Upwork Inc.

08/10/2026 | Press release | Distributed by Public on 08/10/2026 14:50

Quarterly Report for Quarter Ending June 30, 2026 (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, agency, fractional, and payrolled. Our portfolio of platforms and other workforce solutions includes the Upwork Marketplace, the world's human and AI-powered work 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 through the Upwork Marketplace, Lifted, or other Upwork workforce solutions. We define clients as customers that seek and engage with talent through these platforms and 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. GSV also includes other client and talent value-added services, such as AI-based solutions, purchases of Connects (which are virtual tokens that are required for talent to bid on projects and purchase ads products on the Upwork Marketplace), 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 have 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, which we refer to as 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 work agent, and other AI-driven features that enhance productivity for talent and clients across the Upwork Marketplace. While the execution of these initiatives contributed to Marketplace take rate expansion for the three and six months ended June 30, 2026, GSV and active clients declined during these periods driven by the evolving impact of AI on certain categories of freelance work and on new client acquisition and retention, as well as macroeconomic uncertainty. We expect these headwinds to continue to impact GSV, active clients, and revenue in the remainder of 2026, while our cost reduction efforts are expected to support continued adjusted EBITDA growth, subject to market conditions and execution. For example, in May 2026, we initiated the 2026 Restructuring to reduce our cost structure and improve operational efficiency, which contributed to adjusted EBITDA growth despite lower revenue and net income for the three and six months ended June 30, 2026.
Marketplace revenue decreased to $166.9 million, or (2)%, for the three months ended June 30, 2026, as compared to $170.7 million in the same period in 2025. Marketplace revenue was relatively flat for the six months ended June 30, 2026, as compared to the same period in 2025. Marketplace take rate increased to 19.6% and 19.5% for the three and six months ended June 30, 2026, respectively, as compared to 18.5% and 18.4% in the same periods in 2025, respectively, reflecting the growing contributions from ads and monetization products.
Enterprise revenue increased to $24.8 million, or 2%, for the three months ended June 30, 2026, as compared to $24.3 million in the same period in 2025. Enterprise revenue decreased to $49.6 million, or (2)%, for the six months ended June 30, 2026, as compared to $50.7 million in the same period in 2025. 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 June 30, 2026, we generated net income of $25.4 million and adjusted EBITDA of $64.1 million, compared to net income of $32.7 million and adjusted EBITDA of $57.1 million during the same period in 2025. During the six months ended June 30, 2026, we generated net income of $56.9 million and adjusted EBITDA of $121.5 million, as compared to net income of $70.5 million and adjusted EBITDA of $113.1 million during the same period in 2025.
The decreases in net income of $7.3 million and $13.6 million, for the three and six months ended June 30, 2026, respectively, were primarily attributable to a decline in gross profit, reflecting higher cost of revenue driven by increased amortization of capitalized internal-use software and platform development costs for both periods, and $13.8 million in charges related to our restructuring plan announced in May 2026, which we refer to as the 2026 Restructuring.
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.
Key Financial and Operational Metrics
The key financial and operational metrics that we monitor to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions were as follows, as of or for the period presented:
Three Months Ended
June 30,
Change
Six Months Ended
June 30,
Change
(In thousands, except percentages and basis points)
2026 2025 2026 2025
GSV $ 966,439 $ 1,002,650 (4) % $ 1,952,461 $ 1,990,363 (2) %
Marketplace revenue
$ 166,858 $ 170,660 (2) % $ 337,563 $ 336,953 - %
Marketplace take rate
19.6 % 18.5 % 109 bps 19.5 % 18.4 % 110 bps
Net income
$ 25,404 $ 32,726 (22) % $ 56,865 $ 70,456 (19) %
Adjusted EBITDA (1)
$ 64,053 $ 57,061 12 % $ 121,479 $ 113,072 7 %
(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.
As of June 30,
% Change
(Active clients are in thousands) 2026 2025
Active clients 763 796 (4) %
GSV per active client $ 5,230 $ 5,002 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 B.V., which we refer to as Bubty, and Ascen Inc., which we refer to as 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.
For purposes of determining countries where we enable GSV, we include both the countries in which the clients that paid for the applicable services are located, as well as the countries in which talent that provided those services are located.
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 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, revenue generated across our platforms and workforce solutions.
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:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(In thousands) 2026 2025 2026 2025
Net income
$ 25,404 $ 32,726 $ 56,865 $ 70,456
Add back (deduct):
Stock-based compensation expense (1)
14,123 15,977 29,544 28,249
Depreciation and amortization 8,780 5,879 17,879 10,740
Other income, net (1)
(3,966) (5,878) (8,958) (12,195)
Income tax provision 6,699 5,717 12,948 12,994
Other (1)(2)(3)
13,013 2,640 13,201 2,828
Adjusted EBITDA $ 64,053 $ 57,061 $ 121,479 $ 113,072
(1) For the three and six months ended June 30, 2026, we incurred $13.8 million in costs related to the 2026 Restructuring. Of this amount, $12.8 million is included in Other, while the remaining amount is allocated between "Stock-based compensation expense" and "Other Income, net". See "Note 13-Restructuring Charges" of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information.
(2) For each of the three months ended June 30, 2026 and 2025, we incurred $0.2 million 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, and for each of the six months ended June 30, 2026 and 2025, we incurred $0.4 million of such expense.
(3) For each of the three and six months ended June 30, 2025, we incurred acquisition-related costs of $2.5 million in connection with our 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.
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 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 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, 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 offerings include access to additional product features, premium access to top talent, professional services, custom reporting, and flexible payment terms. Revenue from our Enterprise Solutions offerings includes all client fees, subscriptions, and talent service fees. For our Enterprise Solutions offerings, 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 offerings can subscribe to a compliance service that includes worker classification services for an additional fee and may also choose to use the Upwork
Marketplace to engage talent that were not originally sourced through the 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 Ascen and its subsidiaries or 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, which we refer to as AWS, 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, Net
Other income, 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 evaluate 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:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(In thousands) 2026 2025 2026 2025
Revenue
Marketplace
$ 166,858 $ 170,660 $ 337,563 $ 336,953
Enterprise
24,802 24,279 49,580 50,692
Total revenue 191,660 194,939 387,143 387,645
Cost of revenue (1)
45,288 43,432 89,929 85,238
Gross profit 146,372 151,507 297,214 302,407
Operating expenses
Research and development (1)
43,894 44,843 87,201 90,995
Sales and marketing (1)
34,914 36,671 72,351 72,422
General and administrative (1)
36,878 35,659 72,036 63,707
Provision for transaction losses 2,549 1,769 4,771 4,028
Total operating expenses 118,235 118,942 236,359 231,152
Income from operations 28,137 32,565 60,855 71,255
Other income, net 3,966 5,878 8,958 12,195
Income before income taxes 32,103 38,443 69,813 83,450
Income tax provision (6,699) (5,717) (12,948) (12,994)
Net income $ 25,404 $ 32,726 $ 56,865 $ 70,456
(1) Includes stock-based compensation expense as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(In thousands) 2026 2025 2026 2025
Cost of revenue $ 88 $ 200 $ 250 $ 387
Research and development 2,866 5,615 7,671 11,427
Sales and marketing 1,321 1,674 2,741 3,175
General and administrative 9,848 8,488 18,882 13,260
Total stock-based compensation $ 14,123 $ 15,977 $ 29,544 $ 28,249
Comparison of the Three and Six Months Ended June 30, 2026 and 2025
Revenue
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
Marketplace
$ 166,858 $ 170,660 $ (3,802) (2) % $ 337,563 $ 336,953 $ 610 - %
Percentage of total revenue 87 % 88 % 87 % 87 %
Enterprise
24,802 24,279 523 2 % 49,580 50,692 (1,112) (2) %
Percentage of total revenue 13 % 12 % 13 % 13 %
Total revenue $ 191,660 $ 194,939 $ (3,279) (2) % $ 387,143 $ 387,645 $ (502) - %
During the three and six months ended June 30, 2026, GSV decreased 4% and 2%, respectively, as compared to the same periods in 2025. The decreases for both periods were primarily driven by declines in client acquisition and retention, partially offset by growth in Enterprise Solutions driven by the acquisition of Ascen.
The number of active clients decreased 4% as of June 30, 2026, compared to June 30, 2025, driven by lower acquisition of new clients as well as lower retention of existing clients. By contrast, GSV per active client increased 5% as of June 30, 2026, compared to June 30, 2025, reflecting increased engagement among existing clients.
For the three months ended June 30, 2026, total revenue was $191.7 million, representing a 2% decrease compared to the same period in 2025. For the six months ended June 30, 2026, total revenue was $387.1 million, relatively flat compared to $387.6 million in the same period in 2025.
For the three months ended June 30, 2026, Marketplace revenue decreased by $3.8 million, or 2%, compared to the same period in 2025, primarily driven by lower talent service fees and client marketplace fees reflecting a decline in active clients, partially offset by higher revenue from ads and monetization products and increased adoption of our Business Plus offering. For the six months ended June 30, 2026, Marketplace revenue was relatively flat compared to the same period in 2025, reflecting growth in ads and monetization products and increased Business Plus adoption, largely offset by lower talent service fees and client marketplace fees driven by a decline in active clients.
For the three months ended June 30, 2026, Enterprise revenue increased by $0.5 million, or 2%, compared to the same period in 2025, primarily driven by an increase in Enterprise Solutions revenue generated by the acquisition of Ascen, partially offset by decreased revenue from Managed Services reflecting reduced client spend.
For the six months ended June 30, 2026, Enterprise revenue decreased by $1.1 million, or 2%, compared to the same period in 2025, primarily driven by a decrease in Managed Services revenue reflecting reduced client spend, partially offset by Enterprise Solutions revenue generated by the acquisition of Ascen.
During the three and six months ended June 30, 2026, we focused on supporting existing Enterprise clients, while continuing to invest in the development of Lifted, which drove improvements in year-over-year spend per active Enterprise client. Investment in the expansion of Lifted is expected to support growth in Enterprise revenue for the remainder of 2026, subject to market conditions and execution.
Cost of Revenue and Gross Margin
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
Cost of revenue $ 45,288 $ 43,432 $ 1,856 4 % $ 89,929 $ 85,238 $ 4,691 6 %
Total gross margin 76 % 78 % 77 % 78 %
For the three and six months ended June 30, 2026, cost of revenue increased by $1.9 million, or 4%, and $4.7 million, or 6%, respectively, compared to the same periods in 2025. The increases were primarily driven by increases of $2.2 million and $5.1 million, respectively, in amortization of capitalized internal-use software and platform development costs related to projects placed into service in 2025, partially offset by decreases of $0.6 million and $0.8 million, respectively, in talent services costs associated with lower Managed Services client activity. The increases in amortization reflect the Company's continued investments in internal-use software and platform development.
For the three and six months ended June 30, 2026, gross margin decreased to 76% and 77%, respectively, as compared to 78% in the same periods in 2025, primarily reflecting the impact of higher amortization of capitalized internal-use software and platform development costs.
We expect gross margin to remain below prior year levels throughout 2026 and cost of revenue to increase compared to 2025, largely driven by higher amortization of capitalized internal-use software and platform development costs.
Research and Development
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
Research and development $ 43,894 $ 44,843 $ (949) (2) % $ 87,201 $ 90,995 $ (3,794) (4) %
Percentage of total revenue 23 % 23 % 23 % 23 %
For the three and six months ended June 30, 2026, research and development expense decreased $0.9 million, or 2%, and $3.8 million, or 4%, respectively, compared to the same periods in 2025.
For the three months ended June 30, 2026, the decrease was primarily driven by $6.3 million of lower personnel-related costs reflecting lower corporate bonus expense and stock-based compensation expense, and $4.3 million of incremental internal-use software and platform development costs capitalized in the period. These decreases were partially offset by $6.9 million in charges related to the 2026 Restructuring, a $1.6 million increase in amortization of intangible assets, and a $0.9 million increase in hosting costs.
For the six months ended June 30, 2026, the decrease was primarily driven by $9.2 million of lower personnel-related costs reflecting a decline in corporate bonus expense and lower stock-based compensation expense, and $7.8 million of incremental internal-use software and platform development costs capitalized in the period. These decreases were partially offset by $6.9 million in charges related to the 2026 Restructuring, a $3.2 million increase in amortization of intangible assets, and a $2.0 million increase in hosting costs.
Sales and Marketing
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
Sales and marketing $ 34,914 $ 36,671 $ (1,757) (5) % $ 72,351 $ 72,422 $ (71) - %
Percentage of total revenue 18 % 19 % 19 % 19 %
For the three and six months ended June 30, 2026, sales and marketing expense decreased by $1.8 million, or 5%, and $0.1 million, respectively, compared to the same periods in 2025.
For the three months ended June 30, 2026, the decrease was primarily driven by $4.1 million of lower personnel-related costs reflecting a decline in corporate bonus expense and salaries and benefits and a $0.6 million decrease in marketing and advertising expense. These decreases were partially offset by $3.4 million in charges related to the 2026 Restructuring.
For the six months ended June 30, 2026, the decrease was primarily driven by $6.2 million of lower personnel-related costs reflecting a decline in corporate bonus expense and salaries and benefits, partially offset by $3.4 million in charges related to the 2026 Restructuring and a $3.3 million increase in marketing and advertising expense.
General and Administrative
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
General and administrative $ 36,878 $ 35,659 $ 1,219 3 % $ 72,036 $ 63,707 $ 8,329 13 %
Percentage of total revenue 19 % 18 % 19 % 16 %
For the three and six months ended June 30, 2026, general and administrative expense increased by $1.2 million, or 3%, and $8.3 million, or 13%, respectively, compared to the same periods in 2025.
For the three months ended June 30, 2026, the increase was primarily driven by $3.1 million in charges related to the 2026 Restructuring and $1.4 million higher stock-based compensation expense, partially offset by $2.2 million of lower personnel-related costs primarily reflecting a decline in corporate bonus expense and a $1.4 million decrease in legal costs.
For the six months ended June 30, 2026, the increase was primarily driven by $3.1 million in charges related to the 2026 Restructuring, $5.6 million of higher stock-based compensation expense, and a $1.8 million increase in contractor and professional service fees, partially offset by $2.2 million lower personnel-related costs primarily reflecting a decline in corporate bonus expense.
Provision for Transaction Losses
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
Provision for transaction losses $ 2,549 $ 1,769 $ 780 44 % $ 4,771 $ 4,028 $ 743 18 %
Percentage of total revenue 1.3 % 0.9 % 1.2 % 1.0 %
For the three and six months ended June 30, 2026, provision for transaction losses increased by $0.8 million and $0.7 million, respectively, compared to the same periods in 2025, representing approximately 1% of revenue for each of the three and six months ended June 30, 2026.
Other Income, Net
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
Other income, net $ 3,966 $ 5,878 $ (1,912) (33) % $ 8,958 $ 12,195 $ (3,237) (27) %
Other income, net decreased by $1.9 million, or 33%, and $3.2 million, or 27%, for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025. The decreases were primarily due to lower interest income on cash and investment balances.
Income Tax Provision
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2026 2025 Change 2026 2025 Change
Income tax provision $ (6,699) $ (5,717) $ 982 17 % $ (12,948) $ (12,994) $ (46) -%
Effective tax rate 20.9 % 14.9 % 18.5 % 15.6 %
For the three months ended June 30, 2026, our income tax provision increased by $1.0 million, or 17%, compared to the same period in 2025. Our effective tax rate increased to 20.9% compared to 14.9% for the same period in 2025, primarily attributable to tax deficiencies related to stock-based compensation.
For the six months ended June 30, 2026, our income tax provision was relatively flat compared to the same period in 2025. Our effective tax rate increased to 18.5% compared to 15.6% for the same period in 2025, primarily attributable to tax deficiencies related to stock-based compensation.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents, marketable securities, and available borrowings under our Revolving Credit Facility (as defined below). 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 June 30, 2026 and December 31, 2025, we had $476.0 million and $294.4 million in cash and cash equivalents, respectively. As of June 30, 2026 and December 31, 2025, we had $138.2 million and $378.4 million in marketable securities, respectively.
In June 2026, we entered into a credit agreement, which we refer to as the Credit Agreement, that provides for a secured revolving loan, available in an amount up to $150.0 million, which we refer to as the Revolving Credit Facility, to support our ongoing liquidity and capital needs. The Credit Agreement also includes an option to increase the amount of the Revolving Credit Facility, through either an increase to the revolving loan or the incurrence of new term loans, up to an additional $50.0 million. As of June 30, 2026, no amounts were outstanding under the Revolving Credit Facility and $150.0 million of borrowing capacity was available. The Credit Agreement contains financial maintenance covenants requiring us to maintain (i) a maximum Consolidated Net Leverage Ratio (as defined in the Credit Agreement) of 2.50 to 1.00, with cash netting of up to $100.0 million, and (ii) a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.25 to 1.00, tested quarterly. The Credit Agreement also contains customary affirmative and negative covenants and events of default. As of June 30, 2026, we were in compliance with all covenants. See Note 9 to our condensed consolidated financial statements for additional information regarding the Revolving Credit Facility.
Our 0.25% convertible senior notes due 2026, which we refer to as the Notes, will mature on August 15, 2026. We intend to repay the outstanding principal and accrued interest on the Notes upon maturity using existing cash on hand and borrowings under our Revolving Credit Facility. Following the repayment of the Notes, we believe our remaining cash, cash equivalents, and marketable securities, together with cash generated from operations, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
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 timing and extent of spending to support research and development efforts, investments to support and scale our Enterprise offerings, including integration costs associated with recent acquisitions, the expansion of sales and marketing activities, 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, and our ability to obtain equity or debt financing.
To the extent existing cash and cash equivalents, cash from marketable securities, cash from operations, and available borrowings under our Revolving Credit Facility 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. 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-cancelable 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, repurchased, or redeemed prior to maturity on August 15, 2026, (i) annual interest expense relating to the Notes will be $0.4 million for the remainder of fiscal year 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."
Revolving Credit Facility
In June 2026, we entered into the Credit Agreement providing the Revolving Credit Facility, available in an amount up to $150.0 million, which matures on June 23, 2029. As of June 30, 2026, no amounts were outstanding under the Revolving Credit Facility. See Note 9 to our condensed consolidated financial statements for additional information regarding the terms of the Credit Agreement, including interest rates, fees, and covenant requirements.
Future Purchase Commitments
In June 2026, we entered into a non-cancelable agreement for cloud infrastructure and other services that contains future purchase commitments of $44.0 million over two years, with $22.0 million in each year. The agreement expires in May 2028.
As of June 30, 2026, we had total remaining purchase commitments of $39.7 million, consisting of $38.1 million under the cloud infrastructure agreement described above and $1.6 million under various other vendor agreements.
Operating Leases for Office Space
During the three months ended March 31, 2026, the Company entered into two new operating lease agreements for office space. Refer to Note 6 to the condensed consolidated financial statements included in this Quarterly Report for additional information regarding these leases. Except as described in Note 6, there were no other 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, 2025.
Share Repurchase Program
In September 2025, our board of directors authorized a share repurchase program for the repurchase of up to $100.0 million of shares of our outstanding common stock, which we refer to as the 2025 Share Repurchase Authorization. Under the 2025 Share Repurchase Authorization, we repurchased and subsequently retired 2.1 million shares of our common stock for an aggregate amount of $36.0 million, at an average price of $17.33 per share, from September 2025 through December 2025, and an additional 4.6 million shares for an aggregate amount of $64.0 million, at an average price of $14.00 per share, from January 2026 through March 2026. As of June 30, 2026, we had no remaining balance available for repurchases under the 2025 Share Repurchase Authorization.
In February 2026, our board of directors authorized a share repurchase program for the repurchase of up to $300.0 million of shares of our outstanding common stock, which is referred to as the 2026 Share Repurchase Authorization, and we refer to the 2026 Share Repurchase Authorization and the 2025 Share Repurchase Authorization together as the Share Repurchase Authorizations. Under the 2026 Share Repurchase Authorization, we repurchased and subsequently retired 3.7 million shares of our common stock for an aggregate amount of $45.7 million, at an average price of $12.31 per share, since the authorization in February 2026. As of June 30, 2026, we had $254.3 million available for repurchase under the 2026 Share Repurchase Authorization.
During the three and six months ended June 30, 2026, we repurchased and subsequently retired 0.2 million and 8.3 million shares, respectively, of our common stock, for an aggregate amount of $1.8 million and $109.7 million, at an average price of $11.16 and $13.24 per share, respectively, including fees associated with the repurchases and excluding excise tax, under the Share Repurchase Authorizations.
Repurchases of our common stock under the 2026 Share Repurchase Authorization 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), in privately negotiated transactions, or by other methods, at our discretion, and in accordance with applicable securities laws and other restrictions. The 2026 Share Repurchase Authorization has no expiration date and will continue until otherwise suspended, terminated, or modified at any time for any reason. The 2026 Share Repurchase Authorization does 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.
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 they 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 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 June 30, 2026 and December 31, 2025, funds held in escrow, including funds in transit, were $193.3 million and $180.8 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 June 30, 2026 and December 31, 2025, $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, the Notes may be settled in cash.
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 9-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:
Six Months Ended
June 30,
(In thousands) 2026 2025
Net cash provided by operating activities $ 69,893 $ 109,479
Net cash provided by (used in) investing activities 221,157 (56,673)
Net cash used in financing activities(1)
(96,849) (51,496)
Net change in cash, cash equivalents, and restricted cash
$ 194,201 $ 1,310
(1) Includes an increase in funds held in escrow, including funds in transit, of $11.7 million for the six months ended June 30, 2026, and an increase of $16.6 million for the six months ended June 30, 2025.
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 six months ended June 30, 2026, net cash provided by operating activities was $69.9 million, which resulted from net income of $56.9 million, non-cash adjustments of $52.7 million, and net cash outflows of $39.7 million from changes in operating assets and liabilities.
For the six months ended June 30, 2025, net cash provided by operating activities was $109.5 million, which resulted from net income of $70.5 million and non-cash adjustments of $42.8 million, and net cash outflows of $3.8 million from changes in operating assets and liabilities.
Investing Activities
For the six months ended June 30, 2026, net cash provided by investing activities was $221.2 million, primarily driven by $240.2 million in proceeds from maturities of marketable securities, partially offset by $17.7 million in internal-use software and platform development costs and $3.3 million for purchases of property and equipment.
For the six months ended June 30, 2025, net cash used in investing activities was $56.7 million, which was primarily a result of investing $259.1 million in various marketable securities, $20.4 million cash paid for the acquisition of Bubty, $8.2 million in internal-use software and platform development costs, and $4.9 million for purchases of property and equipment. These outflows were partially offset by $232.4 million in proceeds from maturities of marketable securities and $3.5 million in proceeds from the sale of marketable securities.
Financing Activities
For the six months ended June 30, 2026, net cash used in financing activities was $96.8 million, primarily driven by $109.7 million in cash paid for repurchases under the Share Repurchase Authorizations, an increase in escrow funds payable of $11.7 million, and $1.2 million of debt issuance costs paid in connection with the Revolving Credit Facility. These outflows were partially offset by $1.6 million in proceeds received from our 2018 Employee Stock Purchase Plan, and $0.8 million in proceeds from stock option exercises.
For the six months ended June 30, 2025, net cash used in financing activities was $51.5 million, which was driven by $70.9 million cash paid for repurchases under the $100.0 million share repurchase program authorized by our board of directors in October 2024, partially offset by an increase in escrow funds payable of $16.6 million, proceeds received from our 2018 Employee Stock Purchase Plan of $2.2 million, and cash received from stock option exercises of $0.7 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, 2025.
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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