Upwork(UPWK) - 2024 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) The company's unaudited statements for H1 2024 reflect revenue of $384.1 million, net income of $40.7 million, and total assets of $1.01 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $182,803 | $79,641 | | Marketable securities | $314,941 | $470,457 | | Total current assets | $855,665 | $883,371 | | Total assets | $1,008,563 | $1,037,541 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $285,096 | $293,003 | | Debt, noncurrent | $357,008 | $356,087 | | Total liabilities | $647,467 | $656,466 | | Total stockholders' equity | $361,096 | $381,075 | Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $193,129 | $168,611 | $384,066 | $329,469 | | Gross Profit | $149,277 | $127,729 | $296,021 | $248,160 | | Income (loss) from operations | $17,781 | $(6,116) | $30,830 | $(31,154) | | Net income (loss) | $22,220 | $(3,991) | $40,662 | $13,176 | | Diluted EPS | $0.17 | $(0.03) | $0.30 | $(0.18) | - Total stockholders' equity decreased from $381.1 million at December 31, 2023, to $361.1 million at June 30, 2024, primarily driven by the repurchase of common stock for $100.7 million, partially offset by net income of $40.7 million and stock-based compensation of $36.8 million[20] - During the six months ended June 30, 2024, the company repurchased 8,076,726 shares of its common stock[20] Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $42,946 | $(4,392) | | Net cash provided by investing activities | $156,529 | $196,943 | | Net cash used in financing activities | $(90,044) | $(151,631) | | Net change in cash, cash equivalents, and restricted cash | $109,431 | $40,920 | - Cash used in financing activities for the six months ended June 30, 2024, was primarily driven by a $100.0 million repurchase of common stock, while the prior year period included a $171.3 million net cash payment for early extinguishment of convertible senior notes[24] - In May 2023, the company retired its tiered service fee structure for talent and introduced a simplified flat service fee of 10%, which has reduced remaining performance obligations related to material rights[33] - As of June 30, 2024, the company had $361.0 million in aggregate principal amount of 0.25% convertible senior notes due 2026 outstanding, with an estimated fair value of $320.4 million[55][57] Revenue by Type of Service (in thousands) | Service Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Marketplace | $166,786 | $142,308 | $331,116 | $278,984 | | Enterprise | $26,343 | $26,303 | $52,950 | $50,485 | | Total revenue | $193,129 | $168,611 | $384,066 | $329,469 | Revenue by Geographic Area (in thousands) | Geography | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Talent | | | | United States | $56,140 | $44,443 | | India | $29,169 | $23,469 | | Philippines | $29,320 | $21,184 | | Rest of world | $106,899 | $85,057 | | Clients | | | | United States | $119,282 | $114,874 | | Rest of world | $43,256 | $40,442 | | Total revenue | $384,066 | $329,469 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 17% in H1 2024 driven by Marketplace initiatives, while profitability improved significantly despite a slight decline in Gross Services Volume (GSV) Key Metrics (in thousands, except percentages) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | % Change | | :--- | :--- | :--- | :--- | | GSV | $2,017,063 | $2,039,852 | (1.1)% | | Marketplace revenue | $331,116 | $278,984 | 19% | | Marketplace take rate | 17.9% | 14.9% | 3% | | Net income | $40,662 | $13,176 | * | | Adjusted EBITDA | $74,160 | $11,436 | * | - The number of active clients increased by 6% to 868,000 as of June 30, 2024, but GSV per active client decreased by 5% to $4,745[73][78] - Total revenue for H1 2024 increased 17% YoY to $384.1 million, driven by a 19% growth in Marketplace revenue due to initiatives like the flat 10% service fee and new ad products[95] - Gross margin improved to 77% for H1 2024 from 75% in H1 2023, primarily driven by the increase in higher-margin Marketplace revenue[96][98] - Sales and marketing expenses decreased by 23% in H1 2024 compared to H1 2023, a result of cost-saving measures implemented in Q2 2023[99] - Research and development expenses increased by 20% in H1 2024 YoY, reflecting investments in workforce size to enhance the platform, with a focus on machine learning and generative AI[98] - Provision for transaction losses decreased significantly by 71% in H1 2024 compared to the prior year period, indicating improved trust and safety measures[102] - As of June 30, 2024, the company had $182.8 million in cash and cash equivalents and $314.9 million in marketable securities, which management believes is sufficient for at least the next 12 months[105] - The company completed its $100.0 million Share Repurchase Program during the six months ended June 30, 2024, repurchasing 8.1 million shares at an average price of $12.38 per share[109] - Net cash provided by operating activities was $42.9 million for the first six months of 2024, a significant improvement from the $4.4 million used in the same period of 2023[114][115] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency exchange, both of which are actively managed and considered immaterial - The company's primary market risks are interest rate risk on its investment portfolio and foreign currency exchange risk[121] - Borrowings under the Convertible Senior Notes have a fixed interest rate, and the company does not believe a hypothetical 100 basis point change in interest rates would materially impact its financial condition[122][124] - Foreign currency risk is present as clients can pay in various non-USD currencies, but the company uses forward contracts to mitigate this risk, and the impact has been immaterial to date[125] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal controls - Management concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective[126] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[127] PART II—OTHER INFORMATION Legal Proceedings The company is not currently a party to any material pending legal proceedings - As of the report date, Upwork is not a party to any material pending legal proceedings[129] Risk Factors The company faces material risks related to competition, macroeconomic conditions, regulatory changes like worker classification laws, and its convertible debt - Business growth is dependent on attracting and retaining a community of talent and clients; failure to do so cost-effectively could adversely impact the business[130][131] - The company faces intense competition from traditional staffing firms, other online freelancer platforms like Fiverr, and large internet companies like LinkedIn[132][156] - The business is subject to extensive and evolving government regulation, particularly regarding worker classification, which creates uncertainty and risk[170][175] - Adverse or changing economic conditions, such as inflation and rising interest rates, may negatively impact business by reducing client spending[132][217] - The company's indebtedness from its convertible senior notes could limit cash flow available for operations and expose it to financial risk[132][214] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company completed its $100 million share repurchase program in Q2 2024, buying back 2.9 million shares at an average price of $11.60 Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2024 | 2,855,446 | $11.60 | | May 2024 | — | — | | June 2024 | — | — | | Total | 2,855,446 | $11.60 | - As of June 30, 2024, the company had no remaining balance available for repurchases under its $100.0 million Share Repurchase Program[221] Other Information Certain directors and officers adopted or modified Rule 10b5-1 trading arrangements during the second quarter of 2024 - During Q2 2024, certain directors and officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements for the sale of company stock[222] Insider Trading Arrangements Adopted/Modified in Q2 2024 | Name and Position | Action | Date | Type of Arrangement | | :--- | :--- | :--- | :--- | | Olivier Marie, Chief Accounting Officer | Adoption | May 3, 2024 | Rule 10b5-1 | | Elizabeth Nelson, Director | Adoption | May 25, 2024 | Rule 10b5-1 | | Dave Bottoms, GM VPII, Marketplace | Modification | May 28, 2024 | Rule 10b5-1 | Exhibits This section lists all exhibits filed with the Form 10-Q, including required officer certifications and Inline XBRL documents - The report includes standard exhibits such as CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL data files[227]