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~~

2022

☐
☐			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)

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~~September 30, 2022, there were 131,342,482 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~~2022 and December 31, ~~2017~~ 2021	1 2
		Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, ~~2018~~2022 and ~~2017~~ 2021	2 3
		Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2022 and ~~2017~~ 2021	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
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	28 30
Item 4.		Controls and Procedures	28 31
~~PART II.~~		~~OTHER INFORMATION~~
~~Item 1.~~ PART II—OTHER INFORMATION			~~Legal Proceedings~~	30
Item ~~1A.~~ 1.		~~Risk Factors~~ Legal Proceedings	30 32
Item 1A.		Risk Factors	32
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	57 83
Item 6.		Exhibits	58 84
Signatures			59 85

~~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, active clients, future research and development, sales and marketing and general and administrative expenses, provision for transaction losses, our objectives for future operations, potential impacts of the ongoing COVID-19 pandemic, potential impacts of Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus, or expectations regarding actions we may take in response to the pandemic or to the war in Ukraine, 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 ongoing COVID-19 pandemic and ongoing Russian war against Ukraine. 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—FINANCIAL INFORMATION~~


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

UPWORK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(In thousands, except share and per share data)~~

(Unaudited)

	September 30,			December 31,
	2018			2017
(In thousands, except share and per share data)							(In thousands, except share and per share data)	September 30, 2022		December 31, 2021
ASSETS							ASSETS
Current assets:
Cash	$	27,055		$	21,595
Current assets							Current assets
Cash and cash equivalents							Cash and cash equivalents	$	156,423	$	187,205
Marketable securities							Marketable securities	519,383		497,566
Funds held in escrow, including funds in transit		107,479			87,195		Funds held in escrow, including funds in transit	169,966		160,813
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 $16,099 and $3,410 as of September 30, 2022 and December 31, 2021, respectively							Trade and client receivables – net of allowance of $16,099 and $3,410 as of September 30, 2022 and December 31, 2021, respectively	67,070		66,826
Prepaid expenses and other current assets		5,326			4,574		Prepaid expenses and other current assets	16,860		17,243
Total current assets		181,452			144,126		Total current assets	929,702		929,653
Property and equipment, net		6,260			3,514		Property and equipment, net	21,487		21,329
Goodwill		118,219			118,219		Goodwill	118,219		118,219
Intangible assets, net		6,671			8,672

Operating lease asset							Operating lease asset	8,387		10,682
Other assets, noncurrent		6,240			658		Other assets, noncurrent	1,431		1,178
Total assets	$	318,842		$	275,189		Total assets	$	1,079,226	$	1,081,061
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	$	5,354	$	4,996
Escrow funds payable		107,479			87,195		Escrow funds payable	169,966		160,813
Debt, current		29,594			10,342

Accrued expenses and other current liabilities		16,911			16,030		Accrued expenses and other current liabilities	51,781		45,742
Deferred revenue		717			614		Deferred revenue	24,910		22,083
Total current liabilities		160,172			114,643		Total current liabilities	252,011		233,634
Debt, noncurrent		19,304			23,491		Debt, noncurrent	563,520		561,299
Operating lease liability, noncurrent							Operating lease liability, noncurrent	12,619		16,753
Other liabilities, noncurrent		6,110			1,936		Other liabilities, noncurrent	8,493		9,858
Total liabilities		185,586			140,070		Total liabilities	836,643		821,544
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)

Stockholders’ equity							Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 131,342,482 and 129,130,478 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively							Common stock, $0.0001 par value; 490,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 131,342,482 and 129,130,478 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	13		13
Additional paid-in capital		104,900			92,222		Additional paid-in capital	571,636		511,096
Accumulated other comprehensive loss							Accumulated other comprehensive loss	(4,617)		(528)
Accumulated deficit		(138,134	)		(123,592	)	Accumulated deficit	(324,449)		(251,064)
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	242,583		259,517
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	1,079,226	$	1,081,061

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)~~

AND COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017				Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)													(In thousands, except per share data)	2022		2021		2022		2021
Revenue	$	64,113		$	52,262		$	186,012		$	147,793		Revenue	$	158,641	$	128,141	$	456,876	$	365,941
Cost of revenue		20,504			16,894			60,578			47,847		Cost of revenue	40,470		34,933		119,243		98,457
Gross profit		43,609			35,368			125,434			99,946		Gross profit	118,171		93,208		337,633		267,484
Operating expenses:
Operating expenses													Operating expenses
Research and development		14,377			11,514			40,680			32,519		Research and development	38,898		30,873		112,889		85,610
Sales and marketing		18,967			13,626			55,054			37,327		Sales and marketing	63,171		43,192		184,096		128,613
General and administrative		11,707			8,952			34,102			25,415		General and administrative	31,407		26,083		93,872		81,969
Provision for transaction losses		1,892			1,073			4,612			2,857		Provision for transaction losses	10,137		1,377		18,918		3,701
Total operating expenses		46,943			35,165			134,448			98,118		Total operating expenses	143,613		101,525		409,775		299,893
Income (loss) from operations		(3,334	)		203			(9,014	)		1,828
Loss from operations													Loss from operations	(25,442)		(8,317)		(72,142)		(32,409)
Interest expense		589			199			1,674			629		Interest expense	1,117		746		3,362		1,055
Other expense, net		3,423			260			3,845			75
Income (loss) before income taxes		(7,346	)		(256	)		(14,533	)		1,124
Other (income) expense, net													Other (income) expense, net	(1,772)		222		(2,215)		161
Loss before income taxes													Loss before income taxes	(24,787)		(9,285)		(73,289)		(33,625)
Income tax provision		—			(45	)		(9	)		(56	)	Income tax provision	(40)		(26)		(96)		(59)
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
Net loss													Net loss	$	(24,827)	$	(9,311)	$	(73,385)	$	(33,684)

Net loss per share, basic and diluted													Net loss per share, basic and diluted	$	(0.19)	$	(0.07)	$	(0.56)	$	(0.27)
Weighted-average shares used to compute net loss per share, basic and diluted													Weighted-average shares used to compute net loss per share, basic and diluted	130,830		127,915		130,083		126,651

Other comprehensive loss, net of tax:													Other comprehensive loss, net of tax:
Net unrealized holding gain (loss) on marketable securities, net													Net unrealized holding gain (loss) on marketable securities, net	$	166	$	(5)	$	(4,089)	$	(30)
Total comprehensive loss													Total comprehensive loss	(24,661)		(9,316)		(77,474)		(33,714)

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

~~(In thousands)~~

STOCKHOLDERS’ EQUITY

(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

—


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Three Months Ended September 30, 2022		Shares			Amount
Balances as of June 30, 2022		130,530,889	$	13		$	550,711	$	(4,783)	$	(299,622)	$	246,319
Issuance of common stock upon exercise of stock options		81,115	—			291		—		—		291
Stock-based compensation expense		—	—			20,446		—		—		20,446
Issuance of common stock for settlement of RSUs		730,478	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			188		—		—		188


Unrealized gain on marketable securities		—	—			—		166		—		166
Net loss		—	—			—		—		(24,827)		(24,827)
Balances as of September 30, 2022		131,342,482	$	13		$	571,636	$	(4,617)	$	(324,449)	$	242,583


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Three Months Ended September 30, 2021		Shares			Amount
Balances as of June 30, 2021		127,616,789	$	13		$	527,718	$	(6)	$	(219,197)	$	308,528

Issuance of common stock upon exercise of stock options		224,785	—			909		—		—		909
Stock-based compensation expense		—	—			13,917		—		—		13,917
Issuance of common stock for settlement of RSUs		391,971	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			188		—		—		188

Purchases of capped calls related to convertible senior notes		—	—			(49,393)		—		—		(49,393)
Unrealized loss on marketable securities		—	—			—		(5)		—		(5)
Net loss		—	—			—		—		(9,311)		(9,311)
Balances as of September 30, 2021		128,233,545	$	13		$	493,339	$	(11)	$	(228,508)	$	264,833


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Nine Months Ended September 30, 2022		Shares			Amount
Balances as of December 31, 2021		129,130,478	$	13		$	511,096	$	(528)	$	(251,064)	$	259,517
Issuance of common stock upon exercise of stock options		352,336	—			1,335		—		—		1,335
Stock-based compensation expense		—	—			56,180		—		—		56,180
Issuance of common stock for settlement of RSUs		1,698,043	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			563		—		—		563
Issuance of common stock in connection with employee stock purchase plan		161,625	—			2,462		—		—		2,462

Unrealized loss on marketable securities		—	—			—		(4,089)		—		(4,089)
Net loss		—	—			—		—		(73,385)		(73,385)
Balances as of September 30, 2022		131,342,482	$	13		$	571,636	$	(4,617)	$	(324,449)	$	242,583


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Deficit
Nine Months Ended September 30, 2021		Shares			Amount
Balances as of December 31, 2020		124,795,222	$	12		$	494,103	$	19	$	(194,824)	$	299,310

Issuance of common stock upon exercise of stock options		1,899,902	1			6,635		—		—		6,636
Stock-based compensation expense		—	—			38,743		—		—		38,743
Issuance of common stock for settlement of RSUs		1,302,963	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			563		—		—		563
Issuance of common stock in connection with employee stock purchase plan		235,458	—			2,688		—		—		2,688
Purchases of capped calls related to convertible senior notes		—	—			(49,393)		—		—		(49,393)
Unrealized loss on marketable securities		—	—			—		(30)		—		(30)
Net loss		—	—			—		—		(33,684)		(33,684)
Balances as of September 30, 2021		128,233,545	$	13		$	493,339	$	(11)	$	(228,508)	$	264,833

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(In thousands)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(73,385)	$	(33,684)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for transaction losses	18,412		3,004
Depreciation and amortization	6,007		8,187
Amortization of debt issuance costs	2,221		441
Amortization of premium of purchases of marketable securities, net	485		103
Amortization of operating lease asset	2,295		2,712
Tides Foundation common stock warrant expense	563		563
Stock-based compensation expense	56,119		38,666

Impairment expense	—		7,389
Changes in operating assets and liabilities:
Trade and client receivables	(17,764)		(13,967)
Prepaid expenses and other assets	380		(2,163)
Operating lease liability	(3,994)		114
Accounts payable	278		(3,188)
Accrued expenses and other liabilities	2,202		9,987
Deferred revenue	4,285		5,120
Net cash provided by (used in) operating activities	(1,896)		23,284
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(398,259)		(108,828)
Proceeds from maturities of marketable securities	371,879		87,500
Purchases of property and equipment	(893)		(565)
Internal-use software and platform development costs	(5,160)		(4,221)
Net cash used in investing activities	(32,433)		(26,114)
CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in escrow funds payable	9,153		37,649
Proceeds from exercises of stock options	1,335		6,636



Proceeds from employee stock purchase plan	2,462		2,688

Repayment of debt	—		(10,750)
Proceeds from issuance of convertible senior notes	—		575,000
Payment of debt issuance costs	—		(14,855)
Purchases of capped calls related to convertible senior notes	—		(49,393)


Net cash provided by financing activities	12,950		546,975
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(21,379)		544,145
Cash, cash equivalents, and restricted cash—beginning of period	352,058		232,463
Cash, cash equivalents, and restricted cash—end of period	$	330,679	$	776,608
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest	$	1,520	$	347
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Property and equipment purchased but not yet paid	$	107	$	251
Internal-use software and platform development costs incurred but not yet paid	$	75	$	118

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 (“freelancers,”~~marketplace, which are referred to as talent, 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, 2021, 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 15, 2022.

The condensed consolidated balance sheet as of December 31, ~~2017~~2021 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.

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~~ 2022. Prior period amounts have been ~~no changes~~reclassified to conform with the ~~Company’s significant accounting policies that are described in the Prospectus.~~

current period presentation.

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.

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.~~

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~As an “emerging growth company,”~~estimates under different assumptions or conditions.

Risks and Uncertainties

Due to Russia’s invasion of Ukraine, which began in February 2022, and the ~~Jumpstart Our Business Startups Act (“JOBS Act”) allows~~resulting sanctions and other actions against Russia and Belarus, there has been uncertainty and disruption in the global economy. In March 2022, the Company ~~to delay adoption of new~~suspended business operations in Russia and Belarus, announcing that contracts with talent 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 issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”). ASC 606 supersedes the revenue recognition requirements~~clients in ~~ASC 605, and requires the recognition of revenue when promised goods~~Russia or ~~services are transferred to customers in an amount that reflects the consideration to which the entity expects to~~Belarus would 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~~wind down by May 1, 2022.

Although the ~~new revenue standard for the year ending December 31, 2019. Interim reporting under ASC 606 will~~Russian war against Ukraine did not ~~be required until 2020. To date, the Company has established an implementation team and is in the process of evaluating the~~have a material adverse 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 consolidatedCompany’s revenue or other 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 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 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 andresults for the three and nine months ended September 30, ~~2018.~~

~~In May 2017,~~2022, at this time the ~~FASB issued ASU 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~,Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business due to various uncertainties, which ~~provides guidance about which changes~~include, but are not limited to, the ~~terms or conditions~~duration of ~~a share-based payment award require an entity~~the war, the ability of talent based in Ukraine to ~~apply modification~~continue working, the war’s effect on the economy, its impact to the businesses of the Company’s clients, and actions that may be taken by governmental authorities related to the war.

Summary of Significant Accounting Policies

The significant accounting policies applied in the ~~ASU.~~ 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

The Company ~~adopted this standard as of January 1, 2018. The adoption of this standard had no~~has reviewed the accounting pronouncements issued during the nine months ended September 30, 2022 and concluded they were either not applicable or not expected to have a material impact on the Company’s condensed consolidated financial ~~statements as~~statements.

Note 3—Revenue

Disaggregation of Revenue

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

Remaining Performance Obligations

As of September 30, 2022, the Company had approximately $32.7 million of remaining performance obligations. The Company’s remaining performance obligations primarily consist of transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with talent subject to tiered service fees. The remaining transaction price allocated to other performance obligations is immaterial. As of September 30, 2022, the Company expects to recognize approximately $24.9 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.

ContractBalances

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


(In thousands)	September 30, 2022		December 31, 2021
Trade and client receivables, net of allowance	$	67,070	$	66,826
Contract liabilities
Deferred revenue	24,910		22,083
Deferred revenue (component of other liabilities, noncurrent)	7,807		6,349

During the three and nine months ended September 30, ~~2018.~~

2022, changes in the contract liabilities balances were a result of normal business activity and deferral, and subsequent recognition, of revenue related to arrangements with talent subject to tiered service fees and related allocation of transaction price to material rights.

Revenue recognized during the three and nine months ended September 30, 2022 that was included in deferred revenue as of June 30, 2022 and December 31, 2021 was $7.0 million and $16.6 million, respectively. Revenue recognized during the three and nine months ended September 30, 2021 that was included in deferred revenue as of June 30, 2021 and December 31, 2020 was $6.6 million and $14.0 million, respectively.

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 September 30, 2022 and ~~underlying assumptions are discussed further in~~ ~~Note 8 – Preferred and Common Stock Warrants~~.

December 31, 2021. 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

hierarchy:


(In thousands) September 30, 2022	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	$	27,725	$	—	$	—	$	27,725	$	27,725	$	—
Level I
Money market funds	92,163		—		—		92,163		92,163		—
Treasury bills	188,803		8		(388)		188,423		34,901		153,522
U.S. government securities	120,652		—		(2,647)		118,005		—		118,005
Total Level I	401,618		8		(3,035)		398,591		127,064		271,527
Level II
Commercial paper	60,773		—		—		60,773		—		60,773
Corporate bonds	115,170		2		(1,191)		113,981		1,634		112,347
Commercial deposits	32,130		—		—		32,130		—		32,130
Asset-backed securities	28,658		—		(338)		28,320		—		28,320
Yankee bonds	8,863		—		(43)		8,820		—		8,820
Agency bonds	2,475		1		—		2,476		—		2,476
Supranational bonds	2,997		—		(7)		2,990		—		2,990
Total Level II	251,066		3		(1,579)		249,490		1,634		247,856
Total	$	680,409	$	11	$	(4,614)	$	675,806	$	156,423	$	519,383


(In thousands) December 31, 2021	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	$	16,596	$	—	$	—	$	16,596	$	16,596	$	—
Level I
Money market funds	108,204		—		—		108,204		108,204		—
Treasury bills	89,992		1		—		89,993		15,000		74,993
U.S. government securities	94,839		—		(285)		94,554		—		94,554
Total Level I	293,035		1		(285)		292,751		123,204		169,547
Level II
Commercial paper	171,918		—		—		171,918		29,544		142,374
Corporate bonds	183,303		1		(217)		183,087		17,861		165,226

Asset-backed securities	13,749		—		(11)		13,738		—		13,738
Yankee bonds	6,693		—		(12)		6,681		—		6,681
Total Level II	375,663		1		(240)		375,424		47,405		328,019
Total	$	685,294	$	2	$	(525)	$	684,771	$	187,205	$	497,566

Unrealized Investment Losses

The ~~increase~~following table summarizes, for all debt securities classified as available for sale in ~~Level III from~~an unrealized loss position as of September 30, 2022, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position. Unrealized losses as of December 31, ~~2017~~2021 were immaterial.


(In thousands)	Less Than 12 Months				12 Months or Longer				Total
Duration of unrealized losses	Fair Value		Unrealized loss		Fair Value		Unrealized loss		Fair Value		Unrealized loss
Money market funds	$	92,163	$	—	$	—	$	—	$	92,163	$	—
Commercial paper	60,773		—		—		—		60,773		—
Treasury bills	141,722		(388)		—		—		141,722		(388)
U.S. government securities	108,317		(2,343)		9,688		(304)		118,005		(2,647)
Corporate bonds	101,508		(1,006)		8,940		(185)		110,448		(1,191)
Asset-backed securities	27,381		(328)		939		(10)		28,320		(338)
Yankee bonds	8,820		(43)		—		—		8,820		(43)
Commercial deposits	2,397		—		—		—		2,397		—

Supranational bonds	2,990		(7)		—		—		2,990		(7)
Total	$	546,071	$	(4,115)	$	19,567	$	(499)	$	565,638	$	(4,614)

For available-for-sale marketable debt securities with unrealized loss positions, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the securities. As of September 30, ~~2018~~2022 and December 31, 2021, the decline in fair value of these securities was due ~~solely~~ to increases in interest rates and not due to credit related factors. As of September 30, 2022 and 2021, the ~~remeasurement~~Company considered any decreases in market value to 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 Company did not record any impairment charges with respect to its marketable securities during each of the three and nine months ended September 30, ~~2018,~~2022 and ~~is included~~2021.

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 September 30, 2022 and December 31, 2021:


(In thousands)	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	156,423	$	187,205
Restricted cash	4,290		4,040
Funds held in escrow, including funds in transit	169,966		160,813
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows	$	330,679	$	352,058

Property and Equipment, Net

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

following:

	September 30, 2018			December 31, 2017
(In thousands)							(In thousands)	September 30, 2022		December 31, 2021
Computer equipment and software	$	5,250		$	5,385		Computer equipment and software	$	6,370	$	5,493
Internal-use software and platform development costs		4,988			2,318
Internal-use software and platform development							Internal-use software and platform development	30,926		25,738
Leasehold improvements		2,973			2,189		Leasehold improvements	11,644		11,644
Office furniture and fixtures		1,952			1,550		Office furniture and fixtures	3,365		3,365
Total property and equipment		15,163			11,442		Total property and equipment	52,305		46,240
Less: Accumulated depreciation		(8,903	)		(7,928	)
Less: accumulated depreciation							Less: accumulated depreciation	(30,818)		(24,911)
Property and equipment, net	$	6,260		$	3,514		Property and equipment, net	$	21,487	$	21,329

~~Depreciation~~

For each of the three months ended September 30, 2022 and 2021, depreciation expense related to property and equipment was ~~$0.6 million and $0.4 million for~~$0.8 million. For the ~~three~~nine months ended September 30, ~~2018~~2022 and ~~2017, respectively.~~

~~Depreciation~~2021, depreciation expense related to property and equipment was ~~$1.5~~$2.4 million and ~~$1.1~~$2.8 million, ~~for~~respectively.

For the ~~nine~~three months ended September 30, ~~2018~~2022 and ~~2017, respectively.~~

~~The~~2021, the Company capitalized ~~$0.8~~$2.3 million and ~~$0.2~~$0.7 million of internal-use software and platform development costs, ~~during~~respectively. For the nine months ended September 30, 2022 and 2021, the Company capitalized $5.2 million and $4.1 million of internal-use software and platform development costs, respectively.

For the three months ended September 30, ~~2018~~2022 and ~~2017, respectively,~~2021, amortization expense related to the capitalized internal-use software and ~~$2.7~~platform development costs was $1.2 million and ~~$0.4~~$1.6 million, ~~during~~respectively. For the nine months ended September 30, ~~2018~~2022 and ~~2017, respectively. There was no~~2021, 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 and nine months ended September 30, 2018~~ was ~~immaterial.~~

~~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 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 amortization expense of intangible assets was $0.7 million for the three months ended September 30, 2018 and 2017 and $2.0~~$3.6 million and ~~$2.1~~$4.7 million, ~~for the nine months ended September 30, 2018 and 2017,~~ respectively. Amortization expense was included in general and administrative expenses. As of September 30, 2018, 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 intangible assets is as follows (in thousands):~~

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):~~

following:

	September 30, 2018		December 31, 2017
(In thousands)					(In thousands)	September 30, 2022		December 31, 2021
Accrued compensation and related benefits	$	7,239	$	8,399	Accrued compensation and related benefits	$	13,703	$	23,047
Accrued freelancer costs		615		134
Accrued vendor expenses					Accrued vendor expenses	13,295		7,728
Operating lease liability, current					Operating lease liability, current	6,455		6,315
Accrued indirect taxes		1,634		1,861	Accrued indirect taxes	12,470		4,137
Accrued vendor expenses		5,696		4,198
Accrued payment processing fees		683		593	Accrued payment processing fees	2,446		2,085
Accrued talent costs					Accrued talent costs	1,886		1,417
Other		1,044		845	Other	1,526		1,013
Total accrued expenses and other current liabilities	$	16,911	$	16,030	Total accrued expenses and other current liabilities	$	51,781	$	45,742

Note 5—6—Commitments and Contingencies

~~Operating Leases~~

~~The Company leases office space under four non-cancelable~~

Letters of Credit

In conjunction with the Company’s operating lease agreements, which expire from 2019 through 2024. The terms of the office leases contain rent escalation clauses, rent holidays, or tenant improvement allowances. The Company recognizes rent expense on a straight-line basis over the non-cancelable lease term and records the difference between cash payments and the recognition of rent expense as a deferred rent liability. Where leases contain escalation clauses, rent holidays, or tenant improvement allowances, the Company applies them in the determination of straight-line rent expense over the lease term. In September 2015, the Company entered into an agreement to sublease a portion 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):~~

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 the three months ended September 30, 2018 and 2017, respectively. Rent expense was $3.0 million and $2.8 million for the nine months ended September 30, 2018 and 2017, respectively.

~~Letters of Credit~~

As of September 30, ~~2018~~2022 and December 31, ~~2017, in conjunction with the operating lease agreements,~~2021, the Company had ~~two~~three irrevocable letters of credit outstanding in the aggregate amount of ~~$0.6 million and~~ $0.8 ~~million, respectively.~~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~~2022 and December 31, ~~2017.~~

2021.

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~~2022 and December 31, ~~2017,~~2021, 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.~~

September 30, 2022 and December 31, 2021.

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,~~and certain other premium offerings, 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 ~~(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

Total debt

49,000

34,000

Less: Unamortized debt discount issuance costs

(102
)

(167
)
Balance

48,898

33,833

Debt, current

(29,594
)

(10,342
)
Debt, noncurrent

$
19,304

$
23,491

Weighted-average interest rate

6.08
%

5.93
%

Inobligations as of September ~~2017,~~30, 2022 and December 31, 2021:


(In thousands)	September 30, 2022			December 31, 2021
Convertible senior notes	$	575,000		$	575,000




Less: unamortized debt issuance costs	(11,480)			(13,701)
Balance	563,520			561,299
Debt, current	—			—
Debt, noncurrent	$	563,520		$	561,299
Weighted-average interest rate	0.77		%	0.76		%

Convertible Senior Notes Due 2026

On August 10, 2021, 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 of a term loan (the “First Term Loan”) of $15.0issued, at par value, $575.0 million ~~and a $15.0 million revolving line of credit based on eligible trade and client accounts receivable, for an~~ aggregate ~~facility~~principal amount of ~~$30.0 million. However, upon~~0.25% convertible senior notes due 2026, which are referred to as the Notes. The issuance included the full exercise of an option granted by the Company ~~achieving adjusted net revenue~~to the initial purchasers of ~~at least $49.0~~the Notes to purchase an additional $75.0 million aggregate principal amount of Notes. The Notes were issued pursuant to and are subject to the terms and conditions of an indenture, which is referred to as the Indenture, between the Company and Wells Fargo Bank, National Association, as trustee. The Notes were offered and sold in a ~~trailing three-month period~~private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Notes are senior, unsecured obligations of the Company and bear interest at a rate of 0.25% per year. Interest will accrue from August 10, 2021 and is payable semiannually in arrears on ~~or before June 30, 2018,~~February 15 and August 15 of each year, beginning on February 15, 2022, and 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 Term Loan,” and together with the First Term Loan, the “Term Loans”), which, in turn, increased the aggregate maximum~~principal amount of the ~~facility~~Notes will not accrete. The Notes will mature on August 15, 2026, unless earlier redeemed, repurchased, or converted in accordance with the terms of upthe Notes.

Holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount at the option of the holder (i) on or after May 15, 2026, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date, and (ii) prior to ~~$49.0 million.~~ the close of business on the business day immediately preceding May 15, 2026, only upon satisfaction of certain conditions and during certain periods specified as follows:

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

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

•if the Company calls such Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; and

•upon the occurrence of specified corporate events described in the Indenture.

Upon conversion, the Notes may be settled in shares of the Company’s common stock, cash or a combination of cash and shares of the common stock, at the election of the Company. The Notes have an

initial conversion rate of 15.1338 shares of common stock per $1,000 principal amount of Notes, which is subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of approximately $66.08 per share of the Company’s common stock. The conversion rate is subject to customary adjustments under certain circumstances in accordance with the terms of the Indenture. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) occur or if the Company issues a notice of redemption with respect to the Notes prior to the maturity date, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The Company ~~incurred~~may redeem for cash all or any portion of the Notes (subject to a partial redemption limitation), at the Company’s option, on or after August 20, 2024, if the last reported sale price per share of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically.

Upon the occurrence of a fundamental change (as defined in the Indenture), subject to certain conditions, holders have the right to require the Company to repurchase for cash all or a portion of their Notes at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest thereon, if any, until, but excluding, the fundamental change repurchase date.

The Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

The net proceeds from the issuance of the Notes were approximately $560.1 million, after deducting debt issuance costs. The total debt issuance costs ~~of $0.2 million, which was primarily classified as a deduction to the long-term portion of the Term Loan. In November 2017, the Company drew revolving loan borrowings of $10.0 million~~incurred and Term Loan borrowings of $9.0 million. 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 the Company maintaining an adjusted quick ratio of 1.30 and achieving minimum EBITDA levels over trailing periods ranging from three to twelve months. 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 offeringrecorded by the Company ~~with net proceeds~~amounted to $14.9 million, which were recorded as a reduction to the face amount of ~~more than $50.0 million. Because~~ the ~~IPO occurred in October 2018,~~Notes and will be amortized to interest expense on a straight-line basis, which produces a materially consistent amount as the ~~change in~~effective interest ~~rate had no effect on~~method over the ~~Company’s condensed consolidated financial statements as~~contractual term of the Notes.

For the three months ended September 30, 2022, interest expense was $0.4 million and ~~for~~amortization of the issuance costs was $0.7 million related to the Notes. For the nine months ended September 30, 2022, interest expense was $1.1 million and amortization of the issuance costs was $2.2 million related to the Notes. 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~~2021, interest expense related to the ~~debt discount~~Notes and amortization of the issuance costs was ~~immaterial for the three and nine months ended September 30, 2018 and 2017. The Company was in compliance with all financial-related covenants under the Loan Agreement as~~$0.6 million. As of September 30, ~~2018 and December 31, 2017.~~

~~Note 7—Redeemable Convertible Preferred Stock~~

~~Redeemable convertible preferred stock as~~2022, the if-converted value of the Notes did not exceed the outstanding principal amount. As of September 30, ~~2018 and December 31, 2017 consisted of~~2022, 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~~total 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~~Notes was $425.0 million 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~~

Aswas determined based on a ~~result~~market approach using actual bids and offers of the ~~Elance-oDesk Combination, a common stock warrant that was originally issued~~Notes in an over-the-counter market on the last trading day of the period. The Company considers these assumptions to be Level II inputs in accordance with the fair value hierarchy described in “Note 4—Fair Value Measurements.”

Capped Calls

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

Subject to customary anti-dilution adjustments substantially similar to those applicable to the ~~Elance-oDesk Combination became exercisable to purchase up to 45,286~~Notes, the Capped Calls cover the number of shares of the Company’s common stock initially underlying the Notes. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event a conversion of the Notes is settled in cash, to reduce its cash payment obligation) in the event that at ~~an exercise~~the time of conversion of the Notes its common stock price per share exceeds the conversion price of ~~$0.06~~the Notes, with such reduction subject to a cap based on the cap price. If, however, the market price 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, the Company issued 45,286 sharesshare of common stock, ~~upon~~as measured under the ~~exercise~~terms 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~~Capped Calls, exceeds the ~~Tides Foundation. In May 2018, the Company issued a warrant to purchase 500,000 shares of its common stock at an exercise~~cap price of ~~$0.01~~the Capped Calls, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share ~~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 effect 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~~exceeds the cap price of the Capped Calls. The initial cap price of the Capped Calls is $92.74 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~~which represents a premium of 100% over 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 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. 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 thelast reported sale price ~~and the fair value~~ of the common stock atof $46.37 per share on August 5, 2021, and is subject to certain customary adjustments under the terms of the Capped Calls; provided that the cap price will not be reduced to an amount less than the strike price of $66.08 per share.

The Capped Calls are separate transactions and are not part of the terms of the Notes. The Capped Calls meet the criteria for classification as equity and, as such, are not remeasured 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, 2018reporting period and ~~2017. There was an immaterial secondary market transaction during the nine months ended September 30, 2018.~~

are included as a reduction to additional paid-in-capital within stockholders’ equity.

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 (in thousands, except share and per share data):~~

for the periods presented:

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 September 30,				Nine Months Ended September 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Numerator:
Net loss	$	(24,827)	$	(9,311)	$	(73,385)	$	(33,684)


Denominator:
Weighted-average shares used to compute net loss per share, basic and diluted	130,830,411		127,914,696		130,082,683		126,651,490

Net loss per share, basic and diluted	$	(0.19)	$	(0.07)	$	(0.56)	$	(0.27)

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 September 30,
	2022	2021
Options to purchase common stock	3,911,482	4,402,667
Common stock issuable upon exercise of common stock warrants	350,000	400,000
Common stock issuable upon vesting of restricted stock units	8,573,146	4,663,447
Common stock issuable in connection with employee stock purchase plan	1,070,071	262,029
Common stock issuable in connection with convertible senior notes	8,701,935	8,701,935
Total	22,606,634	18,430,078

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

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

The following table sets forth total revenue by type of service ~~(in thousands):~~

for the periods presented:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017			Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)									(In thousands)	2022		2021		2022		2021
Marketplace	$	56,766	$	46,186	$	164,180	$	130,124	Marketplace
Basic, Plus, Client Marketplace(1) and other									Basic, Plus, Client Marketplace(1) and other	$	132,647	$	108,893	$	383,343	$	312,569
Enterprise									Enterprise	12,496		8,890		35,550		24,344
Managed services		7,347		6,076		21,832		17,669	Managed services	13,498		10,358		37,983		29,028
Total	$	64,113	$	52,262	$	186,012	$	147,793
Total revenue									Total revenue	$	158,641	$	128,141	$	456,876	$	365,941

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

The Company generates its revenue from ~~freelancers~~talent 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~~talent and clients ~~(in thousands):~~

for the periods presented:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017			Three Months Ended September 30,				Nine Months Ended September 30,
Freelancers:
(In thousands)									(In thousands)	2022		2021		2022		2021
Talent									Talent
United States	$	10,273	$	6,839	$	28,930	$	19,184	United States	$	21,607	$	18,429	$	64,286	$	55,308
India		6,561		5,712		19,134		16,183	India	11,337		11,109		34,764		31,430
Philippines		4,377		3,795		12,535		10,839	Philippines	9,981		8,602		29,668		23,668
Rest of world		20,168		17,519		59,352		50,767	Rest of world	39,296		37,046		121,865		107,112
Total freelancers		41,379		33,865		119,951		96,973
Clients:
Total talent									Total talent	82,221		75,186		250,583		217,518
Clients									Clients
United States		16,504		14,339		50,153		39,703	United States	56,897		39,661		153,369		110,275
Rest of world		6,230		4,058		15,908		11,117	Rest of world	19,523		13,294		52,924		38,148
Total clients		22,734		18,397		66,061		50,820	Total clients	76,420		52,955		206,293		148,423
Total	$	64,113	$	52,262	$	186,012	$	147,793
Total revenue									Total revenue	$	158,641	$	128,141	$	456,876	$	365,941

Substantially all of the Company’s long-lived assets were located in the United States as of September 30, ~~2018~~2022 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.

2021.

~~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

~~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 ~~to find and work~~ 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~~talent for other services. ~~Freelancers are an increasingly sought-after, critical, and expanding segment of the global workforce.~~ We define ~~freelancers~~talent 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 seek and work with ~~freelancers~~talent through our ~~platform. The freelancers on our platform include~~work marketplace. Talent includes 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 searching~~

Recent Events

In April 2022, we combined our Upwork Basic and Plus client offerings into our new Client Marketplace offering, which simplifies our pricing model for ~~contracting~~clients of those offerings. This model makes available the most popular features of the legacy Upwork Plus offering, while eliminating the monthly client subscription fees and ~~collaborating with,~~moving to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients. This pricing change resulted in greater revenue and ~~paying highly-skilled freelancers for short-term~~a higher marketplace take rate, but also drove some reduction in client spend. Additionally, in the third quarter, we experienced seasonal and ~~longer-term projects. As early innovators~~challenging macroeconomic conditions that were initially observed in ~~this space, we have built an expansive and unique repository~~the second quarter of ~~data on our platform, which, when combined with our machine learning capabilities, enables us to better connect clients with the best freelancers for their projects.~~2022. As a result ~~clients are able to obtain specialized talent~~of the pricing change and the seasonal and macroeconomic conditions, GSV decreased in ~~less time and at a lower cost~~the third quarter, as compared to ~~traditional channels.~~

~~We serve as~~the second quarter of 2022.

In March 2022, we suspended business operations in Russia and Belarus, announcing that contracts with talent or clients in Russia or Belarus would be required to wind down by May 1, 2022. As anticipated, we saw a ~~powerful marketing channel~~slightly smaller impact to revenue in the third quarter compared to the second quarter of 2022. Although the Russian war against Ukraine did not have a material adverse impact on our revenue or other financial results for ~~freelancers~~the three and nine months ended September 30, 2022, at this time we are unable to ~~find rewarding, engaging,~~fully assess the aggregate impact it will have on our business in future periods due to various uncertainties, which include, but are not limited to, the duration of the war, the ability of talent based in Ukraine to continue working, the war’s effect on the economy, its impact to the businesses of our clients, actions that may be taken by governmental authorities related to the war, and ~~flexible work. Freelancers using~~other factors identified in Part II, Item 1A, “Risk Factors” in this Quarterly Report, including the risk factor titled “Russia’s invasion of Ukraine and our ~~platform benefit from access~~decision to ~~quality clients~~suspend our business operations in Russia and ~~secure~~Belarus have affected and ~~timely payments while enjoying the freedom~~may continue to ~~run their own businesses, create their own schedules,~~affect our business 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. In addition, our platform provides access to essential functionality for remote engagements, including communication and collaboration, time tracking, invoicing, and payments.

results of operations.”

Key Financial and Operational Metrics

As of and for the three and nine months ended September 30, 2022, our key financial and operating metrics are as follows:


	Three Months Ended September 30,						% Change		Nine Months Ended September 30,						% Change
(In thousands, except percentages)	2022			2021					2022			2021
GSV	$	1,027,325		$	903,989		14	%	$	3,074,713		$	2,566,572		20	%
Marketplace revenue	$	145,143		$	117,783		23	%	$	418,893		$	336,913		24	%
Marketplace take rate	14.3		%	13.2		%	1.1	%	13.8		%	13.3		%	0.5	%
Net loss	$	(24,827)		$	(9,311)		(167)	%	$	(73,385)		$	(33,684)		(118)	%
Adjusted EBITDA1	$	(2,868)		$	8,216		(135)	%	$	(5,166)		$	22,396		(123)	%


	As of September 30,				% Change
(Active clients are in thousands)	2022		2021
Active clients	818		752		9	%
GSV per active client	$	4,958	$	4,375	13	%

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):~~

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

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 of core clients in any given period drives both GSV, which represents the amount of business transacted through our platform, and client spend retention. Client spend retention impacts the growth rate of GSV. We believe our marketplace revenue, which represents a majority of our revenue, will grow as GSV grows, although they could grow at different rates.decisions. For a discussion of limitations in the measurement of ~~core clients, GSV,~~our key financial and ~~client spend retention,~~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.”~~

~~Core Clients~~

~~We define a core client as a client that has spent~~business” 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~~Part II, Item 1A of ~~measurement. This includes the total amount spent by the client on both~~

this Quarterly Report.

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 that the number of core clients is a key 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 had 101,000 and 82,600 core clients as of September 30, 2018 and September 30, 2017, respectively.

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 for other services,~~to talent, such as ~~freelancer withdrawals~~for transacting payments through our work marketplace, user memberships, and purchases of “Connects” (virtual tokens that allow talent to bid on projects and paid promotional products on our work marketplace), 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~~work marketplace.

Active Clients and ~~increased~~GSV per Active Client

We define an active client ~~spend retention are the primary drivers of GSV growth. In addition, 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. Therefore, marketplace revenue is correlated to GSV, and we believe~~client that our marketplace revenue will grow as GSV grows, although they could grow at different rates. We expect our GSV growth rates to fluctuate between periods due to a number of factors, including the volume and characteristics of projects that are posted by clientshas had spend activity on our ~~platform, such as size, duration, pricing, and other factors.~~

~~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~~work marketplace during the ~~four quarters ended one year prior to~~12 months preceding the date of measurement. ~~We define our recurring~~GSV per active client ~~spend as the aggregate client spend~~is calculated by dividing total GSV during the four quarters ended on the date of measurement ~~from~~by the ~~same~~number of active clients ~~included in our measure~~on the date of ~~base client spend. Our business is recurring in nature even though clients are not contractually required to spend on a recurring basis.~~measurement. We believe that the number of active clients and GSV per active client ~~spend retention is a key indicator~~are indicators of the ~~value of our platform~~growth and ~~the~~ overall health of our ~~business because it impacts the growth rate~~business. The number of active clients is a primary driver of GSV and, ~~therefore,~~in turn, marketplace revenue.

~~The growth~~

1Adjusted EBITDA is not prepared in our marketplace is driven by long-term and recurring use by freelancers and clients, which leads to increased revenue visibility for us. While continued use of our platform by freelancers is a factor that impacts our ability to attract and retain clients, our platform currently has a significant surplus of freelancers in relation to the number of clients actively engaging freelancers. 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, the number of freelancers retained between periods is merely one of many factors that may impact client spend in a particular periodaccordance 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 related to 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 client spend retention was 108% and 95% as of September 30, 2018 and September 30, 2017, respectively.

comparable financial measure prepared under U.S. GAAP.

Marketplace Revenue

Marketplace revenue, which represents the majority of our revenue, consists of revenue derived from our marketplace offerings. Marketplace offerings consist of all offerings other than our managed services offering, including our Upwork ~~Standard~~Basic, Plus, Client Marketplace, and Enterprise offerings. In April 2022, we combined our Upwork ~~Enterprise~~Basic and ~~other premium~~Plus client offerings into our new Client Marketplace offering, which simplifies our pricing model for clients of those offerings. This model makes available the most popular features of the legacy Upwork Plus offering, while eliminating the monthly client subscription fees and moving to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients. We generate marketplace revenue from both ~~freelancers~~talent and clients. ~~Our marketplace~~Marketplace revenue is primarily comprised of ~~the~~talent service fees, ~~paid by freelancers as~~and to a ~~percentage~~lesser extent, client marketplace fees (and prior to the launch of ~~the total amount freelancers charge clients for services accessed through~~ our ~~platform. In addition, we generate marketplace revenue from our Upwork Standard~~Client Marketplace offering, ~~by charging clients a~~ payment processing and administration ~~fee.~~fees). Additionally, marketplace revenue includes revenue from our Enterprise offering, which we refer to as Enterprise Revenue, including all client fees, subscriptions, and talent service fees. We also generate marketplace revenue from fees for premium offerings, including talent memberships, purchases of Connects, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S. dollar, and ~~premium~~our Upwork Payroll offering.

Marketplace Take Rate

Marketplace take rate measures the correlation between marketplace revenue and marketplace GSV and is calculated by dividing marketplace revenue by marketplace GSV. We define marketplace GSV as GSV derived from our marketplace offerings. Marketplace ~~revenue~~take rate is an important metric because it is the ~~primary driver~~key indicator of how well we monetize spend on our ~~business model,~~work marketplace from our Client Marketplace (and previously Upwork Basic and Plus), Enterprise, Payroll, and other premium offerings, which we ~~believe it provides greater comparability~~refer 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~~as our marketplace ~~revenue will grow as GSV grows, although they could grow at different rates.~~

~~Adjusted EBITDA~~

offerings.

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,~~expense; depreciation and ~~amortization,~~amortization; interest ~~expense,~~expense; other (income) expense, ~~net, and~~net; income tax (benefit) ~~provision.~~

provision; and, if applicable, other non-cash transactions. Additionally, in response to Russia’s invasion of Ukraine, during the nine months ended September 30, 2022, we incurred certain incremental expenses associated with our humanitarian response efforts, and we may continue to incur such expenses as the war continues to unfold. These expenses are not representative of our ongoing operations, and, as a result, we excluded these costs from adjusted EBITDA for the nine months ended September 30, 2022 and, to the extent we continue to incur these expenses, intend to continue to do so in future periods. 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):~~

indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			Three Months Ended September 30,				Nine Months Ended September 30,
Net income (loss)	$	(7,346	)	$	(301	)	$	(14,542	)	$	1,068
Add back:
(In thousands)												(In thousands)	2022		2021		2022		2021
Net Loss												Net Loss	$	(24,827)	$	(9,311)	$	(73,385)	$	(33,684)
Add back (deduct):												Add back (deduct):
Stock-based compensation expense		1,986			1,526			5,667			4,817	Stock-based compensation expense	20,404		13,906		56,119		38,666
Depreciation and amortization		1,287			1,033			3,542			3,135	Depreciation and amortization	1,982		2,439		6,007		8,187
Interest expense		589			199			1,674			629	Interest expense	1,117		746		3,362		1,055
Other expense, net		3,423			260			3,845			75
Provision for income tax		—			45			9			56
Other (income) expense, net												Other (income) expense, net	(1,772)		222		(2,215)		161
Income tax provision												Income tax provision	40		26		96		59
Tides Foundation common stock warrant expense												Tides Foundation common stock warrant expense	188		188		563		563
Impairment expense												Impairment expense	—		—		—		7,389
Humanitarian response efforts												Humanitarian response efforts	—		—		4,287		—
Adjusted EBITDA	$	(61	)	$	2,762		$	195		$	9,780	Adjusted EBITDA	$	(2,868)	$	8,216	$	(5,166)	$	22,396

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,~~expense; depreciation and ~~amortization,~~amortization; interest ~~expense,~~expense; other (income) expense, ~~net, and~~net; income tax (benefit) ~~provision~~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.~~Revenue

Marketplace revenue represents the majority of our revenue and is generated from our ~~Upwork Standard and Upwork Enterprise and other premium~~marketplace offerings. Under ~~our Upwork Standard offering,~~these marketplace offerings, we generate revenue from both ~~freelancers~~talent and clients.

Client Marketplace ~~revenue,~~Offering. In April 2022, we combined our Upwork Basic and Plus client offerings into a new Client Marketplace offering, which ~~represents~~simplifies our pricing model for clients of those offerings. This model makes available the ~~majority of our total revenue, is primarily comprised~~most popular features of the ~~service~~previous Upwork Plus offering, while eliminating the monthly client subscription fees ~~paid by freelancers as~~and moving to a ~~percentage of the total amount that freelancers charge clients for services accessed through our platform.~~

~~Our Upwork Standard offering provides~~ ~~clients with access 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 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~~5% on each transaction—or 3% if payment is made via ACH 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 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 to engage freelancers that were not sourced through 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, and we separately contract with unrelated third-party staffing providers who provide employment services to sucheligible clients. ~~Revenue from Upwork Payroll is currently immaterial.~~

Managed Services ~~Revenue.~~Revenue

Through our managed services offering, we are responsible for providing services and engaging ~~freelancers~~talent directly or as employees of third-party staffing providers to perform services for clients on our behalf. ~~The freelancers delivering managed services include independent professionals and agencies of varying sizes.~~ Under U.S. GAAP, we are deemed to be the principal in these managed services arrangements and therefore recognize the entire GSV of managed services projects as managed services revenue, as compared to recognizing only the percentage of the client spend that we receive, as we do with our marketplace offerings.

Cost of Revenue ~~and Gross Profit~~

~~Cost of Revenue.~~

Cost of revenue consists primarily of the cost of payment processing fees, amounts paid to ~~freelancers~~talent 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”)~~ 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 on our platform. Amounts paid to freelancers to deliver services under our managed services offering are tied to the volume of managed services used by our client. The level and timing of all of these items could fluctuate and affect our cost of revenue in the future.

~~Gross Profit and Gross Margin.~~ Our gross profit and gross margin may fluctuate from period-to-period. Such fluctuations may be influenced by our revenue, the mix of payment methods that our clients choose, the timing and amount of investments to expand hosting capacity, our continued investments in our services and support teams, the timing and amount of services freelancers deliver for clients under our managed services offering, and the amortization expense associated with acquired intangibles and capitalized internal-use software and platform development cost. In addition, gross margin will be impacted by fluctuations in our revenue mix between marketplace revenue and our managed services revenue.

~~Operating Expenses~~

Research and ~~Development.~~Development

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

Sales and ~~Marketing.~~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 to invest in our sales and marketing capabilities in the three and nine months ended September 30, 2018 and expect this expense to increase in absolute dollars in future periods. Sales and marketing expense as a percentage of total revenue may fluctuate 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.

General and ~~Administrative.~~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; impairment expense; and insurance.

We expect to invest in corporate infrastructure and incur additional expenses associated with transitioning to and operating as a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums, and compliance costs. As a result, we expect general and administrative expense to increase in absolute dollars in future periods, but this expense may vary as a percentage of total revenue.

Provision for Transaction ~~Losses.~~Losses

Provision for transaction losses consists primarily of losses resulting from ~~fraud and~~ bad debt expense and fraud 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. ~~As result, we expect provision for transaction losses to vary in future periods.~~

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):~~

presented:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017				Three Months Ended September 30,				Nine Months Ended September 30,
Revenue:
(In thousands)													(In thousands)	2022		2021		2022		2021
Revenue													Revenue
Marketplace	$	56,766		$	46,186		$	164,180		$	130,124		Marketplace	$	145,143	$	117,783	$	418,893	$	336,913
Managed services		7,347			6,076			21,832			17,669		Managed services	13,498		10,358		37,983		29,028
Total revenue		64,113			52,262			186,012			147,793		Total revenue	158,641		128,141		456,876		365,941
Cost of revenue⁽¹⁾		20,504			16,894			60,578			47,847		Cost of revenue(1)	40,470		34,933		119,243		98,457
Gross profit		43,609			35,368			125,434			99,946		Gross profit	118,171		93,208		337,633		267,484
Operating expenses:
Operating expenses													Operating expenses
Research and development⁽¹⁾		14,377			11,514			40,680			32,519		Research and development(1)	38,898		30,873		112,889		85,610
Sales and marketing⁽¹⁾		18,967			13,626			55,054			37,327		Sales and marketing(1)	63,171		43,192		184,096		128,613
General and administrative⁽¹⁾		11,707			8,952			34,102			25,415		General and administrative(1)	31,407		26,083		93,872		81,969
Provision for transaction losses		1,892			1,073			4,612			2,857		Provision for transaction losses	10,137		1,377		18,918		3,701
Total operating expenses		46,943			35,165			134,448			98,118		Total operating expenses	143,613		101,525		409,775		299,893
Income (loss) from operations		(3,334	)		203			(9,014	)		1,828
Loss from operations													Loss from operations	(25,442)		(8,317)		(72,142)		(32,409)
Interest expense		589			199			1,674			629		Interest expense	1,117		746		3,362		1,055
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	(1,772)		222		(2,215)		161
Loss before income taxes													Loss before income taxes	(24,787)		(9,285)		(73,289)		(33,625)
Income tax provision		—			(45	)		(9	)		(56	)	Income tax provision	(40)		(26)		(96)		(59)
Net income (loss)	$	(7,346	)	$	(301	)	$	(14,542	)	$	1,068
Net loss													Net loss	$	(24,827)	$	(9,311)	$	(73,385)	$	(33,684)

~~———————~~

⁽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:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Cost of revenue	$	376	$	202	$	962	$	582
Research and development	7,337		4,036		19,517		11,321
Sales and marketing	3,055		1,472		7,983		4,363
General and administrative	9,636		8,196		27,657		22,400
Total stock-based compensation	$	20,404	$	13,906	$	56,119	$	38,666

Comparison of the Three and Nine Months Ended September 30, ~~2018~~2022 and ~~2017~~

2021

Revenue

(in thousands, except percentages)	Three Months Ended September 30,							Nine Months Ended September 30,
	2018		2017		Change			2018		2017		Change
																Three Months Ended September 30,										Nine Months Ended September 30,
(In thousands, except percentages)															(In thousands, except percentages)	2022			2021			Change				2022			2021			Change
Marketplace	$	56,766	$	46,186	$	10,580	23%	$	164,180	$	130,124	$	34,056	26%	Marketplace	$	145,143		$	117,783		$	27,360	23	%	$	418,893		$	336,913		$	81,980	24	%
Percentage of total revenue	89%		88%					88%		88%					Percentage of total revenue	91		%	92		%					92		%	92		%
Managed services	$	7,347	$	6,076	$	1,271	21%	$	21,832	$	17,669	$	4,163	24%	Managed services	13,498			10,358			3,140		30	%	37,983			29,028			8,955		31	%
Percentage of total revenue	11%		12%					12%		12%					Percentage of total revenue	9		%	8		%					8		%	8		%
Total revenue	$	64,113	$	52,262	$	11,851	23%	$	186,012	$	147,793	$	38,219	26%	Total revenue	$	158,641		$	128,141		$	30,500	24	%	$	456,876		$	365,941		$	90,935	25	%

~~Total~~

In the third quarter of 2022, we continued to execute on our strategic initiatives, including investing in sales to acquire new Upwork Enterprise clients, marketing to drive brand awareness, and research and development to enhance platform functionality and infrastructure. The number of active clients increased 9% as of September 30, 2022 compared to the same period in 2021. We believe that the decline in the year-over-year growth rate of active clients since the second quarter of 2021—when it reached 27%, the highest level since our initial public offering—is in large part due to the lapping of prior periods during which we experienced an acceleration of active client growth, driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic. We expect the year-over-year growth rate of active clients to decrease in the fourth quarter of 2022 as compared to the third quarter of 2022. Additionally, our GSV per active client increased 13% as of September 30, 2022, compared to the same period in 2021, driven by increased spend from existing clients. The growth in active clients and GSV per active client contributed to the year-over-year growth of GSV and marketplace revenue. For the three and nine months ended September 30, 2022, GSV increased 14% and 20%, respectively, as compared to the same periods in 2021. In April 2022, we combined our Upwork Basic and Plus client offerings into our new Client Marketplace offering, which simplifies our pricing model for clients of those offerings. This model makes available the most popular features of the legacy Upwork Plus offering, while eliminating the monthly client subscription fees and moving to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients. This pricing change resulted in greater revenue ~~increased by $11.9 million, or 23%,~~and a higher marketplace take rate, but also drove some reduction in client spend. Additionally, in the third quarter, we experienced seasonal and challenging macroeconomic conditions that were initially observed in the second quarter of 2022. As a result of the pricing change and the seasonal and macroeconomic conditions, GSV decreased in the third quarter, as compared to ~~$64.1 million for~~the second quarter of 2022.

For the three months ended September 30, ~~2018~~2022, marketplace revenue represented 91% of total revenue and increased by $27.4 million, or 23%, compared to the same period in 2021. For the nine months ended September 30, 2022, marketplace revenue represented 92% of total revenue and increased by $82.0 million, or 24%, compared to the same period in 2021. Marketplace revenue was driven by client spend, which for the three and nine months ended September 30, 2022, drove increases in talent service

fees of 6% and 14%, respectively, as compared to the same periods in 2021. Marketplace revenue was also driven by the changes to client fees as a result of the shift to our new Client Marketplace offering in April 2022, which resulted in increases in client marketplace fees (previously referred to as client payment processing and administrative fees) of 96% and 68%, respectively, as compared to the same periods in 2021. Marketplace revenue grew at a faster rate than GSV from our marketplace offerings in the third quarter of 2022, and for the three and nine months ended September 30, ~~2017.~~

~~Marketplace revenue represented 89% of total revenue~~2022, our marketplace take rate was 14.3% and 13.8%, respectively, as compared to 13.2% and 13.3%, respectively, for the same periods in 2021. This trend was primarily a result of client fee changes related to the shift to our new Client Marketplace offering, partially offset by existing clients maturing into higher value clients and continuing to increase their spend with particular talent, which resulted in a higher mix of talent at the lower rates of our tiered service fee structure. As a result of the new client fee changes resulting from our new Client Marketplace offering, we expect marketplace revenue and marketplace take rate to continue to increase in the fourth quarter of 2022 as compared to the fourth quarter of 2021. Additionally, during the three and nine months ended September 30, ~~2018, an increase of $10.6~~2022, we continued our efforts to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs through our Upwork Enterprise and other premium offerings. As a result, for the three and nine months ended September 30, 2022, Enterprise Revenue increased 41% to $12.5 million ~~or 23%,~~and 46% to $35.6 million, respectively, as compared to the same periods in 2021, which drove marketplace revenue in those periods.

For the three and nine months ended September 30, ~~2017.~~2022, managed services revenue grew at a faster rate than our marketplace revenue as a result of increased spend from existing clients of our managed services offering.

Cost of Revenue and Gross Margin


	Three Months Ended September 30,										Nine Months Ended September 30,
(In thousands, except percentages)	2022			2021			Change				2022			2021			Change
Cost of revenue	$	40,470		$	34,933		$	5,537	16	%	$	119,243		$	98,457		$	20,786	21	%
Components of cost of revenue:
Cost of talent services to deliver managed services	9,591			8,189			1,402		17	%	27,822			23,192			4,630		20	%
Other components of cost of revenue	30,879			26,744			4,135		15	%	91,421			75,265			16,156		21	%
Total gross margin	74		%	73		%					74		%	73		%

For the three and nine months ended September 30, 2022, cost of revenue increased primarily as a result of increases in payment processing fees of $3.1 million and $13.0 million, respectively, as compared to the same periods in 2021, primarily due to increased client spend, as well as increases in cost of talent services to deliver managed services resulting from increases in managed services revenue.

We expect cost of revenue to increase in absolute dollars in future periods as we continue to support growth on our work marketplace. Amounts paid to talent in connection with our managed services offering are tied to the volume of managed services used by our clients. The level and timing of these items could fluctuate and affect our cost of revenue in the future. Additionally, in April 2022, we combined our Upwork Basic and Plus client offerings into our new Client Marketplace offering, which resulted in a change in pricing structure. We expect this change to positively impact gross margin in future periods. While we expect gross profit to increase in absolute dollars in future periods, because our managed services revenue and marketplace revenue grow at different rates, gross margin, expressed as a percentage of total revenue, may vary from period to period.

Research and Development


	Three Months Ended September 30,										Nine Months Ended September 30,
(In thousands, except percentages)	2022			2021			Change				2022			2021			Change
Research and development	$	38,898		$	30,873		$	8,025	26	%	$	112,889		$	85,610		$	27,279	32	%
Percentage of total revenue	25		%	24		%					25		%	23		%

For the three and nine months ended September 30, 2022, research and development expense increased primarily due to anour investments in enhancing platform functionality and infrastructure. Specifically, investments we made to increase the size of our research and development workforce resulted in increases in personnel-related costs of $9.8 million and $24.6 million, respectively, as compared to the same periods in 2021. During the three and nine months ended September 30, 2022, we capitalized $1.4 million and $0.8 million additional internal-use software and platform development costs than in the same periods of 2021, respectively. Additionally, during the nine months ended September 30, 2022, we incurred approximately $2.7 million of research and development expense related to our humanitarian response efforts related to the war against Ukraine.

We believe continued investments in research and development are important to attain our strategic objectives, and we expect research and development expense to increase in ~~GSV. GSV grew~~absolute dollars in future periods, although this expense, expressed as a percentage of total revenue, may vary from period to period.

Sales and Marketing


	Three Months Ended September 30,										Nine Months Ended September 30,
(In thousands, except percentages)	2022			2021			Change				2022			2021			Change
Sales and marketing	$	63,171		$	43,192		$	19,979	46	%	$	184,096		$	128,613		$	55,483	43	%
Percentage of total revenue	40		%	34		%					40		%	35		%

For the three and nine months ended September 30, 2022, sales and marketing expense increased primarily due to increases in marketing and brand awareness campaigns of $13.0 million and $33.7 million, respectively, as compared to the same periods in 2021, as well as increases in personnel-related costs of $6.8 million and $19.4 million, respectively. Additionally, during the nine months ended September 30, 2022, software costs increased by ~~27% period-over-period, primarily driven by a 22% increase~~$1.1 million, as compared to the same period in ~~the number of core~~2021.

In an effort to continue evolving our offerings, products, brand positioning, and marketing to better address large enterprise and other clients and ~~higher client spend retention, which increased to 108% as of~~prospects with larger, longer-term independent talent needs, during the three and nine months ended September 30, ~~2018 from 95% as of September 30, 2017. We believe these increases were primarily due to~~2022, we continued our investments in marketing to acquire new clients and drive brand awareness, and ~~research and development~~we expect to ~~build new product features.~~continue these investments in the fourth quarter of 2022. Beginning in the fourth quarter of 2021, we increased our investment in sales by expanding our sales team. We ~~believe there were primarily two factors driving~~expect to continue expanding our sales team in the ~~trend in recent periods that GSV grew faster than revenue. First, in~~fourth quarter of 2022 as we increase our efforts to acquire clients for our Upwork ~~Standard offering,~~Enterprise offering. As a result, 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 move~~expect sales and marketing expense to the 5% service fee tier. Freelancer service fees generated $36.5 million of revenue in the three months ended September 30, 2018 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~~absolute dollars in future periods, although this client fee. Client payment processing and administration fees generated $9.0 million of revenue in the three months ended September 30, 2018 and $7.3 million of revenue in the three months ended September 30, 2017.

~~Managed services revenue represented 11%~~expense expressed as a percentage of total revenue ~~for~~may vary from period to period.

General and Administrative


	Three Months Ended September 30,										Nine Months Ended September 30,
(In thousands, except percentages)	2022			2021			Change				2022			2021			Change
General and administrative	$	31,407		$	26,083		$	5,324	20	%	$	93,872		$	81,969		$	11,903	15	%
Percentage of total revenue	20		%	20		%					21		%	22		%

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 services engaged by a client through our managed services offering.

~~Total revenue increased by $38.2 million, or 26%, to $186.0 million for the~~and 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 revenue2022, general and administrative expense 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%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. The increase was primarily due to the increase in other components of cost of revenue, which included $1.3 million in payment processing fees due to an increase in client spend on our platform, $0.5 million in third-party hosting costs, and $0.6 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~~$3.8 million ~~for the three months ended September 30, 2018 from $5.0~~and $10.5 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~~respectively, as compared to the same ~~period~~periods in ~~2017. In this period, we used more costly freelancer resources to provide managed services.~~

~~Cost~~2021, primarily because 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. The increase was primarily due to the increase in other components of cost of revenue, which included $4.7 million 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 in personnel-related costs due to an increase in personnel to support our growth. Costs of freelancer services to deliver managed services increased by 25% to $18.2 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, 2018 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. 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 westock-based compensation expense, as ~~incurred, $2.4~~well as $1.0 million ~~in marketing~~ and ~~advertising~~

~~costs associated with online and local marketing programs to drive brand awareness and attract new users, and $0.4~~$5.5 million ~~of facilities-related costs.~~

Sales and marketing expense increased by $17.7 million, or 47%, 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 $8.5 million in personnel-related costs to build out our enterprise sales team, including sales commissions that we expense as incurred, $7.8 million in marketing and advertising costs associated with online and local marketing programs to drive brand awareness and attract new users and $1.4 million of facilities-related costs for our sales office.

~~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 and administrative expense increased by $2.8 million, or 31%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. This increase was primarily due to increases of $1.6 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-incomeindirect 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 borrowingsincurred in the three and nine months ended September 30, ~~2018~~2022, respectively. Additionally, for the nine months ended September 30, 2022, we incurred approximately $1.3 million of general and administrative expense related to our humanitarian response efforts and charitable donations related to the war against Ukraine. Additionally, as ~~compared~~a result of our shift to a flexible work model for our workforce in 2020, we subleased the entirety of our Santa Clara office space and incurred an impairment charge of $7.4 million during the nine months ended September 30, 2021 related to certain of our operating lease assets and associated property and equipment. 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.

We expect to continue to invest in general and administrative expenses to achieve our strategic objectives.

Provision for Transaction Losses


	Three Months Ended September 30,										Nine Months Ended September 30,
(In thousands, except percentages)	2022			2021			Change				2022			2021			Change
Provision for transaction losses	$	10,137		$	1,377		$	8,760	636	%	$	18,918		$	3,701		$	15,217	411	%
Percentage of total revenue	6		%	1		%					4		%	1		%

For the three and nine months ended September 30, ~~2017. See~~ ~~Note 6—Debt~~.

~~Other expense, net~~2022, provision for transaction losses increased, ~~by $3.2 million for the three months ended September 30, 2018~~ as compared to the same periods in 2021, and represented 6% and 4% of total revenue, respectively, primarily due to increased instances of fraud and higher chargeback losses. We continue to closely monitor this activity and have put a number of additional measures in place to decrease transaction losses going forward, including increasing fraud detection efforts and resources as well as integrating with an industry-leading third-party fraud detection vendor. Additionally, during the three ~~months ended 2017. Other expense, net increased by $3.8 million for the~~and nine months ended September 30, ~~2018 as compared~~2022, we reserved $2.7 million due to one Upwork Enterprise client’s failure to pay.

Interest Expense and Other (Income) Expense, Net


	Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands, except percentages)	2022		2021		Change				2022		2021		Change
Interest expense	$	1,117	$	746	$	371	50	%	$	3,362	$	1,055	$	2,307	219	%
Other (income) expense, net	(1,772)		222		(1,994)		(898)	%	(2,215)		161		(2,376)		(1,476)	%

For the three and nine months ended ~~2017. These increases were primarily due to the revaluation of our convertible preferred stock warrant liability. The value~~September 30, 2022, interest expense increased as a result of the $575.0 million aggregate principal amount of 0.25% convertible ~~preferred stock warrant liability increased significantly~~senior notes due 2026 that we issued in a private offering in August 2021, which we refer to as the Notes. See “Note 7—Debt” of the notes to our

condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information. For the three and nine months ended September 30, ~~2018 due to the proximity of~~2022, other (income) expense, net was driven by interest income from 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 quarter of 2018 to reflect the value of the warrant upon automatic conversion to common stock warrant on the closing date of our IPO.

marketable securities, partially offset by net foreign currency transaction losses.

Liquidity and Capital Resources

~~We have financed~~

Our principal sources of liquidity are our ~~operations~~cash and ~~capital expenditures~~cash equivalents and marketable securities, including the net proceeds from the sale of the Notes. Our cash equivalents and marketable securities primarily ~~through sales~~consist of ~~convertible preferred stock, bank borrowings,~~money market funds, commercial paper, treasury bills, corporate bonds, U.S. government securities, asset-backed securities, and ~~utilization~~other types of ~~cash generated from operations in the period in which we generated cash flows from operations.~~fixed income securities. As of September 30, ~~2018,~~2022 and December 31, 2021, we had ~~$27.1~~$156.4 million and $187.2 million in ~~cash. In October 2018,~~cash and cash equivalents, respectively. As of September 30, 2022 and December 31, 2021, we ~~completed our IPO,~~had $519.4 million and $497.6 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, and cash flow from operations ~~and amounts available for borrowing under the Loan Agreement~~(in periods in which we generate cash flow from operations) will be sufficient ~~to meet our working capital requirements~~ for at least the next ~~twelve months.~~12 months to meet our requirements and plans for cash, including meeting our working capital requirements and capital expenditure requirements. In the long term, our ability to support our working capital and capital expenditure requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from users, the expansion of sales and marketing activities, the timing and extent of spending to support research and development efforts, the cost to host our work marketplace, the introduction of new offerings and services, the continuing market adoption of our work marketplace, any acquisitions or investments that we make in complementary businesses, products, and technologies, macroeconomic conditions, and our ability to obtain equity or debt financing. Our principal commitments consist of obligations under our non-cancellable operating leases for office space and the Notes. There were no material changes to these principal commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. For additional information about our Notes, see the section titled “—Convertible Senior Notes Due 2026.”

We anticipate satisfying our short-term cash requirements with our existing cash and cash equivalents and may satisfy our long-term cash requirements with cash and cash equivalents on hand or with proceeds from a future equity or debt financing. To the extent existing cash and cash equivalents, cash from marketable securities, and cash from operations ~~and amounts available for borrowing under the Loan Agreement~~(in periods in which we generate cash flow from operations) are insufficient to fund ~~future activities,~~our working capital and capital expenditure 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.~~arrangements, as we did in the third quarter of 2021. 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, as well as the impact of Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus, 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 Part II, Item 1A, “Risk Factors” in this Quarterly Report, see the risk factors titled “Risk Factors—Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic, including as new variants of COVID-19 emerge. In addition, the positive impacts on our business resulting from the shift to remote work during the pandemic may not continue as the pandemic

subsides and the restrictions intended to prevent its spread are relaxed or lifted” and “Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus have affected and may continue to affect our business and results of operations.” The challenges posed by the ongoing COVID-19 pandemic and ongoing Russian war against Ukraine on our business are expected to continue to evolve. Consequently, we will continue to evaluate our financial position in light of future developments.

We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

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~~talent 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~~Talent 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~~talent 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 September 30, 2022 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,~~2021, funds held in escrow ~~including funds in transit,~~ were ~~$87.2~~$170.0 million and ~~$107.5~~$160.8 million, respectively. ~~We used $13.4 million of our cash on December 31, 2017 to temporarily fund that one week of hourly billings. To~~

Convertible Senior Notes Due 2026

In August 2021, we issued the extent we have not yet collected funds for hourly billings from clients which are in-transit due to timing differences in receipt of cash from clients and payments of cash to freelancers, we may, from time to time, utilize the revolving line of credit under our Loan Agreement to satisfy escrow funding requirements. 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 downNotes pursuant to ~~the revolving line of credit under the Loan Agreement in September 2018,~~an Indenture between us and Wells Fargo Bank, National Association, as trustee, which we ~~repaid on October 1, 2018.~~

~~Term~~refer to as the Indenture.

The Notes are senior, unsecured obligations and ~~Revolving Loans~~

~~Loan Agreement.~~ In September 2017, we entered into the Loan Agreement, which was amended in November 2017 and September 2018. The aggregate amount of the facility is up to $49.0 million, consisting of the First Term Loan of $15.0 million, the Second Term Loan of $9.0 million, and a revolving line of credit of up to $25.0 million based on eligible trade and client accounts receivable. Contemporaneously, we used the proceeds of the First Term Loan to pay off our outstanding borrowings under a prior loan 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 bearsbear interest at ~~the prime~~a rate ~~plus a spread~~ of 0.25% per ~~annum~~year, payable semiannually in arrears, 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~~are due August 15, 2026. Upon conversion, we have an option to pay or deliver, as 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 million under the Loan Agreement, which we used to repurchasecase may be, cash, shares of our ~~capital~~common stock, ~~from~~or a ~~then-existing stockholder. As~~combination of ~~September 30, 2018, we had $24.0 million outstanding pursuant to the Term Loans~~cash and ~~$25.0 million outstanding pursuant to the revolving line~~shares 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 ofour common stock. The net proceeds from the ~~IPO~~issuance of the Notes were approximately $560.1 million, after deducting debt issuance costs. We used approximately $49.4 million of the net proceeds from the Notes offering to ~~repay indebtedness~~pay the cost of the Capped Calls (as defined below). We intend to use the remainder of the net proceeds from the offering for general corporate purposes, including marketing, brand awareness and sales, and which may include working capital, capital expenditures, and investments in and acquisitions of other companies, products or technologies that we may identify in the future.

Capped Calls

In connection with the issuance of the Notes, we entered into capped call transactions, which we refer to as Capped Calls. The Capped Calls are expected generally to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price.

The initial cap price of the Capped Calls is $92.74 per share of common stock, subject to certain customary adjustments under the ~~Loan Agreement. Our obligations under~~terms of the ~~Loan Agreement are secured by substantially all~~Capped Calls. See “Note 7—Debt” of the notes to our ~~assets excluding our intellectual property (but including proceeds therefrom)~~condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding the Notes and the funds and assets held by Upwork Escrow. The Loan Agreement contains affirmative covenants, including financial covenants that, among other things, require us to 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

Capped Calls.

covenants under the Loan Agreement as of September 30, 2018. For the reasons described in the section titled “—Escrow Funding Requirements,” we drew down $15.0 million in September 2018 under the revolving line of credit, which we repaid on October 1, 2018.

Cash Flows

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

presented:

	Nine Months Ended September 30,
	2018			2017				Nine Months Ended September 30,
(In thousands)							(In thousands)	2022		2021
Net cash provided by (used in) operating activities	$	(8,190	)	$	13,450		Net cash provided by (used in) operating activities	$	(1,896)	$	23,284
Net cash used in investing activities		(4,362	)		(1,902	)	Net cash used in investing activities	(32,433)		(26,114)
Net cash provided by (used in) financing activities		18,012			(344	)
Net increase in cash	$	5,460		$	11,204
Net cash provided by financing activities							Net cash provided by financing activities	12,950		546,975
Net change in cash, cash equivalents, and restricted cash(1)							Net change in cash, cash equivalents, and restricted cash(1)	$	(21,379)	$	544,145
(1) Includes increases in funds held in escrow, including funds in transit of $9.2 million and $37.6 million during the nine months ended September 30, 2022 and 2021, respectively.							(1) Includes increases in funds held in escrow, including funds in transit of $9.2 million and $37.6 million during the nine months ended September 30, 2022 and 2021, 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 talent 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 cash used in operating activities during~~

For the nine months ended September 30, ~~2018~~2022, net cash used in operating activities was ~~$8.2~~$1.9 million, which resulted from ~~non-cash charges~~a net loss of ~~$3.5~~$73.4 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 net cash outflows of ~~$11.2~~$14.6 million from changes in operating assets and liabilities, ~~and a net loss~~partially offset by non-cash charges of ~~$14.5~~$86.1 million. 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 $17.8 million. Due to fluctuations in ~~prepaid expenses~~revenue and ~~other assets, and a decrease~~the number of ~~$0.5 million~~transactions on our work marketplace, 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 the quarter ended September 30, 2018 from the last week of the quarter ended December 31, 2017.~~

~~Net cash provided by operating activities during~~future.

For the nine months ended September 30, ~~2017~~2021, net cash provided by operating activities was ~~$13.4~~$23.3 million, which resulted ~~primarily~~ from non-cash charges of ~~$3.1~~$61.1 million, ~~for depreciation~~offset by a net loss of $33.7 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~~$4.1 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.

Investing Activities

~~Net cash used in investing activities during~~

For the nine months ended September 30, ~~2018~~2022, net cash used in investing activities was ~~$4.4~~$32.4 million, which ~~resulted from capitalized~~was primarily a result of investing $398.3 million in various marketable securities, as well as $5.2 million of internal-use software and platform development costs that we paid during the period, partially offset by proceeds from maturities of ~~$2.7 million, purchases~~marketable securities of property and equipment of $1.6 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 the transaction volume.

~~Net cash used in investing activities during~~$371.9 million.

For the nine months ended September 30, ~~2017~~2021, net cash used in investing activities was ~~$1.9~~$26.1 million, which ~~resulted from capitalized~~was primarily a result of investing $108.8 million in various marketable securities, as well as $4.2 million of internal-use software and platform development costs that we paid during the period, partially offset by proceeds from maturities of ~~$0.4 million and purchases~~marketable securities of ~~property and equipment of $1.5~~$87.5 million.

Financing Activities

~~Net cash provided by financing activities during~~

For the nine months ended September 30, ~~2018 was $18.0 million due to proceeds of $7.0 million from the exercise of stock options and proceeds from borrowings of debt of $15.0 million, partially offset~~2022, net cash provided by ~~$4.0 million in deferred offering costs paid for our IPO.~~

~~Net cash used in~~ financing activities ~~during~~was $13.0 million, which resulted primarily from an increase in escrow funds payable of $9.2 million, proceeds received from our employee stock purchase plan of $2.5 million, and cash received from stock option exercises of $1.3 million.

For the nine months ended September 30, ~~2017~~2021, net cash provided by financing activities was ~~$0.3~~$547.0 million, which resulted primarily ~~due to~~from proceeds from the ~~repayment of $17.0 million~~Notes, net of debt ~~borrowings, offset by proceeds~~issuance costs, of $560.1

million, an increase in escrow funds payable of $37.6 million, cash received from ~~borrowings~~stock option exercises of ~~$15.0~~$6.6 million, and proceeds received from our employee stock purchase plan of ~~$1.7~~$2.7 million, ~~from~~partially offset by purchases of the ~~exercise~~Capped Calls of ~~stock options~~$49.4 million and ~~a convertible preferred stock warrant.~~

~~Obligations and Other Commitments~~

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

$10.8 million.

Payments due by period as of September 30, 2018

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

Debt principal

49,000

29,606

19,394

—

—

Total contractual obligations

$
73,157

$
33,152

$
31,714

$
8,206

$
—

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.~~

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 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 December 31, 2017 and September 30, 2018, 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 consolidated balance sheet. 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, 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.

~~We believe~~

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.

Except as otherwise disclosed in “Note 2—Basis of Presentation and ~~assumptions associated with~~Summary of Significant Accounting Policies” of 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, fair values of stock-based awards, and income taxes have the greatest potential impact onnotes to our condensed consolidated financial ~~statements. Therefore, we consider these to be our critical accounting policies~~statements included elsewhere in this Quarterly Report and ~~estimates.~~

~~There~~“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, 2021, 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~~the Notes have ~~variable~~a fixed interest ~~rates. We had $49.0 million and $34.0 million of principal outstanding under our Loan Agreement as~~rate. As of September 30, ~~2018~~2022 and December 31, ~~2017, respectively.~~2021, we had $575.0 million aggregate principal amount of borrowings outstanding under the Notes. 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.~~2022. 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,~~2022, 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 September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II—OTHER INFORMATION

~~PART II—OTHER INFORMATION~~

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, as well as the other information in this ~~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~~talent and clients, and the ~~loss of our users, or~~ failure to ~~attract new~~maintain or grow our community of users could adversely impact our business.

•If 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 maintain similar levels of growth or manage our growth effectively, our business, revenue and profits, and financial condition could be adversely affected.

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

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

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

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

•Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus have affected and may continue to affect our business and results of operations.

•Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic, including as new variants of COVID-19 emerge. In addition, the positive impacts on our business resulting from the shift to remote work during the pandemic may not continue as the pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted.

•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.

•Our inability to generate revenue from our marketplace offerings, which represents a substantial majority of our total revenue, would adversely affect our business operations, financial results, and growth prospects.

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

•If the market for independent talent 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.

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

•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.

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

•Our sales efforts are increasingly primarily targeted at large enterprise and other clients and prospects with larger, longer-term independent talent needs, and as a result we may encounter greater pricing, implementation, and customization challenges, and we may incur additional costs, each of which could adversely impact our business and operating results.

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

•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 talent internationally exposes us to risks that could have an adverse effect on our business, operating results, and financial condition, and these risks could increase as we seek to expand our international footprint.

•There may be adverse tax, legal, and other consequences if the contractor classification or employment status of talent 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 talent and any change that affects demand for talent, including regulatory or tax changes, or adverse perception regarding use of talent, 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.

•Our indebtedness could limit the cash flow available for our operations and expose us to risks that could adversely affect our business, financial condition, and results of operations.

•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 ongoing COVID-19 pandemic, by man-made problems such as warfare, 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 talent and clients, and the failure to maintain or grow our community of users could adversely impact our business.

The size of our community of users, including both ~~freelancers~~talent 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 ~~to,~~ and retain existing users, ~~on, our platform. Achieving growth in~~including large enterprise and ~~retention of our community of users may require us to increasingly engage in sophisticated and costly sales and marketing efforts~~other clients with larger, longer-term independent talent needs, as well as talent that ~~may not result in additional users or effectively retain our current users. We may also need to modify our pricing model to attract and retain~~meet the criteria sought by such users. If we fail to attract new users or fail to maintain or expand existing relationships in a cost-effective manner, our revenue will grow more slowly than expected or may decline and our business could be adversely impacted.

~~Freelancers~~clients.

Talent 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 provided by third parties, or finding ~~full-time or part-time~~ employment ~~through an agency or~~ directly with a business. IfLikewise, there may be impediments to talent who would like to use our work marketplace, including geopolitical events, military conflicts, sanctions regimes, the talent’s inability to access technology or internet, or other external causes, and these events in areas where certain talent resides. For example, at the beginning of Russia’s invasion of Ukraine in late February 2022, we ~~fail~~experienced immediate reductions in activity from users in the region, but since that initial impact, we have seen activity from users in Ukraine rebound to ~~attract new freelancers, freelancers decrease their use~~almost pre-war levels. Moreover, as a result of ~~or cease~~Russia’s war against Ukraine, we suspended business operations in Russia and Belarus, which means that users in each of those countries are prohibited from using our ~~platform,~~work marketplace for the ~~quality or types~~duration of ~~services provided by freelancers that use our platform are not satisfactory to clients, or freelancers increase their fees for services more than clients are willing to pay, clients~~the suspension. Clients may decrease their use of, or cease using, our ~~platform~~work marketplace and our revenue may be adversely ~~impacted.~~

impacted for many reasons, including: if we fail to attract new talent; the quality or types of services provided by talent on our work marketplace are not satisfactory to clients; talent are not located in geographic regions in which clients are seeking to engage remote talent; talent decrease their use of, or cease using, our work marketplace or prefer to take remote employment opportunities or to use other online remote work platforms, both of which are increasingly available as a result of the shift to remote work.

Clients have similarly diverse options to find and ~~pay~~engage 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, engaging service providers directly, using other ~~payment~~talent sourcing services, or hiring temporary, full-time, or part-time ~~employees. For~~employees directly or through an agency.

Beginning in the ~~nine months ended September 30, 2018~~second half of 2019, we began evolving our offerings, services, brand positioning, and ~~year ended December 31, 2017,~~marketing to better address large enterprise and mid-market prospects and other clients with larger, longer-term independent talent needs. And more recently, we ~~generated significant revenue from one client, which accounted for more than 10%~~have prioritized our advertising, marketing, and product development efforts to reach those new and existing clients seeking to engage remote talent in light of ~~revenue for each such period~~the acceleration in the shift toward remote work, due in part to the COVID-19 pandemic. To further achieve our goals, we expect to increasingly engage in sophisticated, costly, and ~~therefore, a decrease~~lengthy sales and marketing and internationalization or localization efforts that may not result in ~~revenue from this client could have an adverse effect~~additional users that transact on our ~~operating results.~~work marketplace or effectively retain our current users that transact on our work marketplace, or may not do so in a cost-effective manner. The evolution of these and other efforts, either individually or in the aggregate, may not be successful in attracting and retaining users or growing client spend from these target clients, and in the event these efforts result in the loss of or reduction in spend by other clients that is not offset by increased activity from these target clients, they may result in a temporary or long-term decelerating growth in, or declining, GSV. In addition, any increase in user acquisition resulting from the COVID-19 pandemic may slow or decline as the impact of the COVID-19 pandemic subsides. For example, growth in the number of active clients has decelerated on a year-over-year basis since the second quarter of 2021 and GSV growth on a year-over-year basis has decelerated since the second quarter of 2021. Moreover, ~~any~~we expect to see the year-over-year growth rate of active clients to continue to decrease in the ~~attractiveness~~fourth quarter of 2022. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Active Clients and GSV per Active Client” above for the definition of active client.

We may modify our pricing model, or introduce new, modify, or consolidate existing offerings or other services and features to attract and retain users. For example, in April 2022 we combined our Upwork

Basic and Plus client offerings into a new Client Marketplace offering which simplifies our pricing model for clients of those offerings. Such actions may negatively impact our ability to attract and retain users, increase user circumvention of our ~~platform~~work marketplace, or ~~failure to retain clients could lead to decreased traffic~~otherwise cause a loss of users or a reduction of spend on our ~~platform, diminished network effects,~~work marketplace.

If we fail to maintain or ~~result~~increase activity by existing users in a ~~drop in GSV on~~cost-effective manner or at all, our ~~platform, which could adversely affect~~revenue will grow more slowly than expected or may decline and our business ~~revenue, financial condition, and operating results.~~

will be adversely impacted.

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~~or our ability to provide a ~~problem,~~secure, reliable, and trustworthy work marketplace, does not meet their expectations or keep pace with the quality of the user experience generally offered by competitive products and services. For example, for the three and nine months ended September 30, 2022, provision for transaction losses increased, as compared to the same periods in 2021, primarily due to increased instances of fraud and higher chargeback losses. 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. 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 talent receive payment directly or through another service, which is likely to happen more frequently following a change in pricing, such as the pricing change associated with the launch of our new Client Marketplace offering, or during a macroeconomic downturn or a period of geopolitical conflict or uncertainty, 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, one client accounted for more than 10% of our trade and client receivables as of December 31, 2021, and three clients each accounted for more than 10% of our trade and client receivables as of December 31, 2020. Although for the years ended December 31, 2021 and 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 our larger clients, or failure of our larger clients to pay us, could have an adverse effect on our operating results.

Any decrease in the attractiveness of our work marketplace, failure to attract and 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 number of active clients on our work marketplace, macroeconomic conditions, seasonality in the labor market, the volume and characteristics of projects that are posted by clients on our work marketplace, such as size, duration, pricing, and the availability and qualification of talent to complete client projects, and other factors.

If users stop using, or reduce their use of, our ~~platform~~work marketplace and related 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 maintain similar levels of growth or manage our growth effectively, our business, revenue and profits, and financial condition could be adversely affected.

We have experienced growth in a relatively short period of time. For example, our total revenue for the nine months ended September 30, ~~2018~~2022 was $456.9 million, representing a period-over-period growth rate of 25% over the same period in 2021. 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. For example, future period-over-period growth rates of revenue and key performance metrics such as GSV and active clients, when compared against the quarterly and full-year results of 2021, may fail to meet the expectations of investors or securities analysts given the accelerated growth experienced during such

periods due to the COVID-19 pandemic and the ~~year ended December 31, 2017,~~resulting increased adoption of remote work and reduced seasonality experienced during such periods. Moreover, sustaining the same levels of growth in future periods will become more difficult during times of macroeconomic uncertainty, including a macroeconomic downturn or recession and rising interest rates and inflation. 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 ~~incurred net losses~~must: improve our operational, financial, and management information systems and processes; expand, motivate, retain, and effectively manage and train our workforce; and effectively collaborate with our third-party partners, all of ~~$14.5 million~~which can be more difficult with an increasingly remote workforce and ~~$4.1 million, respectively.~~a highly competitive labor market. If we are unable to manage our growth successfully without compromising the quality of our offerings or user experience, 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 ~~expect~~have encountered, and will encounter in the future, risks, challenges, and uncertainties, including those frequently experienced by growing companies in rapidly changing and highly competitive industries and challenging macroeconomic conditions. If our assumptions regarding these risks, challenges, and uncertainties, which we use to ~~make significant future expenditures related~~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.

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

Our work marketplace systems and controls relating to customer identity verification, user authentication, and fraud detection are complex. If such systems and controls are not effective, our work marketplace may be perceived as not being secure, our reputation may be harmed, we may face regulatory action or action by our payment partners, payment networks, or other third parties, 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, location, or skills, including using accounts that they have purchased, borrowed, or leased; and the improper acquisition or use of credit or debit card details and banking or other payment account information. Further, our customers provide us with payment card billing information online, and we do not review the physical payment cards used in these transactions, which increases our risk of exposure to fraudulent activity. These types of illegal activities have increased recently on our and similar platforms and may continue to increase as platforms like ours gain more prominence, including due to the ~~development and expansion~~ongoing shift toward remote work or in the event of a macroeconomic downturn. Additionally, as we become more visible as a result of our brand promotion efforts, bad actors increasingly seek to take advantage of us or our users and discover ways to evade our trust and safety efforts. For example, for the three and nine months ended September 30, 2022, provision for transaction losses increased, as compared to the same periods in 2021, primarily due to increased instances of fraud and higher chargeback losses. This conduct on our website 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, identify theft and other 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, card networks, banks, and other payment partners to return the funds at issue and pay a chargeback, return, or other fee, and if our chargeback or return rate becomes excessive, card networks may

also require us to pay fines or other fees, engage in remediation efforts, which can be costly and divert the attention of management, or cease doing business with us;

•the California Department of Financial Protection and Innovation, which we refer to as the DFPI, or other regulators may require us to hold larger cash reserves or take other action with respect to our internet escrow license or other licenses or licensing regimes;

•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 and decrease use of our work marketplace, seek to obtain damages and costs, or publicize their negative experiences;

•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 actions 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 and liability exposure, including ~~enhancing~~for negligence, fraud, or other claims, if employees or third-party service providers, including talent 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;

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

•we may be subject to additional risk if Upwork Enterprise ~~offering~~clients fail to pay us for amounts we advance to talent on their behalf, including financial losses resulting from our inability to recover such funds;

•if talent 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 talents’ acts or omissions and may lose confidence in and 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 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, notices, and inquiries from clients, talent, and other third parties, including law enforcement, administrative agencies, payment partners, payment networks, and the press, concerning misuse of our work marketplace and wrongful conduct of other users. We have also brought claims against clients and other third parties for their 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 are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention and resources of our management, negatively impact our reputation, and adversely affect our business and operating results. In addition, while we are implementing additional steps designed to decrease transaction losses, there is no assurance that these steps will be effective or cost efficient.

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

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

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 collect payments and disburse funds and our ~~U.S.-to-U.S. domestic offering, expanding domestic-to-domestic offerings into new geographies,~~revenue and ~~broadening~~business may be adversely affected. This could occur for a number of reasons, including the following with respect to our payment partners:

•our partners may be unable or unwilling or may fail to perform the services we require of them, such as processing payments to talent in a timely manner, including in a manner that is satisfactory to us as it relates to compliance with our contractual rights and ~~deepening the categories on~~obligations and U.S. federal, state, and international laws and regulatory requirements, including sanctions which may apply to our ~~platform,~~partners but not to us;

•our partners could, and, in ~~connection~~some cases, have notified us in the past that they may, increase the rates that they charge us or our users, charge us additional amounts, reduce the services or benefits that they provide to us, or require us to undertake remediation efforts with ~~legal, accounting,~~respect to certain of their compliance standards, or we may voluntarily undertake such remediation efforts, which may be costly, time consuming, and ~~other administrative expenses related~~divert the attention of management, especially in light of changes in those partners’ interpretation and enforcement of their rules, increased declines of client payment methods, or increased client-issued chargebacks;

•we may choose to ~~operating~~cease doing business with our partners for a number of reasons, including as a ~~public company. These efforts~~result of their failure to comply with applicable payment or banking regulations or contractual requirements or due to allegations of fraud or other impropriety by them or their third-party partners;

•our partners may ~~prove more expensive than we currently anticipate,~~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 partners may be unable to effectively accommodate changing service needs, such as those that could result from rapid growth or higher volume or those which relate to international expansion and local jurisdictions, and we may have difficulty finding suitable partners to accommodate such needs;

•our partners could choose to terminate or not ~~succeed~~renew their agreements with us, or only be willing to renew or enter into agreements on different or less advantageous terms, which among other things, could negatively impact the revenue we derive from such agreements;

•our partners could reduce the services provided to us, cease doing business with us, cease or become prohibited from doing business with certain of our users or in ~~increasing~~ jurisdictions where we have users, including recent decisions of some payment partners to cease offering services in Russia or Belarus, or cease doing business altogether;

•our ~~revenue sufficiently,~~partners could be subject to delays, limitations, or ~~at all,~~closures of their own businesses, networks, partners, or systems, causing them to ~~offset these higher expenses. While our revenue has grown in recent years,~~

~~if our revenue declines~~be unable to process payments 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,~~ disburse funds for certain periods of time; or

•we may ~~continue~~be forced to ~~generate losses. We cannot ensure that~~cease doing business with certain partners if card network operating rules, certification requirements and laws, regulations, or rules governing electronic funds transfers to which we ~~will achieve profitability in the future~~are subject, change or ~~that, if we do become profitable, we will be able~~are interpreted to ~~sustain profitability.~~

make it difficult or impossible for us to comply.

We have a limited operating history under our current ~~platform~~business strategy and pricing model, and will 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 with your investment.~~

~~We operated the Elance~~will continue to evolve, our sales, marketing, and ~~oDesk platforms separately until we relaunched~~brand positioning efforts, as ~~Upwork in May 2015~~well as our business strategy and ~~consolidated those platforms into a single platform. In recent years,~~pricing model. Recently, we have ~~also~~undertaken a rebranding effort and expanded our focus on large enterprise and other clients and prospects with larger, longer-term independent talent needs. In an effort to better serve this market segment, we recently expanded our Upwork Enterprise offering, which ~~helps enterprises and other larger~~is designed to help large enterprise businesses connect with ~~freelancers~~talent and ~~provides these larger~~provide clients with additional ~~products~~offerings and services. We ~~also made significant changes~~continue to evaluate and revise our ~~pricing model in 2016. As a result, our platform~~current offerings and pricing model ~~have~~and create and test additional offerings, pricing models, features, and services to serve these and other market segments, such as our recent combination of our Upwork Basic and Plus client offerings into our new Client Marketplace offering, which simplifies the pricing model for clients of those offerings. We regularly launch new offerings such as “Project Catalog,” a feature through which talent can market pre-scoped projects that are easily purchased via a click-and-buy experience. Creating new offerings is expensive and time consuming, diverts the attention of our management, and not ~~been fully proven,~~all offerings achieve market acceptance at the levels we expect and therefore may not be cost-effective to maintain. For example, in 2019, we ~~have only~~launched our Upwork Business offering, focused on mid-market businesses. In 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 ~~limited operating history with~~reduction in force of approximately one-third of our ~~current platform~~sales employees in the fourth quarter of 2020. Moreover, if an offering does not achieve sufficient market acceptance or otherwise does not achieve its intended effect, we may expend additional resources and divert the attention of management to implement modifications in an effort to improve the offering, and these efforts may not be successful.

Changes in our offerings and pricing, ~~model to evaluate~~and the continued evolution of our business ~~and future prospects, which subjects~~strategy, subject us to a number of uncertainties, including our ability to plan for and model future ~~growth. Our historical revenue~~ growth ~~should not be considered indicative of~~and make accurate projections regarding our future performance. WeIn addition, we have ~~encountered,~~in the past seen, and ~~will continue~~may in the future see, unexpected or unintended negative effects, as a result of changes to ~~encounter, risks, difficulties,~~our pricing model, offerings, and ~~uncertainties frequently experienced by growing companies in rapidly changing industries,~~sales, brand positioning, and marketing efforts, including ~~our ability~~a failure to ~~achieve market acceptance of our platform and~~ attract and retain ~~users, as well as increasing competition and increasing expenses as we continue to grow~~quality talent or attract new clients that spend on our ~~business.~~work marketplace or the loss of spend from existing clients. 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.

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

From time to time we have made, and will continue to make, changes to our offerings and pricing model, and such changes may negatively impact GSV, spend on our work marketplace, circumvention rates, and other aspects of our business. Changes to any components of our pricing model have in the past, and may in the future, among other things, result in user dissatisfaction, increased circumvention, lead to a loss of GSV, revenue, or users, result in a change to the way we recognize revenue, reduce the amount of revenue we generate as a percentage of GSV, affect the taxability of our services and increase our tax exposure, reduce the rate or size of projects that get posted or completed on our work marketplace, negatively impact fill rates for projects on our work marketplace, or otherwise negatively impact our reputation, operating results, financial condition, and cash flows. For example, we experienced a quarter-over-quarter decline in GSV in the third quarter of 2022 that was attributable primarily to our consolidation of our Upwork Basic and Plus offerings into our new Client Marketplace Offering and the associated pricing change.

Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus have affected and may continue to affect our business and results of operations.

In February 2022, Russian military forces invaded Ukraine, and war and disruption in the region is ongoing and likely to continue. Historically, we have had a business presence in Russia, Ukraine, and Belarus. At the beginning of the invasion in late February 2022, we experienced immediate reductions in activity from talent in the region, but since that initial impact, we have seen activity from users in Ukraine rebound to almost pre-war levels. Approximately 10% of our total revenue in 2021 was derived from work where either the talent or the client was located in the region. Nearly all such revenue was derived from work performed by talent inside the region for clients located in other parts of the world. Moreover, approximately 25% of client spend from our web, mobile, and software development category in 2021 was derived from work where either the talent or the client was located in the region.

In March 2022, we suspended business operations in Russia and Belarus, announcing that contracts with talent or clients in Russia or Belarus would be required to wind down by May 1, 2022. Users in Russia and Belarus are no longer able to sign up for new accounts, initiate contracts, or be visible in search on our work marketplace. Our decision to suspend operations in Russia and Belarus, as well as any disruptions to our business in Ukraine, has and will likely continue to negatively impact our financial performance and condition, including GSV and revenue. For example, during the three months ended June 30, 2022, we estimate that the loss of revenue resulting from Russia’s invasion of Ukraine and our resulting suspension of business operations in Russia and Belarus was approximately $4 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenue” above for additional information.

As of December 31, 2021, approximately 10% of our team members were located in Ukraine, Russia, or Belarus, including nearly one-third of our engineering team. We have undertaken extensive efforts to support our team members in the region, including financial and other forms of support and paying certain expenses for those team members seeking to relocate from the affected region. In connection with our efforts, we have experienced and may continue to experience increased costs as we relocate team members and their families, and as we shift our resources to other geographies, especially if we are unable to achieve the same level of cost efficiencies. Our relocation efforts may take longer than expected and may not be successful, particularly if there is not sufficient talent available on our work marketplace to perform the work previously performed by the impacted talent or the impacted talent is unable or unwilling to remain relocated.

The potential impacts of Russia’s invasion of Ukraine include, but are not limited to:

•reduced demand on our work marketplace, resulting in lower GSV and revenue growth, including as a result of clients needing to curtail business expenses and as a result of decreased availability of talent, particularly in the web, mobile, and software development category;

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

•increased risk of data breach and other threats from ransomware, destructive malware, distributed denial-of-service attacks, as well as fraud, spam, and fake accounts, cyber-attacks, or other illegal activity conducted either as a result of our decision to suspend operations in Russia and Belarus or more generally by bad actors seeking to take advantage of us, our users, or our third-party partners;

•reduced availability of our team members in the region, particularly our engineering team members who have not relocated, who are only willing or able to relocate temporarily, who are unable or unwilling to continue working for us, or who are not expected to relocate, out of Russia, Belarus, or Ukraine;

•difficulty in business planning and forecasting in the short term due to significant uncertainty in the impact of the war on all aspects of our business and on our clients, talent, and other business partners;

•increased costs and the diversion of management’s attention related to oversight of our international operations;

•delays in enhancements to our technology and features on our work marketplace as a result of the decreased availability and size of our engineering team;

•impacts on or decisions taken by payment partners or other critical third-party partners that may cause delays in processing payments or disrupt our ability to process payments by clients or to talent 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;

•reputational harm to our business in Russia and Belarus or elsewhere as a result of our decision to suspend operations in those countries, as well as the potential emergence of local competition;

•retaliatory actions by Russia or other countries against us and other Western companies that chose to limit or remove business operations in the region;

•any devaluation of local currency or other inflationary effects caused by the impact of sanctions and other macroeconomic effects of the war;

•hesitancy among clients to engage with talent in the region and surrounding countries even after the conclusion of the conflict due to various factors, including unpredictability of laws and restrictions due to the presence of authoritarian governments in the region, as well as related security and business continuity concerns;

•disruption to our operations in the region due to the decisions of other companies that form part of our business ecosystem to withdraw from, or end their services in, the region;

•significant volatility and disruption of global financial markets, which may impact our GSV as a result of client behavior in the region and surrounding areas; and

•de-globalization, which among other things, may result in clients being less willing to connect with non-U.S. talent on our work marketplace.

In addition, sanctions and trade control measures implemented against Russia in response to the war may have an impact on our ability to operate in the ordinary course of business. For example, the significant expansion of the sanctions imposed by the European Union, which we refer to as the EU, the United Kingdom, the United States, Canada, and other jurisdictions and targeting of major financial institutions, in addition to other measures to limit Russia's access to global financial markets and systems—particularly the removal of certain banks from the SWIFT messaging system—and resulting steps by financial institutions to de-risk more broadly, may have a material impact on our ability to make payments to and receive payments from individuals or entities in the region. These and future measures may also have an impact on our ability to continue supporting business in Ukraine or elsewhere in the region, including any sanctioned regions, such as the so-called Donetsk People’s Republic and Luhansk People’s Republic. Any Russian use of unconventional weapons would likely result in the United States and EU imposing blocking sanctions targeting Russia and the enforcement of secondary sanctions against banks in China, India, or other markets that have continued to transact with Russian entities, and this may disrupt our ability to transact with entities located in those countries.

These measures and others which may be implemented by the authorities in certain of these jurisdictions are complex and still evolving. Our efforts to comply with such measures may be costly, time consuming, and divert the attention of management. Any alleged or actual failure to comply with these measures in connection with the suspension of our business operations in Russia and Belarus may subject us to government scrutiny, civil or criminal proceedings, sanctions, and other liabilities, which may have a material adverse effect on our international operations, financial condition, and results of operations.

In light of all of these events, we have further developed and are continuing to refine our business continuity plan and crisis response materials designed to mitigate the impact of disruptions to our

business, but it is unclear if our plan will successfully mitigate all disruptions. If our business continuity plan fails to mitigate some or all disruptions, it could have a material adverse impact on our business, financial condition, and results of operations.

Any of the abovementioned factors could affect our business, prospects, financial condition, and results of operations. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Quarterly Report.

Our business experienced, and may again experience, an adverse impact from the ongoing COVID-19 pandemic, including as new variants of COVID-19 emerge. In addition, the positive impacts on our business resulting from the shift to remote work during the pandemic may not continue as the pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted.

The COVID-19 pandemic adversely impacted our business for a period of time and resulted in reductions in demand for our offerings and services by some of our clients, including small- and medium-sized business clients, which were impacted the most by the resulting macroeconomic downturn and from which we derive a substantial portion of our GSV and revenue. Conversely, beginning in 2020 we experienced an increase in GSV and revenue growth driven by an acceleration in the shift toward remote work, due in part to the COVID-19 pandemic. We do not expect these positive impacts to continue as the pandemic subsides and the restrictions intended to prevent its spread are relaxed or lifted, which may negatively impact our GSV and revenue growth.

The extent to which the ongoing COVID-19 pandemic will adversely affect our business, financial condition, results of operations, and cash flow will depend on future developments, which are highly uncertain and cannot reasonably be predicted with confidence at this time, including: the duration, spread, and severity of the outbreak, or the occurrence of additional “waves” of the outbreak; the emergence of variant strains of the virus; the availability, utilization, and efficacy rates 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 or reduction in demand on our work marketplace, resulting in lower GSV and revenue growth, during and following relaxation or lifting of restrictions intended to prevent the spread of COVID-19;

•diminished ability to acquire new clients, particularly large enterprise and other clients with larger, longer-term independent talent needs;

•reduced client spend on our offerings and services;

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

•increased costs as a result of marketing, sales, and promotional efforts;

•increased risk of data breach or cybersecurity incidents as a result of additional workers accessing corporate systems remotely;

•increased risk of fraud, cybersecurity attacks, 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;

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

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

•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. For example, as a result of our shift to a flexible work model for our workforce, in 2021 we subleased the entirety of our former headquarters in Santa Clara, California and a portion of our current headquarters in San Francisco, California, and, as a result, we incurred impairment charges of $8.7 million;

•reduced spend by clients or availability of talent 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 GSV and revenue as a result of talent reducing the fees they charge to clients due to an excess number of talent 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, talent, and other business partners;

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

•impacts on payment partners, disbursement partners, or other critical third-party partners that may cause delays in processing payments to talent 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 talent, which may also result in reductions in revenue, increased transaction losses, numbers of disputes with users, and costs as we seek to compel payment, which we may not ~~achieve~~be able to recover;

•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;

•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, 2021 or the nine months ended September 30, 2022, the rapidly changing market and macroeconomic conditions caused by the COVID-19 pandemic impacted the business of 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 talent and client acquisitions, increased client spend, and increased client retention, will continue to offset those parts of our business that have been adversely impacted. Many of these risk factors are unpredictable and outside of our control, and any of these factors could amplify the other risks

and uncertainties described elsewhere in this Quarterly Report. It is uncertain what impact that the various legislative and other government responses being undertaken in the United States and other countries, including with respect to the approval and distribution of vaccines, in which our users are located will have on the economy, our industry, our partners, our users, and our company. In connection with the COVID-19 pandemic, we have also implemented measures to protect the health of our workforce, including by adopting a flexible work model for our workforce 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 privacy and security incidents, and may cause other disruptions to our business. As offices reopen, our efforts to comply with applicable health guidelines may not prove sufficient to protect the health of our employees and other visitors to our offices, and our adoption of these measures may adversely affect our business operations. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business. In particular, any increase in client acquisition due to the shift toward remote work as a result of the COVID-19 pandemic may slow or decline as the impact of the COVID-19 pandemic subsides and businesses shift back to in person work. For example, growth in the number of active clients has decelerated on a year-over-year basis since the second quarter of 2021 and GSV growth on a year-over-year basis has decelerated since the second quarter of 2021. Moreover, we expect to see the year-over-year growth rate of active clients to continue to decrease in the fourth quarter of 2022. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Active Clients and GSV per Active Client” above for the definition of active client.

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. Moreover, in the fourth quarter of 2021, we began increasing our investment in sales by expanding our sales team and we expect this investment to continue through the remainder of 2022 as we increase our efforts to acquire large enterprise and other clients for our Upwork Enterprise and other premium offerings.

There is significant competition for sales personnel with the skills and technical knowledge required to maintain a productive and efficient sales force. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, effectively deploying, and retaining sufficient numbers of sales and sales support personnel to support our growth. It is difficult to find, and we may be unable to retain, a sufficient number of sales personnel with the specific skills and technical knowledge needed to sell our Upwork Enterprise and other premium offerings, particularly in light of the current global labor shortage. 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 sales 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, or at all, negatively impacting our ability to achieve our long-term financial projections associated with such personnel. The COVID-19 pandemic and restrictions intended to prevent its spread adversely affected the productivity of our sales force for a period of time. Moreover, our sales personnel may become less productive during a macroeconomic downturn, or otherwise during times of macroeconomic uncertainty, due to prospective clients’ having reduced budgets. If our sales personnel are not successful in obtaining new business or increasing sales to our existing user base, our business and results of operations will be adversely affected.

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

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

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 attract, 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 retain, attract, train, and integrate the highly skilled personnel we need, our business, operating results, and financial condition could be adversely affected.

There have been, and may continue to be, changes in our management team resulting from the hiring or departure of executives. For example, in September 2022, we announced that we had initiated a search for a new Chief Financial Officer and that Jeff McCombs, our Chief Financial Officer, will be separating from Upwork. We have made, and may continue to make, other changes that have been and will be disruptive to our personnel, such as changes to the composition of our leadership team and other key personnel 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 and other key personnel, particularly during the current highly competitive market for qualified personnel. Any such changes may also result in a loss of institutional knowledge, cause disruptions to our business,

impede our ability to achieve our objectives, or distract or result in diminished morale in, or the loss of, workers.

Our future success also depends on our continuing ability to retain, attract, train, and integrate highly skilled personnel, including software engineers and sales personnel. We face intense competition for qualified personnel from numerous software and other technology companies. In addition, competition for qualified software engineers is particularly intense. This competition has become exacerbated by the increase in employee resignations currently taking place throughout the United States as a result of the COVID-19 pandemic, which is commonly referred to as the “great resignation.” We may not be able to retain our current key personnel or attract, train, integrate, or retain other highly skilled personnel in the future, all of which may be more difficult given our shift to a flexible work model for our workforce. We may incur significant costs to attract and retain highly skilled personnel, we may lose employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them, and our succession plans may be insufficient to ensure business continuity if we are unable to retain key personnel or were to lose a significant portion of our personnel. Further, even highly skilled personnel may fail to be productive, and our adoption of remote work may result in a loss of productivity of our workforce. To the extent we move into new geographies, including internationally, 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 skilled personnel and retain our key personnel. The market price of our common stock has been, and may continue to be, particularly volatile, in part due to broader stock market fluctuations, and as a result, the equity held by our senior management and other key personnel may have depreciated in value relative to the original purchase or issue price and therefore have less retentive power. 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, financial condition, and cash ~~flow~~flows may be adversely affected.

Clients sometimes 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 talent for invoiced services on behalf of the client and subsequently invoice the client for such services. 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, including extended payments terms. In addition, in certain instances, we will advance payment on a talent invoice if the client issues a chargeback or their payment method is declined and the talent assigns us the right to recover any funds from the client. From time to time, clients fail to pay for services rendered by talent, 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. For example, we have recently experienced a significant increase in our allowance for doubtful accounts as of September 30, 2022, as compared to prior periods. Clients’ failure to pay is increased if we do not adequately screen potential Enterprise or other clients, do not conduct sufficient credit checks, or otherwise do not adequately monitor clients’ spend on our work marketplace. 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 and could result in increased costs to us as we advance payments to talent and seek to compel payment from our clients.

We are subject to disputes with or between users of our work marketplace.

Our business model involves enabling connections between talent and clients that contract directly through our work marketplace. Talent 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 talent 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. If either party believes the contract terms were not met, including as a result of actions of bad actors seeking to take advantage of other users, 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 talent 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 talent or clients bring us into any claims filed against each other, particularly when the other user is insolvent or facing financial difficulties. Through our terms of service and services agreements for premium offerings, 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 our work marketplace or other programs and badges, including those designed for highlighting successful talent. Moreover, for some premium offerings, we provide enhanced services and assistance with respect to disputes over work product, and clients or talent may pursue claims against us if they are not satisfied with those enhanced services. Disputes between clients and talent and between users and our company may become more frequent based on conditions outside our control, such as a macroeconomic downturn or actions of bad actors seeking to take advantage of other users. 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 our operational costs. Even if these claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could: result in legal, settlement, or other financial costs; divert the resources of our management; and adversely affect our business and operating results.

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

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

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

•become subject to different laws and regulations due to the nature or location of the acquired business, products, technologies, or other assets, or become subject to more stringent scrutiny or

differing applications of laws and regulations to which we are currently subject as a result of such transactions;

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

•incur expenses or assume substantial liabilities;

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

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

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

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

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

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

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

Risks Related to Our Industry, Offerings, and Services

Our inability to generate revenue from our marketplace offerings, which represents a substantial majority of our total revenue, would adversely affect our business operations, financial results, and growth prospects.

We derive, and expect to continue to derive in the near future, the substantial majority of our revenue from our marketplace offerings. As such, market acceptance of our marketplace offerings, including new offerings or the consolidation of offerings, such as our consolidation of our Upwork Basic and Plus offerings into our new Client Marketplace offering, is critical to our continued success, and any ~~given~~failure of our marketplace offerings to meet users’ expectations with respect to user experience, trust, or cost or the failure of specific features to be effective in attracting and retaining users will have a negative impact on our business. Demand for our marketplace offerings is affected by a number of factors, including the timing and success of new offerings and services by our competitors, our ability to respond to technological change and to effectively innovate and grow, contraction in our market, client spending patterns, talent activity levels, the size and price of projects on our work marketplace, changes in adoption of remote work, geopolitical events, such as Russia’s invasion of Ukraine and the economic measures resulting from the invasion, macroeconomic effects, such as de-globalization and the current macroeconomic uncertainty, and impacts resulting from the COVID-19 pandemic, and the other risks identified herein. For example, we experienced a quarter-over-quarter decline in GSV in the third quarter of 2022 that was attributable in part to seasonal and weakening macroeconomic conditions. If we are unable to meet user demands, earn and maintain user trust, expand our offerings or the categories of services offered on our work marketplace, or achieve and maintain more widespread market acceptance of our marketplace offerings, including attracting and retaining clients, our business operations, financial results, and growth prospects will 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.

We believe that developing, maintaining, evolving, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner are important to achieving widespread acceptance and use of our work marketplace and are important elements in attracting new users and retaining existing users. Successful and efficient promotion and positioning of our brand, offerings, and business model depend on, among other things, the effectiveness of our marketing efforts and brand messaging, our ability to provide a reliable, trustworthy, and useful work marketplace and offerings at competitive prices, the perceived value of our work marketplace and offerings, and our ability to engender user trust and provide

quality support. In order to reach the brand awareness and acceptance levels of some of our competitors, we need to continuously invest in marketing programs that may not be successful in achieving meaningful awareness and acceptance levels, particularly during early phases of expansion into newer user awareness segments, such as international users and users who are reluctant to utilize remote or contract workers. Some of the marketing programs and brand promotion efforts we implement may be new and unproven and therefore their likelihood of success may be uncertain. Further, brand promotion activities may not resonate with existing or potential users or yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building, evolving, and maintaining our brand and reputation. For example, since 2019, we have made significant investments in sales and marketing to acquire new clients and drive brand awareness, and expect to increase these investments throughout 2022. It is not certain that these investments have had or will have sufficient positive impact on our brand to be cost effective. Likewise, negative publicity and news coverage, fraud or other illegal activity conducted by bad actors on our work marketplace, or decisions we make relating to geopolitical or social matters, such as our decision to suspend business operations in Russia and Belarus, may undermine our brand promotion efforts or harm our reputation. We have also recently evolved, and will continue to evolve, our marketing and brand positioning efforts, including a rebranding effort which we began in the second quarter of 2021, expanding our focus on large enterprise and other clients and prospects with larger, longer-term independent talent needs. More recently, in the third quarter of 2022, we launched a new brand campaign, advertising across television, online video, streaming audio, and digital and social media channels. These efforts may not be successful in achieving the brand awareness and acceptance levels in a cost-effective manner, or without harming other areas of our business.

We also rely on our community of users in a variety of ways, including their willingness to give us feedback regarding our work marketplace, and failure of our users to provide feedback on their experience on our work marketplace or our failure to adequately assess user satisfaction with our work marketplace or address any concerns could negatively impact our ability to improve our work marketplace and the willingness of current or prospective users to use our work marketplace. For example, the prior changes made in the pricing and packaging of Connects purchases resulted in user dissatisfaction and negatively impacted fill rates for projects on our work marketplace for a period of time. If we fail to promote and maintain our brand successfully, address user concerns, or ~~at all.~~

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.

If the market for ~~freelancers~~independent talent 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 ~~freelancers~~online independent talent 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~~independent talent to provide ~~services.~~services and independent talent to engage as service providers. It is difficult to predict the size, growth rate, and expansion of this market, whether any expansion will be long-term or temporary, particularly as the ~~entry~~COVID-19 pandemic subsides and restrictions intended to prevent its spread are relaxed or lifted, the labor market continues to be unpredictable, global and U.S. economies are at risk of ~~products and services that are competitive to ours,~~recession, the success of ~~existing~~ competitive products and services, or technological, macroeconomic, geopolitical (including the prevalence of de-globalization), legal, regulatory, or other developments that will impact the overall demand for, ~~freelancer services.~~or ability to engage, independent talent. For example, we experienced a quarter-over-quarter decline in GSV in the third quarter of 2022 that was attributable in part to seasonal and weakening macroeconomic conditions. Furthermore, many businesses may be unwilling to engage ~~freelancers~~independent talent for a variety of reasons, including perceived negative connotations with outsourcing work, quality of work, fraud, privacy, or data security ~~concerns.~~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 talent that use our work marketplace is challenged.” Likewise, with the greater adoption of remote work and increased flexibility in employment relationships resulting from the

COVID-19 pandemic, more skilled independent talent may choose traditional employment. If the market for ~~freelancers~~independent talent and the services they offer does not achieve widespread adoption, or there is a reduction in demand for ~~freelancer services,~~independent talent, including as the COVID-19 pandemic subsides or as a result of a macroeconomic downturn, it could result in decreased revenue and our business could be adversely affected.

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

The market segment for independent talent 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 offerings and services. The level of competition within, and the frequency and likelihood of increased third-party investment and new competitors entering, this market segment has further intensified due to the ongoing COVID-19 pandemic and the resulting shift toward remote work and other labor market dynamics. We compete with a number of online and offline platforms and services domestically and internationally, as well as traditional staffing firms, to attract and retain users and expand our share of user spend. Our main competitors fall into the following categories:

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

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

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

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

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

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

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

In addition, well-established internet companies, such as Google, LinkedIn, and Amazon, social media platforms, such as Meta, and businesses that operate driving, delivery, and other commoditized marketplaces, such as Uber Technologies, have entered or may decide to enter into our market segment. Some of these companies have launched or may launch, or have acquired or may acquire companies or assets that offer products and services that directly compete with our work marketplace. For example, LinkedIn launched ProFinder in 2016, Open for Business in 2019, and Services Marketplaces in 2021, each of which is a service 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, have considerably greater financial and other resources than we do, and could offer products and services similar to our offerings for lower fees.

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, have greater brand recognition than us in other countries and a stronger understanding of local or regional culture and commerce. 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 service providers and traditional, offline means of finding work and procuring

services, such as staffing businesses, personal and professional networks, classified ads, and recruiters. In addition, our decision to suspend our business operations in Russia and Belarus may increase the risk that new competitors emerge in the region.

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 talent 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 or the way service providers perform work 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, we may face increased competition should these companies or services, or new entrants, succeed.

Many of our current and potential competitors, both online and offline, enjoy substantial competitive advantages, such as: greater name recognition and more prominent brand reputation; pre-existing relationships with desirable clients; more experience with international operations and localization of their offerings; longer operating histories; greater financial, technical, and other resources; more users; newer technologies and more modern technical infrastructure; greater appeal to certain segments of users, such as those entering the workforce; and, in some cases, the ability to rapidly combine online platforms with traditional staffing and contingent worker solutions. 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 work marketplace, or respond more quickly and effectively than we do to new or changing opportunities, technologies, standards, regulatory conditions, or user preferences or requirements. In addition, while we compete intensely in more established markets, we also compete in developing technology markets that are characterized by dynamic and rapid technological change, many and different business models, and frequent disruption of incumbents by innovative online and offline entrants. The barriers to entry into these markets can be low, and businesses easily and quickly can launch online or mobile platforms and applications at nominal cost by using commercially available software or partnering with various established companies in these markets.

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

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

The market for our ~~platform~~work marketplace 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~~offerings and services embodying new technologies can quickly make existing ~~products~~offerings and services obsolete and unmarketable. We invest substantial resources in researching and developing new ~~products~~offerings and services and enhancing our ~~platform~~work marketplace by incorporating additional features, improving functionality, modernizing our technology, and adding other improvements to meet our users’ evolving demands in our increasingly highly competitive industry. For example, in 2020 we invested a significant amount of resources to launch Project Catalog and we continue to invest resources to modify and enhance this and other offerings to increase client traffic and usage and improve the user experience. The success of any enhancements or improvements to, or new features of, our ~~platform~~work marketplace or any new ~~products~~offerings and services, such as Project Catalog, depends on several factors, including ~~timely completion,~~overall demand and market acceptance consistent with the intent of such offerings or services, competitive pricing, adequate quality testing to ensure an absence of errors, defects, and disruptions on our work marketplace, integration with new and existing technologies on our ~~platform~~work marketplace and third-party

partners’ technologies, and ~~overall market acceptance.~~timely completion. We cannot be sure that we will succeed, on a timely or cost-effective basis, in developing, marketing, and delivering ~~on a timely and cost-effective basis~~ enhancements or new features to or modernizing our ~~platform~~work marketplace or any new ~~products~~offerings and services that respond to continued changes in the market for independent talent or business ~~services, nor can we be sure that any~~services. Any enhancements or new features to our ~~platform~~work marketplace or any new ~~products~~offerings 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, and in the ~~broad~~past certain features and offerings have not achieved, market acceptance, ~~necessary~~cost-effectiveness, or the intended effect. In the past, we have experienced unintended negative effects, including reduced client spend, diminished fill rates for projects on our work marketplace, errors and disruptions on our work marketplace, and user dissatisfaction from certain modifications to ~~generate sufficient revenue.~~ our offerings, services, and features.

Moreover, even if we introduce new ~~products~~offerings and services, we may experience a decline in revenue from our existing ~~products~~offerings and services that is not offset by revenue from the new ~~products~~offerings or services. In addition, we may lose existing users ~~who~~that choose to use competing products or services. This could result in a temporary or permanent decrease in revenue and adversely affect our business.

If 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 work marketplace may be reduced, our operations may be disrupted, we may incur significant legal costs, fines, or liabilities, and our business could be adversely affected.

Our business involves the storage, processing, and transmission of users’ proprietary, confidential, and personal information as well as the use of third-party partners and vendors who store, process, and transmit users’ proprietary, confidential, and personal information. We also maintain and use third-party partners and vendors who process certain other proprietary and confidential information relating to our business and personal information of our personnel. Our systems, and the systems of our vendors and third-party partners, may be vulnerable to privacy or security incidents, such as computer viruses and other malicious software, physical or electronic break-ins, or vulnerabilities resulting from intentional or unintentional service provider actions, and similar disruptions that could make all or portions of our website or applications unavailable for periods of time. Any privacy or security incident, whether intentionally or unintentionally caused by us or by third parties, including government agencies, 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. 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 try to take advantage of us, our users, and our vendors and third-party partners by using social engineering and other methods to persuade their victims to make fraudulent payments, or to download viruses, ransomware, or other malware into computer systems and networks. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we and our vendors and third-party partners may be unable to anticipate these techniques or to implement adequate preventative measures, despite our efforts to implement and maintain a robust information security program. 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 talent that we engage on our work marketplace to perform services for us, and the likelihood of such incidents may increase as a result of our workforce working remotely. If we, our vendors, or our 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. In addition, significant unavailability of our work marketplace due to security breaches or other privacy and security incidents could cause users to decrease their use of or cease using our work marketplace. Any of these effects could adversely impact our business.

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

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, reimburse, defend or indemnify third parties if required under contractual obligations, 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 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.

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

A substantial portion of the services offered by talent 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, increased use of artificial intelligence or automation, or otherwise, if a sufficient number of qualified or desirable talent is not available on our work marketplace or willing to perform these services or businesses satisfy their needs for these services through alternative means, including through use of our competitors’ products or traditional employment relationships, or if the talent on our work marketplace are not located or able to work in specific geographic regions in which clients are seeking to engage remote talent, the growth in the number of users on our work marketplace may slow or decline and as a result our revenue and business may be adversely impacted. Geopolitical events have impacted and may continue to impact the market for information technology services on our work marketplace. For example, approximately 25% of client spend from our web, mobile, and software development category in 2021 was derived from work where either the talent or the client was located in the region impacted by Russia’s invasion of Ukraine, and immediately following the beginning of the invasion, we experienced meaningful reductions in activity from talent in the region.

Our sales efforts are increasingly primarily targeted at large enterprise and other clients and prospects with larger, longer-term independent talent needs, and as a result we may encounter greater pricing, implementation, and customization challenges, and we may incur additional costs, each of which could adversely impact our business and operating ~~results~~results.

Our sales efforts are primarily targeted at large enterprise and other clients and prospects with larger, longer-term independent talent needs. For example, since the fourth quarter of 2021, we have increased our investment in sales by expanding our sales team and support personnel and we expect this investment to continue through the remainder of 2022 as we increase our efforts to acquire clients of our Upwork Enterprise offering. As a result of our increased focus on these larger clients, we face greater costs, longer sales cycles, and less predictability in completing some of our sales and in increasing spend by existing clients. In addition, due to the current macroeconomic conditions and certain internal operational challenges, we experienced longer sales cycles and acquired fewer Upwork Enterprise clients

in the third quarter of 2022 compared with the prior period in 2021 and the second quarter of 2022. For larger clients, use of our work marketplace may ~~fluctuate~~require approvals by multiple departments and executive-level personnel and require us to provide greater levels of services and client education regarding the uses, benefits, security, privacy, worker classification, payments, and compliance services offered on our work marketplace. Larger enterprises typically have longer decision-making and implementation cycles and demand more customization, greater indemnification and risk shifting, higher levels of support, a broader range of services, and greater payment flexibility. In addition, larger clients may require greater functionality and scalability that can lead to delays in sales or difficulties in growing client spend. We are often required to spend time and resources to better familiarize potential large enterprise clients with the value propositions of our work marketplace generally. Despite our efforts in familiarizing potential large enterprise clients with the benefits of our work marketplace, these potential clients may decide not to use our work marketplace if, among other reasons, they do not feel that their procurement or compliance needs are or will be met or our work marketplace is not widely accepted within the organization. In addition, sales opportunities with large clients may require us to devote greater sales and administrative support and professional services resources to individual clients, which could increase our costs, lengthen our sales cycle, and divert our own sales and professional services resources to a smaller number of larger clients. We may spend substantial time, effort, and money in our sales efforts without being successful in producing sales or growing client spend.

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

Users circumvent our work marketplace, which ~~makes~~adversely impacts our ~~future results~~business.

Our business depends on users transacting through our work marketplace. Despite our efforts to prevent them from doing so, users circumvent our work marketplace and engage with or take payment through other means to avoid the fees that we charge, and it is difficult or impossible to ~~predict.~~

~~Our quarterly operating results~~measure the losses associated with circumvention. Enhancements and changes we make with respect to our offerings, services, features, pricing model, and fees may unintentionally cause, and may have ~~fluctuated~~unintentionally caused in the past, users to circumvent our work marketplace, such as our consolidation of our Upwork Basic and Plus offerings into our new Client Marketplace Offering. In addition, circumvention by users of our work marketplace is likely to increase during a macroeconomic downturn, as users may be more cost-sensitive with respect to our fees. There may also be increased circumvention as a result of the effects of Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus. Moreover, certain changes we make to decrease circumvention by users have in the past and could again inadvertently result in user dissatisfaction, increased user circumvention, and a decline in user activity on our work marketplace. The loss of revenue associated with circumvention of our work marketplace has an adverse impact on our business, cash flows, operating results, and financial condition. In addition, our efforts to reduce circumvention may ~~fluctuate~~be costly or disruptive to implement, have results that are difficult or impossible to measure, fail to have the intended effect or have an adverse effect on our brand or user experience, cause users to cease using our work marketplace, reduce the attractiveness of our work marketplace, divert the attention of management, or otherwise harm our business.

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

We depend in part on various internet search engines, such as Google, as well as other channels to direct a significant amount of traffic to our website and mobile applications. Our ability to maintain the number of visitors directed to our website and mobile applications is not entirely within our control. For example, our competitors’ search engine optimization and other efforts such as paid search may result in their websites receiving a higher search result page ranking than ours, internet search engines or other channels that we utilize to direct traffic to our website have in the ~~future. Additionally,~~past and could again revise their

methodologies or implement other changes or penalties that adversely impact traffic to our website, or we ~~have a limited operating history~~may make changes to our website or mobile applications that adversely impact our search engine optimization rankings and traffic to our website and mobile applications in order to comply with applicable regulatory requirements or requirements imposed by our ~~current platform and pricing model, which makes it difficult to forecast our future results.~~vendors or third-party partners, or for other reasons. As a result, ~~you should~~links to our website may not ~~rely upon~~be prominent enough to drive sufficient traffic to our ~~past quarterly operating results as indicators~~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 and mobile applications periodically change their algorithms, policies, and technologies, sometimes in ways that cause traffic to our website and mobile applications to decline. These changes can also result in an interruption in users’ ability to access our website, a drop in our search ranking, higher levels of ~~future performance. You should take into account~~low-intent traffic visiting our website and mobile applications, a misunderstanding among potential users regarding the risks, difficulties, and uncertainties frequently encountered by companies in rapidly evolving markets. Our operating results in any given quarter can be influenced by numerous factors, many of which are unpredictablefunctionality or ~~are outside~~purpose 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;~~

work marketplace, or have other adverse impacts that negatively affect our ability to maintain and grow the number of users that visit our website or mobile applications. 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.

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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~~Additionally, new and developing U.S. privacy laws have established individual rights with respect to personal information that may lead to downstream effects on our ability to realize and quantify the value of ~~one or~~our marketing initiatives. As more jurisdictions adopt expansive data privacy regulatory requirements, an increasing number of users and website visitors will be afforded the right to opt-out of the ~~foregoing~~sharing of their personal information for purposes of specific types of online advertising. The resulting decrease of individuals to whom we and our third-party marketing and advertising vendors and partners may employ industry standard online advertising practices may lead to diminished efficacy of our marketing efforts, diminished visitor-to-user conversions, and increased costs of maintaining compliance.

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

Our work marketplace enables our users to manage important aspects of their businesses, and any errors, defects, or disruptions in our work marketplace, or other ~~factors may cause~~performance or availability problems with our work marketplace or infrastructure could harm our brand and reputation, negatively impact our operating results, impair our ability to ~~vary significantly. As such, we believe that quarter-to-quarter comparisons~~obtain or maintain licenses necessary to operate our business or deliver certain services, impair or jeopardize our partner relationships, or otherwise damage our business or the businesses of our ~~operating results~~users. As the usage of our work marketplace grows, and as we introduce new offerings and services and look to expand our international footprint over time, we will need an increasing amount of technical infrastructure and continued infrastructure modernization, including network capacity, computing power, and improvements to how we process and store data and transaction information, to continue to operate our work marketplace and offer certain services. We may ~~not be meaningful~~fail to effectively scale and ~~should not be relied upon~~grow our technical infrastructure to accommodate these demands, which may adversely affect our user experience. We also rely on third-party software and infrastructure, including the infrastructure of the internet, to provide our work marketplace. Any failure of or disruption to this software and infrastructure could also make our work marketplace unavailable to our users. For example, these types of disruptions have negatively impacted our work marketplace, such as an ~~indication~~inadvertent error by a regulatory agency that prevented users from accessing our website for a brief period of ~~future performance. If we fail~~time. Internet shutdowns in certain jurisdictions are becoming more frequent, including in response to ~~meet~~civil unrest or ~~exceed the expectations of investors or securities analysts, then the trading price~~prior to contested political elections, and any shutdown in a jurisdiction in which a significant number of our ~~common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.~~

~~Because we derive~~users are located will adversely affect user activity on our work marketplace throughout the ~~substantial majority~~duration of such shutdown. Our work marketplace is constantly changing with new updates, which may contain undetected errors when first introduced or released. Any errors, defects, disruptions in service, or other performance or stability problems with our work marketplace, or the inadequacy of our ~~revenue from our marketplace offerings, with most~~efforts to adequately prevent or timely detect or remedy errors or defects, could result in negative publicity, loss of or delay in market acceptance of our work marketplace, ~~revenue derived from our Upwork Standard offering,~~loss of competitive position, our inability to ~~generate~~timely and accurately maintain our financial records, interference with our clients’ ability to contract for, or the ability of talent to complete, projects on our work marketplace, inaccurate or delayed invoicing of clients, delay of payment

to us or talent, claims by users for losses sustained by them, or investigation and corrective action taken by regulatory agencies. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help resolve the issue. Accordingly, any errors, defects, or disruptions in our work marketplace could adversely impact our brand and reputation, revenue, ~~from~~and operating results.

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

Our ability to attract and ~~growth prospects.~~

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

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

We currently host our work marketplace, serve our users, and support our operations using Amazon Web Services, which we refer to as AWS, a provider of cloud infrastructure services. We do not have control over the ~~near future,~~operations of the ~~substantial majority~~facilities of AWS that we use. AWS’s facilities are vulnerable to failure, damage, or interruption from a number of causes, including from earthquakes, hurricanes, floods, fires, cybersecurity attacks, terrorist attacks, power losses, telecommunications failures, and similar events or could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of any of these events, a decision to close the facilities or cease or limit providing services to us without adequate notice, or other unanticipated problems could result in interruptions to our ~~revenue from our~~work marketplace, ~~offerings, with most of our marketplace revenue derived from our Upwork Standard offering. As such, market acceptance of our marketplace offerings~~including lengthy interruptions. Our work marketplace’s continuing and uninterrupted performance is critical to our ~~continued success. Demand for our marketplace offerings is affected~~success and users may become dissatisfied by ~~a number of factors beyond our control, including the timing of development and release of new products and services by our competitors,~~any system failure that interrupts our ability to ~~respond~~provide our work marketplace to ~~technological change~~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 ~~innovate~~the same risks. Sustained or repeated system failures could reduce the attractiveness of our work marketplace to users, cause users to decrease their use of or cease using our work marketplace, and ~~grow, contraction~~adversely affect our business. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our work marketplace. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our ~~market,~~service and ~~the other risks identified herein.~~we cannot be certain that insurance will continue to be available to us on economically reasonable terms, or at all.

AWS does not have an obligation to renew its agreements with us on commercially reasonable terms, or at all. If we are unable to renew our agreements or unable to renew on commercially reasonable terms, our agreements are prematurely terminated, or we add additional infrastructure providers, we may experience costs or downtime in connection with the transfer to, or the addition of, new data center

providers. If these providers charge high costs for or increase the cost of their services, we may have to increase the fees to use our work marketplace and our operating results may be adversely impacted.

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

Mobile devices are increasingly used for marketplace transactions. A significant and growing portion of our users access our work marketplace through mobile devices, including through the use of mobile applications. Our mobile applications rely on third parties maintaining open application store platforms, including the Apple App Store and Google Play, which make current and new applications or new versions of our mobile applications available for download and use on mobile devices. We cannot assure you that the platforms through which we distribute our applications will maintain their current structures or terms of access, that such marketplaces will continue to make our mobile applications or newer versions of our mobile applications available for download, or that such marketplaces will not charge us new or additional fees or impose other new or additional requirements, including requirements that may be costly and burdensome to meet or may adversely affect user ~~demands,~~experience, to ~~expand~~list our applications for download or offer services and offerings through our applications. Additionally, there is no guarantee that popular mobile devices will continue to support our work marketplace, that the ~~categories~~use of ~~services offered~~mobile devices for payments or other transactions on our ~~platform,~~work marketplace will be available on commercially reasonable terms, or ~~to achieve more widespread market acceptance~~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 or user experience on our website or applications or give preferential treatment to competitors could adversely affect the usage of our work marketplace on mobile devices. Additionally, in order to deliver high-quality mobile offerings, it is important that our ~~business operations, financial results,~~offerings are designed effectively and work well with a range of mobile devices, technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing offerings that operate effectively with these devices, technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use our work marketplace on their mobile devices, our users find our mobile offering is not cost-effective, our users find our mobile offering does not meet their needs, our competitors develop offerings and services that are perceived to operate more effectively on mobile devices, or our users choose not to access or use our work marketplace on their mobile devices or use mobile products that do not offer access to our work marketplace, our user growth, ~~prospects~~user engagement, and business could be adversely ~~affected.~~

impacted.

Risks Related to Legal and Regulatory Matters

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

We and our users are subject to a wide variety of foreign and domestic laws. Laws, regulations, and standards governing issues that may affect us, such as worker classification, employment, worker health, payments, worker confidentiality obligations and whistleblowing, intellectual property, consumer protection, taxation, privacy, and data security are often complex and subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their enforcement and application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal and state administrative agencies. Many of these laws were adopted prior to the advent of the internet, ~~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, 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 ~~escheatment,~~federal contracting may also be adopted, implemented, or interpreted to apply to us and other online services ~~marketplaces.~~ 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.

As a result of Russia’s invasion of Ukraine, the United States, the United Kingdom, the EU, and other jurisdictions have issued broad-ranging economic sanctions. As the Russian invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, or other economic or military measures against Russia or Belarus. Although we have suspended our business operations in Russia and Belarus, and block users from all sanctioned regions, users have in the past, and may in the future, seek to circumvent our efforts to block those and other jurisdictions, and therefore we are subject to risks that we may not be in full compliance with any additional sanctions.

As our ~~platform’s geographical~~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 or change the ~~categories of~~offerings and services offered on our ~~platform,~~work marketplace, regulatory agencies or courts may claim, or we may independently determine, that we, or our users, are subject to additional regulations or 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.~~offerings or services, or that we are otherwise required to change our business practices. If we determine additional legal requirements apply to our business, we may expend resources to comply or obtain licenses to come into compliance with such requirements, and such efforts may be a distraction to the business or require adverse changes to the manner in which we conduct our business or our work marketplace and may themselves cause regulatory agencies to scrutinize our business, including past practices. It is also possible that certain provisions in agreements with our users or service providers, or between ~~freelancers~~talent and clients, or the fees we charge, may be found to be unenforceable or not compliant with applicable law.

~~Recent financial, political, and other events may increase the~~

The level of regulatory scrutiny on larger companies, technology companies in general, and companies engaged in dealings with independent contractors, payments, or ~~payments~~personal information in ~~particular. Regulatory agencies~~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.

~~Our success, or perceived success,~~

New approaches to policy-making and ~~increased visibility~~legislation may also ~~drive some businesses that view~~produce unintended harms to our business, ~~model~~which may impact our ability to ~~be a threat to raise concerns about~~operate our business ~~model~~in the manner in which we are accustomed. In particular, there has been increased focus on technology, artificial intelligence, and worker classification and independent contractor regulations. For example, the focus on worker classification led in part to ~~local policymakers~~the adoption of legislation in California, and ~~regulators.~~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 talent that use our work marketplace is challenged.” These ~~businesses~~types of laws and regulations may have a far-reaching impact, including on the independent professionals that use our work marketplace and their ~~trade association~~

~~groups~~clients. Any of these regulations could negatively impact our users, including perceptions regarding their use of our work marketplace, 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~~material adverse effect on the demand for talent on our work marketplace or on the manner in ~~an effort~~which we are able to ~~change such legal and regulatory regimes in ways intended to adversely affect or impede~~operate our ~~business and the ability of users to utilize our platform.~~

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. If~~users or employees. We may be harmed if we are found to be subject to new or existing laws and regulations or if those laws are interpreted and applied to us in a manner that harms our business or is inconsistent with the application of U.S. laws, including those concerning worker classification, independent contractors, employment, payments, whistleblowing and worker confidentiality obligations, intellectual property,

consumer protection, taxation, privacy, data security, benefits, unionizing and collective action, arbitration agreements and class action waiver provisions, unfair competition, terms of service, website accessibility, background checks, and escheatment. In addition, contractual provisions that are designed to protect and mitigate against risks, including terms of service, services agreements, arbitration and class action waiver provisions, disclaimers of warranties, limitations of liabilities, releases of claims, and indemnification provisions, could be deemed unenforceable as to the application of these laws and regulations by a court, arbitrator, or other decision-making body. If we are unable to comply with these laws and regulations or manage the complexity of global operations and supporting an international user base successfully or in a cost-effective manner, or if these laws and regulations are found to apply to our users or cause a decline in demand for talent services, our business, operating results, and financial condition could be adversely affected.

~~We face intense competition~~

Having an international community of users and engaging talent internationally exposes us to risks that could ~~lose market share to our competitors, which could adversely affect our business, financial condition, and operating results.~~

The market 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. We compete with a number of online and offline platforms and services domestically and internationally to attract and retain users. 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;~~

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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;~~

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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;

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

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~~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~~

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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.~~

In addition, well-established internet companies, such as Google, LinkedIn, and Amazon, and social media platforms, such as Facebook, have entered or may decide to enter into our market segment, and some of these companies have launched products and services that directly compete with our platform. For example, in 2016, LinkedIn launched ProFinder, its service to connect LinkedIn members with one another for freelance service relationships.

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

In the future, we may also compete with companies that utilize emerging technologies, such as blockchain, augmented reality, and machine learning. Many of the companies and services that utilize these technologies in our market are still new and not yet fully mature in their capabilities or network scale. However, we may face increased competition should these companies and 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.

Many of our current and potential competitors, both online and offline, enjoy substantial competitive advantages, such as greater name recognition, longer operating histories, greater financial, technical, and other resources, and, in some cases, the ability to rapidly combine online platforms with traditional staffing and contingent worker solutions. 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, 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 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 existing or prospective users. These developments could limit our ability to obtain revenue from existing and new users. If we are unable to compete successfully against current and future competitors, our business, operating results, and financial condition, ~~would~~and these risks could increase as we seek to expand our international footprint.

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 of 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 talent concentrated in countries with higher risks of instability and geopolitical uncertainty. For example, approximately 25% of client spend from our web, mobile, and software development category in 2021 was derived from work where either the talent or the client was located in Ukraine, Russia, or Belarus. Russia’s invasion of Ukraine has interfered and may continue to interfere with talent’s ability to access our work marketplace and for us to support users in such countries and the surrounding region. In particular, in response to the ongoing war in Ukraine, we suspended business operations in Russia and Belarus, which means that users in each of those countries are prohibited from using our work marketplace for the duration of the suspension. In addition, we engage talent located in many countries to provide services for our managed services offering and to us for internal projects. As a result of our decision to suspend business operations in Russia and Belarus, we also suspended our engagements with talent in those countries that we engage on our work marketplace to perform services for us.

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 or modify our offerings or obtain certain licenses, and such changes or licensure may not be possible on a reasonable timeline or at all, 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 ~~impacted.~~

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 as we expand our operations internationally, including extending our physical presence and registering to do business outside the United States or investing in localization efforts.

Risks inherent in conducting business with an international user base, engaging talent 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 talent that provide services to us, or employees are resident and being subject to their laws and regulatory requirements;

•new, changed, or conflicting regulatory requirements;

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

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

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

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

•the cost and burden of complying with a wide variety of laws that may be deemed to apply to us, including those relating to labor and employment matters (including but not limited to requirements with respect to works councils or similar labor organizations, worker classification, and taxation on income or earnings, including the obligation to withhold and remit taxes), payments and the handling, storing, or moving of money, 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, including those affecting certain countries with higher risks of instability and geopolitical uncertainty, such as Russia and Ukraine;

•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, such as the ongoing Russian war against Ukraine;

•costs of localizing services, including adding the ability for clients to pay in local currencies or modifying our platform to offer our website in local languages;

•changes to laws, regulations, or central bank rules impacting us or our partners that may make payments for services exports more costly, difficult, or impossible to process, or that may reduce the availability of tools like digital wallets and related payment services in important global markets;

•retaliatory actions by foreign governments intended to disrupt business like ours in the United States as a result of new or increased sanctions or export controls;

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

•economic weakness or currency-related challenges or crises;

•fluctuations in foreign currency exchange rates, including losses borne by our customers that cause them to find our work marketplace to be less desirable or to hold us responsible for such losses;

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

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

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

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

•weaker intellectual property protection;

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

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

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

~~The Upwork brand did not exist before 2015, but we believe that developing, maintaining, 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 and are important elements in attracting new users and retaining existing users. Successful promotion of our brand and~~ our business, model depends on, among other things, the effectiveness of our marketing efforts, our ability to provide a reliable, trustworthy, and useful platform at competitive prices, the perceived value of our platform, and our ability to provide quality support. In order to reach brand awareness levels of our competitors, we will need to continuously invest in marketing programs that may not be successful in achieving meaningful awareness levels. Further, brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation. For example, in the nine months ended September 30, 2018 and 2017, we increased investment in offline advertising in certain markets to increase our brand awareness, and it is not certain that these investments will have a positive impact on our brand or will be cost effective. In order to protect our brand, we also expend substantial resources to register and defend our trademarks and to prevent others from using the same or substantially similar marks. Despite these efforts, we may not always be successful in registering and preventing misappropriation 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. We also rely on our community of users in a variety of ways, including their willingness to give us feedback regarding our platform, and failure of our users to provide positive feedback on their experience on our platform could negatively impact the willingness of prospective users to use our platform. If we fail to promote and maintain our brand successfully 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 businessoperating results, and financial condition ~~may~~could be adversely affected.

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

Clients are generally responsible for properly classifying the ~~freelancers~~talent they engage through our ~~platform~~work marketplace under ~~the~~our terms of ~~our user agreement.~~service. Some clients opt to classify ~~freelancers~~talent as employees for certain ~~assignments,~~work, while talent in many ~~freelancers~~other cases are classified as independent contractors.

We offer an optional service to users of our Upwork Enterprise ~~clients, for~~offering and other premium offerings, through which we help classify ~~freelancers~~talent as employees of third-party staffing providers or independent contractors. For clients ~~that subscribe to this service,~~of these services, subject to applicable law and the terms of our agreement with the client, we indemnify clients from misclassification risk and make warranties to the client, ~~(e.g.,~~such as to compliance with applicable ~~laws).~~laws. In addition, we offer a number of other premium ~~services~~offerings where we provide increased assistance to ~~enable~~ users to find and contract with one ~~another.~~another, which could increase employment-related risks. Third-party staffing providers employ ~~freelancers~~talent 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 by one or more of our third-party staffing providers could negatively impact our business and financial results, including increased costs for clients or us, a reduced profit margin, a diminished user experience, or the inability to offer the staffing provider services in one or more jurisdictions. We also use our ~~platform~~work marketplace to find, classify, and engage ~~freelancers~~talent to provide services for us orand for our managed services offering. In general, ~~were~~any time a court or administrative agency ~~to determine~~determines that we or our clients that use our ~~platform~~work marketplace have misclassified ~~a freelancer~~talent as an independent contractor, we ~~and/~~or our users could incur tax and other liabilities for failing to properly withhold or pay taxes on the ~~freelancer’s~~talent’s compensation, for failing to properly compensate the talent, including benefits and stock compensation, as well as potential wage and hour penalties and other liabilities depending on the circumstances and jurisdiction. ~~Although we maintain~~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. Certain claims may not be covered by our insurance, ~~policies covering liability for certain claims,~~and we cannot be certain that ~~our~~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, which are regularly subject to regulation, amendment, or re-interpretation, and consequently there is risk to us and to users, both ~~freelancers~~talent 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, Assembly Bill 5, which we refer to as AB 5, went into effect on January 1, 2020 and has the stated purpose of codifying the 2018 state supreme court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. 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. Since the enactment of AB 5, and subsequent amendments and challenges (including California’s Proposition 22) to the law, there is little guidance from the courts or the regulatory authorities charged with its enforcement and there remains a degree of uncertainty regarding its application.

A misclassification determination, allegation, claim, or ~~allegation~~audit creates potential exposure for users and for us, including but not limited toto: 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;~~unemployment insurance; claims of discrimination, harassment, and retaliation under civil rights laws; claims under laws pertaining to unionizing, collective bargaining, and other concerted activity; and other claims, charges, or other proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations of joint employer liability. Such claims could result in monetary damages (including but not limited to wage-based damages or restitution, compensatory damages, liquidated damages, and punitive damages), interest, fines, penalties, costs, fees (including but not limited to attorneys’ fees), criminal and other liability, assessment, injunctive relief, or settlement. For example, particularly around the onset of the COVID-19 pandemic, these types of claims were more frequent in light of then-deteriorating macroeconomic conditions, more prone to agency error in light of overwhelmed agencies, more commonly submitted on a fraudulent basis, and more difficult to successfully oppose or appeal due to COVID-19 related delays, and such events may increase in frequency again if similar circumstances recur. These claims may also become more frequent as our brand awareness increases. Such ana claim, allegation, ~~claim,~~ or adverse determination, including but not limited to with respect to the ~~freelancers~~talent 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, ~~such indemnification agreements~~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 ~~indemnification~~ may otherwise prove inadequate.

~~Because a substantial portion of the services offered on our platform~~

The regulatory landscape regarding contractor classification is ~~information technology services, a decline~~rapidly changing, and changes in ~~the market for information technology service providers~~these laws could adversely affect demand for our ~~business.~~

~~A significant portion of the~~ services offered by freelancers on our platform relate 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 in the number of users of our platform may slow or decline and ~~as a result our revenue~~work marketplace and ~~business may be adversely impacted.~~

~~Future changes to our pricing model could~~ adversely affect our business.

~~We implemented a significant change to our pricing model in 2016, which has contributed to GSV having grown at a faster rate than revenue in recent periods,~~

Worker classification and ~~we may from time to time decide to make further changes to our pricing model due to a variety~~independent contractor issues, including AB 5, have been the subject of reasons, including changes to the market for our products and services, and as competitors introduce new products and services. Changes to any components of our pricing model may, among other things, result in 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 may negatively impact our business.~~

~~Our business depends on the overall demand for labor and on the economic health of current and prospective clients that use our platform. Any significant weakening of the economy~~widespread debate both in the United States and abroad. It is possible that other jurisdictions, including the U.S. federal government, U.S. states, such as New York, Washington, and Illinois, and jurisdictions outside the United States, such as the United Kingdom and the EU through its work on the Platform Workers Directive and other legislative and regulatory instruments, may change their definition of “employment” to include arrangements currently viewed as independent. The U.S. Department of Labor recently published a Notice of Proposed Rulemaking regarding the classification of workers as independent contractors or ~~Europe or~~employees. The proposal is widely viewed as expanding the scope of the ~~global economy, more limited availability~~definition of credit, a reduction in business confidence 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 may adverselyemployee under federal law. It is uncertain how this rule, if enacted as proposed, would impact our business, ~~and operating results. Global economic and political events or uncertainty~~if at all. However, public perception may ~~cause some of our current or potential clients to curtail spending on our platform, and may ultimately~~ result in ~~new regulatory~~confusion about the standards to be applied when making an employment determination and ~~cost challenges~~cause customers to ~~our operations. These adverse conditions could result in reductions in revenue, increased operating expenses, longer sales cycles, slower adoption of new technologies,~~explore alternative

arrangements to meet their talent needs. Additionally, changes to laws 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.

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

Our business depends on users transacting through our platform. Despite our efforts to prevent them from doing so, users may circumvent our platform and engage with or pay each other through other means to avoid the fees that we charge on our platform. The loss of revenue associated with circumvention of our platform could have an adverse impact on our business, cash flows, operating results, and financial condition.

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

Requirements on our platform relating to user authentication and fraud detection are complex. If our security measures do not succeed, 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 use of another’s identity 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:

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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

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~~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.

Weregulation may be subject to ~~escrow, payment services,~~challenge in court (e.g. AB 5, which had a retroactive effect, and ~~money transmitter regulations that may adversely affect our business.~~

~~Our subsidiary, Upwork Escrow Inc., is licensed~~California’s Proposition 22, which was ruled unconstitutional). Likewise, the EU, the United Kingdom, and other jurisdictions are exploring changes to worker classification through a variety of legal instruments, such as ~~an internet escrow agent under California’s Escrow Law~~the Digital Services Act 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 licenseDigital Markets Act in the ~~applicable jurisdiction. In April 2013, we received an inquiry from~~EU. These new and changing laws could alter 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~~legislative and regulatory ~~requirements related~~landscape regarding how governments may choose to ~~escrow, money transmission,~~regulate independent contractors broadly and in specific sectors, and may have unintended consequences. These changes may affect how our users run their businesses. As a result, there is significant uncertainty regarding the ~~handling or moving of money, the laws~~worker classification regulatory landscape and what it will look like in future years, and compliance with any new legislation or regulations may ~~change,~~be costly and ~~interpretations of existing laws and regulations~~difficult or they may ~~also change. As~~be impossible to comply with in a ~~result, Upwork Escrow~~commercially reasonable manner. In addition, any developments 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 developmentschanges in the ~~laws or regulations related to escrow, money transmission, or~~regulatory environment impacting worker classification and independent contractors may reduce 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 bedemand for independent contractors more generally 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,jurisdictions 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 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 of our employees, contractors, partners, users, and agents will comply. Any violations could result in enforcement actions or other proceedings, fines, civil and criminal penalties, damages, interest, costs and fees (including but not limited to legal fees), injunctions, loss of intellectual property rights, or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of global operations and supporting an international user base successfully and in a cost-effective manner, our business, operating results, and financial condition could be adversely affected.

~~If we are unable to maintain our payment partner relationships, 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 clients, and as a result we may encounter greater pricing, implementation, and customization challenges, and we may have to delay revenue recognition for more complicated transactions, all of which could adversely impact our business and operating results.

Our sales efforts are increasingly targeted at large enterprise 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 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. Larger enterprises typically have longer decision-making and implementation cycles and may demand more customization, higher levels of support, a broader range of services, and greater payment flexibility. In addition, larger enterprises may require greater functionality and scalability and acceptance provisions that can lead to a delay in revenue recognition. We are often required to spend time and resources to better familiarize potential enterprise clients with the value propositions of our platform generally. Despite our

efforts in familiarizing potential enterprise clients with the benefits of our platform, some potential enterprise clients may decide not to use our platform if, among other reasons, they do not feel that their procurement or compliance needs are or will be met. 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, sales opportunities with large enterprises may require us to devote greater sales and administrative support and professional services resources to individual clients, which could increase our costs, lengthen our sales cycle, and divert our own sales and professional services resources to a smaller number of larger clients. We may spend substantial time, effort, and money in our sales efforts without being successful in producing sales or growing client spend.

Even if we reach agreement with an enterprise client to use our platform, the agreement may not be on pricing or other terms that are favorable to us. Moreover, a significant portion of the fees we typically receive from enterprise clients is contingent on the level of spend by the client. If an enterprise client negotiates pricing terms that are not favorable to us, does not engage freelancers on our platform, or uses freelancers for projects of nominal 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 for larger clients, or to other terms that are unfavorable to us in order to secure a client’s business or increase their spend. All these factors can add further risk to business conducted with these clients even after a successful sale.

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

We have only recently begun generating revenue from 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 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 costs 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 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 treatment to competitors could adversely affect our platform’s usage on mobile devices. Additionally, in order to deliver high-quality mobile products, it is important that our products are designed effectively and work well with a range of mobile devices, technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these devices, technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use our platform on their mobile devices 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 access 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. For example, our competitors’ search engine optimization and other efforts may result in their websites receiving a higher search result page ranking than ours, internet search engines or other channels that we utilize to direct traffic to our website could revise their methodologies 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 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’ ability to access our website or impair our ability to maintain 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 on our business and operating results.

If we or our third-party partners experience a security breach and unauthorized parties obtain access to our users’ data, our data, or our platform, networks, or other systems, 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 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 information of our personnel. Any security breach or incident that we experience could result in unauthorized access to, misuse of, or unauthorized acquisition of our 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, 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 effects could adversely impact our business.

Our and our third-party partners’ systems may be vulnerable to computer viruses 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.

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

We currently host our platform, serve our users, and support our operations using AWS, a provider of cloud infrastructure services. We do not have control over the operations of the facilities of AWS that we use. AWS’s facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, and similar events. The occurrence of a natural disaster 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. Our platform’s continuing and uninterrupted performance is critical to our success. Users may become dissatisfied by any system failure that interrupts our ability to provide our platform to them. We may not be able to easily switch our AWS operations 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 reduce the attractiveness of our platform to users, thereby reducing revenue. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact

~~use of our platform. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service.~~

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 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 increase the cost of their services, we may have to increase the fees to use our platform and our operating results may be adversely impacted.

In addition, we and other customers of AWS have been subject to litigation by third parties claiming that AWS and basic HTTP functions infringe their patents. Although we expect Amazon to indemnify us with respect to at least a portion of such claims, the litigation may be time consuming, it may divert management’s attention, and, if Amazon failed to 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, collection, storage, processing, transfer, or ~~transfer~~use of personal ~~data,~~information, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could adversely affect our business.

We receive, collect, store, process, transfer, and use personal information and other user data. There are numerous federal, state, local, and international laws and regulations regarding privacy, data protection, information security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other ~~content, the~~data. The scope of ~~which are~~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. ~~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~~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, sharing, or disclosure of the data of our ~~users’ data,~~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, sharing, 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, automated processing, and information security that are proposed and enacted in various jurisdictions. For example, ~~European legislators adopted the~~Europe’s General Data Protection Regulation, ~~(“GDPR”)~~which we refer to as the GDPR, and the UK General Data Protection Regulation (which implements the GDPR into UK law), ~~which became effective in May 2018, superseded existing European Union data protection legislation, imposes more~~impose stringent ~~European Union~~ data protection requirements and ~~provides~~provide for significant penalties for noncompliance. ~~The GDPR created new compliance obligations applicable~~Additionally, there is an increased focus on automated processing and processing via artificial intelligence that may lead 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 andincreased regulatory restrictions that could have an ~~adverse~~ impact on portions of our ~~business. As~~platform’s functionality. The CCPA requires, among other things, covered companies to provide certain disclosures to California consumers and affords such consumers certain rights, including the right to opt-out of certain sales of personal data. The CCPA also provides for civil penalties for violations as well as a ~~result, we~~private right of action for data breaches that may ~~need to modify the way we treat such information.~~increase data breach litigation. Further, the ~~United Kingdom initiating a process~~California Privacy Rights Act, which was passed in November 2020 and will be fully effective in January 2023, significantly modifies the CCPA. These modifications will require us to ~~leave the European Union has created uncertainty with regard~~incur additional costs and expenses in our effort to ~~the regulation of~~comply. Virginia, Colorado, Utah, and Connecticut recently enacted similar data ~~protection~~privacy legislation that will take effect in 2023, and several other states and countries are considering expanding or passing privacy laws 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 Kingdomnear term. The enactment of more restrictive laws, rules, regulations, or future enforcement

actions or investigations could impact us through increased costs or restrictions on our business, 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 andnoncompliance could result in regulatory penalties and significant ~~liability, cause our users to lose trust in us, and otherwise have an adverse effect on our~~

~~reputation and business.~~legal liability. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the overall demand for, our ~~platform.~~

work marketplace.

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

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

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

Although we are a licensed internet escrow agent and we believe that our operations comply with existing U.S. federal, state, and international laws and regulatory requirements related to escrow, money transmission, and the handling or moving of money, the laws or regulations may change, interpretations of existing laws and regulations may also change, and our operations and offerings may change resulting in new or different regulatory requirements being applicable to or preferable for our business. As a result, we could be required, or choose, to become licensed as an escrow agent or a money transmitter (or other similar licensee) in other U.S. states or other jurisdictions or as a money services business under federal laws and regulations or similar licenses under the laws and regulations of other jurisdictions. It is also possible that we could become subject to regulatory enforcement or other proceedings in those states or other jurisdictions with escrow, money transmission, electronic money, or other similar statutes or regulatory requirements related to the handling, storing, or moving of money, and such risk may increase if we are required or choose to pursue additional or different licenses, which could in turn have a significant impact on our business, even if we voluntarily sought the licenses or were to ultimately prevail in such proceedings. We may also be required, or choose, 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 or in order to support new products or services. Any developments or inconsistencies in the requirements, interpretations or applicability of the laws or regulations related to escrow, money transmission, or the handling, storing, or moving of money; material changes to the mandate, purview or regulatory approach at the DFPI; or increased scrutiny of our business may lead to additional compliance costs and administrative overhead.

The application of laws and regulations related to escrow, money transmission, and the handling or moving of money is subject to significant complexity and uncertainty, particularly as those laws relate to new and evolving business models. If we fail to comply with one or more escrow or money transmitter or other similar statutes or regulatory requirements related to the handling or moving of money in any U.S. state or other jurisdiction, we may be subject to the imposition of fines or restrictions on our business, our ability to offer some or all of our services in the relevant jurisdiction may be limited or suspended, and we may be subject to civil or criminal liability and our business, operating results, financial condition, reputation, and brand could be adversely affected.

Failure to comply with anti-corruption, anti-money laundering, and sanctions laws, and similar laws, 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 illegal activity. Our program may not be sufficient to prevent our work marketplace from being used to improperly move money or may be found not to satisfy the expectations of our partners or regulators. In addition, if we or a regulator determines that we are required to comply with the Bank Secrecy Act (BSA), 31 U.S.C. § 5311, or similar laws outside of the United States, we may be required to enhance or alter our anti-money laundering compliance program. 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. Our efforts to comply with OFAC regulations may not be effective, including in preventing users from using our services within the OFAC-sanctioned countries and regions, our partners or regulators may determine they are insufficient, or we may be required to comply with new sanctions laws and regulations, which may require us to further revise or expand our compliance program. For example, as a result of Russia’s invasion of Ukraine, the United States, the United Kingdom, the EU, and other jurisdictions have issued broad-ranging economic sanctions. The result of such sanctions has negatively affected and may continue to affect our users and business. 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 anti-money laundering and sanctions laws and regulations, even unintentional violations, 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 business strategy, or the expansion of our operations internationally, including expanding our presence outside the United States. In addition, any perceived or actual breach of compliance by us, our users, or payment partners with respect to applicable laws, rules, and regulations could have a significant impact on our reputation and could cause us to lose existing users, prevent us from obtaining new users, cause other payment partners to terminate or not renew their agreements with us, negatively impact investor sentiment about our company, require us to expend significant funds to remedy problems caused by violations and to avert further violations, and expose us to legal risk and potential liability, all of which may adversely affect our business, operating results, and financial condition and may cause the price of our common stock to decline.

For example, our and other freelancing platforms and websites have been the subject of additional scrutiny and press attention relating to North Korea. A U.S. Department of State 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.” More recently, in May 2022 the U.S. Department of State, U.S. Department of Treasury, and the Federal Bureau of Investigation issued guidance on efforts by North Korean nationals to secure freelance engagements as remote IT workers by posing as non-North Korean nationals. 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 transactions with persons in North Korea, nor in 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 U.S. Foreign Corrupt Practices Act, which we refer to as 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 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. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. We may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities, and we may be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we prohibit or do not explicitly authorize such activities. We have implemented an anti-corruption compliance policy, but we cannot ensure that all of our employees, users, and agents, as well as those contractors to which we outsource certain of our business operations, will not take actions in violation of our policies or agreements and applicable law, for which we may be ultimately held responsible.

Any violation of the FCPA, other applicable anti-corruption laws, or other anti-bribery, anti-money laundering, or sanctions laws, could result in investigations and actions by federal or state attorneys general or foreign regulators, loss of export privileges, severe criminal or civil fines and penalties or other sanctions, forfeiture of significant assets, whistleblower complaints, and adverse media coverage, which could have an adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. Further, even if we maintain proper controls and remain in compliance with applicable anti-corruption, anti-money laundering, and sanctions laws or regulations, should any of our competitors not implement sufficient controls and be found to have violated such laws or regulations, user perception of online freelance marketplaces in general may decrease and our business, brand, and reputation may be adversely affected.

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 export controls and other similar regulations that prohibit the shipment or provision of certain products and services to certain countries, governments, and persons, and new export controls and similar regulations are promulgated from time to time, including the recent application of new and broad-ranging export controls enacted as a result of Russia’s invasion of Ukraine. While we take precautions to prevent aspects of our work marketplace from being exported in violation of export controls, including implementing internet protocol address blocking and obtaining and relying on licenses and exemptions, when applicable, we cannot guarantee that the precautions we take will prevent violations of export control and similar laws. If we are found to be in violation of U.S. or international export control laws, it could result in substantial fines and penalties for us and for the persons working for us. In addition, our users may be subject to export control laws that do not apply to us and we may not be able to determine the applicability of such export control laws, and any violations by them could harm our reputation and they could seek to hold us responsible for any monetary losses.

In addition, various countries regulate the import and export of certain encryption and other technology, which have been expanded in response to the Russian war against Ukraine, 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 or revocation or inapplicability of our licenses 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.

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

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

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

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

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

•incur significant legal expenses;

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

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

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

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

Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert resources and the attention of 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 independent talent and the clients that engage them grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could require us to expend additional financial and management resources.

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

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

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

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

expansion. If we cannot adequately protect and defend our intellectual property, we may not remain competitive, and our business, operating results, and financial condition may be adversely affected.

We rely on trade secrets as an important aspect of our intellectual property program and to cover much of our technology and know-how. We seek to protect our trade secrets and obtain rights in intellectual property developed by service providers through confidentiality and invention assignment or intellectual property ownership agreements with our employees, contractors, and other parties. In addition, for employees of third-party staffing providers or other contractors, the employer agrees to enter into these agreements with individual workers. We also take other measures to protect our information and data, including implementing acceptable use policies, limiting access to our information and data through technological means, and monitoring and limiting the dissemination of our information and data outside of company-owned information systems. We cannot ensure that these agreements, or all the terms thereof, will be enforceable or compliant with applicable law, or these agreements and other measures will be effective in controlling access to, use of, and distribution of our proprietary information or in effectively securing and maintaining exclusive ownership of intellectual property developed by our current or former employees and contractors. Most of our employees and all of the contractors with which we work are remote, which may make it more difficult to control use of confidential materials, increasing the risk that our source code or other confidential or trade secret information may be exposed. Further, these agreements with our employees, contractors, and other parties may not prevent other parties from independently developing technologies that are substantially equivalent or superior to our work marketplace. Any failure to protect intellectual property that we develop or our proprietary technology and data would adversely affect our business, operating results, and financial condition.

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

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

Our work marketplace incorporates certain open source software. An open source license typically permits the use, modification, and distribution of software in source-code form subject to certain conditions. Some open source licenses contain conditions that any person who distributes a modification or derivative work of software that was subject to an open source license make the modified version subject to the same open source license. Distributing software that is subject to this kind of open source license can lead to a requirement that certain aspects of our work marketplace be distributed or made available in source code form. Although we do not believe that we have used open source software in a manner that might condition its use on our distribution of any portion of our work marketplace in source

code form, the interpretation of open source licenses is complex and, despite our efforts, it is possible that we may be liable for copyright infringement, breach of contract, or other claims if our use of open source software is adjudged not to comply with the applicable open source licenses.

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

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

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

From time to time, we are involved in litigation and make and receive demands and claims threatening possible litigation. The outcome of any litigation (including class actions and individual lawsuits or arbitration), regardless of its merits, is inherently uncertain. Regardless of the merits or ultimate outcome of any claims that have been or may be brought against us or that we may bring against others, pending or future litigation could result in a diversion of management’s attention and resources and reputational harm, and we may be required to incur significant expenses defending against these claims or pursuing claims against third parties. If we are unable to prevail in litigation, we could incur substantial liabilities. We may also determine that the most cost-effective and efficient way to resolve a dispute is to enter into a settlement agreement, and terms of any such settlement agreements are increasingly limited by legislation. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong as determining reserves for pending litigation is a complex, fact-intensive process that is subject to judgment calls. Any adverse determination related to litigation or adverse terms contained in a settlement agreement could require us to change our technology or our business practices in costly ways, prevent us from offering certain offerings 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.

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 nine months ended September 30, 2022 and years ended December 31, 2021 and 2020, we incurred net losses of $73.4 million, $56.2 million, and $22.9 million, respectively. As of September 30, 2022, we had an accumulated deficit of $324.4 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 remote talent in light of the ongoing shift toward remote work; expanding our sales force; enhancing our Upwork Enterprise and other premium offerings; expanding our

services and features; expanding our international user base; localizing our offerings in select locations; broadening and deepening the categories on our work marketplace; promoting client engagement of the talent that typically optimize to deliver larger projects, including through our Upwork Payroll offering; enhancing our mobile product offering and our U.S.-to-U.S. domestic marketplace offering; and in connection with legal, accounting, and other administrative expenses related to operating as a public company. For example, beginning in the fourth quarter of 2021, we increased our investment in brand marketing and to a lesser extent, our investment in sales by expanding our sales team, and we expect to continue these increased investments in the fourth quarter of 2022. 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, in the third quarter of 2022, we experienced a deceleration in year-over-year growth of revenue, as compared to the second quarter of 2022. We may continue to experience a similar deceleration or decline in GSV or revenue growth as the impact of the COVID-19 pandemic subsides and users return more frequently to physical offices or as the current macroeconomic conditions worsen. 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 and the trading price of our common stock could decline. 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.

We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics may not accurately reflect certain details of our business, are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

We track certain performance metrics, including active clients and GSV per active client, both of which we began reporting in the third quarter of 2021, as well as GSV 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 inaccurate or 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. Our performance metrics are also impacted by illegal or improper activity on our work marketplace, including fraud, spam, fake accounts, and other activity that violates our terms of service and service agreements. For example, for the three and nine months ended September 30, 2022, we experienced increased instances of fraud and higher chargeback losses, as compared to the same periods in 2021. These levels of fraud could continue or increase, and there is no assurance that any measures we put in place that are designed to reduce fraud on our work marketplace will be effective. In addition, notwithstanding efforts to identify fake accounts and fraudulent activity on our work marketplace and exclude these users and activity from the calculation of our performance metrics, we are unable to identify and remove all such accounts and activity from being reflected in the performance metrics that we report. Accordingly, our performance metrics may not accurately reflect activity on and the performance of our work marketplace. In addition, limitations or errors with respect to how we measure data, or the accuracy of the data that we measure, may affect our understanding of certain details of our business, which could affect our longer-term strategies and our ability to respond to business trends that may negatively impact our performance. If our performance metrics are not accurate representations of our business, user base, or traffic levels; if we discover material inaccuracies in our metrics; or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed, we may be subject to legal or regulatory actions, and our operating and financial results could be adversely affected. In addition, from time to time we may change the performance metrics that we track, including metrics that we report, and any new performance metrics will also be subject to the foregoing limitations and risks.

For example, beginning in the third quarter of 2021, we ceased reporting the performance metrics tracking the number of core clients and client spend retention, and instead began reporting in the third quarter of 2021, the performance metrics tracking the number of active clients and GSV per active client.

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

Our quarterly operating results have fluctuated recently, as they have in the past, and will likely continue to fluctuate in the future, particularly during the current macroeconomic uncertainty and rising interest rates and inflation. 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 as the COVID-19 pandemic subsides and as the current macroeconomic uncertainty continues;

•ongoing uncertainty and impact on the global economy and spending by large, medium, and small companies, the shift to remote work, availability of qualified and in-demand talent, and uncertainty regarding the timing and nature of any future macroeconomic downturn, as discussed further below;

•our ability to generate significant revenue from our marketplace offerings, such as our Upwork Enterprise and other premium offerings, including from small- and medium-sized business clients which are most likely to be impacted by the current macroeconomic uncertainty;

•our ability to maintain and grow our community of users, including our ability to acquire large enterprise and other clients with larger, longer-term independent talent needs and qualified and in-demand talent;

•due to our tiered pricing model for talent service fees, the mix in any period between talent that have billed larger amounts to clients on our work marketplace, where we charge a lower rate on billings, and talent that have billed clients less on our work marketplace, where we charge a higher rate on billings;

•the success of our marketing and brand positioning efforts;

•the productivity and effectiveness of our sales force, including our ability to hire and adequately train qualified sales personnel;

•our ability to attract and retain talent that provide the types and quality of services sought by clients on our work marketplace, particularly talent that provide services for which client demand exceeds supply on our work marketplace, or, in geographic regions in which clients are seeking to engage remote talent;

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

•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 macroeconomic or other external factors such as increased competition, pricing changes, or the introduction of new or modified offerings or services on our work marketplace, such as changes made in the pricing and packaging of Connects;

•Russia’s invasion of Ukraine, our decision to suspend our business operations in Russia and Belarus, the broad-ranging economic sanctions issued as a result of the invasion, and the current macroeconomic uncertainty;

•the length and complexity of our sales cycles;

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

•the impact of consolidating or terminating existing offerings and services, including any associated pricing changes, such as our recent combination of our Upwork Basic and Plus offerings into a single service plan;

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

•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;

•ongoing uncertainty regarding U.S. and global political conditions, including military conflicts in geographic locations where a portion of our remote workforce and a large number of our users reside, such as in Ukraine;

•our ability to generate a profit and significant revenue from new offerings and services;

•our ability to introduce new offerings and services or enhance existing offerings, including modernizing our technology, and services without adversely affecting our existing revenue;

•changes to our offerings and pricing model, including associated fees, and any resulting change in our ability to generate revenue, such as the pricing and packaging of Connects purchases and our consolidation of our Upwork Basic and Plus offerings, how we recognize revenue, or changes in user behavior in response to such changes;

•the number of users circumventing our work marketplace and our fees, which could increase during macroeconomic downturns or as a result of changes to our pricing model;

•fluctuations in transaction losses;

•the disbursement methods chosen by talent and changes in the mix of disbursement methods offered;

•fluctuations in the prices that talent charge clients on our work marketplace, including as a result of a rise in inflation, which may impact the amount of revenue we recognize as a percentage of GSV due to our tiered pricing model for talent service fees;

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

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

•seasonal spending patterns by clients or work patterns by talent, seasonality in the labor market, exaggerated impact of typical seasonality in the labor market (for example, extended vacations during the summer and holiday seasons), as the COVID-19 pandemic subsides and the resulting relaxation or lifting of restrictions intended to prevent the spread of COVID-19, as well as the number of business days, the number of Mondays (i.e., the day we have the contractual right to bill and recognize revenue for a substantial portion of our client fees each week) or the number of Sundays (i.e., the day we have the contractual right to bill and recognize revenue for the majority of our talent service fees each week) in any given quarter, as well as local, national, or international holidays;

•spending patterns and project bidding behavior of talent with respect to the offerings 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 talent service fees;

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

•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. For example, as a result of our shift to a flexible work model for our workforce, in 2021 we subleased the entirety our former headquarters in Santa Clara, California and a portion of our current headquarters in San Francisco, California, and, as a result, we incurred impairment charges of $8.7 million;

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

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

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

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

•changes in the law, application of the law (including as a result of changes in our services or offerings), 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, payments, payment processing, global trade, or tax obligations;

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

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

•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, and other errors, defects or disruptions on, our work marketplace and associated reputational harm;

•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;

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

•the impact of reductions in our workforce or involuntary or voluntary separations, including claims against us from departing employees or others;

•fluctuations in currency exchange rates;

•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;

•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;

•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;

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

•non-cash accounting charges such as stock-based compensation expense, including those related to executive compensation arrangements, and depreciation and amortization.

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. For example, future period-over-period growth rates of revenue and key performance metrics such as GSV and active clients, when compared against the quarterly and full year results of 2021, may fail to meet the expectations of investors or securities analysts given the accelerated 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. If we fail to meet or exceed the expectations of investors or securities analysts, the trading price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.

If we fail to 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 year ended December 31, 2020.

If we experience additional material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations or prevent fraud, which may adversely affect investor confidence in us and, as a result, the value of our common stock. We cannot assure you that all of our existing material weaknesses have been identified, or that we will not in the future identify additional material weaknesses. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business and results of operations and could adversely impact our business, operating results, and financial condition.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC. Furthermore, investor perceptions of our company may suffer if, in the future, material weaknesses are found, and this could cause the price of our common stock to decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Global Select Market.

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 and make more services available to our users internationally, 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 have historically been denominated in U.S. dollars. However, we offer clients the option to settle invoices denominated in U.S. dollars in the local currencies of several non-U.S. countries, and therefore, a portion of our revenue is subject to foreign currency risk. While we currently use derivative instruments to hedge certain exposures to fluctuations in foreign currency exchange rates, the 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, geopolitical or macroeconomic events may also cause volatility in currency exchange rates between the U.S. dollar and other currencies, such as the Euro. Additionally, a strengthening of the U.S. dollar, as we are currently experiencing, could increase the real cost of transacting on our work marketplace 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.

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,~~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), ~~and~~ could be applied solely or disproportionately to services provided over the internet, could target certain offerings and services offered on our work marketplace, or could otherwise affect our or our users’ tax obligations or financial position and operating results. ~~Many~~For example, a number of U.S. states and other jurisdictions have, within the past few years, enacted taxes on marketplace facilitators requiring online marketplaces to collect and remit taxes for first- and third-party sales on their websites. A successful assertion that we should be collecting taxes or remitting taxes directly to states or other jurisdictions beyond those that we already collect or remit could result in substantial tax liabilities for past transactions and additional administrative expenses, and could cause us to accrue additional estimates of taxes due, including interest and penalties. Moreover, many countries in the ~~European Union,~~EU, as well as the United Kingdom, India, and a number of other countries and organizations, such as the ~~Organization~~Organisation for Economic ~~Cooperation~~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. ~~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~~The impact and burden of these ~~tax reforms~~regulations and proposed regulations on our ~~business. There are many transactions that occur during~~business and the ~~ordinary course~~businesses of ~~business for which the ultimate tax determination~~our users is ~~uncertain.~~

uncertain, but may have a negative impact on our business.

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~~currently report, collect, and remit indirect taxes on our fees in a number of jurisdictions and may begin reporting, collecting, and remitting indirect taxes in additional jurisdictions. Our reporting and collection of indirect taxes on our fees in these jurisdictions may increase our costs or costs of our users,

which may cause our users to circumvent our work marketplace or use other platforms or other alternatives that do not collect indirect taxes on their fees. ~~However,~~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 reporting, 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, or the indemnification obligation may be deemed ~~unenforceable.~~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.

~~As a result of these~~ 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 ~~factors, the ultimate amount of tax obligations owed~~platforms or other alternatives, which 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~~turn adversely affect our ~~business.~~

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 of our trademarks, or the trade secret status of our proprietary information. There can be no assurance that additional patents will be issued or that any patents that are issued will provide significant protection for our intellectual property. In addition, our patents, copyrights, trademarks, trade secrets, and other intellectual property rights may not provide us a significant competitive advantage. There is no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when to file patents or register or renew trademarks and when and how to maintain and protect trade secrets, will be adequate to protect our business.

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. 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 we expand our international activities, our exposure to unauthorized copying and use of our platform 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 incidents, and other security breaches and incidents. It is possible for third parties to infringe upon or misappropriate our intellectual property, to copy our platform, and to use information that we regard as proprietary to 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 is available. In addition, many countries limit the enforceability of patents against certain third parties, including government agencies or government contractors. In these countries, patents 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 confidentiality~~condition.

Also, federal and ~~invention assignment~~state tax rules require collection of certain data and reporting transactions 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 into these agreements with individual workers. We cannot ensure that these agreements, or all the terms thereof, will be enforceable or compliant with applicable law, or otherwise effective in controlling access to, use of, and distribution of our proprietary information or in effectively securing exclusive ownership of intellectual property developed by our current or former employees and contractors. For example, when working with contractors, particularly those who are off-site, 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.

We may need to spend significant resources securing and monitoring our intellectual property rights, and we may or may not be able to detect infringement by third parties. Our competitive position may be adversely impacted if we cannot detect infringement or enforce our intellectual property rights quickly or at all. In somepayments above certain thresholds. Under certain circumstances, ~~we may choose not to pursue enforcement because an infringer has~~ 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 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. 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 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, content, and brand names do not or will not infringe valid patents, trademarks, copyrights, or other intellectual property rights held by third parties. We have in the past been, andcomply with such reporting obligations may in the future be, subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. Our competitors have in the past challenged, and may in the future challenge, our registration or use of our trademarks, including “Upwork,” and, if successful, such a challenge could adversely affect our business. Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to cease selling or using products and services that incorporate the intellectual property that we allegedly infringe, make substantial payments for legal fees, settlement payments, or other costs or damages, obtain a license to sell or use the relevant technology, which may not be available on reasonable terms or at all, 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. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. We may also be obligatedbecome liable to indemnify certain clients on our platform or strategic partners or others in connection with such infringement claims, or to obtain licenses from third parties or modify our platform, and each such obligation could further exhaust our resources. Some of our infringement indemnification obligations related to intellectual property are contractually capped atwithhold a ~~very high amount or not capped at all.~~

Any disputes resulting from 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 or litigation also could force us to do one or morepercentage of the ~~following:~~

•

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

•

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

•

~~incur significant legal expenses;~~

•

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

•

~~make expensive changes in 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,~~amounts paid to talent and remit such amounts to the ~~time and resources necessary~~taxing authorities. Due 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 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 financial and management resources.

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

To grow our business, we anticipate that we will need to continue to establish 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 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 to renew or replace these agreements on comparable terms, or at all. Moreover, we cannot guarantee that 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 increasedlarge 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,transaction volume on our platform, either on their own or in collaboration with others, including our competitors. If we are unsuccessful in establishing or maintaining our relationships with third parties on favorable terms, our ability to compete or to grow our total revenue could be impaired and our operating results may be adversely impacted. Even if we are successful in establishing and maintaining these relationships with third parties on comparable terms, we cannot ensure that these relationships will result in increased usage of our platform or increased revenue.

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

Our ability to attract and retain users is dependent in part on the ease of use and reliability of our platform, including our ability to provide high-quality support. Our users depend on 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, including those associated with delivering support and documentation in languages other than English. Any failure to maintain high-quality support, or a market perception that we do not maintain high-quality support, could harm our reputation, 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 of our platform.~~

Our business model involves connecting freelancers and clients that contract directly through our platform. Freelancers and clients are free to negotiate any contract terms they choose, but we also provide optional service contract terms that they can use. It is possible that disputes may arise between freelancers and clients with regard to their contract terms, or otherwise, includingprocess failures 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. Whetherthese data collection 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, it is possible 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. We may not be able to retain our current key employees or attract, train, assimilate, or retain other highly-skilled personnel in the future. We may incur significant costs to attract and retain highly-skilled personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them. 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 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. Employees 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 and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations 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 are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of The Nasdaq Global Select Market, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources, particularly 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, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal 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 application in practice may evolve or otherwise change over time as new guidance is provided by regulatory and governing bodies. This could result in ~~continuing uncertainty regarding compliance matters~~financial liability and ~~higher costs necessitated by ongoing revisions~~other consequences to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards (or changing interpretations of them), and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, 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, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of 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, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

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

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~~were unable 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,remedy 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 weaknessfailures in a timely manner. ~~At the beginning of 2016, we had 15 accounting and finance employees. As part of~~

Additionally, 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 accounting and financial reporting experience necessary for a public company, including a senior director of technical accounting, a senior manager of accounting operations, 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, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Global Select Market.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our operating results could be adversely affected.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity as of the date of the financial statements, and the amount of revenue and expenses, during the periods presented, that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our condensed consolidated financial statements include those related to determination of revenue recognition, the useful lives of assets, assessment of the recoverability of long-lived assets, goodwill impairment, allowance for doubtful accounts, reserves relating to transaction losses, the valuation of warrants, stock-based compensation, and accounting for income taxes. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of industry or financial analysts and investors, resulting in a decline in the trading price of our common stock.

Additionally, we regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards, and changes in interpretation, we might be required to change our accounting policies, alter our operational policies and implement new or enhance existing systems so that they reflect new or amended 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.

~~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 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.~~jurisdictions or specific affiliates. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and ~~penalties,~~penalties.

We accrue liabilities related to tax obligations on our consolidated financial statements based on our best estimate of these liabilities, however, 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 ~~could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability~~we change our estimates of our ~~operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.~~

~~U.S. federal income~~ tax ~~reform could adversely affect us.~~

~~In December 2017,~~obligations or in which the ~~Tax Act was enacted, which significantly reforms the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Tax Act, among other things, includes changes to U.S. federal~~ultimate tax rates, imposes significant additional limitations on the deductibility of interest 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 Act could have material adverse impacts on our business, cash flows, operating results or financial conditions, and we continue to examine the impact such reform may have.

outcome is determined.

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

As of December 31, ~~2017,~~2021, we had net operating loss carryforwards for U.S. federal income tax purposes and California state income tax purposes of ~~$172.9~~$444.6 million and ~~$38.5~~$90.4 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 expired in 2021, and will continue to expire in 2022 and future years. The California 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 the consequences to our business of the Tax Act, which could have a material impact on the value of our deferred tax assets and could increase our future U.S. tax expense. However, we anticipate that any adjustment to provisional amounts recorded would be fully offset by a corresponding change to 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 that is subject to this kind of open source license can lead to a requirement that certain aspects of our platform be distributed or made available in source code form. Although we do not believe that we have used open source software in a manner that might condition its use on our distribution of any portion of our platform in source code form, the interpretation of open source licenses is 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 of which could adversely affect our business, operating results, and financial condition.

In addition to risks related to license requirements, use of open source software can involve greater risks than those associated with use of third-party commercial software, as open source licensors generally do not provide warranties; 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, and cash flow.

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.

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:

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

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

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

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~~incur expenses or substantial liabilities;~~

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

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~~encounter difficulties in assimilating acquired operations and development cultures;~~

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

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~~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 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 settlement agreement could require us to change our technology or our business practices in costly ways, prevent us from offering certain products or services, require us to pay monetary damages, fines, or penalties, or require us to enter into royalty or licensing arrangements, and could adversely affect our operating results and cash flows, harm our reputation, or otherwise negatively impact our business.

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 Agreement restricts our ability to, among other things:~~

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~~incur additional indebtedness;~~

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~~sell certain assets;~~

•

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

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~~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. Our ability to comply with these EBITDA thresholds and other covenants is dependent upon our future business performance.

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 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 addition~~ to ~~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, 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 will result in ASC 606 becoming effective for us for the year ending December 31, 2019. 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.~~volatile, particularly as a result of broader stock market fluctuations and in light of the current macroeconomic uncertainty. 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 Russia’s invasion of Ukraine, the COVID-19 pandemic, and the current macroeconomic uncertainty, including:

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~~overall performance of the equity markets;~~

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~~actual or anticipated fluctuations in our revenue and other operating results;~~

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~~changes in the financial projections we may provide to the public or our failure to meet these projections;~~

•actual or anticipated fluctuations in our revenue, measures of profitability, and other financial and operating results or our failure to meet the estimates of securities analysts or the expectations of investors;

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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;

•the financial projections we provide to the public or our failure to meet these projections;

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~~recruitment or departure of key personnel;~~

•overall performance of the equity markets, including as a result of unfavorable investor sentiment toward unprofitable companies;

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

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

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~~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;~~

•negative publicity related to the real or perceived trustworthiness, quality, or security of our work marketplace, as well as the failure to timely launch new offerings and services that gain market acceptance;

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~~rumors and market speculation involving us or other companies in our industry;~~

•recruitment or departure of key personnel;

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

•rising interest rates and inflation;

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

•failure of securities analysts to initiate or maintain coverage of us, inaccurate or unfavorable research by analysts, changes in financial estimates by any securities analysts who follow our company;

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

•speculative trading practices by stockholders and other market participants;

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

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

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

•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;

•

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

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

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

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

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

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

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

•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;

•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;

•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, including our decision to suspend business operations in Russia and Belarus.

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, technology companies and ~~technology~~unprofitable companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those ~~companies.~~companies and are attributable, in part, to outside factors such as Russia’s invasion of Ukraine and the COVID-19 pandemic and their impact on the global economy, including rising interest rates. 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.~~market, particularly sales by our directors, executive officers, and significant stockholders. The perception that these sales might occur may also cause the market price of our common stock to decline. ~~We had a total of 36,945,317~~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~~restricted stock units 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 will 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 concentration of our stock ownership with insiders will likely 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 31, 2018, our executive officers, directors, current 5% or greater stockholders, and affiliated entities together beneficially owned approximately 61% of our common stock. As a result, these stockholders, acting together, will have control 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, the trading price for our common stock would be negatively affected. 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 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:

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~~provide that our board of directors will be classified into three classes of directors with staggered three-year terms;~~

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~~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;

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~~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;

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~~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;

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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 (also known as a “poison pill”);

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

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

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~~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 only the chairperson of our board of directors, our chief executive officer, president, lead independent director, or a majority of our board of directors will be authorized to call a special meeting of stockholders;

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

•provide that the board of directors is expressly authorized to make, alter, or repeal our amended and restated 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.

Risks Related to Our Convertible Senior Notes

Our indebtedness could limit the cash flow available for our operations and expose us to risks that could adversely affect our business, financial condition, and results of operations.

In August 2021, we issued the Notes, which have an aggregate principal amount of $575.0 million. The Notes are senior, unsecured obligations and bear interest at a rate of 0.25% per year. The Notes will mature on August 15, 2026, unless earlier redeemed, repurchased, or converted in accordance with the terms of the Notes. As of September 30, 2022, we had $575.0 million of indebtedness. We may also incur additional indebtedness to meet future financing needs. Our indebtedness could have significant negative consequences for our stockholders and our business, results of operations and financial condition by, among other things:

•increasing our vulnerability to adverse economic and industry conditions;

•limiting our ability to obtain additional financing;

•requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;

•limiting our flexibility to plan for, or react to, changes in our business;

•diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Notes; and

•placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness and our cash needs may increase in the future.

The capped call transactions may affect the value of our common stock.

In connection with the Notes, we entered into the Capped Calls, with various financial institutions, which we refer to as the option counterparties. The Capped Calls are expected generally to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any potential cash payments we are required to make in excess of the principal amount upon conversion of any Notes, with such reduction and/or offset subject to a cap.

In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock in secondary market transactions (and are likely to do so following any conversion of Notes, any repurchase of the Notes by us on any fundamental change repurchase date, any redemption date, or any other date on which the Notes are retired by us). This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

The potential effect, if any, of these transactions and activities on the market price of our common stock will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value 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, as is currently anticipated or otherwise, including the worsening of the ongoing labor shortage or the continued rise in inflation, hiring freezes, layoffs, more limited availability of credit, a reduction in business confidence and activity, decreased government or business spending, economic and political uncertainty, financial turmoil affecting the banking system or financial markets, trade wars, sanctions, 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. Further, global economic and political events or uncertainty, such as Russia’s invasion of Ukraine, has caused, and may continue to 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, including sanctions imposed in response to such events. See the risk factor titled “Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus have affected and may continue to affect our business and results of operations” above for additional information. In addition, small- and medium-sized businesses were disproportionately impacted by the macroeconomic downturn caused by the COVID-19 pandemic, some of which reduced their spend on our work marketplace. These adverse conditions resulted, and may again 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 talent as businesses utilize more full-time employees relative to their use of independent contractors. We cannot predict the timing, strength, or duration of any economic slowdown, or any subsequent recovery generally. If the conditions in the general economy deteriorate, as a result of Russia’s invasion of Ukraine, 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 ongoing COVID-19 pandemic, by man-made problems such as warfare, 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 (including Russia’s invasion of Ukraine) have caused and could again 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.

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


Exhibit Number	Description	Incorporated by Reference	Filed Herewith
10.1	Transition and Separation Agreement, dated September 21, 2022, by and between Upwork Inc. and Jeff McCombs (material terms of which were previously described in the Form 8-K filed by Upwork Inc. on September 22, 2022).		X
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	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).		X
101.SCH	Inline XBRL Taxonomy Extension Schema Document.		X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.		X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.		X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.		X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.		X
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).		X

_________________________

* 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: October 26, 2022

By:

~~Stephane Kasriel~~

/s/ Hayden Brown

Hayden Brown

President and Chief Executive Officer

(Principal Executive Officer)

Date: ~~November 8, 2018~~

October 26, 2022

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

	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
Total debt		49,000			34,000
Less: Unamortized debt discount issuance costs		(102	)		(167	)
Balance		48,898			33,833
Debt, current		(29,594	)		(10,342	)
Debt, noncurrent	$	19,304		$	23,491
Weighted-average interest rate		6.08	%		5.93	%

	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

	Payments due by period as of September 30, 2018
	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
Debt principal		49,000		29,606		19,394		—		—
Total contractual obligations	$	73,157	$	33,152	$	31,714	$	8,206	$	—

	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	$	—

		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