Upwork, Inc. — Q2 2022 Form 10-Q
Business and period: Upwork operates an online marketplace connecting businesses with independent talent, alongside Enterprise and managed-services offerings. This unaudited report covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods.
Financial and operating performance
Amounts below are in millions except per-share data and operating metrics.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $156.9 (+26%) | $124.2 | $298.2 (+25%) | $237.8 |
| Gross profit / margin | $116.0 / 74% | $91.1 / 73% | $219.5 / 74% | $174.3 / 73% |
| Operating loss | $(23.0) | $(16.4) | $(46.7) | $(24.1) |
| Net loss | $(23.8) | $(16.5) | $(48.6) | $(24.4) |
| Adjusted EBITDA (non-GAAP) | $(1.9) | $7.3 | $(2.3) | $14.2 |
| Net loss per share, diluted | $(0.18) | $(0.13) | $(0.37) | $(0.19) |
- Q2 GSV was $1.046 billion, up 19%; marketplace take rate was 14.0%, versus 13.2%. Active clients reached 807,000, up 11%, while GSV per active client rose 16% to $4,874.
- Q2 marketplace revenue was $144.3 million, up 26%; managed-services revenue was $12.6 million, up 29%. Enterprise revenue was $12.3 million, up 45%.
- Operating expenses rose to $139.1 million in Q2 from $107.5 million. The provision for transaction losses increased to $6.7 million from $1.2 million, primarily reflecting higher fraud and chargebacks.
- Stock-based compensation was $19.0 million in Q2 and $35.7 million for the first half, a significant recurring expense excluded from adjusted EBITDA.
- First-half operating cash flow was negative $11.9 million, compared with positive $2.4 million a year earlier. Investing cash flow was negative $43.2 million and financing cash flow positive $31.1 million. Cash, cash equivalents and restricted cash, including escrow funds, declined by $24.0 million.
- At June 30, cash and cash equivalents were $135.4 million and marketable securities were $532.3 million. These totaled $667.6 million; funds held in escrow are restricted for users and should not be treated as freely available liquidity.
- Convertible notes had $575.0 million principal outstanding and $562.8 million carrying value, are unsecured, bear 0.25% interest, and mature in August 2026. Management said existing cash, marketable securities and operating cash flow when generated should meet requirements for at least 12 months.
Changes, outlook and risks
- In April 2022, Upwork combined Basic and Plus into Client Marketplace, removing monthly client subscription fees and introducing a 5% transaction fee, or 3% for eligible ACH payments. Management expects this pricing change to increase marketplace revenue and take rate and positively affect gross margin; the company also cautioned that pricing changes can affect user retention, spend and circumvention.
- Management expects active-client year-over-year growth to decelerate through the rest of 2022 as pandemic-era growth is lapped. It expects continued investment in research and development, marketing and sales, with those expenses rising in absolute dollars. The filing does not provide specific revenue or earnings guidance.
- Upwork estimated that the war in Ukraine and suspension of operations in Russia and Belarus reduced Q2 revenue by approximately $4 million. It expects the impact in each of Q3 and Q4 to be slightly less than in Q2, but said the total future effect remains uncertain. Humanitarian-response expenses were $4.3 million for the first half and were excluded from adjusted EBITDA.
- Other notable risks include ongoing fraud and chargebacks, macroeconomic uncertainty and inflation, competition, dependence on payment partners, worker-classification and regulatory exposure, cybersecurity, and possible weakening of demand as pandemic-related remote-work effects recede.
- No material pending legal proceedings were reported. The company reported disclosure controls were effective as of June 30, 2022, with no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether Client Marketplace pricing sustains higher take rate and revenue without harming client growth, retention, or marketplace activity.
- Monitor fraud, chargebacks and transaction-loss provisions, which rose sharply year over year, and assess whether mitigation measures work.
- Assess the sustainability of GSV and client-spend growth alongside management’s expected deceleration in active-client growth.
- Reconcile operating cash burn and available, non-escrow liquidity with spending plans and the $575 million notes due in 2026.
- Review future disclosures on Russia/Ukraine impacts, humanitarian costs, and adjusted EBITDA exclusions; adjusted EBITDA is non-GAAP and excludes significant recurring stock-based compensation.