# UPWORK, INC (UPWK) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from UPWORK, INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1627475/000162747525000011/upwk-20241231.htm
Accession: 0001627475-25-000011
Filing date: 2025-02-13
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/UPWK/
All MD&A years: /company/UPWK/mda/
Previous year: /company/UPWK/mda/fy2023/ (FY 2023)
Next year: /company/UPWK/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Overview

Business

Independent talent is an increasingly sought-after, critical, and expanding segment of the global workforce. We operate the world’s largest work marketplace that connects businesses with independent talent from across the globe, as measured by GSV. GSV represents the total amount that clients spend on our offerings as well as additional fees we charge to talent and clients for other services. Talent includes independent professionals and agencies of varying sizes. Clients on our work marketplace range in size from independent professionals and small businesses to Fortune 100 companies. With customers in over 180 countries, our work marketplace enabled $4.0 billion of GSV for the year ended December 31, 2024.

As a global work marketplace that connects talent and clients regardless of their location, our GSV originates from around the world. In 2024, our work marketplace enabled $4.0 billion in GSV, with approximately 25% generated from U.S. talent, making the United States our largest talent geography in each of 2024, 2023, and 2022. India and the Philippines were our next largest talent geographies in all three years. Of the $4.1 billion of GSV enabled on our work marketplace in both 2023 and 2022, approximately 26% was generated from talent in the United States in each year.

Approximately 70% of our GSV in 2024 was generated from U.S. clients, compared to approximately 69% and 68% of GSV in 2023 and 2022, respectively, with clients in no other country representing more than 10% of our GSV in any such year.

We generate revenue from both talent and clients of our Marketplace and Enterprise offerings. Revenue is primarily generated from talent service fees and, to a lesser extent, client marketplace fees. We also generate revenue through ads and monetization products, including purchases of Connects, talent memberships, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S. dollar. Additionally, we earn interest on funds held on behalf of customers.

The Company operates its business as one operating and reportable segment. For additional information, see “Note 15—Segment Information” in the notes to our consolidated financial statements included elsewhere in this Annual Report.

Financial Highlights for 2024

Over the past several quarters, we implemented a number of initiatives that positively impacted Marketplace revenue and Marketplace take rate. These include (i) retiring the tiered service fee structure for talent working with clients on our Marketplace offering in favor of a flat fee, (ii) increasing the number of Connects needed by talent to bid on projects, (iii) deploying ads products on our work marketplace, and (iv) introducing new features, with a focus on generative artificial intelligence.

These initiatives contributed to an increase to Marketplace revenue of $76.0 million, or 13%, for the year ended December 31, 2024, compared to 2023. Marketplace take rate also benefited from these initiatives, increasing to 18.0% for the year ended December 31, 2024, compared to 15.4% in 2023.

During the year ended December 31, 2024, we generated net income of $215.6 million, compared to net income of $46.9 million in 2023. This included a non-cash tax benefit of $140.3 million from the release of a valuation allowance on certain deferred tax assets. Adjusted EBITDA increased to $167.6 million in 2024, from $73.1 million in 2023. This improvement was primarily due to strong operational discipline, proactive cost management, and higher margin revenue growth.

We expect the initiatives implemented over the past several quarters, along with operational efficiencies and cost savings from the Restructuring Plan, will continue to positively impact net income and adjusted EBITDA in 2025.

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Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with generally accepted accounting principles in the United States, which we refer to as 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 income (loss), the most directly comparable financial measure prepared under U.S. GAAP.

Recent Developments

Restructuring Plan

In October 2024, we announced the Restructuring Plan, intended to continue our profitable trajectory, increase efficiency, and accelerate innovation for our customers. The Restructuring Plan included a reduction of our total workforce by approximately 21% and resulted in $19.2 million of restructuring charges in the fourth quarter of 2024, consisting primarily of employee severance and other one-time termination benefits for the Company’s impacted workforce. For additional information, see “Note 17—Restructuring Charges” of the notes to our consolidated financial statements included elsewhere in this Annual Report.

Acquisition of Objective AI, Inc.

In November 2024, we completed the acquisition of Objective AI, acquiring 100% of Objective AI's outstanding equity for total cash consideration of $19.1 million. This strategic acquisition aims to enhance our platform by integrating advanced AI-native search capabilities and strengthen our AI and search teams with specialized talent. For additional information, see “Note 7—Business Combination” of the notes to our consolidated financial statements included elsewhere in this Annual Report.

Key Financial and Operational Metrics

We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

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

[[GREPCENT_TABLE]]
[["","As of or for the Year Ended December 31,"],["(In thousands, except GSV per active client and percentages)","2024","","","","Change","","2023","","","","Change","","2022","","Change"],["GSV","$","4,008,107","","","","","(3)","%","","$","4,142,252","","","","","1","%","","$","4,104,891","","","16","%"],["Marketplace revenue","$","662,108","","","","","13","%","","$","586,099","","","","","13","%","","$","518,282","","","21","%"],["Marketplace take rate","18.0","%","","","","265 bps","","15.4","%","","","","155 bps","","13.8","%","","58 bps"],["Net income (loss)","$","215,586","","","","","*","","$","46,887","","","","","152","%","","$","(89,885)","","","60","%"],["Adjusted EBITDA (1)","$","167,593","","","","","129","%","","$","73,134","","","","","*","","$","(4,029)","","","*"],["Active clients","832","","","","","(2)","%","","851","","","","","5","%","","814","","","6","%"],["GSV per active client","$","4,815","","","","","(1)","%","","$","4,867","","","","","(4)","%","","$","5,045","","","10","%"]]
[[/GREPCENT_TABLE]]

*Not meaningful

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

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, and management uses these metrics to track our performance. We expect our key metrics may fluctuate between periods due to a number of factors, including changing macroeconomic conditions; 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 period; the lapping of significant launches of new products, pricing changes, and other monetization efforts; and ongoing efforts to improve processes on our work marketplace, including project proposals and purchases of Connects, among others. For a discussion of limitations in the measurement of our key financial and operational metrics, see “Risk Factors—We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics may not accurately reflect 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.”

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Gross Services Volume (GSV)

GSV represents the amount of business transacted through our work marketplace. The primary component of GSV is client spend, which we define as the total amount that clients spend on our offerings. GSV also includes fees charged to talent and clients, such as for transacting payments through our work marketplace, purchases of Connects, talent memberships, and foreign currency exchange.

For purposes of determining countries where we enable GSV, we include both the countries in which the clients that paid for the applicable services are located, as well as the countries in which talent that provided those services are located.

Growth in the number of active clients and GSV per active client are the primary drivers of GSV.

Marketplace Revenue

Marketplace revenue is the primary driver of our business, and we believe it provides comparability to other online marketplaces. Marketplace revenue represents the majority of our revenue and is derived from our Marketplace offerings, which include all offerings other than our Enterprise offerings—Enterprise Solutions and Managed Services. We generate Marketplace revenue from both talent and clients. Marketplace revenue is primarily generated from talent service fees paid by talent as a percentage of the total amount talent charges clients for services accessed on our Marketplace, and to a lesser extent, client marketplace fees. We also generate revenue through ads and monetization products, including purchases of Connects, talent memberships, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S. dollar. Additionally, we earn interest on funds held on behalf of customers.

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 take rate is an important metric because it is the key indicator of how well we monetize spend on our work marketplace from our Marketplace offerings.

Active Clients and GSV per Active Client

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

While continued use of our work marketplace by talent is a factor that impacts our ability to attract and retain clients, we currently have a significant surplus of talent in relation to the number of clients actively engaging talent for most categories of services on our work marketplace. As a result of this surplus, we primarily focus our efforts on retaining client spend and acquiring new clients, as opposed to acquiring new talent and retaining existing talent. Moreover, we generate revenue when clients engage and pay talent, and therefore, our key metrics and operating results are directly impacted by client spend. Additionally, the number of talent retained between periods is merely one of many factors that may impact client spend in a particular period and is not a primary driver of our key metrics and operating results.

Components of Our Results of Operations

Revenue

Marketplace Revenue. Marketplace revenue is primarily generated from talent service fees, and to a lesser extent, client marketplace fees. We maintain a flat talent service fee of 10% for talent working with clients on our Marketplace offerings. Revenue for a majority of our talent service fees is recognized on the Sunday of each week, as this is the day we have the contractual right to bill talent for the service fees. We charge a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients.

We also generate revenue through ads and monetization products, including purchases of Connects, talent memberships, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S. dollar. Additionally, we earn interest on funds held on behalf of customers.

Enterprise Revenue. Enterprise offers two lines of service—Enterprise Solutions and Managed Services.

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Our Enterprise Solutions offering includes access to additional product features, premium access to top talent, professional services, custom reporting, and flexible payment terms. Revenue from our Enterprise Solutions offering includes all client fees, subscriptions, and talent service fees. For our Enterprise Solutions offering, we charge clients a monthly or annual subscription fee and a service fee calculated as a percentage of the client’s spend on talent services, in addition to a 10% service fee paid by talent. Additionally, clients of our Enterprise Solutions offering can also subscribe to a compliance service that includes worker classification services for an additional fee and may also choose to use our work marketplace to engage talent that were not originally sourced through our work marketplace for a lower fee percentage.

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

Cost of Revenue, Gross Profit, and Gross Margin

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

Gross Profit and Gross Margin. Our gross profit and gross margin may fluctuate from period to period. Such fluctuations may be influenced by our revenue, the mix of payment methods that our clients choose, the timing and amount of investments to expand hosting capacity, our continued investments in our services and support teams, the timing and amounts paid to talent in connection with our Managed Services offering, and the amortization expense associated with capitalized internal-use software and platform development costs. In addition, gross margin will be impacted by fluctuations in our revenue mix between Marketplace revenue and Enterprise revenue.

Operating Expenses

Research and Development. Research and development expense primarily consists of personnel-related costs. 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.

Sales and Marketing. Sales and marketing expense consists primarily of expenses related to advertising and marketing activities, as well as personnel-related costs, including sales commissions, which we expense as they are incurred.

General and Administrative. General and administrative expense consists primarily of personnel-related costs for our executive, finance, legal, human resources, and operations functions; outside consulting, legal, and accounting services; and insurance.

Provision for Transaction Losses. Provision for transaction losses consists primarily of losses resulting from fraud and bad debt expense associated with our trade and client receivables balance and transaction losses associated with chargebacks. Provisions for these items represent estimates of losses based on our actual historical incurred losses and other factors.

Other Income (Expense), Net

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

Income Tax Benefit (Provision)

We account for income taxes in accordance with the asset and liability method, which involves recognizing deferred assets and liabilities for expected future tax effects of differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. We establish a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be recoverable against future taxable income.

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Deferred tax assets and liabilities are measured using the enacted tax rates that will be in effect for the years in which those tax assets are expected to be realized or settled. We regularly assess the likelihood that deferred tax assets will be realized from recoverable income taxes or recovered from future taxable income based on the realization criteria set forth in the relevant authoritative guidance. To the extent that we believe any amounts are less likely than not to be realized, we record a valuation allowance to reduce our deferred tax assets.

In addition, the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize potential liabilities based on an estimate of whether, and the extent to which, additional taxes will be due. We account for uncertain tax positions in accordance with the relevant guidance, which prescribes a recognition threshold and measurement approach for uncertain tax positions taken or expected to be taken in our income tax return, and also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The guidance utilizes a two-step approach for evaluation of uncertain tax positions. The first step is to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit. The second step is to measure the tax benefit as the largest amount that is more likely than not to be realized on ultimate settlement. A liability is reported for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Any interest and penalties related to unrecognized tax benefits are recorded as income tax expense.

Results of Operations

The following table sets forth our consolidated results of operations for the years ended December 31, 2024, 2023, and 2022:

[[GREPCENT_TABLE]]
[["(In thousands)","2024","","2023","","2022"],["Revenue:"],["Marketplace","$","662,108","","","$","586,099","","","$","518,282"],["Enterprise","107,217","","","103,037","","","100,036"],["Total revenue","769,325","","","689,136","","","618,318"],["Cost of revenue (1)","174,094","","","170,450","","","160,402"],["Gross profit","595,231","","","518,686","","","457,916"],["Operating expenses"],["Research and development (1)","209,283","","","177,363","","","154,553"],["Sales and marketing (1)","185,211","","","220,681","","","246,882"],["General and administrative (1)","128,803","","","118,925","","","123,952"],["Provision for transaction losses","6,728","","","12,977","","","25,153"],["Total operating expenses","530,025","","","529,946","","","550,540"],["Income (loss) from operations","65,206","","","(11,260)","","","(92,624)"],["Other income, net","25,221","","","60,137","","","3,275"],["Income (loss) before income taxes","90,427","","","48,877","","","(89,349)"],["Income tax benefit (provision)","125,159","","","(1,990)","","","(536)"],["Net income (loss)","$","215,586","","","$","46,887","","","$","(89,885)"],["(1) Includes stock-based compensation expense as follows:"],["Cost of revenue","$","1,586","","","$","1,900","","","$","1,356"],["Research and development","29,923","","","28,006","","","26,881"],["Sales and marketing","11,670","","","14,030","","","11,511"],["General and administrative","25,212","","","30,259","","","35,753"],["Total","$","68,391","","","$","74,195","","","$","75,501"]]
[[/GREPCENT_TABLE]]

A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operation” included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 15, 2024.

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Comparison of the Years Ended December 31, 2024 and 2023

Revenue

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","%"],["Marketplace","$","662,108","","","$","586,099","","","76,009","","","13","%"],["Percentage of total revenue","86","%","","85","%"],["Enterprise","$","107,217","","","$","103,037","","","4,180","","","4","%"],["Percentage of total revenue","14","%","","15","%"],["Total revenue","$","769,325","","","$","689,136","","","$","80,189","","","12","%"]]
[[/GREPCENT_TABLE]]

During the year ended December 31, 2024, macroeconomic conditions adversely impacted GSV, which declined 3%, compared to 2023. The number of active clients decreased 2% as of December 31, 2024 compared to December 31, 2023, driven by slower growth in acquisition of new clients. As a result, GSV per active client decreased 1% as of December 31, 2024 compared to December 31, 2023. We expect no material improvement to macroeconomic conditions in 2025.

For the year ended December 31, 2024, total revenue was $769.3 million, representing an increase of $80.2 million, or 12%, compared to 2023.

Marketplace revenue increased by $76.0 million, or 13%, compared to 2023, largely due to a number of initiatives that we implemented over the past several quarters, including modifying existing offerings and other services and features. Specifically, we retired the tiered service fee structure for talent working with clients on our Marketplace offering—ranging from 5% to 20%—in favor of a flat fee of 10%, increased the number of Connects needed by talent to bid on projects, deployed ads products on our work marketplace, and introduced a contract initiation fee for clients on our Marketplace offering. These factors also drove Marketplace revenue to grow at a faster rate than Marketplace GSV, which caused Marketplace take rate to increase to 18.0% for the year ended December 31, 2024, compared to 15.4% in 2023.

We expect Marketplace revenue to decrease in 2025 compared to 2024 reflecting the impact of broader macroeconomic conditions.

Enterprise revenue represented 14% of total revenue for the year ended December 31, 2024 and increased by $4.2 million, or 4%, compared to 2023, due to increased revenue from our Managed Services offerings, driven by new spend from existing clients.

Cost of Revenue and Gross Margin

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","%"],["Cost of revenue","$","174,094","","","$","170,450","","","$","3,644","","","2","%"],["Total gross margin","77","%","","75","%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, cost of revenue increased by $3.6 million, or 2%, compared to 2023, primarily due to increases in the cost of talent services to deliver Managed Services revenue of $5.0 million and amortization expense related to internal-use software and platform development costs of $4.1 million, offset by a reduction in payment processing fees of $2.6 million. For the year ended December 31, 2024, gross margin increased to 77%, compared to 75% in 2023, primarily driven by the increase in Marketplace revenue.

We expect cost of revenue to decrease in absolute dollars in future periods, reflecting the expected decrease in revenue 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. We expect gross margin to remain consistent in 2025 compared to 2024.

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Research and Development

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","%"],["Research and development","$","209,283","","","$","177,363","","","$","31,920","","","18","%"],["Percentage of total revenue","27","%","","26","%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, research and development expense increased by $31.9 million, or 18%, compared to 2023. This increase was primarily driven by $8.2 million in costs related to the Restructuring Plan, $8.0 million in personnel-related costs and intangible amortization from our asset acquisition in November 2023, and $11.1 million in other personnel-related costs. Additionally, for the year ended December 31, 2024, costs related to software increased $1.5 million compared to 2023.

While we remain committed to ongoing innovation to further enhance our platform, including building new features with a focus on generative artificial intelligence, we expect total research and development expense to decrease in 2025.

Sales and Marketing

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","%"],["Sales and marketing","$","185,211","","","$","220,681","","","$","(35,470)","","","(16)","%"],["Percentage of total revenue","24","%","","32","%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, sales and marketing expense decreased by $35.5 million, or 16%, compared to 2023. This decrease was primarily driven by cost-saving measures implemented in the second quarter of 2023 and extended throughout 2024, including reduced investments in brand marketing and vendor spend. As a result, marketing and advertising expense decreased by $28.6 million compared to 2023. Additionally, personnel-related costs decreased $12.1 million, compared to 2023. These savings were partially offset by $7.1 million in costs incurred as a result of the Restructuring Plan.

As a result of our reduced investment in brand marketing, the reduction of our workforce, and other cost-saving measures implemented in the past several quarters, we expect sales and marketing expense to decrease in 2025, compared to 2024.

General and Administrative

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","%"],["General and administrative","$","128,803","","","$","118,925","","","$","9,878","","","8","%"],["Percentage of total revenue","17","%","","17","%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, general and administrative expense increased by $9.9 million, or 8%, compared to 2023. This increase was primarily due to increases in personnel-related costs of $5.5 million. Additionally, we incurred a $2.6 million increase in legal and consulting fees associated with corporate initiatives and other matters, and $1.1 million in early lease termination fees recognized during the period.

As a result of cost savings measures implemented in the fourth quarter of 2024, we expect general and administrative expense to decrease in 2025, compared to 2024.

Provision for Transaction Losses

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","","%"],["Provision for transaction losses","$","6,728","","","$","12,977","","","$","(6,249)","","","","(48)","%"],["Percentage of total revenue","1","%","","2","%"]]
[[/GREPCENT_TABLE]]

We maintain trust and safety measures to mitigate bad debt losses, instances of fraud, and chargeback losses. For the year ended December 31, 2024, provision for transaction losses decreased by $6.2 million, or 48%, compared

43

to 2023. This reduction was the result of improved internal review processes, which decreased bad debt losses, instances of fraud, and chargeback losses.

Other Income, Net

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","","%"],["Other income, net","$","25,221","","","$","60,137","","","$","(34,916)","","","","(58)","%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, other income, net decreased by $34.9 million, compared to 2023, due to a gain of $38.9 million on the early extinguishment of a portion of the Notes that we recognized during the three months ended March 31, 2023, partially offset by increases in interest income earned on marketable securities.

Income Tax Benefit (Provision)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["(In thousands, except percentages)","2024","","2023","","$","","","%"],["Income tax benefit (provision)","$","125,159","","","$","(1,990)","","","$","127,149","","","","*"]]
[[/GREPCENT_TABLE]]

*Not meaningful

For the years ended December 31, 2024 and 2023, we recorded a $125.2 million income tax benefit and a $2.0 million income tax expense, respectively. The income tax benefit for the year ended December 31, 2024 compared to income tax expense in 2023, resulted primarily from the release of the $140.3 million valuation allowance associated with U.S. federal and state deferred tax assets. This release was based on an evaluation of all available positive and negative evidence, including our recent history of taxable income and expectations of future taxable earnings. As a result of this assessment, we determined that it is more likely than not that our U.S. federal and state deferred tax assets will be realized, resulting in the release of the valuation allowance.

Non-GAAP Financial Measures

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

We define adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense; depreciation and amortization; other income (expense), net, which includes interest expense; income tax benefit (provision); and, if applicable, certain other gains, losses, benefits, or charges that are non-cash or are significant and the result of isolated events or transactions that have not occurred frequently in the past and are not expected to occur regularly in the future. Additionally, in response to the war in Ukraine, during the year ended December 31, 2022, we incurred certain incremental expenses associated with our humanitarian response efforts. These expenses are not representative of our ongoing operations, and, as a result, we excluded these costs from adjusted EBITDA for the year ended December 31, 2022. Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S. GAAP.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In thousands)","2024","","2023","","2022"],["Net income (loss)","$","215,586","","","$","46,887","","","$","(89,885)"],["Add back (deduct):"],["Stock-based compensation expense","68,391","","","74,195","","","75,501"],["Depreciation and amortization","14,813","","","9,449","","","8,057"],["Other income, net (1)","(25,221)","","","(60,137)","","","(3,275)"],["Income tax (benefit) provision (2)","(125,159)","","","1,990","","","536"],["Other (3)(4)(5)","19,183","","","750","","","5,037"],["Adjusted EBITDA","$","167,593","","","$","73,134","","","$","(4,029)"]]
[[/GREPCENT_TABLE]]

(1)During the year ended December 31, 2023, we recognized a gain of $38.9 million on early extinguishment of debt, which is included in “Other income, net” in the consolidated statement of operations and comprehensive income (loss). See “Note 10—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information regarding the Notes.

(2)During the year ended December 31, 2024, we recognized a non-cash tax benefit of $140.3 million from the release of a valuation allowance on certain deferred tax assets, partially offset by approximately $15.0 million of tax expense. See “Note 14—Income Taxes” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information.

(3)During the year ended December 31, 2024, we incurred $19.2 million in costs related to the execution of the Restructuring Plan. Of this amount, $18.4 million is included in Other, while the remaining amount is allocated between “Stock-based compensation expense” and “Other income, net”. See “Note 17—Restructuring Charges” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information.

(4)During each of the years ended December 31, 2024, 2023, and 2022, we incurred $0.8 million of expense related to the warrant to purchase 500,000 shares of our common stock at an exercise price of $0.01 per share issued to the Tides Foundation in 2018.

(5)During the year ended December 31, 2022, in response to Russia’s invasion of Ukraine, we incurred certain incremental expenses associated with our humanitarian response efforts. These expenses are not representative of our ongoing operations, and, as a result, we excluded these costs from adjusted EBITDA for the year ended December 31, 2022. These expenses consisted of (i) $1.4 million of special one-time bonuses to our team members in the region impacted by Russia’s invasion of Ukraine, (ii) $1.5 million of expenses incurred in connection with the relocation of our team members in the impacted region, (iii) $1.1 million of donations made to humanitarian aid organizations to support initiatives related to humanitarian response efforts in the impacted region, primarily to Direct Relief International, a humanitarian aid organization, and (iv) $0.4 million of payments of one-time service award bonuses (and associated taxes) to certain of our team members paid in recognition of contributions made by such team members to our humanitarian response efforts in the impacted region.

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

•adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense; depreciation and amortization; other income (expense), net, which includes interest expense; income tax benefit (provision); and, if applicable, certain other gains, losses, benefits, or charges that are non-cash or are significant and the result of isolated events or transactions that have not occurred frequently in the past and are not expected to occur regularly in the future, all of which 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

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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 net income (loss) and our other financial performance measures prepared in accordance with U.S. GAAP.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents and marketable securities. Our cash equivalents and marketable securities primarily consist of money market funds, commercial paper, treasury bills, corporate bonds, U.S. and foreign government securities, asset-backed securities, and other types of fixed income securities. The primary objective of our investment activities from our operating investments is to preserve principal while maximizing income without significantly increasing risk. Since our inception, our business has consisted of the operation of an online work marketplace that connects businesses with independent talent from across the globe, and we do not make investments for trading or speculative purposes. As of December 31, 2024 and 2023, we had $305.8 million and $79.6 million in cash and cash equivalents, respectively. As of December 31, 2024 and 2023, we had $316.3 million and $470.5 million in marketable securities, respectively.

We believe our existing cash and cash equivalents, marketable securities, and cash flow from operations (in periods in which we generate cash flow from operations) will be sufficient for at least the next 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 customers, 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, any repurchases of shares of our outstanding common stock or of our outstanding Notes, and our ability to obtain equity or debt financing.

To the extent existing cash and cash equivalents, cash from marketable securities, and cash from operations (in periods in which we generate cash flow from operations) are insufficient to fund our working capital and capital expenditure requirements, or should we require additional cash for other purposes, we will need to raise additional funds. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements, as we did with the offering of the Notes. If we raise additional funds by issuing equity or equity-linked securities, the ownership and economic interests of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we will be subject to additional debt service requirements and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could also be unfavorable to our equity investors. There can be no assurances that we will be able to raise additional capital on terms we deem acceptable,

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or at all. The inability to raise additional capital as and when required would have an adverse effect, which could be material, on our results of operations, financial condition, and ability to achieve our business objectives.

Commitments and Contingencies

Our principal commitments consist of the Notes, future purchase commitments for cloud infrastructure and other services, and obligations under our non-cancellable operating leases for office space. Assuming the outstanding Notes are not converted into our common stock, repurchased, or redeemed prior to maturity, (i) annual interest expense relating to the Notes will be $2.7 million in each fiscal year through 2025 and $1.8 million in 2026 and (ii) principal in the amount of $361.0 million will be payable upon the maturity of the Notes on August 15, 2026. For additional information about our Notes, see the section below titled “—Convertible Senior Notes Due 2026.”

In July 2024, we commenced a non-cancellable agreement for cloud infrastructure and other services that contains future purchase commitments of $40.0 million over two years, with $20.0 million in each year. As of December 31, 2024, we had remaining purchase commitments under this agreement of $30.0 million.

As of December 31, 2024, our future lease commitments were $15.9 million (excluding adjustments for discount to present value), including $1.9 million for 2025.

During the periods presented, we did not have, 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.

Share Repurchase Program

In November 2023, our board of directors authorized the repurchase of up to $100.0 million of shares of our outstanding common stock under the 2023 Share Repurchase Authorization. During the year ended December 31, 2024, we repurchased and subsequently retired 8.1 million shares of common stock under the 2023 Share Repurchase Authorization for an aggregate amount of $100.0 million at an average price of $12.38 per share, including fees associated with the repurchases and excluding excise tax. As of December 31, 2024, we had no remaining balance available for repurchases under the 2023 Share Repurchase Authorization.

In October 2024, our board of directors authorized the repurchase of up to $100.0 million of shares of our outstanding common stock under the 2024 Share Repurchase Authorization. During the year ended December 31, 2024, we did not repurchase any shares under the 2024 Share Repurchase Authorization. As of December 31, 2024, we had $100.0 million available for repurchases under the 2024 Share Repurchase Authorization. As was the case with the 2023 Share Repurchase Authorization, repurchases of our common stock under the 2024 Share Repurchase Authorization may be made from time to time on the open market (including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act), in privately negotiated transactions, or by other methods, at our discretion, and in accordance with applicable securities laws and other restrictions. The 2024 Share Repurchase Authorization has no expiration date and will continue until otherwise suspended, terminated, or modified at any time for any reason. The 2024 Share Repurchase Authorization does not obligate us to repurchase any dollar amount or number of shares, and the timing and amount of any repurchases will depend on market and business conditions.

Escrow Funding Requirements

As a licensed internet escrow agent, we offer escrow services to customers of our work marketplace and, as such, we are required to hold our customers’ escrowed cash and in-transit cash in trust as an asset and record a corresponding liability for escrow funds held on behalf of 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 fluctuate based on marketplace activity and may vary from period to period. Escrow regulations require us to cover the trust with our operating cash in the event of shortages due to the timing of cash receipts from clients for completed hourly billings. 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 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 match the shortage of cash in trust by restricting our own operating cash and typically collect this cash shortage from clients within the next several days. As of December 31, 2024 and 2023, funds held in escrow, including funds in transit, were $195.7 million and $212.4 million, respectively. We deposit a portion of funds held in escrow in interest-bearing checking accounts.

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Convertible Senior Notes Due 2026 and Capped Calls

As of December 31, 2024, $361.0 million aggregate principal amount of the Notes remained outstanding.

The Notes were issued in August 2021, pursuant to and subject to the terms and conditions of an indenture between us and Computershare Trust Company, National Association (as successor in interest to Wells Fargo Bank, National Association), as trustee. The Notes are senior, unsecured obligations and bear interest at a rate of 0.25% per year, payable semiannually in arrears, and are due August 15, 2026. Upon conversion, we have an option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock.

As market conditions warrant, we may, from time to time, repurchase outstanding Notes, as we did in the three months ended March 31, 2023, in the open market, in privately negotiated transactions, by tender offer, by exchange transaction, or otherwise. Such repurchases of Notes, if any, will depend on prevailing market conditions, our liquidity, and other factors, and may be commenced or suspended at any time.

In connection with the issuance of the Notes, we entered into capped call transactions, which we refer to as the 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 terms of the Capped Calls. See “Note 10—Debt” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information regarding the Notes and the Capped Calls.

Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2024, 2023, and 2022:

[[GREPCENT_TABLE]]
[["(In thousands)","2024","","2023","","2022"],["Net cash provided by operating activities (1)","$","153,563","","","$","52,708","","","$","11,497"],["Net cash provided by (used in) investing activities","137,568","","","88,270","","","(69,468)"],["Net cash provided by (used in) financing activities (1)","(81,956)","","","(139,791)","","","1,143"],["Net change in cash, cash equivalents, and restricted cash (2)","$","209,175","","","$","1,187","","","$","(56,828)"],["(1) The Company elected to change the presentation of certain cash flows on its Consolidated Statement of Cash Flow, reclassifying the change in Trade and Client Receivables, related to amounts received on behalf of talent to fund their escrow account, from operating activities to financing activities. Prior period comparative amounts have been recast to conform to the current period presentation. For additional information, refer to \u201cNote 2\u2014Basis of Presentation and Summary of Significant Accounting Policies\u201d of the notes to our consolidated financial statements included elsewhere in this Annual Report."],["(2) Includes decreases in funds held in escrow, including funds in transit of $10.0 million and $25.4 million, during the years ended December 31, 2024 and 2023, respectively, and an increase in funds held in escrow, including funds in transit of $4.3 million during the year ended December 31, 2022."]]
[[/GREPCENT_TABLE]]

Operating Activities

Our largest source of cash from operating activities is revenue generated from our work marketplace. Our primary uses of cash from operating activities are for personnel-related expenditures, payment processing fees, amounts paid to talent to deliver services for clients under our Managed Services offering, and third-party hosting costs.

Net cash provided by operating activities during 2024 was $153.6 million, which resulted from net income of $215.6 million and non-cash charges of $47.0 million, offset by net cash outflows of $15.0 million from changes in operating assets and liabilities.

Net cash provided by operating activities during 2023 was $52.7 million, which resulted from net income of $46.9 million and non-cash charges of $45.1 million, offset by net cash outflows of $39.2 million from changes in operating assets and liabilities.

Net cash provided by operating activities during 2022 was $11.5 million, which resulted from non-cash charges of $112.2 million, offset by a net loss of $89.9 million and net cash outflows of $10.8 million from changes in operating

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assets and liabilities. The change in operating assets and liabilities primarily resulted from the increase in trade and client receivables.

Investing Activities

Net cash provided by investing activities during 2024 was $137.6 million, which was primarily a result of proceeds from maturities of marketable securities of $486.9 million and $41.8 million in proceeds from the sale of marketable securities, partially offset by investing $362.3 million in various marketable securities, $14.3 million cash paid, net of cash acquired, for the acquisition of Objective AI, $10.9 million of internal-use software and platform development costs that we paid during the period, and $3.5 million paid for purchases of property and equipment.

Net cash provided by investing activities during 2023 was $88.3 million, which was primarily a result of proceeds from maturities of marketable securities of $648.8 million and proceeds from the sale of marketable securities of $165.0 million, including $143.7 million to enable the repurchase of a portion of the Notes, partially offset by investing $709.2 million in various marketable securities, as well as $12.7 million of internal-use software and platform development costs that we paid during the period, and $3.0 million for the purchase of an intangible asset.

Net cash used in investing activities during 2022 was $69.5 million, which was primarily a result of investing $581.9 million in various marketable securities, as well as $7.5 million of internal-use software and platform development costs that we paid during the period and purchases of property and equipment of $1.2 million, partially offset by proceeds from maturities of marketable securities of $521.2 million.

Financing Activities

Net cash used in financing activities during 2024 was $82.0 million, which was driven by $100.0 million cash paid for repurchases under the 2023 Share Repurchase Authorization, partially offset by an increase in escrow funds payable of $10.0 million, proceeds received from our employee stock purchase plan of $4.8 million, and cash received from stock option exercises of $3.3 million.

Net cash used in financing activities during 2023 was $139.8 million, which was driven by $171.3 million that we paid to consummate the repurchase of a portion of the Notes, including related fees to effect the repurchases, partially offset by an increase in escrow funds payable of $25.4 million, proceeds received from our employee stock purchase plan of $4.1 million, and cash received from stock option exercises of $2.0 million.

Net cash provided by financing activities during 2022 was $1.1 million, which was primarily a result of proceeds received from our employee stock purchase plan of $3.8 million, cash received from stock option exercises of $1.6 million, partially offset by a decrease in escrow funds payable of $4.3 million.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of the 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. Certain of our accounting policies require higher degrees of judgment than others in their application. These include certain aspects of accounting for revenue recognition, stock-based compensation, and income taxes.

Revenue Recognition

We generate revenue from talent and clients from our Marketplace and Enterprise offerings. We account for revenue in accordance with Topic 606. Revenue is recognized upon transfer of control of promised services to customers in an amount that reflects the consideration we expect to receive in exchange for those services.

Determining the method and amount of revenue to recognize requires management to make judgments and estimates. Judgments include determining whether to present revenue gross, as a principal, or net, as an agent, which is based on an evaluation of whether we control the service prior to it being transferred to the client.

We recognize deferred revenue as the related performance obligations are satisfied, on a ratable basis over the relevant service period. Management applies judgement in assessing the continued appropriateness for the estimates, which include assessing the continued appropriateness of the methodology and relevant data inputs to estimate the likelihood and the period of time over which to defer and recognize the consideration allocated to the material rights. We utilize historical customer transaction data in developing these estimates. We recognize revenue related to the material rights based on our estimate of when the material rights are exercised, and adjust revenue for changes in estimates in the period of change on a cumulative catch-up basis.

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Stock-Based Compensation

We measure and recognize compensation expense for all stock-based awards granted to employees and non-employee service providers, including stock options, restricted stock units, which we refer to as RSUs, performance stock units, which we refer to as PSUs, and purchase rights granted under our 2018 Employee Stock Purchase Plan, which we refer to as the 2018 ESPP, based on the estimated fair value of the award on the grant date. We calculate the estimated fair value of stock options and purchase rights granted under the 2018 ESPP on the date of grant using the Black-Scholes option pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected dividend yield, the expected term of the awards, the risk-free interest rates, and the expected common stock price volatility over the term of the option awards.

The grant date fair value of PSUs is determined using the closing common stock price of our common stock on the grant date multiplied by the number of PSUs that are probable of being earned as of the grant date. We use the quoted market price of our common stock as reported on The Nasdaq Global Select Market for the fair value of RSUs, PSUs, stock options, and purchase rights under our 2018 ESPP.

We generally recognize the fair value of stock options and RSUs on a straight-line basis over the period during which a service provider is required to provide services in exchange for the award (generally the vesting period). We recognize the fair value of purchase rights granted under the 2018 ESPP as an expense on a straight-line basis over the offering period and account for forfeitures as they occur.

Stock-based compensation expense associated with service and market-based stock options is recognized over the longer of the expected achievement period for the service condition and market condition.

Stock-based compensation expense associated with PSUs is recognized over the longer of the expected achievement period for the performance condition or the service condition, if applicable.

Income Taxes

We utilize the asset and liability method under which deferred tax assets and liabilities arise from the temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided for under current tax law.

A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. The assessment of the need for a valuation allowance involves significant judgment and requires consideration of various factors, including historical levels of pre-tax income or loss adjusted for permanent book-tax differences on a jurisdictional basis, the timing and magnitude of future reversals of existing temporary differences, and projections of future taxable income. A valuation allowance is reduced or removed when, based on a comprehensive evaluation of all available evidence, it becomes more likely than not that the deferred tax assets will be realized. Key factors in determining the removal of a valuation allowance include sustained profitability, changes in business operations that increase taxable income, or significant new sources of taxable income, such as new contracts or operational expansions.

We regularly review our tax positions and benefits to be realized. We recognize tax liabilities based upon our estimate of whether, and the extent to which additional taxes will be due when such estimates are more likely than not to be sustained. An uncertain income tax position will be recognized only if it is more likely than not to be sustained. We recognize interest and penalties related to income tax matters as income tax expense.

Recent Accounting Pronouncements

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