Upwork(UPWK) - 2025 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements The report contains forward-looking statements about future operating results, financial position, business strategy, anticipated events, and trends, including acquisitions and share repurchases - The report contains forward-looking statements about future operating results, financial position, business strategy, anticipated events, and trends, including acquisitions and share repurchases[7] - These statements are based on current expectations and projections but are subject to a number of risks, uncertainties, and assumptions, particularly those detailed in the 'Risk Factors' section[8] - Readers should not rely on forward-looking statements as predictions of future events, and the company disclaims any duty to update such statements unless required by law[9] PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Upwork Inc. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of operations and comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, revenue disaggregation, fair value measurements, balance sheet components, business combinations, commitments, debt, net income per share, income taxes, segment information, and subsequent events Condensed Consolidated Balance Sheets The company's financial position as of June 30, 2025, shows total assets of $1.26 billion, total liabilities of $653.1 million, and total stockholders' equity of $608.7 million | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total Assets | $1,261,716 | $1,211,613 | | Total Liabilities | $653,062 | $636,236 | | Total Stockholders' Equity | $608,654 | $575,377 | | Cash and cash equivalents | $291,070 | $305,757 | | Marketable securities | $343,509 | $316,344 | | Funds held in escrow | $212,033 | $195,736 | | Goodwill | $141,473 | $121,064 | | Accumulated deficit | $(8,020) | $(78,476) | Condensed Consolidated Statements of Operations and Comprehensive Income The company reported net income of $32.7 million for the three months ended June 30, 2025, and $70.5 million for the six months ended June 30, 2025, with corresponding diluted EPS of $0.24 and $0.50 | Metric (In thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $194,939 | $193,129 | $387,645 | $384,066 | | Gross profit | $151,507 | $149,277 | $302,407 | $296,021 | | Income from operations | $32,565 | $17,781 | $71,255 | $30,830 | | Net income | $32,726 | $22,220 | $70,456 | $40,662 | | Basic Net income per share | $0.25 | $0.17 | $0.53 | $0.30 | | Diluted Net income per share | $0.24 | $0.17 | $0.50 | $0.30 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $608.7 million as of June 30, 2025, from $575.4 million at December 31, 2024, reflecting net income and share repurchases | Metric (In thousands, except share amounts) | Balances as of Dec 31, 2024 | Balances as of June 30, 2025 | | :---------------------------------------- | :-------------------------- | :--------------------------- | | Common Stock (Shares) | 135,348,453 | 132,506,031 | | Common Stock (Amount) | $14 | $13 | | Additional Paid-in Capital | $653,575 | $615,937 | | Accumulated Other Comprehensive Income | $264 | $724 | | Accumulated Deficit | $(78,476) | $(8,020) | | Total Stockholders' Equity | $575,377 | $608,654 | - The company repurchased and retired 5.2 million shares of its common stock for an aggregate amount of $71.3 million during the six months ended June 30, 2025[17] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $109.5 million for the six months ended June 30, 2025, while investing activities used $56.7 million | Metric (In thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $109,479 | $54,017 | | Net cash (used in) provided by investing activities | $(56,673) | $156,529 | | Net cash used in financing activities | $(51,496) | $(101,115) | | Net change in cash, cash equivalents, and restricted cash | $1,310 | $109,431 | | Cash, cash equivalents, and restricted cash—end of period | $506,903 | $405,849 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, financial statement components, and significant events Note 1—Organization and Description of Business Upwork Inc. operates a global work marketplace connecting businesses (clients) with independent talent, including professionals and agencies. The company is incorporated in Delaware and headquartered in Palo Alto, California - Upwork operates a work marketplace that connects businesses (clients) with independent talent[22] - Independent talent on the marketplace, including professionals and agencies, are an increasingly sought-after and expanding segment of the global workforce[22] Note 2—Basis of Presentation and Summary of Significant Accounting Policies The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC interim reporting rules, condensing certain disclosures. The company changed the presentation of certain cash flows in 2024, reclassifying changes in trade and client receivables related to escrow funds from operating to financing activities, which increased operating cash flow by $11.1 million for the six months ended June 30, 2024, without affecting total cash balances. Management uses estimates and assumptions that may differ from actual results - The financial statements are unaudited and prepared in accordance with U.S. GAAP and SEC interim financial reporting rules, with certain information and note disclosures condensed or omitted[24] - In 2024, the company reclassified the change in Trade and client receivables relating to escrow funds from operating activities to financing activities, increasing cash flow provided by operating activities by $11.1 million for the six months ended June 30, 2024[27] - The company is evaluating the impact of new FASB ASUs 2023-09 (Income Tax Disclosures) and 2024-03 (Disaggregation of Income Statement Expenses), effective for fiscal years beginning after December 15, 2024, and 2026, respectively[33][34] Note 3—Revenue Upwork disaggregates revenue by two service types: Marketplace and Enterprise, and by geographic area based on the billing address of talent and clients. Marketplace revenue increased for both three and six months ended June 30, 2025, while Enterprise revenue decreased. Deferred revenue represents amounts billed in advance for services not yet rendered | Type of Service | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Marketplace | $170,660 | $166,786 | $336,953 | $331,116 | | Enterprise | $24,279 | $26,343 | $50,692 | $52,950 | | Total Revenue | $194,939 | $193,129 | $387,645 | $384,066 | | Geographic Area | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Talent | $110,272 | $111,345 | $218,067 | $221,528 | | Total Clients | $84,667 | $81,784 | $169,578 | $162,538 | | Total Revenue | $194,939 | $193,129 | $387,645 | $384,066 | - Revenue recognized during the three and six months ended June 30, 2025, that was included in deferred revenue as of March 31, 2025, and December 31, 2024, was $7.5 million and $7.3 million, respectively[41] Note 4—Fair Value Measurements The company's financial instruments carried at fair value consist of Level I and Level II assets, primarily marketable securities and cash equivalents. As of June 30, 2025, total fair value of these instruments was $500.9 million, with $157.4 million in cash equivalents and $343.5 million in marketable securities. The company did not record any impairment charges for marketable securities, considering declines in fair value temporary due to interest rate changes | Category | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :------- | :----------------------- | :--------------------------- | | Level I | $364,450 | $357,157 | | Level II | $136,465 | $152,668 | | Total | $500,915 | $509,825 | - The company considered decreases in market value of marketable securities to be temporary, attributable to changes in interest rates, and did not record any impairment charges for the periods presented[47] | Period | June 30, 2025 | June 30, 2024 | | :----- | :------------ | :------------ | | Three Months Ended | $6,700 | $6,200 | | Six Months Ended | $13,800 | $13,900 | Note 5—Balance Sheet Components This note details the composition of key balance sheet items. Cash, cash equivalents, and restricted cash totaled $506.9 million as of June 30, 2025. Property and equipment, net, increased to $38.1 million, driven by capitalized internal-use software and platform development costs. Net intangible assets decreased to $9.5 million, primarily due to amortization. Accrued expenses and other current liabilities remained stable at $58.8 million | Category | June 30, 2025 | December 31, 2024 | | :------- | :------------ | :---------------- | | Cash and cash equivalents | $291,070 | $305,757 | | Restricted cash | $3,800 | $4,100 | | Funds held in escrow, including funds in transit | $212,033 | $195,736 | | Total | $506,903 | $505,593 | | Category | June 30, 2025 | December 31, 2024 | | :------- | :------------ | :---------------- | | Internal-use software and platform development | $69,092 | $59,815 | | Total property and equipment, net | $38,109 | $30,056 | | Category | June 30, 2025 Net Carrying Amount | December 31, 2024 Net Carrying Amount | | :------- | :-------------------------------- | :------------------------------------ | | Developed technology | $8,861 | $10,695 | | Assembled workforce | $664 | $1,461 | | Customer relationships | $0 | $833 | | Total | $9,525 | $12,989 | Note 6—Business Combination On June 27, 2025, Upwork acquired Bubty B.V., a Netherlands-based platform for enterprise contingent workforce solutions, for $20.4 million in cash. This acquisition aims to enhance workforce management capabilities and platform for global talent. The purchase price is preliminarily recorded as goodwill, with final allocation expected in Q3 2025 - On June 27, 2025, a subsidiary of Upwork acquired 100% of the equity interest of Bubty B.V. for $20.4 million in cash[63] - Bubty B.V. is a Netherlands-based platform supporting enterprise management of contingent workforce solutions, which advances Upwork's strategic objectives and platform for clients managing global talent[63] - The $20.4 million cash consideration has been preliminarily recorded as goodwill, and the purchase price allocation is expected to be completed in the third quarter of 2025[64][65] Note 7—Commitments and Contingencies Upwork has irrevocable letters of credit totaling $0.3 million as of June 30, 2025, collateralized by restricted cash. The company accrues for probable and estimable contingent liabilities but was not a party to any material legal proceedings or claims as of June 30, 2025. Upwork also enters into indemnification agreements with officers, directors, and certain clients for various claims, including worker misclassification - As of June 30, 2025, Upwork had irrevocable letters of credit outstanding in the aggregate amount of $0.3 million, collateralized by restricted cash[66] - As of June 30, 2025, the company was not a party to any material legal proceedings or claims, nor was it aware of any pending or threatened litigation that could have a material adverse effect[68] - Upwork provides indemnification to its officers, directors, and certain clients (especially for worker classification services) for losses arising from various claims, including intellectual property infringement and worker misclassification[69] Note 8—Debt Upwork has $361.0 million aggregate principal amount of 0.25% convertible senior notes due August 15, 2026, outstanding as of June 30, 2025. These notes are senior, unsecured obligations, convertible into common stock, cash, or a combination at the company's election, with an initial conversion price of $66.08 per share. The company also has privately negotiated capped call transactions to reduce potential dilution from conversions, with an initial cap price of $92.74 per share | Metric | June 30, 2025 | December 31, 2024 | | :----- | :------------ | :---------------- | | Convertible senior notes | $360,998 | $360,998 | | Less: unamortized debt issuance costs | $(2,149) | $(3,070) | | Debt, noncurrent | $358,849 | $357,928 | | Weighted-average interest rate | 0.77% | 0.76% | - As of June 30, 2025, $361.0 million aggregate principal amount of 0.25% convertible senior notes due August 15, 2026, remained outstanding[72][73] - The notes have an initial conversion rate of 15.1338 shares of common stock per $1,000 principal amount (equivalent to approximately $66.08 per share) and are subject to customary adjustments[74] - In connection with the notes, the company entered into privately negotiated capped call transactions with an initial cap price of $92.74 per share to reduce potential dilution[83] Note 9—Net Income per Share This note provides the computation of basic and diluted net income per share. For the three months ended June 30, 2025, basic EPS was $0.25 and diluted EPS was $0.24. For the six months ended June 30, 2025, basic EPS was $0.53 and diluted EPS was $0.50. Potentially dilutive shares, including options, RSUs, PSUs, and ESPP shares, were excluded if anti-dilutive | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic Net income | $32,726 | $22,220 | $70,456 | $40,662 | | Diluted Net income | $33,305 | $22,866 | $71,614 | $41,954 | | Basic Weighted-average shares | 132,183,392 | 131,435,839 | 133,687,429 | 133,808,901 | | Diluted Weighted-average shares | 140,198,161 | 138,265,913 | 141,865,567 | 140,798,457 | | Basic Net income per share | $0.25 | $0.17 | $0.53 | $0.30 | | Diluted Net income per share | $0.24 | $0.17 | $0.50 | $0.30 | | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Options to purchase common stock | 1,747,494 | 1,996,063 | 1,500,000 | 1,900,265 | | Common stock issuable upon vesting of RSUs and PSUs | 8,016,737 | 12,558,255 | 7,899,176 | 12,494,595 | | Common stock issuable in connection with ESPP | 764,897 | 963,958 | 759,879 | 963,958 | | Total | 10,529,128 | 15,518,276 | 10,159,055 | 15,358,818 | Note 10—Income Taxes Upwork's income tax provision significantly increased to $5.7 million for Q2 2025 and $13.0 million for H1 2025, compared to $1.2 million and $2.5 million in the prior year periods, respectively. This rise is primarily due to the absence of a valuation allowance on U.S. deferred tax assets in 2025, reflecting sustained profitability, and income in the U.S. offset by R&D tax credits and FDII deduction. The company is evaluating the impact of Public Law 119-21 enacted July 4, 2025, which introduces changes to U.S. tax law | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision | $(5,717) | $(1,181) | $(12,994) | $(2,510) | - The increase in income tax provision for 2025 is primarily due to the absence of a valuation allowance on U.S. federal and state deferred tax assets, reflecting sustained profitability, compared to the prior year[89][91] - The company is currently evaluating the impact of Public Law 119-21, enacted July 4, 2025, which introduces changes to U.S. tax law, including 100% bonus depreciation and the expensing of domestic research costs[93] Note 11—Segment Information Upwork operates as a single operating and reportable segment, as its Chief Executive Officer (CODM) reviews financial information on a consolidated basis to assess performance and allocate resources. The CODM uses consolidated net income for these purposes - Upwork operates as one operating and reportable segment, with its Chief Executive Officer serving as the Chief Operating Decision Maker (CODM)[96] - The CODM reviews financial information presented on a consolidated basis and uses consolidated net income to assess performance, evaluate cost optimization, and allocate resources[95][96] | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $194,939 | $193,129 | $387,645 | $384,066 | | Cost of revenue (excl. stock-based comp & D&A) | $40,470 | $41,590 | $79,672 | $83,498 | | Research and development (excl. stock-based comp & D&A) | $36,529 | $42,935 | $75,073 | $87,594 | | Sales and marketing (excl. stock-based comp & D&A) | $34,664 | $43,931 | $68,414 | $88,837 | | General and administrative (excl. stock-based comp & D&A, warrant expense, acquisition costs) | $24,446 | $22,064 | $47,386 | $47,276 | | Stock-based compensation expense | $15,977 | $19,238 | $28,249 | $36,180 | | Depreciation and amortization | $5,879 | $3,629 | $10,740 | $6,775 | | Segment net income | $32,726 | $22,220 | $70,456 | $40,662 | Note 12—Subsequent Events On August 5, 2025, a subsidiary of Upwork entered into a definitive agreement to acquire Ascen Inc., a tech-enabled employer of record (EOR) for contingent labor. The transaction is expected to close in the second half of 2025, and its impact on financial statements is currently being evaluated - On August 5, 2025, a subsidiary of Upwork entered into a definitive agreement to acquire 100% of the equity interest of Ascen Inc., a tech-enabled employer of record (EOR) for the contingent labor space[99] - The transaction is expected to close in the second half of 2025, and the company is currently evaluating its impact on the condensed consolidated financial statements[99] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Upwork's financial condition and operational results for the three and six months ended June 30, 2025, compared to 2024. It highlights strategic initiatives driving growth and efficiency, key financial metrics, and a detailed analysis of revenue, expenses, liquidity, and capital resources. The company achieved significant net income and Adjusted EBITDA growth despite macroeconomic headwinds, driven by cost-saving measures and monetization efforts Overview Upwork operates the world's largest human and AI-powered work marketplace that connects businesses with independent talent from across the globe, as measured by gross services volume (GSV) - Upwork operates the world's largest human and AI-powered work marketplace that connects businesses with independent talent from across the globe, as measured by gross services volume (GSV)[101] - Talent includes independent professionals and agencies, while clients range from independent professionals and small businesses to Fortune 100 companies[101] Financial Highlights Upwork implemented strategic initiatives that contributed to Marketplace take rate expansion and revenue growth, leading to improved net income and Adjusted EBITDA due to cost-saving measures - Upwork implemented strategic initiatives including dynamic pricing for job proposals, expanded ads and monetization products, operational efficiency, a flat talent service fee structure, a new Enterprise strategy, and continued investment in generative AI capabilities[102] - These strategic initiatives contributed to Marketplace take rate expansion and revenue growth in the three and six months ended June 30, 2025, despite evolving macroeconomic conditions[103] | Metric (In millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Marketplace revenue | $170.7 | $166.8 | $337.0 | $331.1 | | Net income | $32.7 | $22.2 | $70.5 | $40.7 | | Adjusted EBITDA | $57.1 | $40.8 | $113.1 | $74.2 | - Improvements in net income and adjusted EBITDA are primarily due to cost-saving measures implemented in recent years, including reduced investments in brand marketing, vendor spend, and workforce reductions, which are expected to continue positively impacting results throughout 2025[106][107] Key Financial and Operational Metrics Gross Services Volume (GSV) declined by 1% for both the three and six months ended June 30, 2025, while Marketplace revenue and Adjusted EBITDA showed growth | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :----- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | GSV (in thousands) | $1,002,650 | $1,008,267 | (1)% | $1,990,363 | $2,017,063 | (1)% | | Marketplace revenue (in thousands) | $170,660 | $166,786 | 2% | $336,953 | $331,116 | 2% | | Marketplace take rate | 18.5% | 18.0% | 54 bps | 18.4% | 17.9% | 54 bps | | Net income (in thousands) | $32,726 | $22,220 | 47% | $70,456 | $40,662 | 73% | | Adjusted EBITDA (in thousands) | $57,061 | $40,835 | 40% | $113,072 | $74,160 | 52% | | Metric | As of June 30, 2025 | As of June 30, 2024 | % Change | | :----- | :------------------ | :------------------ | :------- | | Active clients (in thousands) | 796 | 868 | (8)% | | GSV per active client | $5,002 | $4,745 | 5% | - GSV declined 1% for both the three and six months ended June 30, 2025, compared to the same periods in 2024, due to macroeconomic conditions, while active clients decreased by 8% and GSV per active client increased by 5%[109][137] Non-GAAP Financial Measures Adjusted EBITDA is a non-GAAP measure used by management for planning and evaluating core operating results, excluding certain non-cash or significant items, but has limitations due to excluded recurring expenses - Adjusted EBITDA is a non-GAAP measure defined as net income adjusted for stock-based compensation expense; depreciation and amortization; other income (expense), net; income tax benefit (provision); and certain other non-cash or significant isolated gains, losses, benefits, or charges[116] - Management uses adjusted EBITDA for planning, budgeting, and evaluating core operating results and business strategy effectiveness, believing it provides useful period-to-period comparisons and comparability with peer companies[119] - Limitations of adjusted EBITDA include the exclusion of significant recurring stock-based compensation expense, capital expenditure requirements, changes in working capital needs, interest expense, and tax payments[118] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $32,726 | $22,220 | $70,456 | $40,662 | | Stock-based compensation expense | $15,977 | $19,238 | $28,249 | $36,180 | | Depreciation and amortization | $5,879 | $3,629 | $10,740 | $6,775 | | Other income, net | $(5,878) | $(5,620) | $(12,195) | $(12,342) | | Income tax provision | $5,717 | $1,181 | $12,994 | $2,510 | | Other (warrant expense, acquisition costs) | $2,640 | $187 | $2,828 | $375 | | Adjusted EBITDA | $57,061 | $40,835 | $113,072 | $74,160 | Components of Our Results of Operations This section details the revenue streams from Marketplace and Enterprise services, along with the primary components of cost of revenue and operating expenses - Marketplace revenue is primarily generated from talent service fees (variable 0-15% for new contracts, flat 10% for older) and client marketplace fees (5% on transactions, or 3% via ACH; 10% or 8% for Business Plus plans)[121][122] - Enterprise revenue includes Enterprise Solutions (client fees, subscriptions, talent service fees) and Managed Services, where Upwork is deemed the principal and recognizes the entire GSV of projects as revenue[125][126][128] - Cost of revenue consists primarily of payment processing fees, amounts paid to talent for Managed Services, personnel-related costs for services and support, third-party hosting fees, and amortization of capitalized internal-use software[129] - Operating expenses include Research and Development (personnel costs, capitalized software), Sales and Marketing (advertising, personnel costs), General and Administrative (personnel, consulting, legal, accounting, insurance), and Provision for Transaction Losses (fraud, bad debt, chargebacks)[131][132][133] Results of Operations The company reported total revenue of $194.9 million for Q2 2025 and $387.6 million for H1 2025, with significant increases in income from operations and net income compared to the prior year | Metric (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $194,939 | $193,129 | $387,645 | $384,066 | | Cost of revenue | $43,432 | $43,852 | $85,238 | $88,045 | | Gross profit | $151,507 | $149,277 | $302,407 | $296,021 | | Total operating expenses | $118,942 | $131,496 | $231,152 | $265,191 | | Income from operations | $32,565 | $17,781 | $71,255 | $30,830 | | Net income | $32,726 | $22,220 | $70,456 | $40,662 | | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $200 | $497 | $387 | $963 | | Research and development | $5,615 | $8,106 | $11,427 | $15,476 | | Sales and marketing | $1,674 | $3,393 | $3,175 | $6,329 | | General and administrative | $8,488 | $7,242 | $13,260 | $13,412 | | Total stock-based compensation | $15,977 | $19,238 | $28,249 | $36,180 | Comparison of the Three and Six Months Ended June 30, 2025 and 2024 This section provides a detailed comparative analysis of the company's financial performance for the three and six months ended June 30, 2025, versus the prior year Revenue Total revenue increased by 1% for both periods, driven by Marketplace growth, while Enterprise revenue declined due to reduced client spend | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :------ | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | Marketplace | $170,660 | $166,786 | +2% | $336,953 | $331,116 | +2% | | Enterprise | $24,279 | $26,343 | (8)% | $50,692 | $52,950 | (4)% | | Total Revenue | $194,939 | $193,129 | +1% | $387,645 | $384,066 | +1% | - Total revenue increased by 1% for both the three and six months ended June 30, 2025, compared to the same periods in 2024[138] - Marketplace revenue increased by 2% due to higher revenue from ads, monetization products, and client marketplace fees, partially offset by a decrease in talent service fees resulting from the 2023 transition to a flat fee model[139] - Enterprise revenue decreased by 8% and 4% for the three and six months, respectively, primarily due to lower revenue from Managed Services as a result of reduced client spend, with further declines expected for the remainder of 2025[140] Cost of Revenue and Gross Margin Cost of revenue decreased due to cost-optimization efforts, leading to a 1 percentage point increase in gross margin to 78% for both periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :----- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | Cost of revenue | $43,432 | $43,852 | (1)% | $85,238 | $88,045 | (3)% | | Total gross margin | 78% | 77% | +1 pp | 78% | 77% | +1 pp | - Cost of revenue decreased due to reductions in data center and customer support costs ($1.1 million and $3.0 million, respectively) and lower costs associated with the Upwork Professional offering ($0.9 million and $2.0 million, respectively), reflecting hosting optimization and workforce reductions[141][142] - Gross margin increased to 78% for both the three and six months ended June 30, 2025, primarily due to lower cost of revenue driven by cost-optimization efforts implemented in the prior year[143] Research and Development Research and development expense decreased by 15% and 14% for the three and six months, respectively, primarily due to workforce reductions and cost-saving measures | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :----- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | R&D expense | $44,843 | $52,465 | (15)% | $90,995 | $105,381 | (14)% | | Percentage of total revenue | 23% | 27% | -4 pp | 23% | 27% | -4 pp | - Research and development expense decreased primarily due to reductions in personnel-related costs ($7.3 million and $12.8 million, respectively) reflecting workforce reductions and other cost-saving measures implemented in 2024[145] - The company capitalized an additional $1.1 million and $2.2 million of internal-use software and platform development costs during the three and six months ended June 30, 2025, respectively[145] - Total research and development expenses are expected to decrease throughout the remainder of 2025 compared to 2024, despite ongoing innovation with a focus on generative AI[146] Sales and Marketing Sales and marketing expense decreased significantly by 23% and 24% for the three and six months, respectively, driven by cost-optimization efforts and workforce reductions | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :----- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | S&M expense | $36,671 | $47,333 | (23)% | $72,422 | $95,184 | (24)% | | Percentage of total revenue | 19% | 25% | -6 pp | 19% | 25% | -6 pp | - Sales and marketing expense decreased significantly due to cost-optimization efforts, including a $7.3 million and $16.7 million reduction in personnel-related costs and a $2.9 million and $4.8 million decrease in marketing and advertising expense, respectively[147] - Sales and marketing expense is expected to continue decreasing throughout the remainder of 2025 compared to 2024, primarily due to ongoing workforce-related changes and other cost-saving initiatives[148] General and Administrative General and administrative expense increased by 19% for the three months and 3% for the six months, primarily due to higher personnel-related costs and acquisition-related legal fees | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :----- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | G&A expense | $35,659 | $29,924 | +19% | $63,707 | $61,925 | +3% | | Percentage of total revenue | 18% | 15% | +3 pp | 16% | 16% | 0 pp | - General and administrative expense increased primarily due to higher personnel-related costs ($3.8 million and $1.2 million, respectively) largely from increased bonus expense based on 2025 financial performance[149] - Legal fees also increased ($1.4 million and $1.1 million, respectively) primarily driven by acquisition-related costs[149] - General and administrative expenses are expected to increase for the remainder of 2025 compared to 2024, primarily due to an increase in stock-based compensation[150] Provision for Transaction Losses The provision for transaction losses remained stable for the three months but increased by 49% for the six months ended June 30, 2025, compared to the prior year | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :----- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | Provision for transaction losses | $1,769 | $1,774 | (0)% | $4,028 | $2,701 | +49% | | Percentage of total revenue | 0.9% | 0.9% | 0 pp | 1.0% | 0.7% | +0.3 pp | - The provision for transaction losses increased by $1.3 million for the six months ended June 30, 2025, compared to a lower provision in 2024 primarily due to better than expected collections during that period[151] - The provision for transaction losses is expected to remain at a normalized level of approximately 1% of revenue for the remainder of 2025[151] Other Income, Net Other income, net, remained relatively consistent for both the three and six months ended June 30, 2025, compared to the same periods in 2024 | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :----- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | Other income, net | $5,878 | $5,620 | +5% | $12,195 | $12,342 | (1)% | - Other income, net, remained relatively consistent for both the three and six months ended June 30, 2025, compared to the same periods in 2024[152] Income Tax Provision The income tax provision significantly increased for both periods due to the absence of a valuation allowance on U.S. deferred tax assets in 2025, reflecting sustained profitability | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision | $(5,717) | $(1,181) | $(12,994) | $(2,510) | | Effective tax rate | 14.9% | 5.0% | 15.6% | 5.8% | - The increase in effective tax rates for the three and six months ended June 30, 2025, was primarily driven by the absence of a valuation allowance on U.S. deferred tax assets in the current periods, which had lowered tax expense in the prior year[154] - The income tax provision for 2025 was primarily driven by income in the United States and non-deductible compensation, partially offset by the generation of research and development tax credits and the benefit from the Foreign-Derived Intangible Income deduction[155] Liquidity and Capital Resources Upwork's liquidity is primarily supported by cash, cash equivalents, and marketable securities, which are believed to be sufficient for the next 12 months, though future needs depend on various business and economic factors - Upwork's principal sources of liquidity are cash and cash equivalents ($291.1 million as of June 30, 2025) and marketable securities ($343.5 million as of June 30, 2025)[156] - The company believes its existing cash, cash equivalents, marketable securities, and cash flow from operations will be sufficient for at least the next 12 months to meet working capital and capital expenditure requirements[157] - The ability to support future working capital and capital expenditure requirements depends on factors such as revenue growth, customer cash receipts, sales and marketing expansion, R&D spending, new offerings, market adoption, acquisitions, macroeconomic conditions, and financing availability[157] - Inability to raise additional capital on acceptable terms could materially adversely affect the company's results of operations, financial condition, and ability to achieve business objectives[158] Commitments and Contingencies Upwork's primary commitments include convertible senior notes, future purchase commitments for cloud infrastructure, and operating lease obligations, with no material commitments from unconsolidated entities - Upwork's principal commitments consist of convertible senior notes, future purchase commitments for cloud infrastructure and other services, and obligations under non-cancellable operating leases for office space[159] - The company did not have any material commitments or obligations arising from arrangements with unconsolidated entities or persons that are reasonably likely to have a material current or future effect on its financial condition[160] Notes Assuming no conversion, repurchase, or redemption of outstanding convertible senior notes, annual interest expense will be $1.4 million for the remainder of 2025 and $1.8 million in 2026, with the $361.0 million principal due August 15, 2026 - Assuming the outstanding convertible senior notes are not converted, repurchased, or redeemed, annual interest expense will be $1.4 million for the remainder of fiscal year 2025 and $1.8 million in 2026, with the $361.0 million principal payable upon maturity on August 15, 2026[161] Future Purchase Commitments for Cloud Infrastructure As of June 30, 2025, Upwork had remaining non-cancellable purchase commitments of $16.7 million for cloud infrastructure and other services under a two-year agreement - As of June 30, 2025, Upwork had remaining non-cancellable purchase commitments of $16.7 million for cloud infrastructure and other services under an agreement commenced in July 2024, totaling $40.0 million over two years[162] Operating Leases for Office Space There were no material changes to the company's commitments under its office space lease agreements compared to those disclosed in its 2024 Annual Report on Form 10-K - There were no material changes to the company's commitments under its lease agreements for office space from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024[163] Share Repurchase Program The company repurchased 5.2 million shares for $70.9 million during the six months ended June 30, 2025, under a $100.0 million authorization, with $29.1 million remaining - In October 2024, the board of directors authorized a share repurchase program for up to $100.0 million of outstanding common stock (2024 Share Repurchase Authorization)[164] - During the three and six months ended June 30, 2025, the company repurchased and retired 2.9 million and 5.2 million shares, respectively, for an aggregate of $37.9 million and $70.9 million, at average prices of $13.00 and $13.52 per share[165] - As of June 30, 2025, $29.1 million remained available for repurchases under the 2024 Share Repurchase Authorization[165] Escrow Funding Requirements As a licensed internet escrow agent, Upwork holds customers' escrowed and in-transit cash in trust, restricting operating cash to match shortages for hourly billings not yet collected - As a licensed internet escrow agent, Upwork is required to hold customers' escrowed cash and in-transit cash in trust as an asset and record a corresponding liability for escrow funds[167] - To satisfy escrow funding requirements, the company restricts its operating cash every Sunday to match the shortage of cash in trust for hourly billings not yet collected from clients[167] - As of June 30, 2025, funds held in escrow, including funds in transit, were $212.0 million, compared to $195.7 million at December 31, 2024[167] Convertible Senior Notes Due 2026 and Capped Calls $361.0 million in convertible senior notes due 2026 remain outstanding, with capped call transactions in place to reduce potential dilution, subject to a cap price of $92.74 per share - As of June 30, 2025, $361.0 million aggregate principal amount of the 0.25% convertible senior notes due August 15, 2026, remained outstanding[168][169] - The company may, from time to time, repurchase outstanding notes in the open market or through other transactions, depending on prevailing market conditions and liquidity[170][171] - Capped call transactions are in place to generally reduce potential dilution to common stock upon conversion of the notes or offset cash payments in excess of principal, subject to a cap price of $92.74 per share[172][173] Cash Flows This section summarizes the net cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Category | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $109,479 | $54,017 | | Net cash (used in) provided by investing activities | $(56,673) | $156,529 | | Net cash used in financing activities | $(51,496) | $(101,115) | | Net change in cash, cash equivalents, and restricted cash | $1,310 | $109,431 | Operating Activities Net cash provided by operating activities significantly increased to $109.5 million for the six months ended June 30, 2025, driven by net income and non-cash adjustments - Net cash provided by operating activities was $109.5 million for the six months ended June 30, 2025, resulting from net income of $70.5 million, non-cash adjustments of $42.8 million, and net cash outflows of $3.8 million from changes in operating assets and liabilities[176] - This represents a significant increase from $54.0 million provided in the prior year period[176][177] - Primary uses of cash from operating activities include personnel-related expenditures, payment processing fees, talent payments for Managed Services, and third-party hosting costs[175] Investing Activities Net cash used in investing activities was $56.7 million for the six months ended June 30, 2025, a shift from a net cash inflow in the prior year, primarily due to marketable securities purchases and an acquisition - Net cash used in investing activities was $56.7 million for the six months ended June 30, 2025, a change from $156.5 million provided in the prior year[178][179] - Key outflows in 2025 included $259.1 million in marketable securities purchases, $20.4 million for the acquisition of Bubty B.V., $8.2 million in internal-use software development, and $4.9 million for property and equipment[178] - These outflows were partially offset by $232.4 million in proceeds from maturities of marketable securities and $3.5 million from sales[178] Financing Activities Net cash used in financing activities decreased to $51.5 million for the six months ended June 30, 2025, primarily due to common stock repurchases, partially offset by increased escrow funds payable - Net cash used in financing activities was $51.5 million for the six months ended June 30, 2025, down from $101.1 million in the prior year[180][181] - The primary use of cash in 2025 was $70.9 million for common stock repurchases, partially offset by a $16.6 million increase in escrow funds payable, $2.2 million from the employee stock purchase plan, and $0.7 million from stock option exercises[180] - In 2024, the main use was $100.0 million for stock repurchases and a $4.8 million decrease in escrow funds payable[181] Critical Accounting Policies and Estimates The preparation of financial statements requires management to make estimates and assumptions, with no material changes to critical accounting policies reported compared to the 2024 Annual Report on Form 10-K - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses[182] - An accounting policy is deemed critical if it requires estimates based on highly uncertain assumptions, if different estimates could reasonably be used, or if changes in estimates could materially impact financial statements[183] - No material changes to critical accounting policies and estimates were reported compared to the 2024 Annual Report on Form 10-K, except as disclosed in Note 2[184] Recent Accounting Pronouncements The company refers to Note 2 for information on recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report - The company refers to 'Note 2—Basis of Presentation and Summary of Significant Accounting Policies' for information on recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Upwork's exposure to market risks, primarily interest rate risk and foreign currency exchange rates. The company's investment portfolio is relatively insensitive to interest rate changes, and it mitigates foreign currency risk through forward contracts or secured exchange rates, resulting in immaterial impacts to date Interest Rate Risk Upwork's fixed-rate convertible senior notes and investment portfolio are relatively insensitive to interest rate changes, with no material impact expected from hypothetical rate fluctuations - Upwork has $361.0 million aggregate principal amount of fixed-rate convertible senior notes outstanding, and its investment portfolio's fair value is relatively insensitive to interest rate changes[187][188] - The company does not believe that a hypothetical increase or decrease in interest rates of 100 basis points would have a material impact on its operating results or financial condition[189] Foreign Currency Risk Upwork's operating results are subject to foreign currency fluctuations, which the company mitigates through forward contracts or secured exchange rates, with immaterial impacts to date - Upwork's operating results and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, as clients can settle invoices in various non-USD currencies[190] - To mitigate foreign currency risk, the company may enter into forward contracts or secure foreign currency exchange rates, which have resulted in an immaterial impact on operating results to date[190] Item 4. Controls and Procedures Upwork's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2025, and concluded they were effective. There were no material changes to internal control over financial reportin