Upwork Inc.
11/04/2025 | Press release | Distributed by Public on 11/04/2025 15:43
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
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 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.
Overview
Upwork Inc., through its complementary, wholly owned subsidiaries, connects businesses with global, AI-enabled talent across every on-demand work type, including freelance, fractional, and payrolled. Our portfolio of platforms and other workforce solutions includes the Upwork Marketplace, the world's human and AI-powered marketplace that connects businesses with on-demand access to highly skilled independent talent worldwide, and Lifted, our wholly owned subsidiary that provides a purpose-built solution for enterprise organizations to source, contract, manage, and pay talent across the full spectrum of contingent work.
Our customers consist of both talent and clients. We define talent as those who deliver services on either the Upwork Marketplace or Lifted platforms or our other workforce solutions. We define clients as customers that seek and engage with talent through the Upwork Marketplace or Lifted platforms or our other workforce solutions. Talent includes independent professionals and agencies of varying sizes, while clients range from small businesses and entrepreneurs to large enterprises, including Fortune 100 companies.
We measure economic activity across our portfolio of platforms and other workforce solutions using Gross Services Volume, which we refer to as GSV. GSV represents the total dollar value transacted through all Upwork platforms and other workforce solutions, including client spend for talent services, as well as other client and talent value-added services, such as AI-based solutions, purchases of Connects, payment processing, memberships, and currency services.
Financial Highlights
Over the past several years, we have continued to execute on our strategic initiatives designed to drive sustainable growth and profitability, and improve operational efficiency. These initiatives centered around four key growth drivers: (i) enhancing monetization and the supply and demand characteristics of the Upwork Marketplace with new ads products and other offerings, enhancing existing offerings, and optimizing our Connects pricing model; (ii) expanding our Enterprise offerings through enhanced solutions and strategic partnerships that enable us to serve a broader range of client segments and deliver end-to-end contingent workforce solutions through Lifted; (iii) expanding our small and medium-sized business, or SMB, offerings and support through tailored solutions such as Business Plus, and (iv) advancing our AI capabilities and AI-native experiences, including through Uma™, our proprietary AI assistant, and other AI-driven features that enhance productivity for talent and clients across the Upwork Marketplace.
The execution of these initiatives delivered measurable financial benefits across our business. These strategic initiatives contributed to Marketplace take rate expansion and revenue growth in the three and nine months ended September 30, 2025.
Marketplace revenue increased to $174.6 million, or 4%, and $511.5 million, or 3%, for the three and nine months ended September 30, 2025, respectively, as compared to $167.3 million and $498.5 million in the same periods in 2024, respectively.
Marketplace take rate increased to 18.9% and 18.6% for the three and nine months ended September 30, 2025, respectively, as compared to 18.3% and 18.0% in the same periods in 2024, respectively, reflecting
the growing contributions from ads and monetization products. We expect Marketplace take rate to remain relatively constant throughout the remainder of 2025.
Enterprise revenue increased to $27.2 million, or 3%, for the three months ended September 30, 2025, as compared to $26.4 million in the same period in 2024. Enterprise revenue decreased to $77.9 million, or 2%. for the nine months ended September 30, 2025, as compared to $79.4 million in the same period in 2024. Unless otherwise indicated, Enterprise results discussed herein include the results of Ascen and Bubty following the date that each was acquired by Lifted.
During the three months ended September 30, 2025, we generated net income of $29.3 million and adjusted EBITDA of $59.6 million, compared to net income of $27.8 million and adjusted EBITDA of $43.2 million during the same period in 2024. During the nine months ended September 30, 2025, we generated net income of $99.8 million and adjusted EBITDA of $172.7 million, as compared to net income of $68.4 million and adjusted EBITDA of $117.4 million during the same period in 2024. These changes are primarily due to cost-saving measures implemented in recent years, including reduced investments in brand marketing and vendor spend and workforce reductions. We expect these cost-saving measures will continue to positively impact net income and adjusted EBITDA throughout the remainder of 2025, as compared to 2024.
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, information regarding our use of adjusted EBITDA, and a reconciliation of adjusted EBITDA to net income, the most directly comparable financial measure prepared under U.S. GAAP.
Recent Developments
In August 2025, Lifted completed the acquisition of Ascen, acquiring 100% of Ascen's outstanding equity for a total purchase price of $42.2 million. For additional information, see "Note 6-Business Combination" of the notes to our consolidated financial statements included elsewhere in this Quarterly 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. As of and for the three and nine months ended September 30, 2025 and 2024, our key financial and operating metrics were as follows:
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Three Months Ended September 30, |
Change
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Nine Months Ended September 30, |
Change
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(In thousands, except percentages and basis points)
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2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| GSV | $ | 1,017,680 | $ | 998,268 | 2 | % | $ | 3,008,054 | $ | 3,015,331 | - | % | |||||||||||||||||||||||
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Marketplace revenue
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$ | 174,572 | $ | 167,337 | 4 | % | $ | 511,525 | $ | 498,453 | 3 | % | |||||||||||||||||||||||
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Marketplace take rate
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18.9 | % | 18.3 | % | 63 bps | 18.6 | % | 18.0 | % | 60 bps | |||||||||||||||||||||||||
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Net income
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$ | 29,335 | $ | 27,758 | 6 | % | $ | 99,791 | $ | 68,420 | 46 | % | |||||||||||||||||||||||
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Adjusted EBITDA(1)
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$ | 59,627 | $ | 43,227 | 38 | % | $ | 172,699 | $ | 117,387 | 47 | % | |||||||||||||||||||||||
(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, the most directly comparable financial measure prepared under U.S. GAAP.
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As of September 30,
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% Change | ||||||||||||||||
| (Active clients are in thousands) | 2025 | 2024 | |||||||||||||||
| Active clients | 794 | 855 | (7) | % | |||||||||||||
| GSV per active client | $ | 5,036 | $ | 4,781 | 5 | % | |||||||||||
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 lines of business or products, pricing changes, and other monetization efforts; and ongoing efforts to improve processes on the Upwork 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" in Part II, Item 1A of this Quarterly Report.
Gross Services Volume (GSV)
GSV represents the total dollar value transacted through all Upwork platforms and other workforce solutions. The primary component of GSV is client spend, which we define as the total dollar amount that clients spend for talent services through such platforms and other workforce solutions. GSV also includes other client and talent value-added services, such as AI-based services, purchases of Connects, payment processing, memberships, and currency services.
Growth in the number of active clients and GSV per active client are the primary drivers of GSV.
In the third quarter of 2025, we refined our definition of GSV to better align with the continued evolution of our business model and service offerings, including as a result of Lifted's acquisitions of Bubty and Ascen. This change does not impact previously reported GSV amounts or affect the comparability of GSV across periods, and no historical periods have been recast.
Marketplace Revenue
Marketplace revenue represents the revenue derived from the Upwork Marketplace and is the primary driver of our business. We believe marketplace revenue provides comparability to other online marketplaces. 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 the Upwork Marketplace, and to a lesser extent, client marketplace fees. We also generate Marketplace 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, which is included in Marketplace revenue.
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 the Upwork Marketplace. Marketplace take rate is an important metric because it is the key indicator of how well we monetize spend on the Upwork Marketplace.
Active Clients and GSV per Active Client
We define an active client as a client that has had spend activity on any Upwork platform or other workforce solution 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 driver of GSV and, in turn, Marketplace revenue.
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 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. 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 income, the most directly comparable financial measure prepared in accordance with U.S. GAAP, to adjusted EBITDA for each of the periods indicated:
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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| (In thousands) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
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Net income
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$ | 29,335 | $ | 27,758 | $ | 99,791 | $ | 68,420 | |||||||||||||||
| Add back (deduct): | |||||||||||||||||||||||
| Stock-based compensation expense | 19,789 | 18,578 | 48,038 | 54,758 | |||||||||||||||||||
| Depreciation and amortization | 7,946 | 3,668 | 18,686 | 10,443 | |||||||||||||||||||
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Other income, net
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(5,917) | (8,091) | (18,112) | (20,433) | |||||||||||||||||||
| Income tax provision | 6,340 | 1,126 | 19,334 | 3,636 | |||||||||||||||||||
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Other (1)(2)
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2,134 | 188 | 4,962 | 563 | |||||||||||||||||||
| Adjusted EBITDA | $ | 59,627 | $ | 43,227 | $ | 172,699 | $ | 117,387 | |||||||||||||||
(1) For the three and nine months ended September 30, 2025 and 2024, we incurred $0.2 million and $0.6 million, respectively, 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.
(2) For the three and nine months ended September 30, 2025, we incurred acquisition-related costs of $1.9 million and $4.4 million, respectively, in connection with business combinations. These costs primarily consist of legal, accounting, and other professional fees, and are recorded in general and administrative expenses in the condensed consolidated statements of operations. Beginning in the second quarter of 2025, we included acquisition-related costs as an add-back to net income in the reconciliation to adjusted EBITDA. Acquisition-related costs incurred in prior periods were deemed immaterial and therefore not included as an add-back to adjusted EBITDA.
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 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; (c) tax payments that may represent a reduction in cash available to us; or (d) material acquisition-related deal costs, 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 and our other financial performance measures prepared in accordance with U.S. GAAP.
Components of Our Results of Operations
Revenue
Marketplace Revenue. Marketplace revenue represents the revenue derived from the Upwork Marketplace and is primarily generated from talent service fees, and to a lesser extent, client marketplace fees. Effective May 2025, we introduced a variable pricing structure for talent service fees for new contracts. Under this variable pricing structure, talent on the Upwork Marketplace are charged a fixed fee for each contract ranging from 0% to 15% of their earnings, depending on platform-specific supply and demand factors, such as project type, job availability, and client demand. The applicable fee is disclosed at contract inception and remains fixed for the duration of the contract. For contracts formed prior to May 2025, we maintain a flat talent service fee of 10% for talent working with clients on the Upwork Marketplace.
Revenue for a majority of our talent service fees on the Upwork Marketplace 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
offer a Business Plus plan that includes premium features targeted at larger customers, which is subject to a client marketplace fee of 10% on each transaction-or 8% if paid via ACH for eligible clients.
We also generate marketplace 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 primary lines of service-Enterprise Solutions and Managed Services.
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 Upwork Marketplace to engage talent that were not originally sourced through our Upwork 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 Amazon Web Services, 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 Provision
Income tax provision consists primarily of U.S. federal and state income taxes. We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.
Results of Operations
The following table sets forth our condensed consolidated results of operations for the periods presented:
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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| (In thousands) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
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Marketplace
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$ | 174,572 | $ | 167,337 | $ | 511,525 | $ | 498,453 | |||||||||||||||
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Enterprise
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27,158 | 26,439 | 77,850 | 79,389 | |||||||||||||||||||
| Total revenue | 201,730 | 193,776 | 589,375 | 577,842 | |||||||||||||||||||
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Cost of revenue (1)
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45,843 | 43,408 | 131,081 | 131,453 | |||||||||||||||||||
| Gross profit | 155,887 | 150,368 | 458,294 | 446,389 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
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Research and development (1)
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47,494 | 50,411 | 138,489 | 155,792 | |||||||||||||||||||
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Sales and marketing (1)
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34,985 | 46,093 | 107,407 | 141,277 | |||||||||||||||||||
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General and administrative (1)
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41,257 | 31,276 | 104,964 | 93,201 | |||||||||||||||||||
| Provision for transaction losses | 2,393 | 1,795 | 6,421 | 4,496 | |||||||||||||||||||
| Total operating expenses | 126,129 | 129,575 | 357,281 | 394,766 | |||||||||||||||||||
| Income from operations | 29,758 | 20,793 | 101,013 | 51,623 | |||||||||||||||||||
| Other income, net | 5,917 | 8,091 | 18,112 | 20,433 | |||||||||||||||||||
| Income before income taxes | 35,675 | 28,884 | 119,125 | 72,056 | |||||||||||||||||||
| Income tax provision | (6,340) | (1,126) | (19,334) | (3,636) | |||||||||||||||||||
| Net income | $ | 29,335 | $ | 27,758 | $ | 99,791 | $ | 68,420 | |||||||||||||||
(1) Includes stock-based compensation expense as follows:
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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| (In thousands) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Cost of revenue | $ | 193 | $ | 361 | $ | 580 | $ | 1,324 | |||||||||||||||
| Research and development | 6,101 | 8,053 | 17,528 | 23,529 | |||||||||||||||||||
| Sales and marketing | 1,615 | 3,225 | 4,790 | 9,554 | |||||||||||||||||||
| General and administrative | 11,880 | 6,939 | 25,140 | 20,351 | |||||||||||||||||||
| Total stock-based compensation | $ | 19,789 | $ | 18,578 | $ | 48,038 | $ | 54,758 | |||||||||||||||
Comparison of the Three and Nine Months Ended September 30, 2025 and 2024
Revenue
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
|
Marketplace
|
$ | 174,572 | $ | 167,337 | $ | 7,235 | 4 | % | $ | 511,525 | $ | 498,453 | $ | 13,072 | 3 | % | |||||||||||||||||||||||||||||||
| Percentage of total revenue | 87 | % | 86 | % | 87 | % | 86 | % | |||||||||||||||||||||||||||||||||||||||
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Enterprise
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27,158 | 26,439 | 719 | 3 | % | 77,850 | 79,389 | (1,539) | (2) | % | |||||||||||||||||||||||||||||||||||||
| Percentage of total revenue | 13 | % | 14 | % | 13 | % | 14 | % | |||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 201,730 | $ | 193,776 | $ | 7,954 | 4 | % | $ | 589,375 | $ | 577,842 | $ | 11,533 | 2 | % | |||||||||||||||||||||||||||||||
During the three months ended September 30, 2025, GSV increased 2% compared to the same period in 2024. During the nine months ended September 30, 2025, GSV remained flat compared to the same period in 2024. The increase in GSV for the three months ended September 30, 2025 was primarily driven by AI-related customer experience improvements, Enterprise, and SMB products.
The number of active clients decreased 7% as of September 30, 2025, compared to September 30, 2024, driven by slower growth in acquisition of new clients. By contrast, GSV per active client increased 5% as of September 30, 2025, compared to September 30, 2024, reflecting increased client engagement.
For the three and nine months ended September 30, 2025, total revenue was $201.7 million and $589.4 million, representing a 4% and 2% increase compared to the same periods in 2024, respectively.
For the three months ended September 30, 2025, Marketplace revenue increased by $7.2 million, or 4%, compared to the same period in 2024. For the nine months ended September 30, 2025, Marketplace revenue increased by $13.1 million, or 3%, compared to the same period in 2024. These increases were primarily due to higher revenue from ads and monetization products and client marketplace fees and were partially offset by a decrease in talent service fees resulting from our 2023 transition from a tiered service fee structure to a flat fee model. We expect Marketplace revenue to increase for the remainder of 2025 compared to the same periods in 2024, driven by a number of strategic initiatives intended to improve monetization and support long-term growth.
For the three months ended September 30, 2025, Enterprise revenue increased by $0.7 million, or 3%, compared to the same period in 2024 primarily due to revenue generated by Ascen. For the nine months ended September 30, 2025, Enterprise revenue decreased by $1.5 million, or 2% compared to the same period in 2024 primarily driven by lower revenue from our Managed Services offering as a result of a reduction in client spend. During the nine months ended September 30, 2025, we focused on supporting existing Enterprise clients, which contributed to stable active account trends and improved year-over-year spend per active Enterprise client. As we continue to refine our Enterprise strategy and the transition of Enterprise clients to the Lifted platform, we expect Enterprise revenue to decline in the fourth quarter of
2025 compared to the same period in 2024. This decline reflects the intentional slower pace of sales as we prioritize integration and the repositioning of our Enterprise offerings in anticipation of onboarding our first customers onto the new Lifted platform by early 2026. However, progress on Lifted's integration and growing client demand are expected to position the Enterprise business for growth beginning in 2026.
Cost of Revenue and Gross Margin
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 45,843 | $ | 43,408 | $ | 2,435 | 6 | % | $ | 131,081 | $ | 131,453 | $ | (372) | - | % | |||||||||||||||||||||||||||||||
| Total gross margin | 77 | % | 78 | % | 78 | % | 77 | % | |||||||||||||||||||||||||||||||||||||||
For the three months ended September 30, 2025, cost of revenue increased by $2.4 million, or 6%, compared to the same period in 2024. The increase was primarily driven by a $1.9 million increase in the cost of talent services to deliver Managed Services revenue, and a $1.2 million increase in amortization expense related to internal-use software and platform development. These increases were partially offset by reductions in data center and customer support costs and lower costs associated with our Upwork Professional offering, reflecting hosting optimization efforts and workforce reductions.
For the nine months ended September 30, 2025, cost of revenue decreased slightly compared to the same period in 2024. The decrease was primarily due to reductions in data center and customer support costs totaling $3.4 million and lower costs associated with our Upwork Professional offering of $2.4 million, reflecting hosting optimization efforts and workforce reductions. These decreases were partially offset by a $3.1 million increase in cost to deliver our Managed Services offering, primarily due to contract termination costs triggered by a reduction in work volume under a client contract, and a $2.5 million increase in amortization expense related to internal-use software and platform development.
For the three months ended September 30, 2025, gross margin decreased to 77% compared to 78% in the same period in 2024, primarily driven by lower margins in the Company's Managed Services business and a decline in talent service fees, partially offset by growth in higher-margin Marketplace revenue components such as Connects and client marketplace fees.
For the nine months ended September 30, 2025, gross margin increased to 78% compared to 77% in the same period in 2024, primarily due to lower cost of revenue driven by cost-optimization efforts implemented in prior years, including workforce reductions and other cost-saving measures.
We expect cost of revenue to be higher in the fourth quarter of 2025 compared to the same period in 2024, primarily due to increased costs associated with Lifted's operations. On a full-year basis, total cost of revenue for 2025 is also expected to be higher than 2024, reflecting the impact of Lifted-related costs and higher amortization of capitalized internal-use software from continued investment in platform enhancements. 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 throughout the remainder of 2025.
Research and Development
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 47,494 | $ | 50,411 | $ | (2,917) | (6) | % | $ | 138,489 | $ | 155,792 | $ | (17,303) | (11) | % | |||||||||||||||||||||||||||||||
| Percentage of total revenue | 24 | % | 26 | % | 23 | % | 27 | % | |||||||||||||||||||||||||||||||||||||||
For the three and nine months ended September 30, 2025, research and development expense decreased by $2.9 million, or 6%, and $17.3 million, or 11%, respectively, compared to the same periods in 2024. These decreases were primarily driven by reductions in personnel-related costs of $5.0 million and $17.4 million, respectively, reflecting workforce reductions and other cost-saving measures implemented in 2024. In addition, we capitalized $1.6 million and $3.8 million of incremental internal-use software and platform development costs during the three and nine months ended September 30, 2025, respectively. These costs were partially offset by increases in amortization of intangible assets of $2.7 million and $4.5 million, respectively, compared to the same periods in 2024.
While we remain committed to ongoing innovation to further enhance our platform, building new features, with a focus on generative AI, we expect total research and development expenses to decrease throughout the remainder of 2025, compared to 2024.
Sales and Marketing
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 34,985 | $ | 46,093 | $ | (11,108) | (24) | % | $ | 107,407 | $ | 141,277 | $ | (33,870) | (24) | % | |||||||||||||||||||||||||||||||
| Percentage of total revenue | 17 | % | 24 | % | 18 | % | 24 | % | |||||||||||||||||||||||||||||||||||||||
For the three and nine months ended September 30, 2025, sales and marketing expense decreased by $11.1 million, or 24%, and $33.9 million, or 24%, respectively, compared to the same periods in 2024. These decreases were primarily driven by cost-optimization efforts implemented in the prior year, including the realignment and streamlining of our sales and marketing workforce. As a result, personnel-related costs decreased by $3.7 million and $24.1 million, respectively, and marketing and advertising expense decreased by $3.1 million and $7.9 million, respectively, compared to the same periods in 2024.
We expect sales and marketing expense to continue to decrease throughout the remainder of 2025 compared to 2024, primarily due to the ongoing impact of workforce-related changes and other cost-saving initiatives implemented in 2024.
General and Administrative
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 41,257 | $ | 31,276 | $ | 9,981 | 32 | % | $ | 104,964 | $ | 93,201 | $ | 11,763 | 13 | % | |||||||||||||||||||||||||||||||
| Percentage of total revenue | 20 | % | 16 | % | 18 | % | 16 | % | |||||||||||||||||||||||||||||||||||||||
For the three and nine months ended September 30, 2025, general and administrative expense increased by $10.0 million, or 32%, and $11.8 million, or 13%, respectively, compared to the same periods in 2024. The increases were primarily driven by higher personnel-related costs of $5.9 million and $7.0 million,
respectively, largely due to increased bonus expense based on 2025 financial performance, and higher consultant fees of $2.6 million and $3.0 million, primarily related to acquisition activities. In addition, for the nine months ended September 30, 2025, legal fees increased by $1.6 million compared to the same period in 2024 due to acquisition activities.
We expect general and administrative expenses to increase for the remainder of 2025 compared to 2024, primarily due to an increase in stock-based compensation.
Provision for Transaction Losses
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
| Provision for transaction losses | $ | 2,393 | $ | 1,795 | $ | 598 | 33 | % | $ | 6,421 | $ | 4,496 | $ | 1,925 | 43 | % | |||||||||||||||||||||||||||||||
| Percentage of total revenue | 1.2 | % | 0.9 | % | 1.1 | % | 0.8 | % | |||||||||||||||||||||||||||||||||||||||
For the three and nine months ended September 30, 2025, provision for transaction losses increased by $0.6 million and $1.9 million, respectively, compared to the same periods in 2024. The provision for each of the three and nine months ended September 30, 2024 was lower primarily due to better than expected collections during those periods. We expect provision for transaction losses to remain at a normalized level of approximately 1% of revenue for the remainder of 2025.
Other Income, Net
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
| Other income, net | $ | 5,917 | $ | 8,091 | $ | (2,174) | (27) | % | $ | 18,112 | $ | 20,433 | $ | (2,321) | (11) | % | |||||||||||||||||||||||||||||||
Other income, net, decreased by $2.2 million, or 27%, and $2.3 million, or 11%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The decreases were primarily due to lower unrealized foreign currency gains due to reduced exposure and lower interest income on cash and investment balances.
Income Tax Provision
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||||||||||
| Income tax provision | $ | (6,340) | $ | (1,126) | $ | 5,214 | 463 | % | $ | (19,334) | $ | (3,636) | $ | 15,698 | 432% | ||||||||||||||||||||||||||||||||
|
Effective tax rate
|
17.8 | % | 3.9 | % | 16.2 | % | 5.0 | % | |||||||||||||||||||||||||||||||||||||||
For the three and nine months ended September 30, 2025, our income tax provision increased by $5.2 million and $15.7 million, respectively, compared to the same periods in 2024. Our effective tax rates were 17.8% and 16.2% for the three and nine months ended September 30, 2025, respectively, compared to 3.9% and 5.0% for the same periods in 2024, respectively.
The increase in our effective tax rates for the three and nine months ended September 30, 2025, was primarily driven by the absence of a valuation allowance in the current periods, whereas the prior-year rates reflected lower tax expense due to the impact of a valuation allowance on our U.S. deferred tax assets.
Our income tax provision for the three and nine months ended September 30, 2025, was primarily driven by income in the United States and non-deductible compensation, partially offset by the generation of
research and development tax credits and the benefit from the Foreign-Derived Intangible Income deduction.
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 the provision of additional contingent workforce solutions through Lifted and its subsidiaries. We do not make investments for trading or speculative purposes. As of September 30, 2025 and December 31, 2024, we had $260.8 million and $305.8 million in cash and cash equivalents, respectively. As of September 30, 2025 and December 31, 2024, we had $382.3 million and $316.3 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. Further, as of September 30, 2025, our 0.25% convertible senior notes due 2026, which we refer to as the Notes, are classified as current liabilities since their maturity falls within 12 months of the balance sheet date, September 30, 2025. We continue to monitor conditions in the debt market and our overall liquidity position to support our capital needs and strategic objectives. As part of this ongoing assessment, we are evaluating refinancing options and other alternatives in advance of upcoming debt maturities.
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 platforms and other workforce solutions, the introduction of new lines of business, offerings, and services, the continuing market adoption of our offerings, 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 the 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, 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.
During the periods presented, we did not have, nor do we 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.
Notes
Assuming the outstanding Notes are not converted into our common stock, repurchased, or redeemed prior to maturity on August 15, 2026, (i) annual interest expense relating to the Notes will be $0.7 million for the remainder of fiscal year 2025 and $1.8 million in 2026 and (ii) principal in the amount of $361.0 million will be payable upon maturity. For additional information about our Notes, see the section below titled "-Convertible Senior Notes Due 2026 and Capped Calls."
Future Purchase Commitments for Cloud Infrastructure
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 September 30, 2025, we had remaining purchase commitments under this agreement of $14.0 million.
Operating Leases for Office Space
There were no material changes to our commitments under our lease agreements from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Share Repurchase Program
In October 2024, our board of directors authorized a share repurchase purchase program for the repurchase of up to $100.0 million of shares of our outstanding common stock, which we refer to as the 2024 Share Repurchase Authorization.
In September 2025, our board of directors authorized a share repurchase program for the repurchase of up to $100.0 million of shares of the Company's outstanding common stock, which we refer to as the 2025 Share Repurchase Authorization, and we refer to the 2025 Share Repurchase Authorization together with the 2024 Share Repurchase Authorization as the Share Repurchase Authorizations.
Repurchases of our common stock under the Share Repurchase Authorizations 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 Securities Exchange Act of 1934, as amended, which we refer to as 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 Share Repurchase Authorizations have no expiration date and will continue until otherwise suspended, terminated, or modified at any time for any reason. The Share Repurchase Authorizations do 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.
During the three and nine months ended September 30, 2025, we repurchased and subsequently retired 2.1 million and 7.3 million shares of our common stock for an aggregate amount of $31.0 million and $101.9 million at an average price of $14.75 and $13.87 per share, including fees associated with the repurchases and excluding excise tax, respectively, under the Share Repurchase Authorizations. As of September 30, 2025, we had $98.1 million available for repurchases under the 2025 Share Repurchase Authorization.
We repurchased $100.0 million of our common stock under the 2024 Share Repurchase Authorization between February 2025 and September 2025, and the program was fully utilized as of September 30, 2025.
We previously repurchased $100.0 million of our common stock pursuant to the share repurchase program authorized by our board of directors in November 2023, which we refer to as the 2023 Share Repurchase Authorization. The 2023 Share Repurchase Authorization was fully utilized as of December 31, 2024.
Escrow Funding Requirements
As a licensed internet escrow agent, we offer escrow services to customers 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 on the Upwork Marketplace 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 September 30, 2025 and December 31, 2024, funds held in escrow, including funds in transit, were $211.4 million and $195.7 million, respectively. We deposit a portion of funds held in escrow in interest-bearing checking accounts.
Convertible Senior Notes Due 2026 and Capped Calls
As of September 30, 2025 and 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 8-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 Flows
The following table summarizes our cash flows for the periods presented:
|
Nine Months Ended September 30, |
|||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
|
Net cash provided by operating activities(1)
|
$ | 184,558 | $ | 114,981 | |||||||
| Net cash (used in) provided by investing activities | (138,170) | 158,607 | |||||||||
|
Net cash used in financing activities(1)
|
(75,970) | (63,140) | |||||||||
|
Net change in cash, cash equivalents, and restricted cash (2)
|
$ | (29,582) | $ | 210,448 | |||||||
|
(1)The Company elected to change the presentation of certain cash flows on its condensed 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 "Note 2-Basis of Presentation and Summary of Significant Accounting Policies" of the notes to our condensed consolidated financial statement included elsewhere in this Quarterly Report.
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(2)Includes increases in funds held in escrow, including funds in transit of $23.0 million and $32.0 million during the nine months ended September 30, 2025 and 2024, respectively.
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Operating Activities
Our largest source of cash from operating activities is Marketplace revenue. 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.
For the nine months ended September 30, 2025, net cash provided by operating activities was $184.6 million, which resulted from net income of $99.8 million, non-cash adjustments of $68.8 million, and net cash inflows of $15.9 million from changes in operating assets and liabilities.
For the nine months ended September 30, 2024, net cash provided by operating activities was $115.0 million, which resulted from net income of $68.4 million and non-cash adjustments of $62.7 million, offset by net cash outflows of $16.1 million from changes in operating assets and liabilities.
Investing Activities
For the nine months ended September 30, 2025, net cash used in investing activities was $138.2 million, which was primarily a result of investing $365.9 million in various marketable securities, $59.8 million cash paid for the acquisitions of Bubty and Ascen, $13.4 million in internal-use software and platform development costs, and $5.3 million for purchases of property and equipment. These outflows were partially offset by $302.7 million in proceeds from maturities of marketable securities and $3.6 million in proceeds from the sale of marketable securities.
For the nine months ended September 30, 2024, net cash provided by investing activities was $158.6 million, which was primarily a result of proceeds from maturities of marketable securities of $365.3 million and proceeds from the sale of marketable securities of $38.4 million, partially offset by investing $234.5 million in various marketable securities, $8.6 million of internal-use software and platform development costs that we paid during the period, and $2.0 million paid in purchases of property and equipment.
Financing Activities
For the nine months ended September 30, 2025, net cash used in financing activities was $76.0 million, which was driven by $101.9 million cash paid for repurchases under the Share Repurchase Authorizations, partially offset by an increase in escrow funds payable of $23.0 million, proceeds received from our 2018 Employee Stock Purchase Plan, which we refer to as the 2018 ESPP, of $2.2 million, and cash received from stock option exercises of $0.7 million.
For the nine months ended September 30, 2024, net cash used in financing activities was $63.1 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 $32.0 million, proceeds received from our 2018 ESPP of $2.9 million, and cash received from stock option exercises of $1.9 million.
Critical 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.
Except as otherwise disclosed 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations," there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2024.
Recent Accounting Pronouncements
See "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 for recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report.
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