UPWORK, INC Management’s discussion and analysis of financial condition and results of operations. (Form 10-Q)

You should read the following discussion and analysis of our financial condition
and results of operations together with the section titled "Risk Factors" and
the condensed consolidated financial statements and related notes included
elsewhere in this Quarterly 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 Quarterly Report.

Insight

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, as measured by gross services
volume, which we refer to as GSV. GSV represents the total amount that clients
spend on both our marketplace offerings and our managed services offering as
well as additional fees we charge to talent for other services. We define talent
as users that advertise and provide services to clients through our work
marketplace, and we define clients as users that seek and work with talent
through our work marketplace. Talent includes independent professionals and
agencies of varying sizes. The clients on our work marketplace range in size
from small businesses to Fortune 100 companies.

Recent Events

Due to Russia's invasion of Ukraine and the resulting sanctions and other
actions against Russia and Belarus, there has been uncertainty and disruption in
the global economy. On March 7, 2022, we announced the suspension of business
operations in Russia and Belarus, with contracts with talent or clients in
Russia or Belarus required to wind down by May 1, 2022. The first step was
shutting down support for new business generation in each country. Shortly
following the announcement, talent and clients in Russia and Belarus were no
longer able to sign up for new accounts, initiate new contracts, or be visible
in search on our work marketplace. Contracts with talent or clients in Russia or
Belarus that were in place as of the date of the announcement are allowed to
remain open until May 1, 2022.

Approximately 10% of our total revenue in 2021 was derived from work where
either the talent or the client was located in the region. Nearly all such
revenue was derived from work performed by talent inside the region for clients
located in other parts of the world. At the beginning of the invasion in late
February 2022, we experienced immediate reductions in activity from talent
across the entire region, but since that initial impact, we have seen activity
from users in Ukraine rebound to almost pre-war levels. During the three months
ended March 31, 2022, we estimate that the loss of revenue resulting from
Russia's invasion of Ukraine and our resulting suspension of business operations
in Russia and Belarus was approximately $1.0 million. We expect to see a larger
impact to revenue in the second quarter due to the winding down of all contracts
with talent and clients in Russia and Belarus by May 1, 2022 and also because
all three months of the quarter will be affected by Russia's invasion of
Ukraine.

Additionally, while approximately 25% of client spend from our web, mobile, and
software development category in 2021 was derived from work where either the
talent or the client was located in the region, thus far, we have not
experienced a material impact to client spend from, or other activity levels
related to, this category. Given the complex nature of our business and
two-sided nature of our work marketplace, and with talent on our work
marketplace located in over 180 countries, we are monitoring the impact on
client spend from clients that have historically engaged talent in the impacted
region and the extent to which those clients engage talent in other regions. As
users in Russia and Belarus are able to relocate to regions where we operate, we
will be eager to support them in continuing their work on our work marketplace.

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During the three months ended March 31, 2022, we incurred approximately $4.3
million of expenses associated with our humanitarian response efforts related to
the war against Ukraine, including a $1.1 million donation to Direct Relief
International in support of the Ukrainian population and providing our team
members with financial and other forms of support and paying certain expenses
for those team members seeking to relocate from the affected region. In
addition, we have implemented ways for clients to purchase projects from talent
in Ukraine as a donation, meaning the clients do not expect any work in return
and we waive the talent service fees. We have also initiated a number of product
enhancements to make it easier for Ukrainian talent to preserve their careers.

Although the Russian war against Ukraine did not have a material adverse impact
on our revenue or other financial results for the three months ended March 31,
2022, at this time we are unable to fully assess the aggregate impact it will
have on our business in future periods due to various uncertainties, which
include, but are not limited to, the duration of the war, the ability of talent
based in Ukraine to continue working, the war's effect on the economy, its
impact to the businesses of our clients, actions that may be taken by
governmental authorities related to the war, and other factors identified in
Part II, Item 1A, "Risk Factors" in this Quarterly Report, including the risk
factor titled "Russia's invasion of Ukraine and our decision to suspend our
business operations in Russia and Belarus have affected and may continue to
affect our business and results of operations."

Additionally, the ongoing COVID-19 pandemic and the resulting restrictions
intended to prevent its spread have continued to accelerate the secular shift
toward remote and independent work, and, with our unique, remote-based business
model, the COVID-19 pandemic has not impacted our clients' access to highly
skilled talent to complete short- and long-term projects on our work
marketplace. While we have not incurred significant disruptions to our business
thus far from the ongoing COVID-19 pandemic, we continue to actively monitor the
impact on all aspects of our business.

Key financial and operational indicators

From and for the three months ended March 31, 2022our main financial and operational parameters are as follows:

                                            Three Months Ended
                                                March 31,                   

%

 (In thousands, except percentages)        2022             2021               Change
GSV                                   $ 1,001,375       $ 786,777                27  %
Marketplace revenue                       129,425         104,670                24  %
Marketplace take rate                        13.1  %         13.5  %           (0.4) %
Net loss                              $   (24,738)      $  (7,835)             (216) %
Adjusted EBITDA1                      $      (433)      $   6,911              (106) %


                                        As of March 31,                 %
(Active clients are in thousands)      2022         2021              Change
Active clients                           793          685               16  %
GSV per active client               $  4,742      $ 4,016               18  %

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. For a discussion of the limitations of measuring our key financial and operational metrics,

1Adjusted EBITDA is not prepared in accordance with, and is not an alternative
to, financial measures prepared in accordance with 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 loss, the most directly comparable
financial measure prepared under U.S. GAAP.

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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" in Part II, Item 1A
of this Quarterly Report.

Gross Services Volume (GSV)

GSV includes both client spend and additional fees charged for other services.
Client spend, which we define as the total amount that clients spend on both our
marketplace offerings and our managed services offering, is the primary
component of GSV. GSV also includes fees charged to talent, such as for
transacting payments through our work marketplace, user memberships, and
purchases of "Connects" (virtual tokens that allow talent to bid on projects and
paid promotional products on our work marketplace), and foreign currency
exchange. GSV is an important metric because it represents the amount of
business transacted through our work marketplace.

Active customers and GSV per active customer

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.

Marketplace Revenue

Marketplace revenue, which represents the majority of our revenue, consists
primarily of revenue derived from our Upwork Basic, Plus, and Enterprise
offerings. We generate marketplace revenue from both talent and clients. Revenue
from our Upwork Basic and Plus offerings are primarily comprised of talent
service fees, and to a lesser extent, payment processing and administration fees
charged to clients. Revenue from our Upwork Enterprise offering, which we refer
to as Enterprise Revenue, includes all client fees, subscriptions, and talent
service fees. We also generate marketplace revenue from fees for premium
offerings associated with our Upwork Basic, Plus, and Enterprise offerings,
including talent memberships, purchases of Connects, and other services, such as
foreign currency exchange when clients choose to pay in currencies other than
the U.S. dollar, and our Upwork Payroll offering.

In April 2022, we will be combining our Upwork Basic and Plus client offerings
into our new Client Marketplace Plan, which simplifies our client pricing model
for non-Enterprise clients. This model makes available the most popular features
of the current Upwork Plus offering, while eliminating the monthly client
subscription fees and moving to a client marketplace fee of 5% on each
transaction-or 3% if paid via ACH for eligible clients.

Market acceptance rate

Marketplace take rate measures the correlation between marketplace revenue and
marketplace GSV and is calculated by dividing marketplace revenue by marketplace
GSV. 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 Upwork
Basic, Plus, Enterprise, Payroll, and other premium offerings, which we refer to
as our marketplace offerings.

Non-GAAP Financial Measures

In addition to our results determined in accordance with WE 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; interest expense; other
(income) expense, net; income tax (benefit) provision; and, if applicable, other
non-cash transactions. Additionally, in response to Russia's invasion of
Ukraine, during the three months ended March 31, 2022, we incurred certain
incremental expenses

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associated with our humanitarian response efforts, and we may continue to incur
such expenses as the war continues to unfold. These expenses are not
representative of our ongoing operations, and, as a result, we excluded these
costs from adjusted EBITDA for the three months ended March 31, 2022 and, to the
extent we continue to incur these expenses, intend to continue to do so in
future periods. Adjusted EBITDA is not prepared in accordance with, and is not
an alternative to, financial measures prepared in accordance with U.S. GAAP.

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

                                                    Three Months Ended
                                                        March 31,
(In thousands)                                      2022           2021
Net Loss                                        $  (24,738)     $ (7,835)
Add back (deduct):
Stock-based compensation expense                    16,735        11,226
Depreciation and amortization                        2,009         3,194
Interest expense                                     1,125           199
Other income, net                                      (68)          (78)
Income tax provision                                    29            17
Tides Foundation common stock warrant expense          188           188

Humanitarian response efforts                        4,287             -
Adjusted EBITDA                                 $     (433)     $  6,911


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; interest expense; other
(income) expense, net; income tax (benefit) provision; and, if applicable, other
non-cash transactions that 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 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 charges are non-cash charges, depreciated assets may need to be replaced in the future, and Adjusted EBITDA will not

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reflect cash capital expenditure requirements for these 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.

Due to these and other limitations, you should consider Adjusted EBITDA along with other measures of financial performance, including net loss and our other financial results prepared in accordance with WE GAAP.

Components of our operating results

Marketplace revenue

Marketplace revenue represents the majority of our revenue and is generated by our marketplace offerings. Within these market offerings, we generate revenue from both talent and customers.

In April 2022, we will be combining our Upwork Basic and Plus client offerings
into our new Client Marketplace Plan, which simplifies our client pricing model
for non-Enterprise clients. This model makes available the most popular features
of the current Upwork Plus offering, while eliminating the monthly client
subscription fees and moving to a client marketplace fee of 5% on each
transaction-or 3% if paid via ACH for eligible clients.

Managed Services Revenue

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. 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 offerings.

Revenue cost

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, 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.

Research and development

Research and development expense primarily consists of personnel-related costs
and third-party hosting costs related to development. 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

Selling and marketing expenses primarily include expenses related to personnel costs, including sales commissions, which we expense as incurred, and advertising and marketing activities.

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General and administrative

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

Provision for losses on transactions

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.

Interest charges

Interest expense includes interest on our outstanding borrowings.

Other (income) Expenses, net

Other (income) expense, net, primarily includes foreign exchange gains and losses and interest income that we derive from our deposits in money market funds and our investments in marketable securities.

Operating results

The following table sets forth our condensed consolidated results of operations
for the periods presented:

                                       Three Months Ended
                                           March 31,
(In thousands)                        2022           2021
Revenue
Marketplace                        $ 129,425      $ 104,670
Managed services                      11,912          8,949
Total revenue                        141,337        113,619
Cost of revenue(1)                    37,916         30,441
Gross profit                         103,421         83,178
Operating expenses
Research and development(1)           38,161         26,613
Sales and marketing(1)                57,642         39,604
General and administrative(1)         29,141         23,531
Provision for transaction losses       2,129          1,127
Total operating expenses             127,073         90,875
Loss from operations                 (23,652)        (7,697)
Interest expense                       1,125            199
Other income, net                        (68)           (78)
Loss before income taxes             (24,709)        (7,818)
Income tax provision                     (29)           (17)
Net loss                           $ (24,738)     $  (7,835)


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(1) Includes stock-based compensation expense as follows:

                                     Three Months Ended
                                         March 31,
(In thousands)                       2022           2021
Cost of revenue                  $      239      $    201
Research and development              5,615         3,297
Sales and marketing                   2,265         1,278
General and administrative            8,616         6,450

Total stock-based compensation $16,735 $11,226

Comparison of the three months ended March 31, 2022 and 2021

Revenue

                                                   Three Months Ended March 

31,

(In thousands, except percentages)         2022            2021               Change
Marketplace                            $ 129,425       $ 104,670       $ 24,755        24  %
Percentage of total revenue                   92  %           92  %
Managed services                          11,912           8,949          2,963        33  %
Percentage of total revenue                    8  %            8  %
Total revenue                          $ 141,337       $ 113,619       $ 27,718        24  %


In the first quarter of 2022, we continued to execute on our strategic
initiatives, including investing in research and development to build new
product features, prioritizing our advertising efforts to reach new and existing
clients seeking to engage independent talent, and investing in marketing to
accelerate the acquisition of new clients and drive brand awareness. As a
result, the number of active clients increased 16% as of March 31, 2022 compared
to the same period in 2021. We believe that the decline in the year-over-year
growth rate of active clients since the second quarter of 2021-when it reached
the highest level since our initial public offering-is in large part due to the
lapping of prior periods during which we experienced an acceleration of active
client growth as a result of the COVID-19 pandemic. As a result, in the coming
quarters, we expect the growth rate of active clients to return closer to
pre-pandemic levels. Additionally, our GSV per active client increased 18% as of
March 31, 2022, compared to the same period in 2021, driven by increased spend
from existing clients. The growth in active clients and GSV per active client
contributed to the growth of GSV and marketplace revenue. For the three months
ended March 31, 2022, GSV increased 27%, as compared to the same period in 2021.
Marketplace revenue was driven by client spend, which for the three months ended
March 31, 2022, drove increases in talent service fees of 22%, as compared to
the same period in 2021, and client payment processing and administrative fees
of 28%, as compared to the same period in 2021.

Additionally, during the three months ended March 31, 2022, we continued our
efforts to better address large enterprise and other clients and prospects with
larger, longer-term independent talent needs through our Upwork Enterprise and
other premium offerings. As a result, Enterprise Revenue increased 55% to $10.8
million, which fueled marketplace revenue for the three months ended March 31,
2022. Marketplace revenue represented 92% of total revenue and increased by
$24.8 million, or 24%, compared to the same period in 2021. Marketplace revenue
grew more slowly than GSV from our marketplace offerings in the first quarter of
2022, and for the three months ended March 31, 2022, our marketplace take rate
was 13.1%, as compared to 13.5% for the same period in 2021. This trend was
primarily a result of existing clients maturing into higher value clients and
continuing to increase their spend with particular talent, which resulted in a
higher mix of talent at the lower rates of our tiered service fee structure,
partially offset by increases in marketplace take rate from increased activity
related to our Upwork Enterprise offering.

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In March 2022, we announced the suspension of business operations in Russia and
Belarus, with contracts with talent or clients in Russia or Belarus required to
wind down by May 1, 2022. The first step was shutting down support for new
business generation in each country. Shortly following the announcement, talent
and clients in Russia and Belarus were no longer able to sign up for new
accounts, initiate new contracts, or be visible in search on our work
marketplace. Contracts with talent or clients in Russia or Belarus that were in
place as of the date of the announcement are allowed to remain open until May 1,
2022.

Approximately 10% of our total revenue in 2021 was derived from work where
either the talent or the client was located in the region. Nearly all such
revenue was derived from work performed by talent inside the region for clients
located in other parts of the world. At the beginning of the invasion in late
February 2022, we experienced immediate reductions in activity from talent
across the entire region, but since that initial impact, we have seen activity
from users in Ukraine rebound to almost pre-war levels. During the three months
ended March 31, 2022, we estimate that the loss of revenue resulting from
Russia's invasion of Ukraine and our resulting suspension of business operations
in Russia and Belarus was approximately $1.0 million. We expect to see a larger
impact to revenue in the second quarter due to the winding down of all contracts
with talent and clients in Russia and Belarus by May 1, 2022 and also because
all three months of the quarter will be affected by Russia's invasion of
Ukraine.

Additionally, while approximately 25% of client spend from our web, mobile, and
software development category in 2021 was derived from work where either the
talent or the client was located in the region, thus far, we have not
experienced a material impact to client spend from, or other activity levels
related to, this category. Given the complex nature of our business and
two-sided nature of our work marketplace, and with talent on our work
marketplace located in over 180 countries, we are monitoring the impact on
client spend from clients that have historically engaged talent in the impacted
region and the extent to which those clients engage talent in other regions. As
users in Russia and Belarus are able to relocate to regions where we operate, we
will be eager to support them in continuing their work on our work marketplace.

Although the Russian war against Ukraine did not have a material adverse impact
on our revenue or other financial results for the three months ended March 31,
2022, at this time we are unable to fully assess the aggregate impact it will
have on our business in future periods due to various uncertainties, which
include, but are not limited to, the duration of the war, the ability of talent
based in Ukraine to continue working, the war's effect on the economy, its
impact to the businesses of our clients, actions that may be taken by
governmental authorities related to the war, and other factors identified in
Part II, Item 1A, "Risk Factors" in this Quarterly Report, including the risk
factor titled "Russia's invasion of Ukraine and our decision to suspend our
business operations in Russia and Belarus have affected and may continue to
affect our business and results of operations."

Additionally, in April 2022, we will be combining our Upwork Basic and Plus
client offerings into our new Client Marketplace Plan, which simplifies our
client pricing model for non-Enterprise clients. This model makes available the
most popular features of the current Upwork Plus offering, while eliminating the
monthly client subscription fees and moving to a client marketplace fee of 5% on
each transaction-or 3% if paid via ACH for eligible clients. As a result of
these client fee increases, we expect marketplace revenue and marketplace take
rate to increase in future periods.

For the three months ended March 31, 2022, managed services revenue grew at a
faster rate than our marketplace revenue as a result of increased spend from
existing clients of our managed services offering.

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Revenue Cost and Gross Margin

                                                                      Three Months Ended March 31,
(In thousands, except percentages)                       2022               2021                    Change
Cost of revenue                                      $   37,916          $ 30,441          $ 7,475             25  %
Components of cost of revenue:
Cost of talent services to deliver managed services       8,959             7,208            1,751             24  %
Other components of cost of revenue                      28,957            23,233            5,724             25  %
Total gross margin                                           73  %             73  %


For the three months ended March 31, 2022, cost of revenue increased primarily
as a result of increases in payment processing fees of $5.2 million, as compared
to the same period in 2021, primarily due to increased client spend, as well as
increases in cost of talent services to deliver managed services resulting from
increases in managed services revenue for the three months ended March 31, 2022,
as compared to the same period in 2021.

We expect cost of revenue to increase in absolute dollars in future periods as
we continue to support growth 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. Additionally, we will be
combining our Upwork Basic and Plus client offerings into our new Client
Marketplace Plan, which simplifies our client pricing model for non-Enterprise
clients. This model eliminates the monthly client subscription fees and moves to
a client marketplace fee of 5% on each transaction-or 3% if paid via ACH for
eligible clients. We expect this change in pricing structure to positively
impact gross margin in future periods. While we expect gross profit to increase
in absolute dollars in future periods, because our managed services revenue and
marketplace revenue grow at different rates, gross margin, expressed as a
percentage of total revenue, may vary from period to period.

Research and development

                                                   Three Months Ended March 

31,

(In thousands, except percentages)         2022           2021               Change
Research and development               $  38,161       $ 26,613       $ 11,548        43  %
Percentage of total revenue                   27  %          23  %


For the three months ended March 31, 2022, research and development expense
increased primarily due to our ongoing investments to build new product
features, launch new offerings, and enhance the user experience. Specifically,
investments we made to increase the size of our research and development
workforce resulted in increases in personnel-related costs of $7.8 million, as
compared to the same period in 2021, as well as increases in software licenses
of $1.2 million. Additionally, for the three months ended March 31, 2022, we
incurred approximately $2.7 million of research and development expense related
to our humanitarian response efforts related to the war against Ukraine.

We believe continued investments in research and development are important to
attain our strategic objectives, and we expect research and development expense
to increase in absolute dollars in future periods, although this expense,
expressed as a percentage of total revenue, may vary from period to period.

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Sales and Marketing

                                                   Three Months Ended March 

31,

(In thousands, except percentages)         2022           2021               Change
Sales and marketing                    $  57,642       $ 39,604       $ 18,038        46  %
Percentage of total revenue                   41  %          35  %


For the three months ended March 31, 2022, sales and marketing expense increased
primarily due to increases in marketing and brand awareness campaigns of $11.7
million, as compared to the same period in 2021, as well as increases in
personnel-related costs of $5.2 million. Additionally, for the three months
ended March 31, 2022, we incurred approximately $0.3 million of sales and
marketing expense related to our humanitarian response efforts related to the
war against Ukraine.

In an effort to continue evolving our offerings, products, brand positioning,
and marketing to better address large enterprise and other clients and prospects
with larger, longer-term independent talent needs, during the three months ended
March 31, 2022, we continued our investments in marketing to acquire new clients
and drive brand awareness, and we expect to continue these investments
throughout 2022. Beginning in the fourth quarter of 2021, we increased our
investment in sales by expanding our sales team, and we expect this investment
to continue throughout 2022 as we increase our efforts to acquire clients for
our Upwork Enterprise offering. As a result, we expect this expense to increase
in absolute dollars in future periods, although this expense expressed as a
percentage of total revenue may vary from period to period.

General and administrative

                                                   Three Months Ended March 

31,

(In thousands, except percentages)         2022            2021               Change
General and administrative             $   29,141       $ 23,531       $ 5,610        24  %
Percentage of total revenue                    21  %          21  %


For the three months ended March 31, 2022, general and administrative expense
increased primarily due to increases in personnel-related costs of $4.2 million,
as compared to the same period in 2021, primarily because of increased
stock-based compensation expense related to executive compensation arrangements.
Additionally, for the three months ended March 31, 2022, we incurred
approximately $1.3 million of general and administrative expense related to our
humanitarian response efforts and charitable donations related to the war
against Ukraine.

To achieve our strategic objectives, we expect to continue to invest in
corporate infrastructure. Additionally, in 2020 we shifted to a flexible work
model for our workforce and are evaluating our current need for office space. As
a result, we may determine to either close or sublease certain of our other
offices, either of which could result in further impairment charges being
recognized in general and administrative expense.

Provision for losses on transactions

                                                    Three Months Ended March 31,
(In thousands, except percentages)         2022                2021         

Switch

Provision for transaction losses       $   2,129            $ 1,127       $ 1,002        89  %
Percentage of total revenue                    2   %              1  %


For the three months ended March 31, 2022, provision for transaction losses
increased, as compared to the same period in 2021, due to higher chargeback
losses and represented 2% of total revenue. We expect provision for transaction
losses to approximate historical levels of 1% to 2% of revenue and to increase
proportionally as GSV grows.

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Interest expense and other income, net

                                                     Three Months Ended March 31,
(In thousands, except percentages)               2022               2021            Change
Interest expense                       $      1,125                $ 199      $ 926       465  %
Other income, net                               (68)                 (78)        10       (13) %


For the three months ended March 31, 2022, interest expense increased as a
result of the $575.0 million aggregate principal amount of 0.25% convertible
senior notes due 2026 that we issued in a private offering in August 2021, which
we refer to as the Notes. See "Note 7-Debt" of the notes to our condensed
consolidated financial statements included elsewhere in this Quarterly Report
for additional information.

Cash and capital resources

Our principal sources of liquidity are our cash and cash equivalents and
marketable securities, including the net proceeds from the sale of the Notes.
Our cash equivalents and marketable securities primarily consist of money market
funds, commercial paper, treasury bills, corporate bonds, U.S. government
securities, asset-backed securities, and Yankee bonds. As of March 31, 2022 and
December 31, 2021, we had $121.2 million and $187.2 million in cash and cash
equivalents, respectively. As of March 31, 2022 and December 31, 2021, we had
$551.8 million and $497.6 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 users, 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 and our ability to obtain equity or debt financing. Our
principal commitments consist of obligations under our non-cancellable operating
leases for office space and the Notes. There were no material changes to these
principal commitments from those disclosed in our Annual Report on Form 10-K for
the year ended December 31, 2021. For additional information about our Notes,
see the section titled "-Convertible Senior Notes Due 2026."

We anticipate satisfying our short-term cash requirements with our existing cash
and cash equivalents and may satisfy our long-term cash requirements with cash
and cash equivalents on hand or with proceeds from a future 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 in the third quarter of
2021. 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, 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.

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We also believe that our principal sources of liquidity will allow us to manage
the impact of the COVID-19 pandemic, as well as the impact of Russia's invasion
of Ukraine and our decision to suspend our business operations in Russia and
Belarus, on our business operations for the foreseeable future, which could
include reductions in revenue and delays in payments from users, as further
described below in Part II, Item 1A, "Risk Factors" in this Quarterly Report,
see the risk factors titled "Risk Factors-Our business experienced, and may
again experience, an adverse impact from the ongoing COVID-19 pandemic,
including as new variants of COVID-19 emerge. In addition, the positive impacts
on our business resulting from the shift to remote work during the pandemic may
not continue as the pandemic subsides and the restrictions intended to prevent
its spread are relaxed or lifted" and "Russia's invasion of Ukraine and our
decision to suspend our business operations in Russia and Belarus have affected
and may continue to affect our business and results of operations." The
challenges posed by the ongoing COVID-19 pandemic and ongoing Russian war
against Ukraine on our business are expected to continue to evolve.
Consequently, we will continue to evaluate our financial position in light of
future developments.

We did not have during the periods presented, 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.

Escrow Funding Requirements

As a licensed internet escrow agent, we offer escrow services to users of our
work marketplace and, as such, we are required to hold our users' 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 grow as GSV grows and may vary from period
to period. Escrow regulations require us to fund the trust with our operating
cash to cover 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 fund the shortage of cash in trust with
our own operating cash and typically collect this cash shortage from clients
within the next several days. As a result, we expect our total cash and cash
flows from operating activities to be impacted when a quarter ends on a Sunday.
As of March 31, 2022 and December 31, 2021, funds held in escrow were $196.4
million and $160.8 million, respectively.

Senior convertible bonds due 2026

In August 2021we have issued the Notes pursuant to an indenture between us and
Wells Fargo Bank, National Associationas Trustee, which we call the Trust Deed.

The Notes are senior, unsecured obligations and will 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. The net proceeds from the issuance of the Notes were approximately $560.1
million, after deducting debt issuance costs. We used approximately $49.4
million of the net proceeds from the Notes offering to pay the cost of the
Capped Calls (as defined below). We intend to use the remainder of the net
proceeds from the offering for general corporate purposes, including marketing,
brand awareness and sales, and which may include working capital, capital
expenditures, and investments in and acquisitions of other companies, products
or technologies that we may identify in the future.

Capped calls

In connection with the issuance of the Notes, we entered into capped buy transactions, which we refer to as capped calls. Capped call options are generally expected to reduce the potential dilution of our common stock upon any conversion of the Notes and/or offset any cash payment we are required to pay.

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make in excess of the principal amount of the Converted Notes, as the case may be, with such reduction and/or compensation 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 7-Debt" of the notes to our condensed consolidated financial
statements included elsewhere in this Quarterly Report for additional
information regarding the Notes and the Capped Calls.

Cash flow

The following table summarizes our cash flows for the periods presented:

                                                                           Three Months Ended
                                                                               March 31,
(In thousands)                                                         2022                  2021
Net cash provided by (used in) operating activities              $     (11,476)         $      1,876
Net cash provided by (used in) investing activities                    (55,043)                7,656
Net cash provided by financing activities                               36,054                27,064
Net change in cash, cash equivalents, and restricted cash(1)     $     (30,465)         $     36,596
(1) Includes increases in funds held in escrow, including funds in transit of $35.6 million and $26.4
million during the three months ended March 31, 2022 and 2021, respectively.


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, marketing activities, including advertising,
payment processing fees, amounts paid to talent to deliver services for clients
under our managed services offering, and third-party hosting costs. In addition,
because we are licensed as an internet escrow agent, our total cash and cash
provided by (used in) operating activities may be impacted by the timing of the
end of our fiscal quarter as discussed in the section titled "-Liquidity and
Capital Resources-Escrow Funding Requirements."

For the three months ended March 31, 2022, net cash used in operating activities
was $11.5 million, which resulted from a net loss of $24.7 million and net cash
outflows of $9.6 million from changes in operating assets and liabilities,
partially offset by non-cash charges of $22.9 million. The change in operating
assets and liabilities primarily resulted from the decrease in accrued expenses
and other current liabilities due to the timing of payments made during the
three months ended March 31, 2022, as well as $4.3 million of expenses
associated with our humanitarian response efforts related to the war against
Ukraine.

For the three months ended March 31, 2021net cash provided by operating activities was $1.9 millionwhich resulted from non-cash charges of $16.4 millionoffset by a net loss of $7.8 million and the net cash outflows of $6.7 million changes in operating assets and liabilities. The change in operating assets and liabilities is mainly due to the increase in trade and customer receivables from $5.6 million.

Investing activities

For the three months ended March 31, 2022, net cash used in investing activities
was $55.0 million, which was primarily a result of investing $160.3 million in
various marketable securities, as well as $1.2 million of internal-use software
and platform development costs that we paid during the period, partially offset
by proceeds from maturities of marketable securities of $106.6 million.

For the three months ended March 31, 2021, net cash provided by investing
activities was $7.7 million, which was primarily a result of proceeds from
maturities of marketable securities of $31.0 million, offset by investing $21.0
million in various marketable securities, as well as $2.3 million of
internal-use software and platform development costs that we paid during the
period.

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Fundraising activities

For the three months ended March 31, 2022net cash provided by financing activities was $36.1 millionwhich resulted mainly from an increase in blocked funds to be paid from $35.6 million and cash received from the exercise of stock options of $0.5 million.

For the three months ended March 31, 2021net cash provided by financing activities was $27.1 millionwhich resulted mainly from an increase in blocked funds to be paid from $26.4 million and cash received from the exercise of stock options of $2.6 millionpartially offset by loan repayments on the debt of $1.9 million.

Significant Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with
U.S. GAAP. The preparation of the condensed 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.

An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, if different estimates reasonably could have
been used, or if changes in the estimate that are reasonably possible could
materially impact the financial statements.

Unless otherwise indicated in “Note 2 – Basis of presentation and summary of significant accounting policies” of the notes to our condensed consolidated financial statements included elsewhere in this quarterly report and in the “Management’s report and analysis of the financial position and results of operations”, there have been no material changes in our critical accounting policies and estimates from the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended
December 31, 2021what we call our annual report.

Recent accounting pronouncements

See “Note 2 – Basis of presentation and summary of significant accounting policies” in the notes to our condensed consolidated financial statements included elsewhere in this quarterly report for recently issued accounting pronouncements that have not yet been adopted as of the date of this quarterly report.

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