Upwork: Summary of SEC Fillings

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2023 Q1 SEC Filling

GSV, revenue, Clients and Freelancers

• In Q1 2023 and 2022, "no single country included in the Rest of world category had revenue that exceeded 10% of Total talent revenue, Total clients revenue, or Total revenue."
• Client Marketplace Offering, which came into effect in April 2022 reseulted in an 80% year over year increase in marketplace fee.

2022 SEC Filling

Below is a summary of Upwork 2022 10-K SEC Filling.

GSV, revenue, Clients and Freelancers

• The number of Sundays in a quarter/year affect the amount of GSV.
• In 2022, approximately 26% of its GSV was generated from U.S talent.
• U.S was the largest talent in each of 2022, 2021, and 2020, while talent in India and the Philippines remained its next largest talent geographies in all three years.
• In 2022, approximately 68% of its GSV came from U.S clients versus approximately 67% in 2021 and 66% in 2020.

• In 2022, clients in any other country did not account for more than 10% of its GSV.
• Due to U.S GAAP, Upwork recognizes the entire GSV of managed services projects as managed services revenue as oppossed to recognizing only a certain percentage of the client spend that they receive, like in marketplace projects.
• In 2022, marketplace revenue was 92% of total revenue while managed service revenue was 8% of total revenue.
• In 2022, provision for transaction losses was approximately 4% of the revenue versus 1% of revenue in 2021.
• Payment withdrawal fees are shared between Upwork and financial institution facilitating the transaction.
• Managed services invoices to clients are done on a monthly basis.

Strategy and Outlook

• Due to a significant surplus of talent compared to clients, Upwork focus is "on retaining client spend and acquiring new clients, as opposed to acquiring new talent and retaining existing talent."
• Upwork expects cost of revenue to increase in absolute dollars in future periods due to "higher payment processing fees, personnel-related costs, and third-party hosting fees."
• Upwork expects gross profit to increase in future periods but gross margin is expected to flactuate from period to period.
• Research and development cost is expected to increase in absolute dollars in future periods but its ratio to total revenue is expected to vary from period to period. Similar to sales and marketing costs and general and administrative costs.

Products

• Upwork Payroll is available to clients "when talent are classified as employees for engagements" in Upwork.

Technology

• Upwork uses machine learning algorithms to match talent with projects that need their skills.
• Machine learning is also used to process transactions on millions of completed projects.

Upwork Enterprise

• Upwork Enterprise is designed for large clients that have at least 250 employees.

Escrow Services

• Upwork is licenced as an escrow agent by the California Department of Financial Protection and Innovation(DFPI).
• Upwork is required to hold its user's escrowed and in-transit cash in trust as an asset.
• Each Sunday, hourly payments to freelancers start being in-transit but Upwork won't have collected payments from clients. To satisfy escrow requirements, Upwork funds the shortage in trust with its own cash and collect the payments from clients in the next several days.

Employees

• Had 850 employees as of December 2022.
• Engaged 1,950 independent talent team members throughout 2022.

Employee Compensation

• Upwork offers market-competitive benefits and compensation in order to attract and retain employees.
• Compensate high performers more than average performers.

Competition

• The key benefits of hiring freelancers instead of using traditional staffing models include talent quality, speed to hire, flexibility, and cost effectiveness.

• Other than online freelance companiea such as Fiverr, Upwork faces competition from services providers described below;

Traditional Staffing Agencies

• The Adecco Group
• Randstad
• Recruit
• Allegis Group
• Robert Half International

Personal and professional social networks

• LinkedIn
• GitHub

software and business services companies

• Workday.

Payment Businesses

• Paypal
• Pioneer

Online Job Boards

• Craigslist
• CareerBuilder
• Indeed
• Monster
• ZipRecruiter

Cohort Analysis

• Upwork retains client spend from existing clients.
• According to the company, "a client belongs to an annual cohort based on the date of first spend activity with talent." For instance, " the 2022 cohort includes all clients that had their first spend activity with talent between January 1, 2022 and December 31, 2022."
• In the year ended December 31 2022, 2021, and 2020, " client spend from new client cohorts was $507.6 million, $537.9 million, and $407.9 million, respectively."

Source: Upwork 2022 10-K

Concentration of Risk

• "One client accounted for more than 10% of trade and client receivables as of December 31, 2022."
• " One client accounted for more than 10% of trade and client receivables as of December 31, 2021."
• "Gross trade receivables were $22.6 million and $19.7 million and gross client receivables were $54.7 million and $50.5 million as of December 31, 2022 and 2021."
• "For the years ended December 31, 2022, 2021 and 2020, the Company did not have any clients that accounted for more than 10% of total revenue."

Employee Stock Purchase Plan

• The 2018 Employee Stock Purchase Plan (ESPP) "allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations."

Liquidity

• Upwork believes that its cash and cash equivalents, marketable securities and cash flow from operations will be sufficient for at least the next 12 months to meet to meet its requirements.
• Upwork do not make investments for trading or speculative purposes.
• As of December 31, 2022, Upwork had $129.4 million in cash and cash equivalents versus $187.2 million as of December 31, 2021.

Foreign Currency Risk

• Other than the U.S dollar, Upwork offers its clients the option to settle their invoices in the following currencies: Euro, British Pound, Australian dollar, Canadian dollar, Singapore dollar, South African rand, New Zealand dollar, Polish zloty, Swiss franc, Norwegian krone, Danish krone, Swedish krona, Turkish lira, Japanese yen, and Hong Kong dollar.

Marketing

• Majority of new clients registrations come through direct and non-paid channels.
• Some of their other marketing tools include direct mail, TV, digital, audio advertising compaigns and event marketing programs.
• They have also increased their focus on large enterprise firms through account-based marketing programs.

Platform security

• Upwork uses pattern-matching algorithms to detect suspicious activity in the platform.
• User verifications is done by third parties.
• Sensitive information shared among users is encrypted using secure socket layer technology. Also leverages HTTP strict transport security to boost security of its users.
• Users can also choose to secure their credentials through two-factor authentication on a second device.
• Upwork is Payment Card Industry Data Security Standard certified.

Scalability of the platform

• Upwork cloud is designed be elastic i.e it automatically expands with increased usage in order to support sudden traffic spikes. It also autamatically reduces in size when the traffic goes down; hence saving on costs.

Equity

• Upwork entered into capped calls in August 2021 to prevent potential dilution to its common stock.
• The initial cap price of the Capped Calls is $92.74 per share of common stock, "representing over 100% premium over the last reported sale price of the common stock of $46.37 per share on August 5, 2021."
• The capped calls is subject to certain arrangements as long as its price will not be reduced to "an amount less than the strike price of $66.08 per share."
• If the market price per share of common stock exceeds the cap price of the Capped Calls, there would be dilution.
• As of December 31, 2022 and 2021, Upwork did not have any outstanding shares of preferred stock.

Equity Incentive Plans

2014 EIP

• In 2014, Upwork adopted the 2014 Equity Incentive Plan.
• The total number of shares of common stock reserved and available for grant and issuance under the 2014 EIP plan was initially 12,462,985 plus prior plans.
• Prior plans include common stock under oDesk Corporation 2004 Stock Plan, the Elance 1999 Stock Option Plan, and the Elance 2009 Stock Option Plan.
• Prior plans "subsequently ceased to be subject to an award for any reason other than exercise of a stock option, (ii) shares that had been reserved but not subject to any outstanding awards under the Prior Plans and (iii) shares issued under the Prior Plans that were repurchased, forfeited, or used to pay employee withholding or exercise price obligations."
• 2014 IEP may be granted " at prices not less than 100% of the fair value of the Company’s common stock on the date of grant unless determined in writing by the Company’s board of directors."
• 2014 IEP vest " over a four-year period from the original date of grant and expire ten years from the original grant date."

2018 EIP

• It was adopted by the company in 2018.
• 10,701,505 shares of common stock were originally reserved under the 2018 IEP. But on January 1 of each year, "shares available for issuance are increased based on the provisions of the 2018 EIP."
• Awards granted under the 2018 EIP "may be (i) incentive stock options, (ii) nonqualified stock options, (iii) RSUs, (iv) restricted stock awards, or (v) stock appreciation rights, as determined by the Company’s board of directors or compensation committee at the time of grant."

2018 IPO SEC Filling

Below is a summary of Upwork 2018 IPO SEC Filling.

GSV, Clients and Freelancers

• In the 12 months ended June 30, 2018, Upwork facilitated "$1.56 billion of GSV across 2.0 million projects between approximately 375,000 freelancers and 475,000 clients in over 180 countries."
• Upwork GSV was $1.15 billion and $1.37 billion in 2016 and 2017, respectively(+20% y/y).
• In 2017, around 40% of clients engaged freelancers across multiple categories in Upwork platform.
• In 2017, Upwork had more than 20 categories that each generated over $20 million of GSV.
• The medium time to hire freelancers in 2017 was 23 hours.
• In 2017, 1,400 clients each spend over $100,000 in the platform and no single client accounted for more than 2% of total spend in the platform.

Industry Insights

• McKinsey Global Institute forecasts that "by 2025, online talent platforms could add $2.7 trillion annually, or 2%, to the global gross domestic product, or GDP."
• Upwork 2018 Future Workforce Report found that in 2018, "59% of hiring managers indicated they were leveraging flexible talent, which includes temporary, freelance, and agency workers, up 24% from January 2017."
• A McKinsey Global Institute report found that approximately 11% of jobs could be performed by remote workers.
• According to 2017 State of Telecommuting in the U.S. Employee Workforce report, "the number of telecommuting workers grew 115% in a decade, from approximately 1.8 million in 2005 to approximately 3.9 million in 2015."