2018, which we repaid on October 1, 2018.

Term and Revolving Loans

~~Loan Agreement.~~ ~~In September 2017, we entered into the~~

Under our Loan Agreement, ~~which was amended in November 2017 and September 2018. The~~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, which we refer to as the First Term Loan, a term loan in the original principal amount of ~~$15.0~~$9.0 million, which we refer to as the Second Term Loan, ~~of $9.0 million,~~and, together with the First Term Loan, as the Term Loans, and a revolving line of credit, which permits borrowings of up to $25.0 million ~~based on eligible trade and client accounts receivable. Contemporaneously, we used the proceeds of the~~subject to customary conditions. The First Term Loan ~~to pay off our outstanding borrowings under a prior loan~~matures in March 2022, and ~~security agreement in~~ the ~~then-principal amount of $14.0 million. The First Term Loan,~~ Second Term Loan and revolving line of credit mature in ~~March 2022,~~ September 2022, and September 2020, respectively. The First Term Loan bears interest at the prime rate plus a spread of 0.25% per annum and has a repayment term of 18 months of interest-only payments ending in March 2019 followed by 36 equal monthly installments of principal plus interest. The Second Term Loan bears interest at the prime rate plus a spread of 0.25% per annum. The Second Term Loan has a repayment term of seventeen months of interest-only payments ending in March 2019, followed by 42 equal monthly installments of principal plus interest. The revolving line of credit bears interest at the prime rate with accrued interest due monthly. In November 2017, we borrowed $19.0 million2022. All borrowings under the Loan Agreement ~~which we used to repurchase shares of~~bear interest at floating rates, and, therefore, our capital stock from a then-existing stockholder. As of September 30, 2018, we had $24.0 million outstanding pursuant to the Term Loans and $25.0 million outstanding pursuant to the revolving line of credit under the Loan Agreement. As of December 31, 2017, we had $24.0 million outstanding pursuant to the Term Loans and $10.0 million outstanding pursuant to the revolving line of credit under the Loan Agreement. We used approximately $10.0 million of net proceeds from the IPO to repay indebtedness under the Loan Agreement. 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. 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 ~~financial covenants~~a covenant requiring that ~~among other things, require us to~~we maintain an adjusted quick ratio, ~~of not less than 1.3~~ and ~~achieve certain EBITDA targets. The Loan Agreement~~ also contains certain non-financial covenants. We were in compliance with ~~the~~

our covenants under the Loan Agreement as of ~~September 30, 2018. For~~March 31, 2021 and December 31, 2020.

Pursuant to the ~~reasons described~~terms of the Loan Agreement, we commenced repayment on the Term Loans in April 2019. During the ~~section titled “—Escrow Funding Requirements,” we drew down $15.0 million in September 2018 under the revolving line of credit, which~~three months ended March 31, 2021, we repaid ~~on October 1, 2018.~~

$1.3 million and $0.6 million related to the First Term Loan and Second Term Loan, respectively. During the three months ended March 31, 2020, we repaid $1.3 million and $0.6 million related to the First Term Loan Second Term Loan, respectively.

Cash Flows

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

Nine Months Ended September 30,

2018

2017

Net cash provided by (used in) operating activities

$
(8,190
)

$
13,450

Net cash used in investing activities

(4,362
)

(1,902
)
Net cash provided by (used in) financing activities

18,012

(344
)
Net increase in cash

$
5,460

$
11,204


	Three Months Ended March 31,
	2021		2020
Net cash provided by (used in) operating activities	$	1,876	$	(1,702)
Net cash provided by investing activities	7,656		2,924
Net cash provided by financing activities	27,064		31,106
Net increase in cash, cash equivalents, and restricted cash(1)	$	36,596	$	32,328
(1) Includes increases in funds held in escrow, including funds in transit of $26.4 million and $14.8 million during the three months ended March 31, 2021 and 2020, respectively.

Operating Activities

Our largest source of cash from operating ~~cash~~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 ~~costs, marketing and advertising expenditures,~~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.”

~~Net~~

For the three months ended March 31, 2021, net cash ~~used in~~provided by operating activities ~~during the nine months ended September 30, 2018~~ was ~~$8.2~~$1.9 million, which resulted from non-cash charges of ~~$3.5~~$16.4 million, for depreciation and amortization, $5.7 million for stock-based compensation, $4.6 million for provision for transaction losses, $3.6 million related to the change in fair value of our redeemable convertible preferred stock warrant liability, and $0.1 million for amortization of debt issuance costs, offset by a net loss of $7.8 million and net cash outflows of ~~$11.2~~$6.7 million from changes in operating assets and ~~liabilities and a net loss of $14.5 million.~~liabilities. The ~~$11.2 million in net cash outflows from changes~~change in operating assets and liabilities ~~were~~ primarily resulted from the ~~result of increases of $15.1 million~~increase in trade and client receivables ~~$0.7 million~~of $5.6 million. Due to fluctuations in ~~prepaid expenses~~revenue and ~~other assets, and a decrease~~the number of ~~$0.5 million~~transactions on our platform, coupled with fluctuations in ~~accrued expenses and other liabilities, offset by increases~~the timing of ~~$5.0 million in accounts payable and $0.1 million in deferred revenue. The increase of $15.1 million in~~cash receipts from clients, our trade and client receivables ~~was primarily attributable~~will likely continue to ~~an increase of $9.7 million related to weekly hourly billings from our marketplace offerings during~~fluctuate in the ~~last week of~~future.

For the ~~quarter~~three months ended ~~September 30, 2018 from the last week of the quarter ended December~~March 31, ~~2017.~~

~~Net~~2020, net cash ~~provided by~~used in operating activities ~~during the nine months ended September 30, 2017~~ was ~~$13.4~~$1.7 million, which resulted ~~primarily~~ from non-cash charges of ~~$3.1~~$9.6 million, ~~for depreciation~~offset by a net loss of $10.0 million and ~~amortization, $4.8 million for stock-based compensation, $2.9 million for provision for transaction losses,~~ net cash ~~inflows~~outflows of ~~$1.5~~$1.3 million from changes in operating assets and ~~liabilities and net income of $1.1 million.~~liabilities. The ~~net cash inflows from changes~~change in operating assets and liabilities ~~were~~ primarily resulted from the ~~result of increases of $7.8 million in accrued expenses and other liabilities, $0.7 million in accounts payable, a $0.2 million decrease in prepaid and other assets, offset by an~~ increase ~~of $7.2 million~~ in trade and client ~~receivables.~~

receivables of $5.9 million.

Investing Activities

~~Net~~

For the three months ended March 31, 2021, net cash ~~used in~~provided by investing activities ~~during the nine months ended September 30, 2018~~ was ~~$4.4~~$7.7 million, which ~~resulted~~was primarily a result of proceeds from ~~capitalized~~maturities of marketable securities of $31.0 million, offset by investing $21.0 million in various marketable securities, as well as $2.3 million of internal-use software and platform development costs that we paid during the period.

For the three months ended March 31, 2020, net cash provided by investing activities was $2.9 million, which was primarily a result of ~~$2.7~~proceeds from maturities of marketable securities of $33.0 million, partially offset by investing $26.8 million in various marketable securities, as well as $2.0 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of ~~$1.6~~$1.3 million primarily for leasehold improvements and furniture ~~and an increase of $0.1 million in restricted cash~~ related to ~~cash reserve requirements under California escrow laws and regulations based on~~our office lease in Chicago, Illinois.

Financing Activities

For the ~~transaction volume.~~

~~Net cash used in investing activities during the nine~~three months ended ~~September 30, 2017 was $1.9 million, which resulted from capitalized internal-use software and platform development costs of $0.4 million and purchases of property and equipment of $1.5 million.~~

~~Financing Activities~~

~~Net~~March 31, 2021, net cash provided by financing activities ~~during the nine months ended September 30, 2018~~ was ~~$18.0~~$27.1 million, ~~due to proceeds~~which resulted primarily from an increase in escrow funds payable of ~~$7.0~~$26.4 million and cash received from ~~the exercise~~stock option exercises of ~~stock options and proceeds from borrowings of debt of $15.0~~$2.6 million, partially offset by ~~$4.0 million in deferred offering costs paid for our IPO.~~

~~Net~~repayments of borrowings on debt of $1.9 million.

For the three months ended March 31, 2020, net cash ~~used in~~provided by financing activities ~~during the nine months ended September 30, 2017~~ was ~~$0.3~~$31.1 million, which resulted primarily ~~due to the repayment~~from an increase in escrow funds payable of ~~$17.0~~$14.8 million, ~~of debt borrowings, offset by~~net proceeds from borrowings on debt of ~~$15.0~~$13.1 million, and ~~proceeds~~cash received from stock option exercises of ~~$1.7 million from the exercise of stock options and a convertible preferred stock warrant.~~

$3.2 million.

Obligations and Other Commitments

Our principal commitments consist of obligations under our ~~non-cancelable~~non-cancellable operating leases for office space and the Loan Agreement. The following ~~tables summarize~~table summarizes our contractual obligations as of ~~September 30, 2018 and December~~March 31, ~~2017~~2021 (in thousands):

	Payments due by period as of September 30, 2018
	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⁾	$	24,157	$	3,546	$	12,320	$	8,206	$	85	Leases(1)	$	31,329	$	6,450	$	13,459	$	6,908	$	4,512
Debt principal		49,000		29,606		19,394		—		—	Debt principal	8,857		7,571		1,286		—		—
Total contractual obligations	$	73,157	$	33,152	$	31,714	$	8,206	$	—	Total contractual obligations	$	40,186	$	14,021	$	14,745	$	6,908	$	4,512

	Payments due by period as of December 31, 2017
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
Leases⁽¹⁾	$	6,320	$	3,892	$	2,428	$	—	$	—
Debt principal		34,000		10,383		13,346		10,271		—
Total contractual obligations	$	40,320	$	14,275	$	15,774	$	10,271	$	—

~~———————~~

⁽¹⁾

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

(1)Represents minimum operating lease payments under operating leases for office facilities, excluding potential lease renewals 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 March 31, 2021 and December 31, ~~2017 and September 30, 2018,~~2020, we had accrued liabilities related to uncertain non-income tax positions based on management’s best estimate of its liability, which are reflected on our condensed consolidated balance ~~sheet.~~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.

Off-Balance Sheet Arrangements

As of ~~September 30, 2018,~~March 31, 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.

~~There~~

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 ~~Prospectus.~~

Annual Report on Form 10-K for the year ended December 31, 2020, which we refer to as our Annual Report.

Recent Accounting Pronouncements

See ~~Note~~“Note 2—Basis of Presentation and Summary of ~~Consolidated Financial Statements~~Significant Accounting Policies” of the notes to our condensed consolidated financial statements included elsewhere in this ~~Form 10-Q~~Quarterly Report for recently issued accounting pronouncements not yet adopted as of the date of this ~~Form 10-Q.~~

Quarterly Report.

Item 3. Quantitative and ~~Qualitati~~veQualitative 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 ~~has~~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 ~~$49.0~~$8.9 million and ~~$34.0~~$10.8 million aggregate principal amount of ~~principal~~borrowings outstanding under our Loan Agreement as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017,~~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 ~~the~~ invoices denominated in the U.S. dollar in the following currencies: Euro, ~~the~~ British Pound, ~~the~~ 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 ~~the Canadian~~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 30, 2018.~~March 31, 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 ~~SEC’s~~ rules and ~~forms.~~

~~Because~~forms of the ~~material weakness in our internal control over financial reporting previously disclosed in our Prospectus,~~Securities and Exchange Commission, which we refer to as the SEC. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 30, 2018,~~March 31, 2021, our disclosure controls and procedures were ~~not~~ effective. In light of this fact, our management, including our Chief Executive Officer and Chief Financial Officer, has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

~~Previously~~ ~~Reported Material Weakness~~

As disclosed in the section titled “Risk Factors” in Part II, Item 1A of this Form 10-Q, we previously identified a material weakness in our 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. 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.

We have commenced measures to remediate the identified material weakness. Those remediation measures are ongoing and include the hiring of additional accounting and finance employees with a requisite level of experience and the implementation of additional control activities related to the period-end financial reporting process.

While we believe that these efforts will improve our internal control over financial reporting, the implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate

~~additional evaluation and implementation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weakness.~~

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the ~~period covered by this report~~quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—~~OTHE~~ROTHER 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 ~~Form 10-Q,~~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.

~~Risks Related to our Business and Industry~~

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 subsides.

•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.

•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.

•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.

•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 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 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 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 ~~costly~~lengthy sales and marketing and internationalization or localization efforts that may not result in additional users that transact on our work

marketplace or effectively retain our current ~~users.~~users that transact on our work marketplace, or may not do so in a cost-effective manner. For example, in 2019 and 2020 we made significant investments in sales and marketing to acquire new clients and drive brand awareness, and have continued to do so in 2021. We may also ~~need to~~ 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 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, as discussed below, the COVID-19 pandemic and the resulting global macroeconomic downturn adversely affected our business for a period of time, and may adversely affect it again, including to the extent the pandemic worsens in regions in which a large number of freelancers are located. In particular, the increases 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 physical offices or are otherwise no longer subject to 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 ~~expand~~increase activity by existing ~~relationships~~users in a cost-effective manner or at all, our revenue will grow more slowly than expected or may decline and our business ~~could~~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 other ~~services, advertising to prospective clients~~ online or offline ~~through other~~platforms and methods, signing up for online or offline third-party agencies ~~using other online or offline platforms, 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. For the nine months ended September 30, 2018 and year ended December 31, 2017, we generated significant revenue from one client, which accounted for more than 10% of revenue for each such period and, therefore, a decrease in revenue from this client could haveemployees directly or through an ~~adverse effect on our operating results. Moreover, any decrease~~agency.

Beginning in the ~~attractiveness~~second half of 2019, we began evolving our ~~platform~~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 restrictions intended to prevent the spread of COVID-19. The evolution of these and other efforts, either individually or ~~failure to retain~~in the aggregate, may not be successful in producing sales or growing client spend from these target clients, ~~could lead to decreased traffic on our platform, diminished network effects,~~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 these target clients, they may result in a ~~drop~~temporary or long-term deceleration in GSV ~~on our platform, which could adversely affect our business, revenue, financial condition, and operating results.~~

growth. Moreover, any increase in user acquisition resulting from the COVID-19 pandemic may slow or decline once the impact of the COVID-19 pandemic has subsided.

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.~~reasons, including cost-cutting measures or other effects of the COVID-19 pandemic. Moreover, as discussed below in the risk factor titled “Users circumvent our work marketplace, which adversely impacts our business,” users circumvent the payment services on our 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 during such period. In addition, expenditures by clients may be cyclical and may reflect overall ~~economic~~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 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 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 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,~~recent periods and ~~may not achieve or sustain profitability.~~

~~We have a history of incurring net losses, and we~~ expect to ~~incur net losses~~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~~three months ended ~~September 30, 2018~~March 31, 2021 was $113.6 million, representing a period-over-period growth rate of 37% over the same period in 2020. This revenue growth was due in part to the shift toward remote work resulting from the COVID-19 pandemic and therefore may not be indicative of future growth. Moreover, future period-over-period revenue growth rates, when compared against the third and fourth quarters of 2020 and the first quarter of 2021, may fail to 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. 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 and processes; 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 work marketplace 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 and highly competitive 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 and those of investors and securities analysts, our growth rates may slow, and our business would be adversely impacted.

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 subsides.

The COVID-19 pandemic adversely impacted our business for a period of time and has resulted in reductions in demand for our products and services by some of our 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 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. 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 the COVID-19 pandemic. These positive impacts may

not continue following the COVID-19 pandemic and the relaxation or lifting of restrictions intended to prevent its spread.

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;

•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 marketing and promotional efforts to reach and support those affected by the COVID-19 pandemic;

•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;

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

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

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

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

•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 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 work marketplace, or increase our operating costs;

•delayed or missed client payments to us or freelancers on our work marketplace, which may also result in 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 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 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;

•the diversion of resources 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;

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

•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

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

Although the COVID-19 pandemic did not have a material adverse impact on our financial results for the year ended December 31, ~~2017, we incurred net losses~~2020 or the three months ended March 31, 2021, the rapidly changing market and macroeconomic conditions caused by the COVID-19 pandemic have impacted the business of ~~$14.5 million~~many of our clients, which resulted in a reduction in spend on our 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 ~~$4.1 million, respectively. We expect~~increased client retention, will continue to ~~make significant future expenditures related to the development and expansion~~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 ~~enhancing~~with respect to the approval and distribution of vaccines, in which our ~~Upwork Enterprise offering~~users are located will have on the economy, our industry, our partners, our users, and our ~~U.S.-to-U.S. domestic offering, expanding domestic-to-domestic offerings into new geographies, and broadening and deepening the categories on our platform, and in~~company. In connection with ~~legal, accounting,~~the COVID-19 pandemic, we have also implemented measures to protect the health of our workforce, including by adopting a flexible work model that we believe will result in most of our employees working remotely even after the pandemic 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 ~~administrative expenses related~~privacy and security incidents, and may cause other disruptions to ~~operating as a public company. These~~our business. As and to the extent offices reopen, our efforts ~~may prove more expensive than we currently anticipate, and we~~to comply with applicable health guidelines may not ~~succeed in increasing~~prove sufficient to protect the health of our ~~revenue sufficiently, or at all,~~employees and other visitors to ~~offset~~our offices, and our adoption of these ~~higher expenses. While~~measures may adversely affect our ~~revenue~~business operations. Even after the COVID-19 pandemic has ~~grown in recent years,~~

~~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,~~subsided, we may continue to ~~generate losses.~~ experience adverse impacts to our business due to the macroeconomic downturn that has occurred as a result and is likely to continue in the future. Furthermore, 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 restrictions intended to prevent the spread of COVID-19.

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 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 shift toward remote work as a result of the COVID-19 pandemic or 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 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 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, 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 costs, or publicize their negative experiences, and law enforcement or administrative agencies could seek to hold us responsible for the conduct of or content posted by users, impose fines and 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 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 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 our work marketplace, 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.

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 ~~achieve profitability~~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, 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 work marketplace, and may be required to bring similar claims in the future. Even if these claims do not result in litigation or ~~that, if we do become profitable, we will be able~~are resolved in our favor, these claims, and the time and resources necessary to ~~sustain profitability.~~

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 ~~platform~~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 ~~prospects~~future prospects.

We recently evolved, and ~~increases the risks associated~~will continue to evolve, our sales, marketing, and brand positioning efforts, as well as our business strategy. Recently we have expanded our focus on large enterprise, global account, mid-market, and other clients with ~~your investment.~~

~~We operated the Elance and oDesk platforms separately until we relaunched as Upwork~~larger, longer-term talent needs. In an effort to better serve this market segment, in ~~May 2015 and consolidated those platforms into a single platform. In~~ recent years we have ~~also~~ expanded our Upwork Enterprise offering and, in 2019, launched our Upwork Business offering, both of which ~~helps~~were designed to help enterprises and other larger businesses connect with freelancers and ~~provides~~provide these larger clients with additional products and services. We also ~~made significant changes~~continue to develop our ~~pricing model~~current offerings and create and test additional premium 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 consuming, diverts the attention of our management, and not all offerings achieve market acceptance at the levels we expect and therefore may not be cost-effective to maintain. For example, in ~~2016. As~~the fourth quarter of 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 ~~result,~~reduction in force of approximately one-third of our ~~platform~~sales employees in November 2020.

Changes in our offerings and pricing, ~~model have not been fully proven,~~ and ~~we have only a limited operating history with our current platform and pricing model to evaluate~~the continued evolution of our business strategy and ~~future prospects, which subjects~~related pricing, subject us to a number of uncertainties, including our ability to plan for and model future ~~growth.~~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 shift toward remote work resulting from the COVID-19 pandemic will continue following relaxation or lifting of restrictions intended to prevent the spread of COVID-19. We have encountered, and will continue to encounter, risks, difficulties, and uncertainties frequently experienced by growing companies in rapidly changing industries, including our ability to achieve market acceptance of our ~~platform~~work marketplace 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 seen, 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 work marketplace or the 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 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 face in the future, and our business may be adversely affected if we do not manage these challenges successfully. ~~In addition,~~

Changes to our pricing model have in the past adversely affected, and could in the 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 changes, including in 2019 when we launched new paid membership types for clients and new Connects pricing for freelancers, which resulted in user dissatisfaction and negatively impacted fill rates for projects on our work marketplace. We anticipate further changes to Connects pricing and policies in the future, which may ~~not achieve sufficient~~have a negative impact on our revenue or marketplace take rate. From time to ~~achieve or maintain positive cash flow from operations or profitability in any given period, or at all.~~

Iftime, we will make further changes to our pricing model due to a variety of reasons, including due to changes to the market for ~~freelancers~~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 ~~services they offer develops more slowly than~~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 work marketplace, result in a change to the way we ~~expect,~~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 ~~growth may slow~~work marketplace,

negatively impact fill rates for projects on our work marketplace, or ~~stall, and~~otherwise negatively impact our reputation, operating results, financial condition, and cash flows.

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

~~The market~~

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 ~~freelancers~~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 could, and, in some cases, have notified us in the past that they ~~offer~~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 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 international expansion and 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 non-U.S. 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 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 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. This reduction may result in unintended consequences such as low employee morale and a decrease in the productivity and efficiency of our sales force.

There is ~~relatively new, rapidly evolving,~~significant competition for sales personnel with the skills and ~~unproven.~~technical knowledge required to maintain a productive and efficient sales force. Our ~~future success~~ability to achieve significant revenue growth will depend, in large part, on ~~the continued growth~~our success in recruiting, training, effectively deploying, and ~~expansion~~retaining sufficient numbers of ~~this market~~sales and ~~the willingness of businesses~~sales support personnel to ~~engage freelancers to provide services.~~support our growth. It is difficult to ~~predict~~find, and we may be unable to retain, a sufficient number of sales personnel with the ~~size,~~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. Moreover, after the COVID-19 pandemic has subsided, 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 ~~rate, and expansion of this market, the entry of products and services that are competitive to ours,~~depends in part on the success of ~~existing competitive~~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 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 ~~technological~~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 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 ~~developments that will impact the overall demand~~programs and badges, including those designed to highlight successful freelancers. Moreover, for ~~freelancer~~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. 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 security concerns. If the market forDisputes 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, like the ~~services they offer does~~one resulting from the COVID-19 pandemic. Such disputes, or any increase in the number of disputes, may result in an 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 ~~achieve widespread adoption,~~result in litigation or ~~there is a reduction~~are resolved in ~~demand for freelancer services, it~~our favor, these claims, and the time and resources necessary to resolve them, could result in ~~decreased revenue and our business could be adversely affected.~~

~~If we are not able to develop and release new products and services,~~legal, settlement, 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 new 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 substantialother financial costs; divert the 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 highly competitive industry. The success of any enhancements or improvements to 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, and overall market acceptance. We cannot be sure that we will succeed in developing, marketing, and delivering on a timely and cost-effective basis 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, nor can we be sure that any enhancements or new features to our platform or any new products and services will achieve market acceptance. 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 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, or may not achieve the broad market acceptance necessary to generate sufficient revenue. 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 who choose competing products or services. This could result in a temporary or permanent decrease in revenuemanagement; and adversely affect our ~~business.~~

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 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.

There have been, and may ~~fluctuate~~continue to be, changes in our management team resulting from ~~quarter~~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, 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, Brian Kinion, was resigning from this position

and that Jeff McCombs would be appointed as our Chief Financial Officer. We have made, and may continue to ~~quarter,~~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 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 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 attract, train, integrate, 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. 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 ~~makes~~may be more difficult during the COVID-19 pandemic. We may incur significant costs to attract and retain highly skilled personnel, we may lose new employees to our ~~future results difficult~~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 ~~predict.~~

~~Our quarterly~~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.

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 substantial amount of stock or stock options and may be more likely to 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, operating results, ~~have fluctuated in the past~~financial condition, and cash flows may ~~fluctuate in the future. Additionally, we have a limited operating history~~be adversely affected.

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

In connection with our ~~current platform~~Upwork Enterprise offering, and ~~pricing model,~~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. 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.

The requirements of 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.

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 financial compliance costs, makes itsome activities more difficult, ~~to forecast~~time-consuming, or costly, and increases demand on our ~~future results.~~systems and resources. As a result, ~~you should not rely upon~~management’s attention may be diverted from other business concerns, which could adversely affect our ~~past quarterly~~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, ~~as indicators~~which may adversely affect our ability to achieve long-term profitability.

Our management team has limited experience managing a public company.

Most members of ~~future performance. You should take~~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 ~~account the risks, difficulties, and uncertainties frequently encountered by companies~~relationships with other businesses to expand our work marketplace or our ability to provide our work marketplace in ~~rapidly evolving markets. Our operating results~~foreign jurisdictions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in ~~any given quarter~~other companies. Negotiating these transactions can be ~~influenced by numerous factors, many of which~~time-consuming, difficult, and expensive, and our ability to close these transactions may often be subject to approvals that are ~~unpredictable~~beyond our control. Consequently, these transactions, even if undertaken and announced, may not close, and any acquisition, investment, or ~~are outside of our control, including:~~

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~~our ability to generate significant revenue from our Upwork Standard and Upwork Enterprise and other premium offerings;~~

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

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~~our ability to maintain and grow our community of users;~~

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

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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, where we charge a lower rate on billings, and freelancers that have billed clients less on our platform, where we charge a higher rate on billings;

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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;

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~~the disbursement methods chosen by freelancers;~~

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seasonal spending patterns by clients or work patterns by freelancers and seasonality in the labor market, including the number of business days in any given quarter or local, national, or international holidays;

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

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~~fluctuations in the mix in payment provider costs;~~

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~~changes to our pricing model;~~

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~~our ability to introduce new products and services and enhance existing products and services;~~

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

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~~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;~~

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~~the productivity of our sales force;~~

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

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

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~~the episodic nature of freelance work;~~

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

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

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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;

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

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~~increases in, and timing of, operating expenses that we may incur to grow and expand our operations and to remain competitive;~~

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~~costs related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;~~

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

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~~litigation and adverse judgments, settlements, or other litigation-related costs;~~

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changes in the common law, statutory, legislative, or regulatory environment, such as with respect to privacy, wage and hour regulations, worker classification (including classification of independent contractors or similar service providers and

~~classification of employees as exempt or non-exempt), internet regulation, payment processing, global trade, or tax requirements;~~

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

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~~fluctuations in transaction losses;~~

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~~fluctuations in currency exchange rates;~~

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

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~~the timing of stock-based compensation expense;~~

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~~expenses incurred in connection with The Upwork Foundation initiative; and~~

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~~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.~~

~~The impact of~~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 ~~foregoing~~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 ~~factors may cause our operating results~~assets, or become subject to ~~vary significantly. As~~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 ~~believe that quarter-to-quarter comparisons~~are unable to repay;

•incur expenses or assume substantial liabilities;

•encounter difficulties retaining key personnel of ~~our operating results may not be meaningful~~the acquired company or integrating diverse software codes or business cultures;

•encounter difficulties in assimilating acquired operations and ~~should not be relied upon as an indication of future performance. If we~~development cultures or otherwise fail to ~~meet~~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 ~~exceed the expectations~~deferred compensation charges; and

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

Any of ~~investors or securities analysts, then the trading price of~~these risks could adversely impact our ~~common stock could fall substantially,~~business and ~~we could face costly lawsuits, including securities class action suits.~~

operating results.

Risks Related to Our Industry, Products, and Services

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

~~Currently, we~~

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 ~~Standard offering.~~Basic, Plus, and Enterprise offerings. As such, market acceptance of our marketplace offerings is critical to our continued ~~success.~~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 respond to technological change and to innovate and grow, contraction in our 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 continue~~ to meet user demands, to expand the categories of services offered on our ~~platform,~~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 may be subject to new and existing laws and regulations, both in the United States and internationally.~~

We 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, 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 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 and 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, 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, terms of service, website accessibility, background checks (such as the Fair Credit Reporting Act, 15 U.S.C. § 1681), and escheatment, may also be adopted, implemented, or interpreted to apply to us and other online services marketplaces. As our platform’s geographical scope expands and 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. It is also possible that certain provisions in agreements with our service providers or between freelancers and clients may be found to be unenforceable or not compliant with applicable law.

Recent financial, political, and other events may increase the level of regulatory scrutiny on larger companies, technology companies in general, and companies engaged in dealings with independent contractors or payments in particular. Regulatory agencies may enact new laws or promulgate new regulations that are adverse to our business, or they may view matters or interpret laws and regulations differently than they have in the past or in a manner adverse to our business or the interests of our users. Such regulatory scrutiny or action may create different or conflicting obligations on us from one jurisdiction to another.

Our success, or perceived success, and increased visibility may also drive some businesses that view our business model to be a threat to raise concerns about our business model to local policymakers and regulators. These businesses 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 platform.

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. If we are found to be subject to new or existing laws and regulations, contractual provisions that are designed to protect and mitigate against risks, including terms of service, arbitration and class action waiver provisions, disclaimers of warranties, limitations of liabilities 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, our business, operating results, and financial condition 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, and operating results.~~

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 such market segment has intensified, and may intensify further, due to the COVID-19 pandemic and the resulting increase in 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.~~users and expand our share of user spend. Our main competitors fall into the following categories:

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

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

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

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

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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, recruiting websites, and project-based deliverable providers;

•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;

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~~software and business services companies focused on talent acquisition, management, invoicing, or staffing management products and services;~~

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

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

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

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

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

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~~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.~~

•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, ~~and~~ 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, and some~~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, ~~in 2016,~~ LinkedIn launched ProFinder ~~its service~~in 2016 and Open for Business in 2019, and in 2021 announced it is developing a new offering called Marketplaces, each of which are services to connect LinkedIn members with one another for freelance service 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, ~~recruiters,~~ and ~~staffing businesses.~~

~~In the future, we may~~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 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 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,~~scale; however, we may face increased competition should these companies ~~and~~or services, ~~succeed. These competitors may offer products and services that may, among other things, provide automated alternatives to the services that freelancers provide on our platform~~ or ~~change the way that businesses engage or pay service providers so as to make our platform less attractive to users.~~

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,~~histories; greater financial, technical, and other ~~resources,~~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 ~~quickly and~~ at nominal cost by using commercially available software or partnering with various established companies in these markets. ~~For all of these reasons, we may not be able to compete successfully against our current and future competitors.~~

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. It is difficult to predict the size, growth rate, and expansion of this market, whether any expansion will be long-term or temporary, particularly in light of the recent shift toward remote work due to the COVID-19 pandemic, 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.” 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 once the COVID-19 pandemic has subsided, 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, but we~~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 ~~platform~~work marketplace 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~~depend on, among other things, the effectiveness of our marketing efforts and brand messaging, our ability to provide a reliable, trustworthy, and useful ~~platform~~work marketplace and products at competitive prices, the perceived value of our ~~platform,~~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 ~~will~~ need to continuously invest in marketing programs that may not be successful in achieving meaningful awareness ~~levels.~~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, we invested heavily in advertising in the ~~nine months ended September 30, 2018~~United States in 2019 and ~~2017, we increased investment in offline advertising in certain markets~~2020 to increase our brand awareness, which investment has continued in 2021, and it is not certain that these investments have had or will have asufficient positive impact on our brand ~~or will~~to be cost effective. ~~In order to protect~~Likewise, publicity efforts or news coverage may undermine our brand ~~we also expend substantial resources to register and defend~~promotion efforts or harm our ~~trademarks and to prevent others from using the same~~reputation or ~~substantially similar marks. Despite these efforts, we~~ may not ~~always~~resonate with existing or potential users. We have also recently evolved, and will continue to evolve, our marketing and brand positioning efforts, including 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 ~~registering~~achieving the brand awareness and ~~preventing misappropriation~~acceptance levels in a cost-effective manner, or without harming other areas of our ~~own marks and other intellectual property or preventing registration of confusingly similar marks, and we may suffer dilution, loss of reputation, or other harm to our brand.~~ business.

We also rely on our community of users in a variety of ways, including their willingness to give us feedback regarding our ~~platform,~~work marketplace, and failure of our users to provide ~~positive~~ feedback on their experience on our ~~platform~~work marketplace or our failure to adequately address any concerns could negatively impact the willingness of them or prospective users to use our ~~platform.~~work marketplace. 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 for projects on our work marketplace. 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.

~~There may~~

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 ~~adverse tax, legal,~~adversely affected.

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, and adding other ~~consequences if the contractor classification~~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. The success of any enhancements 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 the terms~~improvements to, or new features of, our ~~user agreement. Some clients opt to classify freelancers~~work marketplace or any new products and services, such as ~~employees for certain assignments, while many freelancers are classified as independent contractors.~~

“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 ~~offer an optional service~~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 ~~Upwork Enterprise clients,~~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 ~~help classify freelancers as employees of third-party staffing providers or independent contractors. For clients that subscribe~~believe was related to ~~this service, subject to applicable law and~~ the ~~terms~~launch of our ~~agreement~~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, or may adversely impact existing client spend and user growth and retention. Moreover, even if we ~~indemnify clients~~introduce new products and services, we may experience a decline in revenue from ~~misclassification risk~~our existing products and ~~make warranties to~~services that is not offset by revenue from the ~~client (e.g., as to compliance with applicable laws).~~new products or services. In addition, we ~~offer~~may lose existing users that choose to use competing products or services. This could result in a ~~number~~temporary or permanent decrease in revenue and adversely affect our business.

Because a substantial portion of ~~other premium~~the services ~~where we provide increased assistance to enable users to find~~offered by freelancers and ~~contract with one another. Third-party staffing~~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 ~~employ freelancers classified as employees for clients, and failure of these staffing providers to comply with all legal and tax requirements~~on our work marketplace could adversely affect our business. ~~We also~~

A significant portion of the services offered by freelancers and sought by clients on our 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, or otherwise, if talent is not available on our ~~platform~~work marketplace or willing to ~~find, classify,~~perform these services or businesses satisfy their needs for these services through alternative means, including through use of our competitors’ products, 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 work marketplace may slow or decline and ~~engage freelancers to provide services for~~as a result our revenue and business may be adversely impacted.

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 work marketplace may be perceived as not being secure, our reputation may be harmed,

demand for our ~~managed services offering. In general, were a court~~work marketplace may be reduced, our operations may be disrupted, we may incur significant legal costs, fines, or ~~administrative agency to determine that we or clients that use~~liabilities, and our ~~platform have misclassified a freelancer as an independent contractor, we and/or our users~~business could ~~incur tax~~be adversely affected.

Our business involves the storage, processing, and ~~other liabilities for failing to properly withhold or pay taxes on the freelancer’s compensation~~transmission of users’ proprietary, confidential, and personal information as well as ~~potential wage~~the use of third-party partners and ~~hour~~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 ~~liabilities depending~~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 ~~circumstances~~COVID-19 pandemic, to try to take advantage of us, our users, and ~~jurisdiction. Although~~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 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, ~~policies covering liability for certain claims,~~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.

~~There is often uncertainty~~ Any such compromise could also result in ~~the application~~damage to our reputation and a loss of ~~worker classification laws, and consequently there is risk~~confidence in our security measures. In addition, significant unavailability of our work marketplace due 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. A misclassification determination or allegation creates potential exposure for users and for us, including but not limited to 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 ~~workers’ compensation and unemployment; claims of discrimination, harassment, and retaliation under civil rights laws; claims under laws pertaining to unionizing, collective bargaining,~~breaches and other ~~concerted activity;~~privacy and ~~other claims, charges,~~security incidents could cause users to decrease their use of or ~~other proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations~~cease using our work marketplace. Any 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, or settlement. 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, whichthese effects could adversely impact our business. ~~While~~

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 private right of action under the California Consumer Privacy Act of 2018, 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 ~~risks~~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.

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

We depend in part byon various internet search engines, such as Google, as well as other channels to direct a significant amount of traffic to our ~~contractual rights~~website. Our ability to maintain the number of ~~indemnification against third-party claims,~~visitors directed to our website is not entirely within our control. For example, our competitors’ search engine optimization and other efforts such ~~indemnification agreements could be determined~~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 ~~be unenforceable, could be costly~~direct traffic to ~~enforce or ineffective, or indemnification may otherwise prove inadequate.~~

~~Because a substantial portion of the services offered on~~ our ~~platform is information technology services, a decline~~website have in the ~~market for information technology service providers~~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 ~~business.~~

~~A significant portion of the services offered by freelancers on our platform relate~~ability to information technology. If, for any reason, the market for information technology services declines, including as a result of global economic conditions, automation, increased use of artificial intelligence, or otherwise, or if need for these services slows or businesses satisfy their needs for these services through alternative means, the growth inmaintain 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 ability to attract and retain users is dependent in part on ease of use and reliability of our ~~platform may slow or decline~~work marketplace and ~~as a result~~the quality of our ~~revenue~~support, and any failure to offer high-quality support could adversely impact our business, ~~may be adversely impacted.~~

~~Future changes~~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 ~~pricing model could adversely affect~~work marketplace and to communicate effectively concerning their accounts. Our ability to provide effective support is largely dependent on our ~~business.~~

~~We implemented a significant change~~ability to ~~our pricing model in 2016, which has contributed~~attract, resource, and retain service providers who are not only qualified to GSV having grown at a faster rate than revenue in recent periods, and we may from time to time decide to make further changes to our pricing model due to a variety of reasons, including changes to the market for our products and services, and as competitors introduce new products and services. Changes to any componentssupport users of our ~~pricing model may, among other things, result~~work marketplace, but are also well versed in our work marketplace. Offering our website and user ~~dissatisfaction and could lead to a loss of users on our platform and could negatively impact our operating results, financial condition, and cash flows.~~

~~Adverse or changing economic conditions~~support only in English may negatively impact our ~~business.~~

~~Our business depends on the overall demand for labor~~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 ~~on the economic health of current~~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 ~~clients that use our platform. Any significant weakening of the economy in the United States or Europe or of the global economy, more limited availability of credit, a reduction in business confidence~~users, and activity, decreased government spending, economic uncertainty, financial turmoil affecting the banking system or financial markets, a more limited market for independent professional service providers or information technology services, and other adverse economic or market conditions maycould 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. These adverse conditions could 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. We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally. If the conditions in the general economy significantly deviate from present levels, our business, financial condition, and operating results, ~~could be adversely affected.~~

and financial condition.

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

Our business depends on users transacting through our ~~platform.~~work marketplace. Despite our efforts to prevent them from doing so, users ~~may~~ circumvent our ~~platform~~work marketplace and engage with or pay each other through other means to avoid the fees that we ~~charge~~charge. Circumvention by users of our work marketplace is also likely to have increased and may continue to increase in response to a macroeconomic downturn, such as the macroeconomic downturn caused by 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 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 ~~platform.~~work marketplace. The loss of revenue associated with circumvention of our ~~platform could have~~work marketplace has an adverse impact on our business, cash flows, operating results, and financial condition.

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

~~Requirements on our platform relating~~efforts to ~~user authentication and fraud detection are complex. If our security measures do not succeed, our business~~reduce circumvention may be ~~adversely impacted. In addition, bad actors around~~costly or disruptive to implement, fail to have the ~~world use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized use of another’s identity~~intended effect or payment information, unauthorized acquisition or use of credit or debit card details and bank account information, and other fraudulent use of another’s identity or information. This could result in any of the following, each of which could adversely impact our business:

•

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 Business Oversight (the “DBO”) may require us to hold larger cash reserves;

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we may be subject to additional risk and liability exposure, including 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;

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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;

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users of our website who are subjected or exposed to the unlawful or improper conduct of other users or other third parties, including law enforcement, may seek to hold us responsible for the conduct of other users and may lose confidence in our platform, decrease or cease use of our platform, seek to obtain damages and costs, or impose fines and penalties;

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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;

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if freelancers misstate their qualifications or location, provide misinformation, 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 as a result of the occurrence of any of the above.~~

Despite measures we have taken to detect and reduce the risk of this kind of conduct, we do not have control over users of our platform and cannot ensure that any of our measures will stop illegal or improper uses of our platform. We have received in the past, and may receive in the future, complaints from clients, freelancers, and other third parties concerning misuse of our platform. 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 resources of our management and adversely affect our business and operating results.

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

Our subsidiary, Upwork Escrow Inc., 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 DBO. As of September 30, 2018, there have been two instances in which we have received inquiries from regulatory authorities inquiring whether we are engaging in payment activities through Upwork Escrow or oDesk, which is now Upwork Global Inc., which require a license in the applicable jurisdiction. In April 2013, we received an inquiry from the Washington Department of Financial Institutions, which was resolved in our favor in December 2013. In July 2013, oDesk received an inquiry from the DBO, which was favorably resolved in connection with the combination of Elance and oDesk in 2014.

Although we believe that our operations comply with existing U.S. federal and 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. As a result, Upwork Escrow or Upwork Global could be required to be licensed as an escrow agent or a money transmitter (or other similar licensee) in U.S. states or other jurisdictions or may choose to obtain such a license even if not required. Such a decision could also require Upwork Escrow or Upwork Global to register as a money services business under federal laws and regulations. It is also possible that Upwork Escrow or Upwork Global 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, 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 may also be required to become licensed as a payment institution (or other similar license) under the European Payment Services Directive or other international laws and regulations. Any developments in the laws or regulations related to escrow, money transmission, or the handling or moving of money, 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 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 suspended, and we may be subject to civil liability or criminal liability and our business, operating results, and financial condition could be adversely affected.

~~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~~brand or user experience, cause users to cease using our work marketplace, reduce 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 emerging 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, like 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, one or more jurisdictions may claim that we or our users are required to comply with their laws. Laws outside of the United States regulating internet, payments, escrow, privacy, taxation, terms of service, website accessibility, consumer protection, intellectual property ownership, services intermediaries, labor and employment, wage and hour, worker classification, 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 service 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:~~

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~~being deemed to conduct business or have operations in the jurisdictions where we have users and being subject to their laws and regulatory requirements;~~

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~~new or changed regulatory requirements;~~

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~~varying worker classification standards and regulations;~~

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

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~~tariffs, export and import restrictions, restrictions on foreign investments, sanctions, and other trade barriers or protection measures;~~

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

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~~lack of acceptance of localized services;~~

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

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~~tax issues;~~

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~~weaker intellectual property protection;~~

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

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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), consumer and data protection, privacy, network security, encryption, data residency, and taxes, as well as securing expertise in local law and related practices;

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

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~~fluctuations in foreign currency exchange rates;~~

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

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

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

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~~political instability and security risks 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 or that all~~attractiveness of our ~~employees, contractors, partners, users, and agents will comply. Any violations could result in enforcement actions~~work marketplace, divert the attention of management, 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,otherwise harm our ~~business, operating results, and financial condition could be adversely affected.~~

~~If we are unable to maintain our payment partner relationships, or if our payment partners encounter business difficulties, 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 clearing, processing, and settlement functions for the funding of all transactions on our platform. 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 we are unable to enter into new agreements with new payment partners, our ability to disburse transactions and our revenue and business may be adversely affected. This could occur for a number of reasons, including the following:

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

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~~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;~~

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

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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

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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.

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 revenue and profits 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, 2018 was $186.0 million, representing a period-over-period growth rate of 26% over the same period in 2017. 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 our workforce; and effectively collaborate with our third-party partners. 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 in the past, 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.

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, ~~all~~each of which could adversely impact 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 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 ~~platform~~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 ~~platform.~~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. During the COVID-19 pandemic, some existing and potential clients have failed to respond to our sales outreach, slowed down decision-making, delayed planned work on our work marketplace, 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 COVID-19 restrict our ability to travel and negotiate in person, which may also negatively impact our sales efforts. In addition, ~~larger enterprises~~large enterprise, global account, and mid-market clients may require greater functionality and scalability ~~and acceptance provisions~~ that can lead to ~~a delay~~delays in ~~revenue recognition.~~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~~work marketplace generally. Despite our

efforts in familiarizing potential large enterprise, global account, and mid-market clients with the benefits of our ~~platform, some~~work marketplace, these potential ~~enterprise~~ clients may decide not to use our ~~platform~~work marketplace if, among other reasons, they do not feel that their procurement or compliance needs are or will be met. It is more difficult to find sales personnel with the specific skills and technical knowledge needed to sell our Upwork Enterprise offering and other premium offerings. Even if we are able to hire qualified personnel, doing so may be costly. As a result of these factors,In addition, sales opportunities with large ~~enterprises~~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. This reduction 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 ~~an enterprise~~a client to use our ~~platform,~~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 ~~enterprise~~ clients is contingent on the level of spend by the client. If ~~an enterprise~~a client negotiates pricing terms that are ~~not~~less favorable to us, does not engage freelancers on our ~~platform,~~work marketplace, or uses freelancers for few projects or projects of ~~nominal~~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 ~~services~~matters for larger enterprise, global account, and mid-market clients, or to other terms that are ~~unfavorable~~less favorable to us in order to secure a client’s business or increase ~~their spend.~~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 ~~revenue growth~~work marketplace enables our users to manage important aspects of their businesses, and ~~ability to achieve~~any errors, defects, or disruptions in our work marketplace, or other performance problems with our work marketplace or infrastructure could harm our brand and ~~sustain profitability will depend in part on being able to expand our sales force~~reputation and ~~increase~~may damage the ~~productivity~~businesses of users. As the usage of our ~~sales force.~~

~~We have only recently begun generating revenue from~~work marketplace grows, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to operate our Upwork Enterprise offering and other premium offerings. In order to increase our revenue from these offerings and achieve and sustain profitability, we must increase the size of our sales force and generate additional revenue from new and existing users.

~~There~~work marketplace. It 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. New sales personnel require significant training and can take a number of months to achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect and if 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. We may also be unable to hire or retain a sufficient number of qualified sales personnel. Furthermore, hiring sales personnel in new markets requires additional costspossible that we may ~~not recover if the sales personnel~~ fail to achieve full productivity. If we are unable to hire and train a sufficient number of effective sales personnel, or if our sales personnel are not successful in obtaining new business or increasing sales to our existing user base, our business will be adversely affected.

~~Our user growth and engagement on mobile devices depend upon 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 platform through mobile devices. There is no guarantee that popular mobile devices will continue to ~~support~~effectively scale and grow our platform, that the use of mobile devices for marketplace transactions 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 treatmenttechnical infrastructure to ~~competitors could~~accommodate these increased demands, which may adversely affect our ~~platform’s usage~~user experience. We also rely on ~~mobile devices. Additionally, in order~~third-party software and infrastructure, including the infrastructure of the internet, to ~~deliver high-quality mobile products, it is important that~~

provide our ~~products are designed effectively~~work marketplace. Any failure of or disruption to this software and infrastructure could also make our 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 or users find our mobile offering does not effectively meet their needs, our competitors develop products and services that are perceived to operate more effectively on mobile devices, or if our users choose not to access or use our platform on their mobile devices or use mobile products that do not offer accessmarketplace unavailable to our ~~platform, our user growth, user engagement, and business could be adversely impacted.~~

If internet search engines’ methodologies or other channels that we utilize to direct traffic to our website are modified, 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 and Bing, 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.users. For example, ~~our competitors’ search engine optimization and other efforts may result~~for a short period of time in ~~their websites receiving~~May 2019, due to an inadvertent error by a ~~higher search result page ranking than ours, internet search engines or other channels that we utilize to direct traffic to our website could revise their methodologies~~regulatory agency in ~~a manner that adversely impacts 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.

~~We may experience a decline~~Bangladesh, users in traffic to our website if third-party browser technologies are changed, or search engine or other channels that we utilize to direct traffic to our website change their methodologies or rules, to our disadvantage. We expect the search engines and other channels that we utilize to drive users to our website to continue to periodically change their algorithms, policies, and technologies. These changes may result in an interruption in users’ abilityBangladesh 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 ~~impair our ability~~prior to ~~maintain~~contested political elections and, ~~grow the number of users who 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~~any such governmental action were to take place again, it would adversely affect user activity on our ~~business and operating results.~~

~~If we~~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 ~~our third-party partners experience a security breach and unauthorized parties obtain access to our users’ data, our data, or our platform, networks,~~released. Any errors, defects, disruptions in service, or other ~~systems,~~performance or stability problems with our platform may be perceived as not being secure, our reputation may be harmed, demand for our platform may be reduced, our operations may be disrupted, we may incur significant legal liabilities, and our business could be adversely affected.

~~Our business involves~~work marketplace, or the storage, processing, and transmission of users’ proprietary, confidential, and personal information as well as the use of third-party partners 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 informationinadequacy of our ~~personnel. Any security breach~~efforts to adequately prevent or ~~incident that we experience~~timely remedy errors or defects, could result in ~~unauthorized access to, misuse~~negative publicity, loss of or ~~unauthorized acquisition~~delay in market acceptance of our work marketplace, loss of competitive position, our inability to timely and accurately maintain our financial records, inaccurate or ~~our users’ data,~~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 ~~loss, corruption,~~DFPI or ~~alteration of this data, interruptions~~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 operations, or damage to our computers or systems or those of our users. Any of these could expose us to claims, litigation, fines, 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. 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 third-party partners may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our or our third-party partners’ security occurs, 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 data security incidents may also result from non-technical means, for example, actions by employees or contractors, such as freelancers that we engage on our platform to perform services for us. Any compromise of our or our third-party partners’ security could result in a violation of applicable privacy and other laws, regulatory or other governmental investigations, enforcement actions, and legal and financial exposure, including potential contractual liability that is not always limited to the amounts covered by our insurance. Any such compromise could also result in damage to our reputation and a loss of confidence in our security measures. Any of these effectswork marketplace could adversely impact our ~~business.~~

~~Our~~brand and ~~our third-party partners’ systems may be vulnerable to computer viruses~~reputation, revenue, and other malicious software, physical or electronic break-ins, or weakness 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. We may need to expend significant resources to protect against, and to address issues created by, security breaches and other incidents. Security breaches and other security incidents, including any breaches of our security measures or those of parties with which we have commercial relationships (e.g., freelancers or other third-party service providers who provide development or other services to us) that result in the unauthorized access of users’ confidential, proprietary or personal information, or the belief that any of these have occurred, could damage our reputation and expose us to a risk of loss or litigation and possible liability. Significant unavailability of our platform due to attacks could cause users to cease using our platform and adversely affect our business. Although we maintain cyber liability insurance, we cannot be certain our coverage will be adequate for liabilities actually incurred or will continue to be available to us on reasonable terms, or at all.

operating results.

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

AWS.

We currently host our ~~platform,~~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, ~~cyber security~~cybersecurity attacks, terrorist attacks, power losses, telecommunications failures, and similar ~~events. The occurrence of a natural disaster~~events or ~~an act of terrorism, a decision to close the facilities without adequate notice, or other unanticipated problems could result in lengthy interruptions to our platform. The facilities also~~ 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 ~~platform’s~~work marketplace’s continuing and uninterrupted performance is critical to our ~~success. Users~~success and users may become dissatisfied by any system failure that interrupts our ability to provide our ~~platform~~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 ~~would~~could reduce the attractiveness of our ~~platform~~work marketplace to users, ~~thereby reducing revenue.~~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 ~~platform.~~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.~~

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 ~~platform~~work marketplace and our operating results may be adversely impacted.

We also plan to substantially complete the transition during the second quarter of 2021 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. During this transition, we may experience resulting downtime, cause errors in our work marketplace 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, such litigation has been, and may in the ~~litigation may~~future continue to be, time consuming, itand may divert management’s attention and, if Amazon ~~failed~~fails to fully indemnify us, ~~it may~~ adversely impact our operating results.

Failure to comply with anti-corruption, anti-money laundering, and sanctions laws, including 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 program designed to address the risk of our platform being used to facilitate money laundering, terrorist financing, and other illicit activity. We also have policies, procedures, and sophisticated technology designed to comply with U.S. economic sanctions laws and prevent our platform from being used to facilitate business in countries, 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”) and equivalent foreign authorities. Although we have a program that we believe is reasonably designed to allow us to comply with applicable laws, rules, and regulations, we may still 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. Moreover, while we have implemented policies and procedures for compliance with OFAC regulations, including, among others, internet protocol-blocking logic designed to prevent users from using our services within the OFAC-sanctioned countries of North Korea, Syria, Iran, and the Crimea region of Ukraine, given the technical limitations in developing controls to prevent, among other things, the ability of users to place on our platform 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. 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, recent 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 such press reports. In addition to fines, penalties for failing to comply with applicable rules and regulations could include criminal and civil lawsuits, forfeiture of significant assets, or other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory scrutiny. In addition, any perceived or actual breach of compliance by us 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 payment partners to choose 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.

We are also subject to the United States Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and the United Kingdom 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, and 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 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, and other applicable 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.

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

Our users utilize our platform for important aspects of their businesses, and any errors, defects, or disruptions in our platform, or other performance problems with our platform could harm our brand and reputation and may damage the businesses of users. We are also reliant 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. 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 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, or claims by users for losses sustained by them. 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.

Changes in laws or regulations relating to privacy or the protection or transfer of personal data, 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, the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries, or conflict with other laws and regulations. We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection, and information security. We strive to comply with applicable laws, regulations, policies, and other legal obligations relating to privacy, data protection, and information security to the extent possible. However, 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 our users’ data, or their interpretation, 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, 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 proposed and enacted in various jurisdictions. For example, European legislators adopted the General Data Protection Regulation (“GDPR”), which became effective in May 2018, superseded existing European Union data protection legislation, imposes more stringent European Union data protection requirements, and provides for significant penalties for noncompliance. The GDPR created new compliance obligations applicable to our business, users and third-party partners, which could cause us to change our business practices, and increases 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. Additionally, in June 2018, California passed the California Consumer Privacy Act (“CCPA”), which provides new data privacy rights for consumers and new operational requirements for companies, effective in 2020. Fines for noncompliance may be up to $7,500 per violation. The costs of compliance with, and other burdens imposed by, the GDPR and CCPA may limit the use and adoption of our products and services and could have an adverse impact on our business. As a result, we may need to modify the way we treat such information. Further, the United Kingdom initiating a process to leave the European Union has created uncertainty with regard to the regulation of data protection in the United Kingdom. In particular, although the United Kingdom has proposed a Data Protection Bill that would be substantially consistent with the GDPR, this bill remains in the legislative process in the United Kingdom and it remains unclear whether it will be enacted or what it will provide for if enacted.

Any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to users 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. 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.

Additionally, if third parties we work with violate applicable laws, regulations, or agreements, such violations may put our users’ data 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 and increase our costs and risks.

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. 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 discussions about tax reform and other legislative action to increase tax revenue, including through indirect taxes. New income, sales, use, value-added, or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services provided over the internet or could otherwise affect our financial position and operating results. Many countries in the European Union, as well as a number of other countries and organizations, such as the Organization 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. In addition, tax reform legislation commonly referred to as the Tax Act was enacted in the United States in December 2017. We continue to review the impact of these tax reforms on our business. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.

We may also be subject to non-income taxes, such as payroll, sales, use, value-added, and goods and services taxes in the United States and various foreign jurisdictions. In certain jurisdictions, we collect and remit indirect taxes on our fees. However, 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 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, use, value-added, 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 (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 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, or the indemnification obligation may be deemed unenforceable. 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.

As a result of these and other factors, the ultimate amount of tax obligations owed 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.

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 recent shift toward remote work resulting from the COVID-19 pandemic, 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 ~~could~~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.~~

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/or~~and we expand our international activities, our exposure to unauthorized copying and use of our ~~platform~~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, ~~cyber security~~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 ~~platform,~~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 ~~platform~~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. Moreover, 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. 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 ~~enter into~~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, ~~and~~ contractors, and ~~enter into confidentiality agreements with~~ other parties. In addition, for employees of third-party staffing providers or other contractors, the employer ~~enters~~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 ~~otherwise~~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. ~~For example, when working~~Most of our employees and all of the contractors with ~~contractors, particularly those who~~which we work are ~~off-site,~~remote, which may make it ~~may be~~ 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.~~

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 ~~may need to~~ 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 ~~has~~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, or use of marks that may be confusingly similar to our own ~~marks.~~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. ~~Successful intellectual~~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 ~~platform,~~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. We~~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 ~~from time to time~~ 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 recent shift to remote work resulting from the COVID-19 pandemic. 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 ~~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~~brand 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, or redesign the allegedly infringing products and services to avoid infringement, which could be costly, time-consuming, or impossible. Any claims or litigation, regardless of merit, could divert management’s attention and cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering aspects of our platform, or require that we comply with other unfavorable terms.business. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we ~~have.~~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 ~~platform~~work marketplace or strategic partners or others in connection with such infringement claims, or to obtain licenses from third parties or modify our ~~platform,~~work marketplace or marketing strategy, and each such obligation ~~could further exhaust our~~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 ~~resulting from~~relating to allegations of intellectual property infringement could subject us to significant legal costs and liability for damages, ~~and~~ invalidate our proprietary ~~rights. Any potential future intellectual property disputes~~rights, or ~~litigation also could~~ 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;~~

•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;~~

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

•

~~incur significant legal expenses;~~

•incur significant legal expenses;

•

~~pay substantial damages to the party whose intellectual property rights we may be found to be infringing;~~

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

•

~~make expensive changes in our methods of doing business; or~~

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

•

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

•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 ~~further exhaust our~~require us to expend additional financial and management resources.

Our ~~revenue growth depends~~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 ~~part on~~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 ~~success~~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 ~~strategic relationships with third parties and their continued performance.~~

~~To grow our business,~~work marketplace be distributed or made available in source code form. Although we ~~anticipate~~do not believe that we ~~will need to continue to establish~~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, ~~maintain relationships with third parties, such as staffing providers, banks, and payment processing and disbursement providers. For example, we work with third-party staffing providers~~despite our efforts, it is possible that ~~support our employment offering for our marketplace, Upwork Payroll, and premium offerings. As our agreements with third-party partners terminate or expire,~~ we may be ~~unable~~liable for copyright infringement, breach of contract, or other claims if our use of open source software is adjudged not to ~~renew or replace these agreements on comparable terms, or at all. Moreover, we cannot guarantee that~~comply with the parties with which we have strategic relationships will continue to devote the resources necessary to expand our reach, increase our distribution or support an increased number of users and associated use cases. Further, some of our strategic partners offer, or could offer, competing products and services or also work with our competitors. 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,applicable open source licenses.

Moreover, we cannot ensure that ~~these relationships~~our processes for controlling our use of open source software in our work marketplace will ~~result in increased usage~~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 ~~platform or increased revenue.~~

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

~~Our ability~~

In addition to ~~attract and retain users is dependent in part on the ease~~risks related to license requirements, use of use and reliability of our platform, including our ability to provide high-quality support. Our users depend on our support organization to resolve any issues relating to our platform. 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 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, includingopen source software can involve greater risks than those associated with ~~delivering~~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 ~~documentation in languages other than English. Any failure~~we cannot ensure that the authors of such open source software will implement or push updates to ~~maintain high-quality support,~~address security risks or ~~a market perception~~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 ~~high-quality~~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 ~~could harm~~ our ~~reputation,~~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 ~~our ability to sell our platform to existing and prospective users, and could adversely impact our business, operating results, and financial condition.~~

~~Our business model may subject us to disputes between users~~the usage of our ~~platform.~~

~~Our business model involves connecting freelancers~~work marketplace on mobile devices. Additionally, in order to deliver high-quality mobile products, it is important that our products are designed effectively 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 use. It is possible that disputes may arise between freelancers and clients with regard to their contract terms, or otherwise, including with respect to service standards, payment, confidentiality, work product, and intellectual property ownership and infringement. If either party believes the contract terms were not met, our standard terms 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 claimswell with a ~~court or arbitral authority. Given our role in facilitating~~range of mobile devices, technologies, systems, networks, and ~~supporting these arrangements, it is possible~~standards that ~~claims will be brought against us directly as a result of these disputes, or that freelancers or clients may bring us into any claims filed against each other. Through our user agreements~~ we disclaim responsibility and liability for any disputes between users (except with respect to the specified dispute assistance program); however, we cannot guarantee that these terms will, in all circumstances, be effective in preventing or limiting our involvement in user disputes. 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 resources of our management, harm our reputation, 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 Stephane Kasriel, our President and Chief Executive Officer, or other members of our senior management team, we may not be able to execute on our business strategy.

Our future success depends on our continuing ability to attract, train, assimilate, and retain highly-skilled personnel, including software engineers and sales personnel. We face intense competition for qualified individuals 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.control. We may not be ~~able to retain our current~~successful in developing relationships with key ~~employees or attract, train, assimilate, or retain other highly-skilled personnel~~participants in the ~~future. We may incur significant costs~~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 ~~attract~~access and ~~retain highly-skilled personnel,~~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 ~~we may lose new employees~~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 ~~competitors or other technology companies before we realize the benefit of~~work marketplace, our ~~investment in recruiting~~user growth, user engagement, and training them. 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 future success also depends in large part on the continued services of senior management and other key personnel. In particular, we are dependent on the services of Stephane Kasriel, our President and Chief Executive Officer, and our technology, platform, future vision, and strategic direction could be compromised if he 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 in the areas of product, engineering, operations, security, marketing, sales, support, 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. Historically, we have maintained, and currently we maintain, a key-person life insurance policy only on our President and Chief Executive Officer. If we lose the services of senior management or other key personnel, or if we are unable to attract, train, assimilate, and retain the highly-skilled personnel we need, our business, operating results, and financial condition could be adversely ~~affected.~~

~~Volatility or lack of appreciation in~~impacted.

Risks Related to Legal and Regulatory Matters

We and our stock price may also affect our ability to attract new talent and retain our key employees. 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. Employeesusers may be more likely to leave us if the shares they own, or the shares underlying their vested options, have significantly appreciated in value relative to the original purchase price of the shares or the exercise price of the options, or conversely, if the exercise price of the options that they hold are significantly above the market price of our common stock. If 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.

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

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to ~~significant regulatory oversight~~new and ~~reporting obligations under the federal securities~~existing laws and regulations, both in the ~~continuous scrutiny of securities analysts~~United States and ~~investors. These new obligations~~internationally.

We and ~~constituents will 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.~~

The requirements of 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.

~~As a public company, we~~users are subject to ~~the reporting requirements~~a wide variety of ~~the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform~~foreign 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 after we are no longer an emerging growth company. 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, which would increase our costs and expenses.

~~In addition, changing laws,~~domestic laws. Laws, regulations, and standards ~~relating to corporate governance~~governing issues that may affect us, such as worker classification, employment, worker health, payments, worker confidentiality obligations and ~~public disclosure~~whistleblowing, intellectual property, consumer protection, taxation, privacy, and data security are ~~creating uncertainty for public companies, increasing legal~~often complex and ~~financial compliance costs, and making some activities more time consuming. These laws, regulations, and standards are~~ subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their enforcement and application in practice may ~~evolve~~change or ~~otherwise change~~develop over time through judicial decisions or as new guidance isor interpretations are provided by regulatory and governing ~~bodies. This~~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 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 increase. Legislators have enacted, and may continue to enact, new laws or regulatory agencies may promulgate new rules or regulations that are adverse to our business or the interests of our users, or they may view matters or interpret or enforce laws and regulations differently than they have in the past or in a manner adverse to our business or the interests of our users. Such legislative or regulatory scrutiny or action may create or enhance different or conflicting obligations on us from one jurisdiction to another.

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, laws related to the COVID-19 pandemic, 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), consumer and data protection, privacy, network security, encryption, data residency, and taxes, as well as securing expertise in local law and related practices;

•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;

•economic weakness or currency-related challenges or crises;

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

•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;

•fluctuations in foreign currency exchange rates;

•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 in the U.S. or elsewhere;

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

•corporate or state-sponsored espionage or cyberterrorism; 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 ~~continuing uncertainty regarding compliance matters~~enforcement actions or other proceedings, fines, civil and ~~higher~~criminal penalties, damages, interest, costs ~~necessitated by ongoing revisions~~and fees (including but not limited to ~~disclosure and governance practices. We intend to invest resources~~legal fees), injunctions, loss of intellectual property rights, or reputational harm. If we are unable to comply with ~~evolving~~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.

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, which we refer to as AB 5, which went into effect January 1, 2020 and which has the stated purpose of codifying the Dynamex holding. Together, they retroactively 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.

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, which we refer to as 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.

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.

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 work marketplace 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 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 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 ~~(or changing~~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, which we refer to as the GDPR, which became effective in May 2018 and superseded the existing 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, 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-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 16 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, which we refer to as the Data Protection Act, that is substantially consistent with the GDPR. From the beginning of 2021 (when the transitional period following Brexit (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 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 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, which we refer to as the CPRA, which will (upon becoming effective in 2023) extend the CCPA and 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 ~~them),~~these laws and ~~this investment~~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 New York, New Hampshire, 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.

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 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 ~~general~~scrutiny of technology companies, including us, and ~~administrative expenses~~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.

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 ~~time~~attention and ~~attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations,~~resources and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be adversely affected. We also expect that being a public company and the associated rules and regulations will make it more expensive for us to obtain director and officer liability insurance,reputational harm, and we may be required to ~~accept reduced coverage~~incur significant expenses defending against these claims or pursuing claims against third parties. If we are unable to prevail in litigation, we could incur ~~substantially higher costs~~substantial liabilities. We may also determine that the most cost-effective and efficient way to ~~obtain coverage. These factors~~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 ~~also make it more difficult~~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 ~~attract and retain qualified members of~~change our ~~board of directors, particularly to serve on our audit, risk, and compliance committee, compensation committee, and nominating and governance committee, and qualified executive officers.~~

~~As a result of disclosure of information in filings required of a public company,~~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 ~~financial condition will become more visible, which may result in threatened or actual litigation, including by competitors. If such claims are successful,~~could adversely affect our ~~business and~~ operating results ~~could~~and cash flows, harm our reputation, or otherwise negatively impact our business.

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

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

Although 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 ~~time~~handling or moving of money, the laws or regulations may change, and ~~resources necessary~~interpretations of existing laws and regulations may also change. As a result, Upwork Escrow or Upwork Global could be required to ~~resolve them,~~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 even if not required. Such a decision could ~~divert~~also require Upwork Escrow or Upwork Global to register as a money services business under federal laws and regulations. It is also possible that Upwork Escrow or Upwork Global 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 ~~resources~~handling or moving of money, 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 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 or may choose to obtain such a license even if not required. Any developments or inconsistencies in 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 ~~management~~business may lead to additional compliance costs and ~~adversely affect~~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 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 suspended, and we may be subject to civil or criminal liability and our business, operating ~~results.~~

results, financial condition, reputation, and brand could be adversely affected.

Failure to comply with anti-corruption, anti-money laundering, and sanctions laws, including the U.S. Foreign Corrupt Practices Act, 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 work marketplace being used to facilitate money laundering, terrorist financing, or other illicit activity. We also have policies, procedures, and technology designed to allow us to comply with U.S. economic sanctions laws and prevent our 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, 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 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 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 and 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 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, voluntary changes we may make to our ~~disclosure obligations as~~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 ~~public~~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, ~~we could face pressure~~require us to ~~focus on short-term results,~~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 ~~ability to achieve long-term profitability.~~

As a result of becoming a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting. We have identified a material weakness in our internal control over financial reporting and if our remediation of this material weakness is not effective, or 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.

As a public company, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting, provided that our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. We are required to disclose changes made in our internal control and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

In connection with the preparation of our consolidated financial statements, we identified a number of adjustments to our consolidated financial statements that resulted in a revision to previously issued financial statements. As a result of these adjustments, for the year ended December 31, 2016, net loss increased by $0.3 million and cash flows from operations decreased by $0.3 million. There was no impact to cash flows from investing or financing activities for the year ended December 31, 2016. Moreover, total assets decreased by $0.5 million and total liabilities increased by $0.7 million as of December 31, 2016. These adjustments were related to complexities involving the accounting for financial instruments and treasury activities. 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. Accordingly, we have determined that this control deficiency constituted a material weakness in our internal control over financial reporting. 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 condensed consolidated financial statements would not be prevented or detected on a timely basis. This deficiency could result in additional misstatements to our condensed consolidated financial statements that would be material and would not be prevented or detected on a timely basis.

We have begun evaluating and implementing additional procedures in order to remediate this material weakness, however, we cannot assure you that these or other measures will fully remediate the material weakness in a timely manner. At the beginning of 2016, we had 15 accounting and finance employees. As part of our remediation plan to address the material weakness identified above, we hired a new Chief Financial Officer in October 2017 and subsequently hired additional accounting and finance employees with the specific technical accountingoperating results, and financial ~~reporting experience necessary for a public company, including a senior director of technical accounting, a senior manager of accounting operations,~~condition and additional treasury analysts. We have hired these personnel after considering the appropriateness of each individual’s experience and believe that these personnel are qualified to serve in their current respective roles. As of September 30, 2018, we had 26 accounting and finance employees. We believe the current staffing in our accounting and finance department is sufficient to meet our requirements as a public company. However, we will continue to assess the adequacy of our accounting and finance personnel and resources, and will add additional personnel, as well as adjust our resources, as necessary, commensurate with any increase in the size and complexity of our business. We also increased the depth and level of review procedures with regard to financial reporting and internal control procedures. Despite this, there was insufficient time to remediate this material weakness. If we are unable to remediate the material weakness, or otherwise maintain effective internal control over financial reporting, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports in a timely manner. If our remediation of this material weakness is not effective, or 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, 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.

We are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. During the evaluation and testing process, if we identify material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.

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, including as a result of the material weakness described above, 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,~~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 ~~subject to investigation~~held liable for the corrupt or ~~sanctions by the SEC. In addition,~~other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we ~~are unable to continue to meet these requirements,~~prohibit or do not explicitly authorize such activities. We have implemented an anti-corruption compliance policy, but we ~~may not be able to remain listed on The Nasdaq Global Select Market.~~

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~~cannot ensure 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.” 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 priceall of our ~~common stock.~~

~~Additionally,~~employees, users, and agents, as well as those contractors to which we ~~regularly monitor~~outsource certain of our ~~compliance with~~business operations, will not take actions in violation of our policies or agreements and 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 new or amended financial reporting standards, orlaw, for which we may be ~~required to restate our published financial statements. Such changes to existing standards~~ultimately held responsible.

Any violation of the FCPA, other applicable anti-corruption laws, or ~~changes~~other anti-bribery, anti-money laundering, or sanctions laws, could result in ~~their interpretation may~~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, ~~financial position,~~operating results, and ~~profit, or cause~~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.

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 ~~deviation~~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. While we take precautions to prevent aspects of our work marketplace 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 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 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 three months ended March 31, 2021 and years ended December 31, 2020 and 2019, we incurred net losses of $7.8 million, $22.9 million, and $16.7 million, respectively. As of March 31, 2021, we had an accumulated deficit of $202.7 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 brand promotion efforts, including those designed to reach new 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; 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; 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 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 and could experience a similar reduction in GSV and revenue growth following 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.

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:

•uncertainty regarding 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;

•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, 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 packaging of Connects;

•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 work marketplace, where we charge a lower rate on billings, and freelancers that have billed clients less on our work marketplace, 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;

•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;

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

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

•our ability to attract and retain freelancers in geographic regions in which clients are seeking to engage remote 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;

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

•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, such as the current macroeconomic downturn caused by the COVID-19 pandemic;

•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;

•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;

•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;

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

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

•any impairment charges on our operating ~~profit target,~~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;

•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;

•seasonal spending patterns by clients or work patterns by freelancers, seasonality in the labor market, mitigated impact of typical seasonality in the labor market due to the COVID-19 pandemic and the resulting restrictions intended to prevent its spread, and the unpredictable seasonal work patterns of users following the relaxation or lifting of such restrictions, 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 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 law or interpretation of 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 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 trade and client receivables due to the timing of cash receipts from clients and the number of transactions on our work marketplace;

•increases in, and timing of, operating expenses that we may ~~negatively~~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 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 outages of our work marketplace and associated reputational harm;

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

•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;

•changes to financial accounting standards and the interpretation of those standards that may affect the way we recognize and report our financial ~~results.~~

results, including changes in accounting rules governing recognition of revenue;

•costs 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 transaction losses;

•fluctuations in currency exchange rates;

•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, including those related to executive compensation arrangements, and depreciation and amortization; and

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

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 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 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 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. 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~~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.

The preparation of financial statements in conformity with U.S. ~~federal~~GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in our 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 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 ~~tax reform~~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.

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 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 ~~us.~~

~~In December 2017,~~investor confidence in us and, as a result, the ~~Tax Act was enacted, which significantly reforms~~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 ~~Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Tax Act, among other things, includes changes~~future identify additional material weaknesses. Any failure to ~~U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest~~maintain effective disclosure controls and the use of net operating losses generated in tax years beginning after December 31, 2017, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. The Tax Actinternal control over financial reporting could have ~~material~~an adverse ~~impacts~~effect on our business ~~cash flows,~~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 ~~conditions,~~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 ~~examine the impact such reform~~meet these requirements, we may ~~have.~~

not be able to remain listed on The Nasdaq Global Select Market.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, ~~2017,~~2020, we had net operating loss carryforwards for U.S. federal income tax purposes and state income tax purposes of ~~$172.9~~$343.1 million and ~~$38.5~~$72.9 million, respectively, available to offset future taxable income. ~~If not utilized, the~~Our federal net operating loss carryforward amounts ~~will begin~~began to expire in 2019, including $14.5 million that expired in 2019, $15.1 million that expired in 2020, and ~~the~~$21.6 million that will expire in 2021, and will continue to expire in 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, 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.

~~We have not yet determined~~

If currency exchange rates fluctuate substantially in the ~~consequences to our business of~~future, the ~~Tax Act, which could have a material impact on the value~~results of our ~~deferred tax assets~~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 ~~could increase our future~~have historically been denominated in U.S. ~~tax expense.~~dollars. However, we ~~anticipate that any adjustment~~offer clients the option to ~~provisional amounts recorded would be fully offset by~~settle invoices denominated in U.S. dollars in the local currencies of several non-U.S. countries, and therefore, a ~~corresponding change to~~portion of our ~~valuation allowance.~~

~~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 thatrevenue is subject to ~~this kind~~foreign currency risk. While we currently use derivative instruments to hedge certain exposures to fluctuations in foreign currency exchange rates, the use of ~~open source license can lead~~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 ~~a requirement that certain aspects~~clients located outside of ~~our platform be distributed or made available in source code form. Although we do not believe that we have used open source software~~the United States and could result in a ~~manner that might condition its use on our distribution~~loss of any portion of our platform in source code form, the interpretation of open source licenses is legally 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 the sale of 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 ofclients, 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; assurances of title, performance, or non-infringement; or 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. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that all open source software is identified or submitted for approval prior to use in our platform.

~~Clients may fail to pay their invoices, necessitating action by us to compel payment.~~

In connection with our Upwork Enterprise offering 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. If a client fails to pay for these services rendered by a freelancer, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the applicable enterprise agreement or our terms of service, including through litigation. 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,condition, and cash ~~flow.~~

~~We track certain performance metrics with internal tools~~flows.

Our loan and do not independently verify such metrics. Certain of our performance metrics 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 GSV, the number of core clients, and client spend retention, 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 algorithm 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, and our operating and financial results could be adversely affected.

Our business strategy may, from time to time, include acquiring other complementary products, technologies, or businesses. An acquisition, investment, or business relationship may result in unforeseen operating difficulties 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, or otherwise. Acquisitions 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 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:

•

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

•

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

•

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

•

~~incur expenses or 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;~~

•

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

•

~~become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges.~~

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

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.

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

From time to time, we have been subject to litigation. The outcome of any litigation (including class actions and individual lawsuits), regardless of its merits, is inherently uncertain. Regardless of the merits of any claims that may be brought against us, 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. 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 for pending litigation is a complex, fact-intensive process that is subject to judgment calls. Any adverse determination related to litigation or a settlementsecurity 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.

~~Our Loan 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 and security agreement with Silicon Valley Bank, as amended, which we refer to as the Loan Agreement, restricts our ability to, among other things:

•

~~incur additional indebtedness;~~

•incur additional indebtedness;

•

~~sell certain assets;~~

•sell certain assets;

•

~~declare dividends or make certain distributions; and~~

•declare dividends or make certain distributions; and

•

~~undergo a merger or consolidation or other transactions.~~

•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 ~~has increased recently, and~~ 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 and below certain quarterly EBITDA thresholds.~~ratio. Our ability to comply with ~~these EBITDA thresholds and other covenants~~this covenant is dependent upon our future business ~~performance.~~

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 ~~collateral~~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 ~~provide~~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 ~~that~~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.~~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.

We are an emerging growth company, and we cannot be certain that the reduced disclosure requirements applicable to emerging growth companies will not make our common stock less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act, and, for so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We will remain an emerging growth company until the earliest of: (i) December 31, 2023, which is the last day of the fiscal year following the fifth anniversary of our IPO; (ii) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or

more; (iii) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the date on which we qualify as a “large accelerated filer.”

We cannot predict if investors will find our common stock less attractive or our company less comparable to certain other public companies because we will rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future operating results may not be as comparable to the operating results of certain other companies in our industry that adopted such standards. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Our reported financial results may be adversely affected by changes in U.S. GAAP.

U.S. GAAP is subject to interpretation by the ~~FASB,~~Financial Accounting Standards Board, 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.~~

In particular, in May 2014, the FASB issued ASC 606, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASC 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. As an “emerging growth company,” we are allowed under the JOBS Act to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to take advantage of this extended transition period under the JOBS Act with respect to ASC 606, which willchange and could result in ~~ASC 606 becoming effective for us for the year ending December 31, 2019.~~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.

We are evaluating ASC 606 and have not determined the impact it may have on our financial reporting. If, for example, we were required to recognize revenue differently with respect to our subscriptions or professional services, the differential revenue recognition may cause variability in our reported operating results due to periodic or long-term changes in the mix among our subscription offerings.

~~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 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 have historically been denominated in U.S. dollars. However, we offer clients the option to settle invoices denominated in U.S. dollars in Euro, the British Pound, the Australian dollar, or the Canadian dollar, and therefore, 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 natural disasters and other catastrophic events, and by man-made problems such as terrorism, 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 or flood, or other catastrophic events, such as a power loss or telecommunications failure, 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. Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity and potentially subject to 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, 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. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

•

~~overall performance of the equity markets;~~

•

~~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;~~

•

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;

•

~~recruitment or departure of key personnel;~~

•

~~the economy as a whole and market conditions in our industry;~~

•

~~negative publicity related to the real or perceived quality 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;~~

•

~~announcements by us or our competitors of new products or services, commercial relationships, or significant technical innovations;~~

•

~~acquisitions, strategic partnerships, joint ventures, or capital commitments;~~

•

~~new laws or regulations or new interpretations of existing laws or regulations applicable to our business;~~

•

~~lawsuits threatened or filed against us, litigation involving our industry, or both;~~

•

~~developments or disputes concerning our or other parties’ products, services or intellectual property rights;~~

•

~~changes in accounting standards, policies, guidelines, interpretations, or principles;~~

•

~~other events or factors, including those resulting from war, incidents of terrorism, or responses to these events;~~

•

~~the expiration of contractual lock-up or market stand-off agreements; and~~

•

~~sales of shares of our common stock by us or our stockholders.~~

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. 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. A substantial portion of our common stock is held by stockholders that acquired their shares prior to the initial public offering of our common stock. We ~~had~~are unable to predict the timing of when such stockholders will sell all or a ~~total~~portion of ~~36,945,317~~their common stock or the effect on the market price of our common stock of any such sales. All shares of our common stock and 61,279,079 shares of our convertible preferred stock (which shares converted into an equivalent number of shares of our common stock in the IPO) outstanding as of September 30, 2018, all of which converted to common stock in connection with our IPO. 14,348,196 shares of common stock sold in the IPO are freely tradable, ~~except~~generally without restrictions or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, subject to certain exceptions for ~~any~~ shares ~~purchased~~held by our “affiliates” as defined in Rule 144 under the Securities Act.

With respect to our outstanding shares of common stock not sold in the IPO, subject to certain exceptions, we, all of our directors and executive officers, the selling stockholders, and substantially all of the holders of our common stock and securities exercisable for or convertible into our common stock outstanding immediately prior to the IPO, are subject to market stand-off agreements with us or have entered into lock-up agreements with the underwriters of the IPO under which they have agreed, subject to specific exceptions, not to offer, sell, or agree to sell, directly or indirectly, any shares of common stock without the consent of the underwriters, for a period of 180 days from the IPO date (ending on March 31, 2019). These agreements are subject to certain customary exceptions. When the lock-up period expires, we and our securityholders subject to a lock-up agreement or market stand-off agreement will be able to sell our

~~shares in the public market.~~ In addition, the underwriters of the IPO may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period. Sales of a substantial number of such shares upon expiration of the lock-up and market stand-off agreements, or the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

In addition, as of September 30, 2018, we had stock options outstanding that, if fully exercised, would result in the issuance of 24,312,203 shares of common stock. We have filed a registration statement on Form S-8 to register shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of applicable vesting requirements and lock-up agreements referred to above, 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 ~~some~~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;

•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 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;

•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;

•speculative trading practices by stockholders and other market participants;

•increased interest and trading in our stock from retail investors;

•rumors and market speculation involving us or other companies in our industry and/or other industries;

•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;

•announcements by us or our competitors of new or terminated products or services, commercial relationships, or significant technical innovations;

•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 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.

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.

The concentration of our stock ownership with insiders ~~will likely~~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 ~~October~~March 31, ~~2018,~~2021, our executive officers, directors, ~~current~~ 5% or greater stockholders, and affiliated entities together beneficially owned ~~approximately 61%~~a meaningful portion of our common stock. As a result, these stockholders, acting together, ~~will~~could have ~~control~~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 ~~few securities analysts commence coverage of us, or 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 March 31, 2021, there were 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 will be 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 directorships;~~

•provide that our board of directors is classified into three classes of directors with staggered three-year terms;

•

~~require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws;~~

•permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;

•

~~authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;~~

•require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;

•

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;

•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

•

~~prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;~~

•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;

•

~~provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and~~

•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

•

~~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.~~

•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 ~~will~~ also provide that the federal district courts of the United States ~~will~~would be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities 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. If a court were to find the choice of forum provision contained in our restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely impact our business, operating results, and financial condition.

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 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, 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, including the macroeconomic downturn caused by the COVID-19 pandemic, 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.

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 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 has been approved by the UK Parliament, and applies provisionally until the end of April 2021, until the European Parliament approves 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. 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.

~~Unregistered Sales of Equity Securities~~

From July 1, 2018 through October 3, 2018 (the date of the filing of our registration statement on Form S-8), we issued and sold to our employees, consultants and other services providers an aggregate of 1,208,907 unregistered shares of common stock upon the exercise of stock options under our 2014 Equity Incentive Plan. From July 1, 2018 through October 3, 2018 (the date of the filing of our registration statement on Form S-8), we granted options to our employees, directors, consultants and other services providers to purchase an aggregate of 2,693,123 shares of common stock under our 2014 Equity Incentive Plan, with a per share exercise price ranging from $6.61 to $8.18. These shares were issued pursuant to benefit plans and contracts related to compensation in reliance upon the exemption from registration requirements of Rule 701 of the Securities Act. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

~~Use of Proceeds~~

In October 2018, we completed our initial public offering in which we issued and sold an aggregate of 7,840,908 shares of common stock, including 1,022,727 shares pursuant to exercise of the underwriters’ option to purchase additional shares, and selling stockholders sold 6,507,288 shares of our common stock, including 848,776 shares pursuant to the exercise of the underwriters’ option to purchase additional shares. The shares were sold at the IPO price to the public of $15.00 per share, less the underwriting discounts and commissions. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-227207), which was declared effective by the SEC on October 2, 2018. We raised aggregate net proceeds of $109.4 million from the IPO, after the underwriting discounts and commissions. As described in our Prospectus, we used approximately $10.0 million of net proceeds from the IPO to repay indebtedness under our Loan Agreement. There has been no material change in the planned use of proceeds from our IPO as described in our Prospectus. The managing underwriters of our IPO were Citigroup Global Markets Inc., Jefferies LLC and RBC Capital Markets, LLC. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors pursuant to our director compensation policy.

None.

Item 6. E~~xhibits.~~

Exhibits.

Incorporated by Reference
Filed or Furnished Herewith
Exhibit
Number

Description
Form
File No.
Exhibit
Filing Date
3.1

Restated Certificate of Incorporation.

X
3.2

Restated Bylaws.

X
4.1

Form of Common Stock Certificate.
S-1
333-227207
4.1
9/6/18

10.1

Form of Indemnification Agreement by and between Upwork and each of its directors and executive officers.
S-1
333-227207
10.1
9/6/18

10.2

2014 Equity Incentive Plan, as amended, and forms of equity agreements thereunder.
S-1
333-227207
10.3
9/6/18

10.3

2018 Equity Incentive Plan and forms of award agreements thereunder.
S-1
333-227207
10.4
9/6/18

10.4

2018 Employee Stock Purchase Plan and enrollment forms thereunder.
S-1
333-227207
10.5
9/6/18

10.5

Loan and Security Agreement, dated September 19, 2017, by and between Upwork and Silicon Valley Bank, as amended.
S-1
333-227207
10.14
9/21/18

10.6

Offer Letter, dated August 3, 2018, by and between Upwork and Gary Steele.
S-1
333-227207
10.16
9/6/18

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.

X
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.

X
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.

X
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.

X
101.INS

XBRL Instance Document.

X
101.SCH

XBRL Taxonomy Extension Schema Document.

X
101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

X
101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

X
101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

X
101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

X

Incorporated by Reference

Filed or
Furnished Herewith

Exhibit Number

Description

Form

File No.

Exhibit

Filing Date

10.1

Stock Option Agreement, dated January 18, 2021, by and between Upwork Inc. and Hayden Brown.

10.2

Fifth Amendment to Loan and Security Agreement, dated February 8, 2021, 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.

~~SIGNATURES~~

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.~~

UPWORK INC.

~~Date: November 8, 2018~~

~~By:~~

~~/s/ Stephane Kasriel~~

Date: May 4, 2021

By:

~~Stephane Kasriel~~

/s/ Hayden Brown

Hayden Brown

President and Chief Executive Officer

(Principal Executive Officer)

Date: ~~November 8, 2018~~

May 4, 2021

By:

/s/ ~~Brian Kinion~~

Jeff McCombs

~~Brian Kinion~~

Jeff McCombs

Chief Financial Officer

(Principal Financial and Accounting Officer)

	September 30, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade names	$	2,293	$	2,293	$	—
User relationships		18,678		12,007		6,671
Developed technology		10,356		10,356		—
Domain names		529		529		—
Total	$	31,856	$	25,185	$	6,671

	September 30, 2018
Remainder of 2018	$	670
2019		2,668
2020		2,668
2021		665
Total	$	6,671

	September 30, 2018
Remainder of 2018	$	1,036
2019		3,569
2020		4,223
2021		3,981
2022		4,095
2023		4,214
2024		3,039
Total minimum lease payments	$	24,157

	Shares Authorized		Shares Issued and Outstanding		Net Carrying Value		Aggregate Liquidation Preference
Series A-1		10,141,345		9,142,770	$	72,181	$	91,427
Series A-2		60,000,000		47,124,931		65,853		5
Series B-1		5,854,982		4,866,360		27,628		27,787
Series B-2		145,018		145,018		824		828
Total redeemable convertible preferred stock		76,141,345		61,279,079	$	166,486	$	120,047

	September 30, 2018		December 31, 2017
Dividend yield	0%		0%
Expected term (in years)		2.00		2.75
Risk-free interest rates	2.8%		1.8%
Expected volatility	36.8%		34.6%

	September 30, 2018		December 31, 2017
Options issued and outstanding		24,312,203		23,607,746
Warrant to purchase redeemable convertible preferred stock		398,331		398,331
Warrant to purchase common stock		500,000		45,286
Conversion of redeemable convertible preferred stock		61,279,079		61,279,079
Remaining shares reserved for future issuances under 2014 Plan		197,859		3,962,024
Total		86,687,472		89,292,466

	Options Outstanding
	Shares Available for Grant			Number of Shares Underlying Outstanding Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Balances at December 31, 2017		3,962,024			23,607,746		$	3.10		7.39	$	22,260
Authorized		100,000			—
Granted		(4,468,523	)		4,468,523			5.88
Exercised		—			(3,159,708	)		2.22
Forfeited and cancelled		604,358			(604,358	)		3.72
Balances at September 30, 2018		197,859			24,312,203		$	3.71		7.36	$	269,431

	As of September 30, 2018
Consolidated Balance Sheet Data:	Actual			Pro Forma Adjustments			Pro Forma
Cash	$	27,055		$	99,381		$	126,436
Total current assets		181,452			99,381			280,833
Other assets		6,240			(5,648	)		592
Total assets		318,842			93,733			412,575
Debt, current		29,594			(10,000	)		19,594
Total current liabilities		160,172			(10,000	)		150,172
Other liabilities, noncurrent		6,110			(4,714	)		1,396
Total liabilities		185,586			(14,714	)		170,872
Redeemable convertible preferred stock		166,486			(166,486	)		—
Common stock		4			7			11
Additional paid-in capital		104,900			274,926			379,826
Total stockholders' equity (deficit)		(33,230	)		274,933			241,703
Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)		318,842			93,733			412,575

		Incorporated by Reference				Filed or Furnished Herewith
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed or Furnished Herewith
3.1	Restated Certificate of Incorporation.					X
3.2	Restated Bylaws.					X
4.1	Form of Common Stock Certificate.	S-1	333-227207	4.1	9/6/18
10.1	Form of Indemnification Agreement by and between Upwork and each of its directors and executive officers.	S-1	333-227207	10.1	9/6/18
10.2	2014 Equity Incentive Plan, as amended, and forms of equity agreements thereunder.	S-1	333-227207	10.3	9/6/18
10.3	2018 Equity Incentive Plan and forms of award agreements thereunder.	S-1	333-227207	10.4	9/6/18
10.4	2018 Employee Stock Purchase Plan and enrollment forms thereunder.	S-1	333-227207	10.5	9/6/18
10.5	Loan and Security Agreement, dated September 19, 2017, by and between Upwork and Silicon Valley Bank, as amended.	S-1	333-227207	10.14	9/21/18
10.6	Offer Letter, dated August 3, 2018, by and between Upwork and Gary Steele.	S-1	333-227207	10.16	9/6/18
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.					X
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.					X
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.					X
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.					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X