Upwork, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Upwork operates an online marketplace connecting businesses with independent talent. This unaudited quarterly report covers the three months ended March 31, 2022, compared with the same period in 2021.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $141.3 million | $113.6 million | +24% |
| Gross profit / gross margin | $103.4 million / 73% | $83.2 million / 73% | Gross profit +24%; margin unchanged |
| Operating expenses | $127.1 million | $90.9 million | +40% |
| Operating loss | $(23.7) million | $(7.7) million | Loss widened |
| Net loss / diluted loss per share | $(24.7) million / $(0.19) | $(7.8) million / $(0.06) | Loss widened |
| Adjusted EBITDA | $(0.4) million | $6.9 million | Declined |
| Cash from operating activities | $(11.5) million | $1.9 million | Decreased |
Revenue consisted of marketplace revenue of $129.4 million, up 24%, and managed services revenue of $11.9 million, up 33%. Enterprise revenue increased 55% to $10.8 million. Gross services volume (GSV) rose 27% to $1.001 billion; active clients increased 16% to 793,000, and GSV per active client increased 18% to $4,742. Marketplace take rate declined to 13.1% from 13.5%, primarily reflecting more spend from existing clients at lower tiered talent fee rates, partly offset by Enterprise growth.
Operating expense growth reflected investment in product development, sales, and marketing. Stock-based compensation was $16.7 million, compared with $11.2 million a year earlier. Adjusted EBITDA is a non-GAAP measure and excludes $4.3 million of humanitarian-response expenses; it should be considered alongside GAAP results.
Liquidity, debt, and cash flow
At March 31, 2022, cash and cash equivalents were $121.2 million and marketable securities were $551.8 million, together $673.0 million. These amounts exclude $196.4 million of escrow funds, which are matched by escrow-fund payables. Current assets were $949.5 million and current liabilities were $263.3 million. Cash, cash equivalents, and restricted cash declined $30.5 million during the quarter.
Investing cash outflow was $55.0 million, primarily reflecting net purchases of marketable securities; financing cash inflow was $36.1 million, primarily from the increase in escrow funds payable. The company had $575.0 million principal amount of 0.25% convertible senior notes due in 2026, carried at $562.0 million net of issuance costs; no debt was current. Management said available cash, securities, and operating cash flow when generated should be sufficient for requirements over at least the next 12 months.
Material changes, outlook, and risks
- Russia and Ukraine: Upwork suspended operations in Russia and Belarus, requiring existing contracts to wind down by May 1, 2022. The company estimated a $1.0 million revenue reduction in Q1 and expected a larger revenue impact in Q2. About 10% of 2021 revenue involved talent or clients in the region. The company also incurred $4.3 million in Q1 humanitarian-response expenses. Future effects remain uncertain.
- Pricing change: In April 2022, Upwork combined its Basic and Plus client plans into a Client Marketplace Plan, eliminating monthly subscription fees and introducing a 5% transaction fee, or 3% for eligible ACH payments. Management expected the change to increase marketplace revenue and take rate and positively affect gross margin; results were not yet reported.
- Operating outlook: Management expected active-client growth to move closer to pre-pandemic levels as pandemic-driven comparisons eased. It anticipated continued investment and higher absolute R&D, sales, and marketing expenses, and transaction-loss provisions of roughly 1%–2% of revenue. The filing refers to withdrawal of financial guidance in Q1 2022 but provides no replacement quantified guidance.
- Other risks: Key exposures include competition, user retention and marketplace circumvention, payment fraud and chargebacks, worker-classification and other regulatory changes, cybersecurity and third-party service disruptions, macroeconomic conditions, COVID-19 effects, and execution of enterprise sales and pricing changes. The company reported no material pending legal proceedings and said disclosure controls were effective.
Investor facts to verify
- Whether the new Client Marketplace Plan increases monetization without weakening client activity, GSV growth, or retention.
- Q2 and subsequent revenue and GSV effects from the Russia and Belarus suspension, and the ability of Ukrainian talent to continue working.
- Whether expense growth and stock-based compensation moderate enough to improve operating losses and adjusted EBITDA.
- Operating cash flow trends, excluding escrow timing effects, and the liquidity available after accounting for debt and operating needs.
- Convertible-note conversion and dilution exposure, including the limits of the capped-call protection.