xm-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-39952

QUALTRICS INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)


Delaware						47-1754215
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

333 West River Park Drive

Provo, Utah 84604

(Address, including zip code of principal executive offices)

385-203-4999

(Telephone number, including area code, of principal executive offices)


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share	XM	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐

As of October 24, 2022, the registrant had 590,730,721 shares of common stock outstanding, consisting of 167,560,111 shares of Class A common stock and 423,170,610 shares of Class B common stock.

TABLE OF CONTENTS


		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of S eptem ber 30 , 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended Septemb er 30 , 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	40
Item 4.	Controls and Procedures	40
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	43
Item 6.	Exhibits	49

SIGNATURES		50

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our future financial performance, including our revenue, cost of revenue, gross profit, operating expenses, ability to generate positive cash flow, and ability to be profitable;

•our ability to grow at or near historical growth rates;

•anticipated technology trends, such as the use of and demand for experience management software;

•our ability to attract and retain customers to use our products;

•our ability to attract enterprises and international organizations as customers for our products;

•our ability to expand our network with content consulting partners, delivery partners, and technology partners;

•the evolution of technology affecting our products and markets;

•our ability to introduce new products and enhance existing products and to compete effectively with competitors;

•our ability to successfully enter into new markets and manage our international expansion;

•the attraction and retention of qualified employees and key personnel;

•our ability to effectively manage our growth and future expenses and maintain our corporate culture;

•our anticipated investments in sales and marketing and research and development;

•our ability to maintain, protect, and enhance our intellectual property rights;

•our ability to successfully defend litigation brought against us;

•our ability to maintain data privacy and data security;

•the sufficiency of our cash and cash equivalents to meet our liquidity needs;

•our ability to comply with modified or new laws and regulations applying to our business;

•the impact of geopolitical events, including the ongoing conflict between Russia and Ukraine;

•our ability to respond to and overcome challenges brought by the COVID-19 pandemic;

•our reduced ability to leverage resources at SAP as an independent company from SAP; and

•the increased expenses associated with being an independent public company.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

You should read this Quarterly Report on Form 10-Q and exhibits with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Qualtrics International Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and par value)

(Unaudited)


	As of September 30,		As of December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	731,724	$	1,014,511
Accounts receivable, net of allowance (1)	325,396		461,830
Deferred contract acquisition costs, net	71,471		60,455
Prepaid expenses and other current assets	72,924		68,887
Total current assets	1,201,515		1,605,683
Non-current assets:
Property and equipment, net	201,763		192,327
Right-of-use assets from operating leases	216,342		227,320
Goodwill	1,117,915		1,118,768
Other intangible assets, net	223,644		264,500
Deferred contract acquisition costs, net of current portion	160,020		145,952
Deferred tax assets	734		96
Other assets	29,556		27,577
Total assets	$	3,151,489	$	3,582,223

Liabilities and equity (deficit)
Current liabilities:
Lease liabilities	$	17,291	$	18,898
Accounts payable (1)	68,989		84,053
Accrued liabilities	124,631		167,402
Liability-classified, stock-based awards	1,021		4,519
Deferred revenue	677,621		748,145
Total current liabilities	889,553		1,023,017
Non-current liabilities:
Lease liabilities, net of current portion	258,114		263,307
Deferred revenue, net of current portion	14,752		6,698
Deferred tax liabilities	4,440		23,653
Other liabilities(1)	66,579		78,848
Total liabilities	$	1,233,438	$	1,395,523
Commitments and contingencies
Equity (deficit)
Preferred stock, par value $0.0001 per share; authorized 100,000,000 shares; no shares outstanding	—		—
Class A common stock, par value $0.0001 per share; authorized 2,000,000,000 shares; issued and outstanding 167,328,522 and 147,309,254 shares as of September 30, 2022 and December 31, 2021	17		15
Class B common stock, par value $0.0001 per share; authorized 1,000,000,000 shares; issued and outstanding 423,170,610 as of September 30, 2022 and December 31, 2021	42		42
Additional paid-in capital	5,193,649		4,645,800
Accumulated other comprehensive loss	(12,626)		(1,244)
Accumulated deficit	(3,263,031)		(2,457,913)
Total equity	1,918,051		2,186,700
Total liabilities and equity	$	3,151,489	$	3,582,223

________________

(1) Includes amounts from related parties. See Note 13 for further details.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Qualtrics International Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Subscription	$	314,765	$	220,314	$	896,151	$	611,748
Professional services and other	62,766		51,320		173,392		147,874
Total revenue	377,531		271,634		1,069,543		759,622
Cost of revenue:
Subscription	51,087		23,802		143,454		65,865
Professional services and other	60,577		43,041		171,925		127,522
Total cost of revenue	111,664		66,843		315,379		193,387
Gross profit	265,867		204,791		754,164		566,235
Operating expenses:
Research and development	98,333		83,875		320,488		226,552
Sales and marketing	225,124		161,570		663,098		449,446
General and administrative	182,280		236,810		572,954		637,944
Total operating expenses	505,737		482,255		1,556,540		1,313,942
Operating loss	(239,870)		(277,464)		(802,376)		(747,707)
Other non-operating income (expense), net	3,058		(3,160)		4,239		(6,091)
Loss before income taxes	(236,812)		(280,624)		(798,137)		(753,798)
Provision (benefit) for income taxes	(3,264)		5,409		6,981		(4,424)
Net loss	$	(233,548)	$	(286,033)	$	(805,118)	$	(749,374)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.40)	$	(0.56)	$	(1.38)	$	(1.49)
Weighted-average Class A and Class B shares used in computing net loss per share attributable to common stockholders, basic and diluted	586,850,097		515,212,996		581,664,521		503,781,082

The accompanying notes are an integral part of these condensed consolidated financial statements.

Qualtrics International Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net loss	$	(233,548)	$	(286,033)	$	(805,118)	$	(749,374)
Other comprehensive loss:
Foreign currency translation loss	(5,412)		(2,015)		(11,382)		(3,822)
Comprehensive loss	$	(238,960)	$	(288,048)	$	(816,500)	$	(753,196)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Qualtrics International Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(Unaudited)


	Three Months Ended September 30, 2022
	Class A common stock				Class B common stock				Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total equity (deficit)
	Shares		Amount		Shares		Amount
Balance, June 30, 2022	$	162,175,986	$	16	$	423,170,610	$	42	$	4,957,174	$	(7,214)	$	(3,029,483)	$	1,920,535
Stock-based compensation	—		—		—		—		249,999		—		—		249,999
Issuance of common stock upon settlement of restricted stock units (RSUs)	3,953,586		1		—		—		(1)		—		—		—
Issuance of common stock upon exercise of stock options	117,273		—		—		—		786		—		—		786

Issuance of common stock for employee stock purchase plan	1,081,677		—		—		—		12,141		—		—		12,141
Common stock withheld related to net share settlement of equity awards	—		—		—		—		(26,450)		—		—		(26,450)
Net loss	—		—		—		—		—		—		(233,548)		(233,548)
Foreign currency translation adjustment	—		—		—		—		—		(5,412)		—		(5,412)
Balance, September 30, 2022	167,328,522		$	17	423,170,610		$	42	$	5,193,649	$	(12,626)	$	(3,263,031)	$	1,918,051


	Three Months Ended September 30, 2021
	Class A common stock				Class B common stock				Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total equity (deficit)
	Shares		Amount		Shares		Amount
Balance, June 30, 2021	$	91,035,764	$	9	$	423,170,610	$	42	$	1,895,938	$	1,384	$	(1,862,108)	$	35,265
Stock-based compensation	—		—		—		—		277,737		—		—		277,737
Issuance of common stock upon settlement of restricted stock units (RSUs)	1,073,145		—		—		—		—		—		—		—
Issuance of common stock for employee stock purchase plan	571,681		—		—		—		16,586		—		—		16,586
Payment of withholding taxes on vested RSUs and employee stock purchase plan	—		—		—		—		(22,968)		—		—		(22,968)
Modification of cash-settled awards into equity settled awards	—		—		—		—		356		—		—		356
Net loss	—		—		—		—		—		—		(286,033)		(286,033)
Foreign currency translation adjustment	—		—		—		—		—		(2,015)		—		(2,015)
Balance, September 30, 2021	92,680,590		$	9	423,170,610		$	42	$	2,167,649	$	(631)	$	(2,148,141)	$	18,928


	Nine Months Ended September 30, 2022
	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total equity (deficit)
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	147,309,254	$	15	423,170,610	$	42	$	4,645,800	$	(1,244)	$	(2,457,913)	$	2,186,700
Stock-based compensation	—	—		—	—		784,769		—		—		784,769
Issuance of common stock upon settlement of restricted stock units (RSUs)	17,909,815	2		—	—		(2)		—		—		—
Issuance of common stock upon exercise of stock options	256,810	—		—	—		1,470		—		—		1,470
Issuance of common stock for employee stock purchase plan	1,852,643	—		—	—		32,521		—		—		32,521
Common stock withheld related to net share settlement of equity awards	—	—		—	—		(270,909)		—		—		(270,909)
Net loss	—	—		—	—		—		—		(805,118)		(805,118)
Foreign currency translation adjustment	—	—		—	—		—		(11,382)		—		(11,382)
Balance, September 30, 2022	167,328,522	$	17	423,170,610	$	42	$	5,193,649	$	(12,626)	$	(3,263,031)	$	1,918,051


	Nine Months Ended September 30, 2021
	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total equity (deficit)
	Shares	Amount		Shares	Amount
Balance, December 31, 2020	6,000,000	$	1	423,170,610	$	42	$	1,126,631	$	3,191	$	(1,398,767)	$	(268,902)
Stock-based compensation	—	—		—	—		764,273		—		—		764,273
Issuance of common stock upon settlement of restricted stock units (RSUs)	4,140,522	—		—	—		—		—		—		—
Issuance of common stock for employee stock purchase plan	571,681	—		—	—		16,586		—		—		16,586
Payment of withholding taxes on vested RSUs and employee stock purchase plan	—	—		—	—		(27,800)		—		—		(27,800)
Modification of cash-settled awards into equity settled awards	—	—		—	—		206,669		—		—		206,669
Capital contribution from SAP	—	—		—	—		115,000		—		—		115,000
Sales of class A common stock, net of issuance costs	81,968,387	8		—	—		2,238,571		—		—		2,238,579
Class A common stock option exercised	—	—		—	—		119,999		—		—		119,999
Dividend Declared	—	—		—	—		(2,392,280)		—		—		(2,392,280)
Net loss	—	—		—	—		—		—		(749,374)		(749,374)
Foreign currency translation adjustment	—	—		—	—		—		(3,822)		—		(3,822)
Balance, September 30, 2021	92,680,590	$	9	423,170,610	$	42	$	2,167,649	$	(631)	$	(2,148,141)	$	18,928

The accompanying notes are an integral part of these condensed consolidated financial statements.

Qualtrics International Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(805,118)	$	(749,374)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	72,358		24,011
Loss on disposal of property and equipment	232		1,525
Change in fair value of distribution liability for tax sharing agreement	(10,500)		—
Reduction of right-of-use assets from operating leases	22,254		16,571
Stock-based compensation expense, including cash settled	778,592		764,592
Amortization of deferred contract acquisition costs	51,628		35,977
Deferred income taxes	(17,086)		(5,544)
Changes in assets and liabilities:
Accounts receivable, net	135,453		37,261
Prepaid expenses and other current assets	(5,558)		(5,043)
Deferred contract acquisitions costs	(84,547)		(54,986)
Other assets	(1,203)		(13,104)
Lease liabilities	(17,250)		(10,369)
Accounts payable	(16,858)		14,875
Accrued liabilities	(39,124)		(8,232)
Deferred revenue	(61,366)		18,837
Other liabilities	(3,152)		(985)
Settlement of stock-based payments liabilities	(4,749)		(76,875)
Net cash flows used in operating activities	(5,994)		(10,863)

Cash flows from investing activities
Purchases of property and equipment	(36,203)		(29,711)
Cash paid for business combination, net of cash acquired	—		(25,000)
Net cash flows used in investing activities	(36,203)		(54,711)

Cash flows from financing activities
Proceeds from capital contributions from SAP	—		115,000
Proceeds from issuance of class A common stock, net of underwriting discounts and commissions	—		2,244,322
Payment of costs related to issuance of class A common stock	—		(3,081)
Repayment of promissory note	—		(1,892,280)
Payments for taxes related to net share settlement of equity awards	(270,909)		(27,800)
Issuance of class A common stock through Employee Stock Purchase Plan	32,521		16,586
Proceeds from exercise of stock options	1,470		—
Net cash flows (used in) provided by financing activities	(236,918)		452,747
Effect of changes in exchange rates on cash and cash equivalents	(3,672)		(1,118)
Net (decrease) increase in cash and cash equivalents	(282,787)		386,055
Cash and cash equivalents, beginning of period	1,014,511		203,891
Cash and cash equivalents, end of period	$	731,724	$	589,946

Supplemental cash flow disclosures
Cash paid for income taxes	$	36,226	$	7,848
Cash paid for operating leases, net of incentives received	$	18,610	$	10,008
Modification of cash-settled stock-based compensation awards into equity-settled awards	$	—	$	206,669

Non-cash investing and financing activities
Capital expenditures incurred but not yet paid	$	1,944	$	208
Right-of-use assets obtained in exchange for lease obligations	$	17,508	$	1,374
Note payable issued for dividend declared	$	—	$	500,000
Expiration of contingency associated with Class A common stock option exercised	$	—	$	120,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

Qualtrics International Inc.

Notes to Condensed Consolidated Financial Statements

1.SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Qualtrics International Inc. (“Qualtrics” or “the Company”) was incorporated in the state of Delaware in September 2014. Qualtrics has built the first experience management platform (“XM Platform”) to design and manage customer, employee, product, and brand experiences. The Company sells subscriptions to its XM Platform and provides professional services primarily consisting of research services, implementation services, and engineering services.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated balance sheet as of September 30, 2022, and the condensed consolidated statements of operations, comprehensive loss, and stockholders' equity (deficit) for the three and nine months ended September 30, 2022 and 2021, and condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, are unaudited. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments necessary to fairly state the Company's financial position as of September 30, 2022, and its results of operations for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The financial data and the other financial information disclosed in the notes to these condensed consolidated financial statements related to the three and nine month periods are also unaudited. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other future year or interim period.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021, included in the Company's Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. The Company’s most significant estimates and judgments involve revenue recognition with respect to the determination of the standalone selling prices for the Company’s services, deferred contract acquisition costs, the period of benefit generated from deferred contract acquisition costs, valuation of the Company’s equity and cash settled stock-based compensation, valuation of certain intangible assets that were acquired as part of business combinations, valuation of the distribution liability related to the tax sharing agreement with SAP, valuation of deferred income tax assets, uncertain tax positions, contingencies, the determination of whether a contract contains a lease, determining the incremental borrowing rate for the calculation of the present value of lease liabilities, and litigation accruals. Actual results could differ from those estimates.

Foreign Currency Transactions

The assets and liabilities of the Company’s foreign subsidiaries are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date and revenue and expense amounts are translated at the average exchange rate for the period. Foreign currency translation gains and losses are recorded in other comprehensive loss. Exchange rate differences resulting from translation adjustments are accounted for as a component of accumulated other comprehensive loss. Gains and losses, whether realized or unrealized, from foreign currency transactions (those transactions denominated in currencies other than the entities’ functional currency) are included in other non-operating income (expense), net.

Revenue Recognition

The Company recognizes revenue from its service/product lines when control is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the services. Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue. The Company accounts for revenue contracts with customers by applying the requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606 – Revenue from Contracts with Customers (Topic 606), which includes the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in a contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, performance obligations are satisfied

Classes of Revenue

The Company derives revenue from two service/product lines:

Subscription Revenue

The Company generates revenue primarily from sales of subscriptions to access its XM Platform, together with related support services to its customers. Arrangements with customers do not provide the customer with the right to take possession of the software operating the XM Platform at any time. Instead, customers are granted continuous access to the XM Platform over the contractual period.

The Company’s subscription contracts generally have annual contractual terms while some have multi-year contractual terms. The Company generally bills annually in advance with net 30 payment terms. The Company’s agreements generally cannot be canceled for a refund.

Professional Services and Other Revenue

Professional services and other revenue mainly includes two types of services: research services and professional services. Research services is a solution provided to existing subscription customers with arrangements which are distinct from subscription revenue services. In addition, the Company provides professional services associated with new and expanding customers requesting implementation, integration services, and other ancillary services. These services are distinct from subscription revenue services.

Recognition of Revenue

Access to the Company’s XM Platform represents a series of distinct services as the Company continually provides access to and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is generally recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer.

Revenue from professional services and other revenue related to research services is recognized upon completion because completion and delivery of the results is considered a separate performance obligation satisfied at a point in time. Revenue from professional services and other revenue related to customized software coding is recognized upon completion, because the customer consumes the intended benefit and assumes control upon final completion of the custom coding. Revenue from professional services and other revenue related to implementation and other ancillary services is recognized as the services are performed, because the customer consumes the benefit as the services are provided.

Judgment is required to determine whether revenue is to be recognized at a point in time or over time. For performance obligations satisfied over time, we measure progress using the method that best reflects Qualtrics’ performance.

All judgments and estimates mentioned above can significantly impact the timing and amount of revenue to be recognized.

Contract Balances

The Company bills in advance for annual contracts, and at times enters into non-cancelable multi-year deals. Non-cancelable multi-year deals typically include price escalations each year. The Company recognizes revenue on a straight-line basis over the non-cancelable term and accounts for the difference between straight-line revenue and revenue from invoiced amounts as a contract asset. The current and noncurrent portion of contract assets included in prepaid and other current assets and other assets as of September 30, 2022 were $23.0 million and $17.5 million, respectively. The current and noncurrent portion of contract assets included in prepaid and other current assets and other assets as of December 31, 2021 were $18.1 million and $14.0 million, respectively.

The Company records contract liabilities to deferred revenue when cash payments are received or due in advance of performance. Deferred revenue primarily relates to the advance consideration received from the customer prior to the related performance obligation being fulfilled. In certain circumstances, we receive consideration from customers in advance of a specific service being identified. Total consideration received in advance of a specific service being identified totaled $28.5 million and $33.0 million as of September 30, 2022 and December 31, 2021, respectively, and is included in deferred revenue. The following table shows the amount of revenue included in prior period deferred revenue for each of the Company’s revenue generating solutions:


	Three Months Ended September 30,				Nine Months Ended September 30,
in thousands	2022		2021		2022		2021
Subscription revenue:
Revenue included in prior period deferred revenue	$	128,932	$	93,347	$	519,574	$	386,916
Revenue generated from same period billings	185,833		126,967		376,577		224,832
Total subscription revenue	$	314,765	$	220,314	$	896,151	$	611,748
Professional services and other revenue:
Revenue included in prior period deferred revenue	$	16,175	$	11,699	$	62,204	$	51,513
Revenue generated from same period billings	46,591		39,621		111,188		96,361
Total professional services and other revenue	$	62,766	$	51,320	$	173,392	$	147,874

Remaining Performance Obligations

Remaining performance obligations represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. Amounts of a customer contract’s transaction price that are allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized. They include amounts recognized as contract liabilities and amounts that are contracted but not yet due. The future estimated revenue related to unsatisfied performance obligations as of September 30, 2022 was $1,894.7 million, of which approximately $1,047.2 million is expected to be recognized as revenue over the next twelve months. The future estimated revenue related to unsatisfied performance obligations as of December 31, 2021 was $1,732.8 million. This estimate is based on the Company’s best judgment, as it needs to consider estimates of possible future contract modifications. The amount of transaction price allocated to the remaining performance obligations, and changes in this amount over time, are impacted by, among others, currency fluctuations and the contract period of our cloud contracts remaining at the balance sheet date and thus, by the timing of contract renewals.

Disaggregation of Revenue

The following table summarizes the revenue by region based on the address of customers who have contracted to use the Company’s cloud platform:


	Three Months Ended September 30,				Nine Months Ended September 30,
in thousands	2022		2021		2022		2021
United States	$	261,421	$	192,114	$	745,055	$	537,632
International	116,110		79,520		324,488		221,990
Total revenue	$	377,531	$	271,634	$	1,069,543	$	759,622

No single country outside the United States accounted for 10% or more of revenue during the three and nine months ended September 30, 2022 and 2021.

Stock-Based Compensation, including cash settled

Equity Awards

The Company records stock-based compensation based on the grant date fair value of the awards and recognizes the fair value of those awards as expense using the straight-line method over the requisite service period of the award. For restricted stock units that contain performance conditions, the Company recognizes expense using the accelerated attribution method if it is probable the performance conditions will be met.

The Company estimates the grant date fair value of RSUs based on the closing stock price of the Company’s publicly traded Class A common stock on the grant date. The Company estimates the grant date fair value of purchase rights issued under our Employee Stock Purchase Plan, or ESPP, based on the Black-Scholes option-pricing model using the estimated number of awards as of the beginning of the offering periods. The Company estimated the fair value of the converted Clarabridge options based on the intrinsic value of the awards on the acquisition date.

Cash Awards

The Company measures and recognizes compensation expense for stock-based payment cash awards based on the fair value of the awards each quarter until settlement. The fair value of the awards are estimated based on the fair value of the underlying stock price of SAP SE. The fair value of stock-based compensation cash awards that vest solely on a service-based condition is recognized on a straight-line basis over the period during which services are provided in exchange for the award. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring. All awards that were not exchanged into Qualtrics RSUs are paid out in cash upon vesting.

The Company accounts for forfeitures as they occur; therefore, stock-based compensation expense has been calculated based on actual forfeitures in the Company’s consolidated statements of operations.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. As there are no potentially dilutive securities, diluted earnings per share attributable to common stockholders has not been presented. For purposes of calculating earnings per share, the Company uses the two-class method. Because both classes of common stock share the same rights in dividends, basic and diluted earnings per share was the same for both common stock classes.

Accounts Receivable and Allowances

Accounts receivable are recorded at the invoiced amount, net of allowances. Accounts receivable are typically due within 30 days from the date of invoice. Customer balances outstanding longer than the contractual payment terms are considered past due.

The Company establishes allowances for bad debt and cancellations based on historical collection data and customer specific circumstances. The allowance for bad debt, as needed, is established with a charge to bad debt expense in the consolidated statements of comprehensive loss. The Company’s allowance for bad debt was $6.1 million and $1.5 million as of September 30, 2022 and December 31, 2021, respectively. Bad debt expense was $2.0 million and not material during the three months ended September 30, 2022 and 2021, respectively. Bad debt expense was $5.0 million and not material during the nine months ended September 30, 2022 and 2021, respectively. The Company’s allowance for cancellations was $20.3 million and $17.5 million as of September 30, 2022 and December 31, 2021, respectively. During the three months ended September 30, 2022 and 2021, $1.3 million and $(1.2) million of net additions (reductions) were charged to revenue, respectively, and $0.6 million and $(5.0) million of net additions (reductions) were charged to deferred revenue, respectively. During the nine months ended September 30, 2022 and 2021, $1.4 million and $(3.5) million of net additions (reductions) were charged to revenue, respectively, and $1.4 million and $(16.5) million of net additions (reductions) were charged to deferred revenue, respectively. The allowance for cancellations is established with a reduction to revenue and deferred revenue. In the event of lack of payment due to a bankruptcy or other credit-related issues of a customer, the Company writes off the related accounts receivable with a reduction to the allowance for bad debt. In the event of lack of payment from a customer for issues unrelated to credit risk, the Company cancels the customer’s subscription access or service and writes off the corresponding accounts receivable with reductions to the allowance for cancellations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and accounts receivable. The Company performs credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. No customer accounted for more than 10% of accounts receivable at September 30, 2022 and December 31, 2021. No single customer accounted for 10% or more of total revenue during the three and nine months ended September 30, 2022 and 2021.

Deferred Contract Acquisition Costs, net

Deferred contract acquisition costs, net is stated at gross deferred contract acquisition costs less accumulated amortization. Sales commissions and related payroll taxes for initial software-as-a-service (SaaS) subscription contracts earned by the Company’s sales force are considered to be incremental and recoverable costs of obtaining a contract with a customer. As a result, these amounts have been capitalized as deferred contract acquisition costs on the consolidated balance sheets. The Company capitalized additional deferred contract acquisition costs of $31.7 million and $21.1 million during the three months ended September 30, 2022 and 2021, respectively, and $84.5 million and $55.0 million during the nine months ended September 30, 2022 and 2021, respectively.

Sales commissions for renewal contracts are not considered commensurate with the commissions paid for the acquisition of an initial SaaS subscription contract, given the substantive difference in commission rates in proportion to their respective contract values. After the conclusion of the initial contract period, commissions paid on subsequent renewals are commensurate year after year. As such, the Company expenses renewal commissions as incurred.

Deferred contract acquisition costs are amortized over an estimated period of benefit of five years. The period of benefit was estimated by considering factors such as estimated average customer life, the rate of technological change in the subscription service, and the impact of competition in its industry. As the Company’s average customer life significantly exceeded the rate of change in its technology, the Company concluded that the rate of change in the technology underlying the Company’s subscription service was the most significant factor in determining the period of benefit for which the asset relates. In evaluating the rate of change in the technology, the Company considered the competition in the industry, its commitment to continuous innovation, and the frequency of

product, platform, and technology updates. The Company determined that the impact of competition in the industry is reflected in the period of benefit through the rate of technological change.

Amortization of deferred contract acquisition costs were $18.5 million and $12.8 million for the three months ended September 30, 2022 and 2021, respectively, and $51.6 million and $36.0 million for the nine months ended September 30, 2022 and 2021, respectively. Amortization of deferred contract acquisition costs are included in sales and marketing expense in the accompanying consolidated statements of operations. There was no impairment loss in relation to the deferred costs for any period presented.

Leases

Right-of-use (“ROU”) assets and lease liabilities are recognized at commencement based on the present value of the minimum lease payments over the lease term. The Company utilizes certain practical expedients and policy elections available under Topic 842. Leases with a one-year term or less are not recognized on the balance sheet.

Internal-use Software

The Company capitalizes certain development costs incurred in connection with its internal-use software. These capitalized costs are primarily related to the software platforms that are hosted by the Company and accessed by its customers on a subscription basis. Costs incurred in the preliminary stages of development are expensed as incurred as research and development costs. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life of 24 months. The Company recognized amortization expenses of $5.1 million and $3.3 million related to capitalized internal-use software for the three months ended September 30, 2022 and 2021, respectively, and $13.5 million and $10.0 million for the nine months ended September 30, 2022 and 2021, respectively, within cost of subscription revenue.

Income Taxes

Income taxes as presented in the consolidated financial statements of Qualtrics attribute current and deferred income taxes of SAP to the Company’s standalone financial statements in a manner that is systematic, rational and consistent with the asset and liability method prescribed by FASB ASC Topic 740: Income Taxes (“ASC 740”). Accordingly, the Company’s income tax provision was prepared following the separate return method prior to deconsolidation in October 2021 for U.S. federal income tax purposes, and the separate return method continues to apply for other jurisdictions where we file returns as part of a SAP Tax Group. The separate return method applies ASC 740 to the standalone financial statements of each member of the consolidated group as if the group members were a separate taxpayer and a standalone enterprise. As a result of deconsolidation for U.S. federal income tax purposes, we have updated our reported tax attributes in certain jurisdictions to reflect the tax attributes available for future use by the Qualtrics tax reporting entity that files returns separate from a SAP Tax Group.

Certain operations of Qualtrics have historically been included in a consolidated return with other SAP entities. Current obligations for taxes in certain jurisdictions where the Company files a consolidated tax return with SAP, are deemed settled with SAP for purposes of these consolidated financial statements. Current obligations for tax in jurisdictions where the Company does not file a consolidated return with SAP, including certain foreign and domestic jurisdictions, are recorded as accrued liabilities.

Deferred income tax balances reflect the effects of temporary differences between the financial reporting and tax bases of the Company’s assets and liabilities using enacted tax rates expected to apply when taxes are actually paid or recovered. In addition, deferred tax assets are recorded for net operating loss (“NOL”) and credit carryforwards for Qualtrics.

A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent

cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets.

The Company uses a two-step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of pre-tax book income or loss. Significant judgment is required to evaluate uncertain tax positions.

Although the Company believes that it has adequately reserved for its uncertain tax positions, it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company evaluates its uncertain tax positions on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of an audit, and effective settlement of audit issues.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on the Company’s financial condition and results of operations.

Fair Value Measurement

The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions, and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new standard requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, which creates an exception to the general recognition and measurement principles of ASC 805. The standard will result in companies recognizing contract assets and liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date. The standard is effective for public companies for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years with early adoption permitted. The Company has not early adopted the standard and the impact will be dependent upon the occurrence and magnitude of any future acquisitions.

2.CASH AND CASH EQUIVALENTS

Cash and cash equivalents consisted of the following:


	As of September 30,		As of December 31,
in thousands	2022		2021
Cash	$	349,990	$	123,906
Money market mutual funds	381,734		890,605
Total cash and cash equivalents	$	731,724	$	1,014,511

3.FAIR VALUE MEASUREMENTS

See Note 1, “Summary of Business and Significant Accounting Policies” for additional details related to fair value measurements.

Cash and cash equivalents

The Company’s cash equivalents with regards to the money market mutual funds are classified within Level 1 of the fair value hierarchy.

Tax sharing liability

Since the SAP Acquisition, we have been included in SAP America’s consolidated group for U.S. federal income tax purposes. In October 2021, we deconsolidated from the SAP Tax Group for U.S. federal income tax purposes. We expect to remain a member of the SAP Tax Group for certain state filings. Pursuant to the tax sharing agreement with SAP, for taxable periods beginning after December 31, 2020, we will make tax sharing payments to SAP related to certain share based payment awards that existed prior to or were granted at the time of the IPO, the Pre-IPO Awards. Upon deconsolidation from the SAP Tax Group, the initial tax sharing liability was recorded as a distribution payable to SAP in accounts payable and other liabilities and as a reduction to additional paid-in capital. Changes in the fair value of the tax sharing liability are recorded through other non-operating income (expense), net. As of September 30, 2022 and December 31, 2021, the Company’s distribution liability for the tax sharing agreement with SAP based on an estimated fair value totaled $61.0 million and $71.5 million, respectively.

The tax sharing agreement liability is estimated based on the estimated future tax benefits associated with the Pre-IPO Awards. The liability is classified within Level 3 of the fair value hierarchy and is based on the discounted estimated future cash flows of the liability. The primary assumptions used in the valuation include the amount of the estimated future tax deductions related to the Pre-IPO Awards, the Company’s estimated future taxable income or loss excluding the Pre-IPO Awards, including the ability and timing of when the Company will be able to utilize the tax deductions from the Pre-IPO Awards using a hypothetical with and without tax calculation, and the estimated discount rate, which is based on current market rates for unsecured liabilities with similar maturities and credit quality. Estimating the tax sharing liability balance requires significant estimates and assumptions which are inherently uncertain and therefore actual results could differ from those estimates. During the three and nine months ended September 30, 2022, the Company had no transfers in or out of Level 3 fair value measurements. The changes in the fair value of the tax sharing liability were as follows:


in thousands
Balance as of December 31, 2021	$	(71,500)
Change in the fair value reported in other non-operating income (expense), net	10,500
Balance as of September 30, 2022	$	(61,000)

4.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:


	As of September 30,		As of December 31,
in thousands	2022		2021
Internal-use software	$	42,899	$	29,047
Server equipment	20,388		28,176
Leasehold improvements	86,537		80,301
Computer equipment	25,177		21,470
Land	13,383		13,383
Buildings	61,345		61,346
Furniture and fixtures	3,073		2,857
Software	3,034		3,252
Construction in progress	15,506		10,717
Total property and equipment	$	271,342	$	250,549
Accumulated depreciation and amortization	(69,579)		(58,222)
Property and equipment, net	$	201,763	$	192,327

The Company recognized depreciation and amortization expense related to its property and equipment as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
in thousands	2022		2021		2022		2021
Cost of revenue	$	7,227	$	5,132	$	19,853	$	15,343
Research and development	1,462		864		4,561		2,307
Sales and marketing	2,228		1,508		6,399		4,174
General and administrative	426		343		1,469		897
Total depreciation and amortization expense	$	11,343	$	7,847	$	32,282	$	22,721

5.LEASES

The Company has operating leases for corporate offices under non-cancelable operating leases with various expiration dates. There are no finance leases. The leases have remaining terms of 1 to 14 years. Options to extend for up to 10 years have not been included because they are not reasonably certain to be exercised.

The components of lease expense were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
in thousands	2022		2021		2022		2021
Operating lease cost	$	7,341	$	5,388	$	22,254	$	16,513
Variable and short-term lease cost	2,678		2,031		7,098		5,498

Other information related to leases was as follows:


	As of September 30,		As of December 31,
	2022		2021
Weighted average remaining lease term	10.9 years		11.9 years
Weighted average discount rate	2.08	%	2.07	%

As of September 30, 2022, the maturities of lease liabilities under non-cancelable operating leases, net of lease incentives, were as follows:


	As of September 30,
in thousands	2022
Remainder of 2022	3,087
2023	14,190
2024	28,241
2025	30,396
2026	31,038
Thereafter	203,591
Total minimum lease payments	$	310,543
Less: imputed interest	(35,138)
Total	$	275,405

6.BUSINESS COMBINATIONS

Clarabridge, Inc.

On October 1, 2021, the Company acquired all outstanding stock of Clarabridge, Inc. (“Clarabridge”), a customer experience management software company headquartered in Reston, Virginia, pursuant to an Agreement and Plan of Reorganization and Merger (“Merger Agreement”). The acquisition was completed to strengthen the Company’s omnichannel conversational analytics and experience management platform.

Pursuant to the terms of the Merger Agreement, all outstanding shares of Clarabridge capital stock were cancelled in exchange for consideration in the form of shares of Class A common stock of the Company and cash, as provided by the Merger Agreement. The number of shares of Class A common stock issued to the sellers was fixed at 24,142,065 shares (“Acquisition Shares”) valued at $43.88 per share (the Company’s stock price on the acquisition date). The acquisition date fair value of the consideration transferred for Clarabridge consisted of the following:


in thousands
Cash, net of cash acquired	$	81,189
Fair value of shares issued	1,059,354
Fair value of stock options assumed	127,139
Total	$	1,267,682

Below is the allocation of the purchase price:


in thousands	Clarabridge
Accounts receivable	18,538
Prepaid expenses and other assets	2,888
Property and equipment	6,414
Customer relationships	101,160
Developed technology	151,530
Tradenames	1,240
Goodwill	1,064,002
Total assets acquired	1,345,772
Accounts payable	(2,724)
Accrued liabilities	(9,455)
Deferred revenue	(36,421)
Deferred tax liabilities	(25,133)
Other liabilities	(4,357)
Total assets acquired, net	$	1,267,682

Estimating the fair value of the acquired intangible assets requires significant estimates and assumptions which are inherently uncertain and therefore actual results could differ from those estimates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Most of the net tangible assets were valued at their respective carrying amounts as of the acquisition date, as the Company believes that these amounts approximate their fair values, with the exception of deferred revenue, which was reduced to its fair value as of the acquisition date.

Adjustments in purchase price allocations during the nine months ended September 30, 2022 related to tax adjustments on pre-acquisition net operating losses and decreased deferred tax liabilities by $1.3 million with a corresponding decrease to goodwill. The goodwill arising from the acquisition consists largely of the synergies the Company is expected to achieve from combining the acquired assets and operations with its existing operations. Goodwill related to Clarabridge is not deductible for tax purposes.

Other acquisitions

On July 20, 2021, the Company acquired all of the outstanding stock of Usermind, Inc. (“Usermind”) in exchange for cash, net of cash acquired. The acquisition was completed to strengthen the Company’s experience orchestration and management platform. The assets, liabilities, and operating results of Usermind are reflected in the Company’s consolidated financial statements from the date of acquisition.

On December 3, 2021, the Company acquired all of the outstanding stock of SurveyVitals, Inc. (“SurveyVitals”), in exchange for primarily cash, net of cash acquired. The acquisition was completed to strengthen

the Company’s healthcare experience offerings. The assets, liabilities, and operating results of SurveyVitals are reflected in the Company’s consolidated financial statements from the date of acquisition.

The aggregate purchase price of these two acquisitions was $61.9 million, net of cash acquired. The allocation of the purchase price for the Usermind and SurveyVitals acquisitions is as follows:


in thousands	Usermind and SurveyVitals
Developed technology	$	5,070
Customer relationships	8,440
Licenses and certifications	6,350
Tradenames	100
Goodwill	47,204
Other assets, net	947
Total assets acquired	68,111
Other liabilities, net	(6,168)
Total assets acquired, net	$	61,943

Adjustments in purchase price allocations during the nine months ended September 30, 2022 related to adjustments to the intangible asset valuation models and decreased intangible assets by $0.8 million, tax adjustments from pre-acquisition research and development tax credits and decreased other assets, net by $0.1 million, and tax adjustments from a change in the pre-acquisition tax balances and decreased other liabilities, net by $0.4 million, with a corresponding total increase to goodwill of $0.5 million. The goodwill arising from the acquisitions consists largely of the synergies the Company is expected to achieve from combining the acquired assets and operations with its existing operations. Goodwill related to the acquisitions is not deductible for tax purposes.

7.GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

Changes in the carrying amount of goodwill were as follows:


in thousands
Balance as of December 31, 2021	$	1,118,768
Adjustments in purchase price allocations	(853)
Balance as of September 30, 2022	$	1,117,915

The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill and acquired assets and liabilities assumed during the periods in which the adjustments are determined.

Other intangible assets, net

Other intangible assets, net consisted of the following:


	As of September 30,		As of December 31,
in thousands	2022		2021
Patents	$	751	$	751
Developed technology	159,670		159,665
Customer relationships	111,700		111,965
Developed content	400		400
Tradename	1,890		1,915
Licenses and certifications	6,350		6,845
License agreements	1,500		1,500
Total intangible assets	$	282,261	$	283,041
Accumulated amortization	(58,617)		(18,541)
Other intangible assets, net	$	223,644	$	264,500

The Company recognized amortization expense related to its acquired intangible assets as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
in thousands	2022		2021		2022		2021
Cost of revenue	$	7,452	$	442	$	22,529	$	973
Sales and marketing	5,531		74		16,589		176
General and administrative	320		47		958		141
Total amortization of acquired intangible assets	13,303		563		40,076		1,290

Estimated amortization expense for intangible assets for the next five years consists of the following:


	As of September 30,
in thousands	2022
Remainder of 2022	13,228
2023	51,002
2024	50,885
2025	49,934
2026	41,366
Thereafter	17,229
Total	$	223,644

8.ACCRUED LIABILITIES

Accrued liabilities consisted of the following:


	As of September 30,		As of December 31,
in thousands	2022		2021
Accrued wages, bonuses and commissions	$	72,793	$	93,021
Accrued payroll taxes	6,426		7,295
Other accrued expenses	34,481		44,037
Accrued income taxes	10,931		23,049
Total accrued liabilities	$	124,631	$	167,402

(1)

9.COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, the Company is a party to a variety of claims, lawsuits, and proceedings which arise in the ordinary course of business, including claims of alleged infringement of intellectual property rights. The Company records a liability when it believes that it is probable that a loss will be incurred, and the amount of loss or range of loss can be reasonably estimated. Given the unpredictable nature of legal proceedings, the Company bases its estimate on the information available at the time of the assessment. As additional information becomes available, the Company reassesses the potential liability and may revise the estimate. The Company is not presently a party to any litigation the outcome of which, it believes, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on its business, operating results, or financial condition.

10.STOCK-BASED COMPENSATION

Stock-based compensation expense, including cash settled, for the three and nine months ended September 30, 2022 and 2021 was recorded as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
in thousands	2022		2021		2022		2021
Cost of subscription revenue	$	4,905	$	2,516	$	13,783	$	8,522
Cost of professional services and other revenue	9,445		6,977		25,754		18,161
Research and development	28,722		33,697		115,553		89,410
Sales and marketing	55,622		36,651		155,540		94,917
General and administrative	148,582		196,979		467,962		553,582
Total stock-based compensation expense, including cash settled	247,276		276,820		778,592		764,592

Cash Awards

During the three months ended September 30, 2022 and 2021, less than 0.1 million Qualtrics Rights and Move SAP RSUs vested and were settled for $0.7 million and $2.9 million in cash, respectively. During the nine months ended September 30, 2022 and 2021, less than 0.1 million and 1.8 million Qualtrics Rights and Move SAP RSUs vested and were settled for $4.7 million and $76.9 million in cash, respectively. The unrecognized expense related to

Qualtrics Rights and Move SAP RSUs was $0.7 million and $4.4 million as of September 30, 2022 and December 31, 2021, respectively, and will be recognized over a remaining vesting period of up to two years.

Equity Awards

Qualtrics RSUs

The following table sets forth the outstanding Qualtrics RSUs and related activity for the nine months ended September 30, 2022:


	Number of RSUs (in thousands)	Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2021	82,164	$	43.11
Granted	32,117	21.69
Vested	(28,824)	42.03
Forfeited/Canceled	(5,208)	37.19
Outstanding as of September 30, 2022	80,249	$	35.31

The total fair value of RSUs that vested during the three months ended September 30, 2022 and 2021 was $20.2 million and $15.3 million, respectively. The total fair value of RSUs that vested during the nine months ended September 30, 2022 and 2021 was $704.0 million and $184.4 million, respectively. As of September 30, 2022, there was $2,251.0 million of unrecognized stock-based compensation expense related to outstanding Qualtrics RSUs, which is expected to be recognized over a weighted-average period of 2.6 years.

Qualtrics Options

On October 1, 2021, in connection with the acquisition of Clarabridge, the Company assumed the outstanding Clarabridge stock option plans and converted all outstanding stock options into Qualtrics options. The following table sets forth the outstanding common stock options and related activity for the nine months ended September 30, 2022:


	Number of Options (in thousands)	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021	1,855	$	4.84	6.3	$	56,684
Exercised	(257)	4.11
Forfeited/Expired	(27)	6.34
Outstanding as of September 30, 2022	1,571	$	4.93	5.4	$	8,238
Vested and exercisable at September 30, 2022	787	$	4.61	5.4	$	4,387

The intrinsic value represents the excess of the estimated fair value of the Company's common stock on the date of exercise over the exercise price of each option. The intrinsic value of options as of September 30, 2022 is based on the market closing price of the Company's Class A common stock on that date. The aggregate intrinsic value of options exercised was $1.1 million and $4.3 million for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2022, there was $11.8 million of unrecognized stock-based compensation expense related to outstanding stock options which is expected to be recognized over a weighted-average period of 2 years.

Qualtrics Employee Stock Purchase Plan

In December 2020, the Company's board of directors approved the 2021 Qualtrics International Inc. Employee Stock Purchase Plan (the “ESPP”), which became effective in January 2021. Each employee who is a participant in the ESPP may purchase shares by authorizing contributions at a minimum of 1% up to a maximum of 20% of his or

her compensation for each pay period. Accumulated contributions are used to purchase shares on the last business day of the purchase period at a price equal to 85% of the fair market value of the shares on the first business day of the offering period or the last business day of the offering period, whichever is lower, provided that no more than the number of shares of Class A common stock determined by dividing $15,000 by the fair market value of the shares on the first business day of the offering period may be purchased by any one employee during each purchase period. An employee may also purchase no more than $25,000 worth of shares of Class A common stock for each calendar year in which a purchase right is outstanding. The Company recognized compensation expense associated with the ESPP of $9.3 million and $4.3 million during the three months ended September 30, 2022 and 2021, respectively, and $19.6 million and $11.9 million during the nine months ended September 30, 2022 and 2021, respectively.

11.NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

The following table sets forth the calculation of basic net loss per share attributable to common stockholders during the periods presented:


in thousands (except share amount)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net loss attributable to common shareholders	$	(233,548)	$	(286,033)	$	(805,118)	$	(749,374)
Denominator:
Weighted-average Class A and Class B shares used in computing net loss per share attributable to common stockholders, basic and diluted	586,850,097		515,212,996		581,664,521		503,781,082
Net loss per share attributable to common stockholders, basic and diluted	$	(0.40)	$	(0.56)	$	(1.38)	$	(1.49)

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. The following table discloses securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because to do so would have been antidilutive for all periods presented:


	As of September 30, 2022	As of December 31, 2021
Qualtrics restricted stock units	80,248,895	82,163,894
Qualtrics options	1,570,517	1,854,965
Qualtrics employee stock purchase program	992,769	687,000

12.INCOME TAXES

The Company has an effective tax rate of 1.4% and (1.9)% for the three months ended September 30, 2022 and 2021, respectively, and (0.9)% and 0.6% for the nine months ended September 30, 2022 and 2021, respectively. The Company has incurred U.S. operating losses and has minimal profits in its foreign jurisdictions. Our effective tax rate is affected by tax rates in both U.S. and foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as share-based compensation, and changes in our valuation allowance.

In prior years, the Company had calculated the income taxes in its consolidated financial statements on a separate return basis. However, the Company was in actuality included in the consolidated, combined or unitary U.S. federal and state income tax returns with SAP America, Inc. and its affiliates. As a result of the federal tax

deconsolidation from SAP in the fourth quarter of 2021, net operating losses and credits were updated to reflect actual attributes available for use by the Company. The Company is now required to file separate U.S. federal tax returns for each of its U.S. taxable entities. The Company is subject to a tax sharing agreement with SAP that requires the Company to reimburse SAP, or be reimbursed by SAP, for the Company's taxable income, or loss in the case of reimbursement, that is included on consolidated tax returns with SAP, such as certain combined or unitary state returns, subject to adjustments for hypothetical tax attributes and certain simplifying conventions.

The Company has evaluated all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and has determined that it is more likely than not that the net deferred tax assets for some of the Company’s U.S. entities will not be realized. Due to uncertainties surrounding the realization of the deferred tax assets in these entities, the Company maintains a full valuation allowance against its net U.S. deferred tax assets.

13.RELATED PARTY TRANSACTIONS

Since the SAP acquisition in 2019, SAP and its affiliates are related parties to the Company. The Company has entered into certain arrangements for services and products with SAP and its affiliates.

The consolidated statements of operations and comprehensive loss include all revenue and costs directly attributable and/or allocable to the Company, including costs for facilities, functions, and services used by Qualtrics. The condensed consolidated statement of operations also includes expenses of SAP directly charged to Qualtrics for certain functions provided by SAP, including, but not limited to, sales organization costs, insurance, employee benefits, human resources and usage of data centers. The Company directly charges SAP for certain functions provided to SAP, including sales support. These charges were determined based on actual expenses incurred on Qualtrics’ or SAP’s behalf or by usage.

During the three months ended September 30, 2022 and 2021, the Company recognized revenue of $10.6 million and $6.0 million, respectively, from SAP and its affiliates in exchange for services and products. During the nine months ended September 30, 2022 and 2021, the Company recognized revenue of $31.6 million and $16.8 million, respectively, from SAP and its affiliates in exchange for services and products. Total costs charged from SAP and its affiliates to the Company were $12.1 million and $13.3 million during the three months ended September 30, 2022 and 2021, respectively, and $34.0 million and $40.5 million during the nine months ended September 30, 2022 and 2021, respectively. Total costs charged from the Company to SAP and its affiliates were $3.7 million and $5.5 million during the three months ended September 30, 2022 and 2021, respectively, and $11.8 million and $14.6 million during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the outstanding receivable and payable balance with SAP and its affiliates was $17.9 million and $8.5 million, respectively. As of December 31, 2021, the outstanding receivable and payable balance with SAP and its affiliates was $42.0 million and $13.3 million, respectively.

Because of the SAP Acquisition, we had been included in SAP America’s consolidated group for U.S. federal income tax purposes. In October 2021, we deconsolidated from the SAP Tax Group for U.S. federal income tax purposes. We expect to remain a member of the SAP Tax Group for certain state filings. Pursuant to the tax sharing agreement with SAP, for taxable periods beginning after December 31, 2020, we will make certain tax sharing payments to SAP. As of September 30, 2022, the Company’s distribution liability for the tax sharing agreement with SAP totaled $78.0 million, consisting of $17.0 million based on our separate tax liability included on SAP Tax Group returns and $61.0 million based on an estimated fair value of the liability related to Pre-IPO Awards. As of December 31, 2021, the Company’s distribution liability for the tax sharing agreement with SAP totaled $88.5 million, consisting of $17.0 million based on our separate tax liability included on SAP Tax Group returns and $71.5 million based on an estimated fair value of the liability related to Pre-IPO Awards.

In January 2021, and in connection with the initial public offering, the Company declared a $2,392 million dividend in the form of two promissory notes payable from Qualtrics to SAP AMERICA, INC. Promissory Note 1 was issued with a principal amount of $1,892 million and paid in full on February 1, 2021. Promissory Note 2 was issued with a principal amount of $500 million and interest rate of 1.35% compounded semi annually. The

outstanding principal of $500 million and accrued interest related to Promissory Note 2 was paid in full on November 9, 2021.

Certain Board members of the Company and certain Supervisory Board and Executive Board members of SAP SE currently hold, or held within the last year, positions of significant responsibility with other entities. We have relationships with certain of these entities in the ordinary course of business. During the three and nine months ended September 30, 2022, and 2021, revenue and charges from these related parties were immaterial.

In December 2020, Ryan Smith, our Founder and Executive Chair, acquired a majority interest in the Utah Jazz basketball franchise, the associated venue, and certain related sports teams and operations and business interests. In 2019, the Company entered into multi-year agreements with the Utah Jazz related to ticket purchases, advertising, sponsorships, and the Utah Jazz Five for the Fight Campaign, under which we were billed $0.3 million and $0.4 million during the three months ended September 30, 2022 and 2021, respectively, and $2.6 million and $4.2 million during the nine months ended September 30, 2022 and 2021, respectively.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We created the first experience management platform to design and manage customer, employee, product, and brand experiences. Our platform serves as a business operating system for experience management. The Qualtrics Experience Management Platform, or XM Platform, is a system of action that helps companies design and improve the experiences they provide to their many constituents across these four core experiences.

Our revenue was $377.5 million and $271.6 million for the three months ended September 30, 2022 and 2021, respectively, representing year-over-year growth of 39%. Our revenue was $1,069.5 million and $759.6 million for the nine months ended September 30, 2022 and 2021, respectively, representing year-over-year growth of 41%. For the three months ended September 30, 2022 and 2021, our net loss was $233.5 million and $286.0 million, respectively, and $805.1 million and $749.4 million for the nine months ended September 30, 2022 and 2021, respectively. The results of our operations for the three and nine months ended September 30, 2022 and 2021 were impacted by equity and cash settled stock-based compensation expense.

We generate revenue by selling subscriptions to our XM Platform and integrated solutions, as well as professional services. Over 99% of our contracts have a subscription period of one year or longer, and we primarily bill annually in advance. Subscription revenue comprised approximately 83% and 84% of our total revenue for the three and nine months ended September 30, 2022, respectively. We have a diversified customer base consisting of organizations of various sizes across virtually all industries. Our largest customer accounted for less than 3% of revenue during the three and nine months ended September 30, 2022, and our largest industries by annual recurring revenue, or ARR, as of September 30, 2022 were financial services, professional and business services, education, technology, government, and healthcare. ARR is calculated by annualizing subscription revenue in the last month of a period.

We price and package our software subscriptions solutions based on the capacity, use case, and functionality needs of our customers. This pricing and packaging includes volume of expected responses, number of users accessing our platform, number of employees, and level of functionality provided, such as dashboards, iQ functionality, and integrations. We have also recently begun to offer use case pricing that simplifies pricing for customers seeking to address specific needs. Our customers often expand their subscriptions as they increase volume of responses, add solutions and integrations, grow users and employees, and increase features and workflows within each solution.

Our professional services consist primarily of research services, through our DesignXM offering, which allows customers to gain market intelligence by procuring a curated group of respondents and returning actionable results, while conforming to best-practice design and methodology, as well as implementations, configurations, and integration and engineering services to help customers deploy our XM Platform. Other professional services revenue consists of consulting and training fees.

As of September 30, 2022, we had over 5,600 employees.

Key Factors Affecting Our Performance

We believe that the growth and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations.

Customer Acquisition and Expansion

We are focused on continuing to acquire new customers to support our long-term growth. We have invested, and expect to continue to invest, heavily in our sales and marketing efforts to drive customer acquisition. Our customers include businesses of all sizes, academic institutions, and government organizations. We define the number of customers at the end of any particular period as the number of parties or individual legal entities that have entered into a separate subscription contract with us. For avoidance of doubt, international subsidiaries of parent entities are not separately counted, but business units, brands, and academic institutions are counted if they are distinct legal entities. A single organization or customer may have multiple paid business accounts.

Our business model relies on rapidly and efficiently landing new customers and expanding our relationship with them over time. We have a history of attracting new customers, driving expanded use through upselling our XM Platform across the enterprise, and cross-selling through the subsequent deployment of additional solutions throughout the enterprise. Our relationship with SAP has resulted in greater access to enterprise customers and increased cross-sell opportunities through SAP’s customer base.

Investing for Growth

Our investment for growth encompasses multiple critical areas, including international growth, enterprise sales, and product expansion.

Our revenue outside of the United States represented 31% and 29% of our total revenue during the three months ended September 30, 2022 and 2021, respectively, and 30% and 29% of our total revenue during the nine months ended September 30, 2022 and 2021, respectively. We initially started our expansion outside of the United States in English-speaking countries, such as Ireland, the United Kingdom, Canada, and Australia, as we were able to leverage our core technologies and go-to-market motion. Since opening our first international office in Dublin, Ireland in 2013, we now have over 25 sales offices in countries around the globe.

We continue to evolve our technology to ensure that we are best serving our customers’ needs. We believe this will lead to continued strong retention and positive customer referrals that will continue to generate expansion within current customer organizations and business from new customers. Since 2015, we have established offices in Seattle and Poland to expand our engineering headcount. We continue to invest in research and development to drive product innovation and development.

Strategic Partnerships

In 2018, we announced the launch of the Qualtrics Partner Network, or QPN. Since then, we have built out our partner network to include over 300 global member companies partnering with us on our platform to help drive breakthrough business outcomes for joint customers. Since the SAP Acquisition in 2019, we have also developed joint go-to-market and product integrations with SAP. We expect our partnerships to continue to extend our sales reach and provide implementation leverage both domestically and internationally, as well as product and technology integrations that will accelerate our product roadmap.

Key Business Metrics

We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

Large Customers

We define our large customers as those spending more than $100,000 in ARR on our XM Platform. We believe that our ability to increase the number of large customers is an indicator of our market penetration, strategic demand for our platform, the growth of our business, and our potential future business opportunities. Increasing awareness of our XM Platform and its broad range of capabilities, coupled with the mainstream adoption of cloud-based

technology, has expanded the diversity of our large customer base to include organizations of different sizes across virtually all industries.

We continue to increase the number of customers who have entered into larger subscriptions with us. We had 2,199 customers with ARR of $100,000 or more as of September 30, 2022, up from 1,940 as of December 31, 2021. The number of customers with ARR of $100,000 or more indicates the strategic importance of our XM Platform for enterprise customers and our ability to both initially land significant accounts and grow them over time.

Net Retention Rate

We calculate our dollar-based net retention rate to measure our ability to retain and expand subscription revenue from our existing customers and is an indicator of the value our platform delivers to customers and our future business opportunities. Our net retention rate compares our subscription revenue from the same set of customers across comparable periods and reflects customer renewals, expansion, contraction and churn.

We calculate our net retention rate on a trailing four-quarter basis. As of September 30, 2022, our net retention rate was 124%. Our net retention rate was 128% as of December 31, 2021.

To calculate our net retention rate, we first calculate the subscription revenue in one quarter from a cohort of customers that were customers at the beginning of the same quarter in the prior fiscal year, or cohort customers. We repeat this calculation for each quarter in the trailing four-quarter period. The numerator for net retention rate is the sum of subscription revenue from cohort customers for the four most recent quarters, or numerator period, and the denominator is the sum of subscription revenue from cohort customers for the four quarters preceding the numerator period.

SAP Acquisition

The results of our operations include all revenue and costs directly attributable and/or allocable to the Company, including costs for facilities, functions, and services used by Qualtrics. Our results also include expenses of SAP directly charged to Qualtrics for certain functions provided by SAP, including, but not limited to, sales organization costs, insurance, employee benefits, human resources and usage of data centers. We expect this revenue and these cross charges to continue in the near future. These amounts may fluctuate from period to period based on the nature and extent of the indirect benefits received and provided. See Note 13 “Related Party Transactions” for further details in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

SAP Segment Reporting

Since the SAP Acquisition, certain of our financial results have been presented as an operating segment within SAP’s publicly reported financial results. These Euro-reported financial results are prepared under International Financial Reporting Standards, or IFRS, and presented on a non-IFRS basis. The SAP segment results differ from our standalone financial results primarily due to: differences in reporting currency, differences between IFRS and GAAP, differences in the reporting of certain related party transactions between Qualtrics and SAP, SAP’s reporting of expenses related to certain corporate overhead functions, and differences in the reporting related to the SAP Acquisition.

Response to COVID-19

In response to the COVID-19 pandemic, we implemented a variety of measures, including a COVID-19 task force, a temporary work from home policy, new operating guidelines for our offices based on local conditions, restrictions on work-related travel, and additional wellness benefits for employees, all of which have the potential to result in disruptions to how we operate our business. We have begun relaxing many of these measures, in compliance with local restrictions and orders, including the implementation of a hybrid work policy, but some of them are ongoing. Our employees’ health and safety is our top priority, and we continue to monitor the status of the pandemic globally. Our customers and partners have similarly been impacted. Our XM Platform enables customers to focus on managing their customer, employee, product, and brand experiences, which is increasingly important in

a digitally connected world. Although we believe our business is well-suited to navigate the current environment, the ultimate impact of the COVID-19 pandemic cannot be accurately predicted at this time, and the direct and indirect impact on our business, results of operations, and financial condition will depend on future developments that are uncertain. We have experienced, and may continue to experience, an adverse impact on certain parts of our business. The conditions caused by the pandemic have adversely affected or may in the future adversely affect, among other things, demand, spending by new customers, renewal and retention rates of existing customers, the length of our sales cycles, sales productivity, the value and duration of subscriptions, supply of goods and services provided by third parties, collections of accounts receivable, our IT and other expenses, our ability to focus time and attention on our core business, our ability to recruit, and the ability of our employees to travel, all of which could adversely affect our business, results of operations, and financial condition.

We have also experienced, and may continue to experience, certain positive impacts on other aspects of our business, including an increase in sales of our platform to state, local, and federal governments and non-profit organizations to help them navigate through the pandemic as well as sales of vaccine and testing verification solutions on our XM Platform. Moreover, we have seen a reduction in certain operating expenses due to reduced business travel, reduced office use, deferred hiring for some positions, and the virtualization or cancellation of customer and employee events. Additionally, we believe that the COVID-19 pandemic could also accelerate customer transformation into digital businesses, which we expect will generate additional opportunities for us in the future. These benefits, however, may be reduced by difficulties in renewing licenses for pandemic-related solutions and increased operating costs as the world emerges from the COVID-19 pandemic.

The global impact of COVID-19 continues to evolve, including as a result of new variants of the virus and the changing legal landscape, and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know the full extent of potential impacts on our business or operations. In particular, due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue until future periods. Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows, or financial condition. For additional details, see “Risk Factors.”

Components of Our Results of Operations

Revenue

We generate revenue from sales of subscriptions to our XM Platform and related professional services.

Subscription revenue is recognized ratably over the related contractual term, generally beginning on the date that our XM Platform is made available to our customer. Our subscription agreements generally have annual contractual terms, with a growing number having multi-year contractual terms. Our agreements generally cannot be canceled for a refund. We primarily bill in advance for our annual contracts and annually in advance for our multi-year contracts. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. Subscription revenue as a percentage of total revenue may fluctuate period to period.

Professional services and other revenue consists primarily of research services, implementation services, and engineering services. Research services revenue is recognized upon completion of the project. Our research services agreements generally cannot be canceled for a refund. We typically bill in advance for research services projects, with a number of customers purchasing annual retainers to fund future projects. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. Implementation services and engineering services include fees associated with new and expanding customers requesting implementation, integration, customization, consulting, and other services. We price these services on a fixed fee basis. Our implementation services and engineering services agreements generally cannot be canceled for a refund. We typically bill in advance for professional services and other revenue. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. We continue to increase deployment of partners to fulfill certain of these services, especially implementation services, and we generally expect professional services and other revenue to decrease as a percentage of total revenue in the long term, although this percentage may fluctuate from period to period.

Cost of revenue and gross margin

Cost of revenue. Our cost of subscription revenue includes expenses related to operating our XM Platform in data centers, depreciation of our data center equipment, and the amortization of our capitalized internal-use software and acquired technology. Subscription cost of revenue also includes employee-related costs associated with our customer support and XM Platform operations organizations. Our cost of professional services and other revenue includes vendor costs and employee-related costs associated with the delivery of these services. Additionally, we make allocations of certain overhead costs, primarily based on headcount, to each of these costs of revenue. Allocated overhead includes costs such as facilities, including lease expense, utilities, depreciation on leasehold improvements, and shared information technology costs. We expect our cost of revenue will increase in absolute dollars in future periods as we continue to invest in our business.

Gross margin. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period based on the timing of capital expenditures and the related depreciation expense, or other changes in equity and cash settled stock-based compensation, employee-related costs, infrastructure costs, revenue mix, timing of completion of professional services projects, as well as revenue fluctuations. Excluding the impact of equity and cash settled stock-based compensation expense, we generally expect our gross margin to remain relatively consistent in the near term and to increase modestly in the long term, although our gross margin may fluctuate from period to period depending on the interplay of all of these factors.

Operating expenses

Research and development. Our research and development expenses consist primarily of employee-related costs for our engineering, product, and design teams, and allocated overhead.

We plan to continue to hire employees for our engineering, product, and design teams to support our efforts to enhance the functionality and improve the reliability, availability, and scalability of our XM Platform. Excluding the impact of equity and cash settled stock-based compensation expense, we expect our research and development expenses to increase in absolute dollars in future periods, to remain relatively consistent as a percentage of our revenue in the near term, and to decrease as a percentage of our revenue over the long term, although our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Sales and marketing. Our sales and marketing expenses relate to both inside and outbound sales activities, as well as expansion efforts with our current customers. The expenses consist primarily of employee-related costs, marketing programs and events, lead generation fees, indirect benefits received from SAP net of indirect benefits we provide to SAP, and allocated overhead. Sales commissions earned by our sales team and the related payroll taxes, that we consider to be incremental and recoverable costs of obtaining a contract with an organization, are deferred and amortized over an estimated period of benefit of five years.

We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. The trend and timing of sales and marketing expenses will depend in part on the timing of marketing campaigns. Excluding the impact of equity and cash settled stock-based compensation expense, we expect that sales and marketing expenses will increase in absolute dollars in future periods; however, we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, although our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

General and administrative. Our general and administrative expenses consist primarily of employee-related costs for our finance, legal, people operations, and other administrative teams, as well as certain executives. In addition, general and administrative expenses include allocated overhead, outside legal, accounting and other professional fees, and non-income based taxes.

We expect to incur additional general and administrative expenses to support our growth as well as our transition to being a publicly traded company. Excluding the impact of equity and cash settled stock-based compensation expense, we expect that general and administrative expenses will increase in absolute dollars in future

periods. Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Other non-operating income (expense), net

Other non-operating income (expense), net consists of other non-operating gains or losses, including those related to interest income and foreign currency transaction gains and losses.

Provision for income taxes

Provision for income taxes consists primarily of income taxes related to the U.S. and other foreign jurisdictions in which we conduct business. We maintain a full valuation allowance against our deferred tax assets in certain entities as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Other entities do not have a valuation allowance, as they are, and are expected to be taxable in the future. Our effective tax rate is affected by tax rates in both U.S. and foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as share-based compensation, and changes in our valuation allowance.

Income taxes as presented in our consolidated financial statements attribute current and deferred income taxes of SAP to our standalone financial statements in a manner that is systematic, rational and consistent with the asset and liability method prescribed by FASB ASC Topic 740: Income Taxes, or ASC 740. Accordingly, our income tax provision was prepared following the separate return method prior to deconsolidation in October 2021 for U.S. federal income tax purposes, and the separate return method continues to apply for other jurisdictions where we file returns as part of a SAP Tax Group. The separate return method applies ASC 740 to the standalone financial statements of each member of the consolidated group as if the group members were a separate taxpayer and a standalone enterprise. As a result of deconsolidation for U.S. federal income tax purposes, our reported tax attributes in certain jurisdictions were updated in 2021 to reflect the actual tax attributes available for future use by the Qualtrics tax reporting entities that file returns separate from a SAP Tax Group.

Results of Operations

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands)
Revenue:
Subscription	$	314,765	$	220,314	$	896,151	$	611,748
Professional services and other	62,766		51,320		173,392		147,874
Total revenue	377,531		271,634		1,069,543		759,622
Cost of revenue(1)(2):
Subscription	51,087		23,802		143,454		65,865
Professional services and other	60,577		43,041		171,925		127,522
Total cost of revenue	111,664		66,843		315,379		193,387
Gross profit	265,867		204,791		754,164		566,235
Operating expenses(1)(2):
Research and development	98,333		83,875		320,488		226,552
Sales and marketing	225,124		161,570		663,098		449,446
General and administrative	182,280		236,810		572,954		637,944
Total operating expenses	505,737		482,255		1,556,540		1,313,942
Operating loss	(239,870)		(277,464)		(802,376)		(747,707)
Other non-operating income (expense), net	3,058		(3,160)		4,239		(6,091)
Loss before income taxes	(236,812)		(280,624)		(798,137)		(753,798)
Provision for income taxes	(3,264)		5,409		6,981		(4,424)
Net loss	$	(233,548)	$	(286,033)	$	(805,118)	$	(749,374)

________________

(1)Includes equity and cash settled stock-based compensation expense, including cash settled, as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands)
Cost of subscription revenue	$	4,905	$	2,516	$	13,783	$	8,522
Cost of professional services and other revenue	9,445		6,977		25,754		18,161
Research and development	28,722		33,697		115,553		89,410
Sales and marketing	55,622		36,651		155,540		94,917
General and administrative	148,582		196,979		467,962		553,582

(2)Includes amortization of acquired intangible assets as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands)
Cost of revenue	$	7,452	$	442	$	22,529	$	973
Sales and marketing	5,531		74		16,589		176
General and administrative	320		47		958		141

The following table sets forth our results of operations for the periods presented as a percentage of our total revenue for those periods:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(as a % of revenue)
Revenue:
Subscription	83		81		84		81
Professional services and other	17		19		16		19
Total revenue	100	%	100	%	100	%	100	%
Cost of revenue:
Subscription	14		9		13		9
Professional services and other	16		16		16		17
Total cost of revenue	30		25		29		26
Gross profit	70		75		71		74
Operating expenses:
Research and development	26		31		30		30
Sales and marketing	60		59		62		59
General and administrative	48		87		54		84
Total operating expenses	134		177		146		173
Operating loss	(64)		(102)		(75)		(99)
Other non-operating income (expense), net	1		(1)		—		(1)
Loss before income taxes	(63)		(103)		(75)		(100)
Provision for income taxes	(1)		2		1		(1)
Net loss	(62)	%	(105)	%	(76)	%	(99)	%

Comparison of the three months ended September 30, 2022 and 2021

Revenue


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Subscription revenue	$	314,765	$	220,314	$	94,451	43	%
Professional services and other revenue	62,766		51,320		11,446		22	%
Total revenue	$	377,531	$	271,634	$	105,897	39	%

Subscription revenue increased by $94.5 million, or 43%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. This increase was due to increased demand for our solutions from new and existing customers. Of the increase in subscription revenue for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, approximately $73.5 million was attributable to existing customers and approximately $21.0 million was attributable to new customers. The increase in revenue from existing customers was driven by upgrades of current subscription solutions and the purchase of additional solutions within our XM Platform. Pricing changes were not material to the increase in revenue. Professional services and other revenue increased $11.4 million, or 22%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. This increase was due to an increase in revenue from larger customers, who generally require more services.

Cost of revenue, gross profit, and gross margin


	Three Months Ended September 30,
	2022			2021			$ Change		% Change
	(In thousands)
Cost of subscription revenue	$	51,087		$	23,802		$	27,285	115	%
Cost of professional services and other revenue	60,577			43,041			17,536		41	%
Total cost of revenue	111,664			66,843			44,821		67	%

Subscription gross profit	263,678			196,512			67,166		34	%
Professional services and other gross (loss) profit	2,189			8,279			(6,090)		(74)	%
Total gross profit	$	265,867		$	204,791		$	61,076	30	%

Subscription gross margin	84		%	89		%
Professional services and other gross margin	3		%	16		%
Total gross margin	70		%	75		%

Cost of subscription revenue increased $27.3 million, or 115%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. This increase was driven by a $8.3 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring, a $7.8 million increase in server costs, a $7.0 million increase in amortization expense related to acquired intangible assets, a $2.4 million increase in stock-based compensation expense, and a $1.8 million increase in amortization of internal use software. Cost of professional services and other revenue increased $17.5 million, or 41%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. This increase was driven by a $9.3 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring, a $5.7 million increase in professional services vendor costs, and a $2.5 million increase in stock-based compensation expense.

Our gross margins decreased from 75% during the three months ended September 30, 2021 to 70% during the three months ended September 30, 2022, due to a decrease in subscription gross margins driven by an increase in amortization expense and other expenses discussed above and a decrease in professional services and other gross margins based on the changes discussed above. Our professional services and other gross margins reflect our investment in certain of our professional services and our partner ecosystem, which facilitate the adoption of our subscription offerings and help us to secure subscription revenue contracts and ensure our customers' success.

Operating Expenses

Research and development


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Research and development	$	98,333	$	83,875	$	14,458	17	%

Research and development expenses increased $14.5 million, or 17%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. This increase was driven by a $17.7 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring as we continue to add to and enhance our products, a $1.4 million increase in vendor costs, and a $0.4 million increase in employer payroll tax on employee stock transactions, offset by an $5.0 million decrease in stock-based compensation expense.

Sales and marketing


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Sales and marketing	$	225,124	$	161,570	$	63,554	39	%

Sales and marketing expenses increased $63.6 million, or 39%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase in sales and marketing was driven by a $40.9 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring, a $19.0 million increase in stock-based compensation expense, a $5.5 million increase in amortization expense, a $1.9 million increase in travel-related expenses, and a $0.8 million increase in employer payroll tax on employee stock transactions, offset by a $4.5 million decrease in marketing spend.

General and administrative


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
General and administrative	$	182,280	$	236,810	$	(54,530)	(23)	%

General and administrative expenses decreased $54.5 million, or 23%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The decrease in general and administrative expenses was driven by a $48.4 million decrease in stock-based compensation expense and a $13.4 million decrease in acquisition related costs, offset by a $6.5 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring and a $0.5 million increase in employer payroll tax on employee stock transactions.

Other non-operating income (expense), net

Other non-operating income (expense), net increased $6.2 million for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. This increase was driven by a $4.0 million non-operating gain related to the change in the fair value of our distribution liability related to our tax sharing agreement with SAP, a $3.0 million increase in interest income, and a $1.7 million decrease in interest expense, offset by foreign currency transaction losses.

Provision (benefit) for income taxes

Provision (benefit) for income taxes decreased $8.7 million for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The change was primarily due to a decrease in an uncertain tax liability and a decrease in current tax expense forecasted in the U.S. and the impact of valuation allowances recorded against our deferred tax assets for the three months ended September 30, 2022, compared to the recording of an uncertain tax liability recorded as a discrete item in the three months ended September 30, 2021.

Our effective tax rate was 1.4% for the three months ended September 30, 2022, as compared to (1.9)% for the three months ended September 30, 2021.

The difference between the U.S. statutory rate of 21% and our effective tax rate, on a loss before income taxes, is primarily driven by rate adjustments due to foreign taxes, non-deductible share-based compensation, current tax expense forecasted in the U.S., and the impact of valuation allowances recorded against our deferred tax assets.

Comparison of the nine months ended September 30, 2022 and 2021

Revenue


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Subscription revenue	$	896,151	$	611,748	$	284,403	46	%
Professional services and other revenue	173,392		147,874		25,518		17	%
Total revenue	$	1,069,543	$	759,622	$	309,921	41	%

Subscription revenue increased by $284.4 million, or 46%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. This increase was due to increased demand for our solutions from new and existing customers. Of the increase in subscription revenue for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, approximately $211.5 million was attributable to existing customers and approximately $72.9 million was attributable to new customers. The increase in revenue from existing customers was driven by upgrades of current subscription solutions and the purchase of additional solutions within our XM Platform. Pricing changes were not material to the increase in revenue. Professional services and other revenue increased $25.5 million, or 17%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. This increase was primarily due to an increase in revenue from larger customers, who generally require more services.

Cost of revenue, gross profit, and gross margin


	Nine Months Ended September 30,
	2022			2021			$ Change		% Change
	(In thousands)
Cost of subscription revenue	$	143,454		$	65,865		$	77,589	118	%
Cost of professional services and other revenue	171,925			127,522			44,403		35	%
Total cost of revenue	315,379			193,387			121,992		63	%

Subscription gross profit	752,697			545,883			206,814		38	%
Professional services and other gross (loss) profit	1,467			20,352			(18,885)		(93)	%
Total gross profit	$	754,164		$	566,235		$	187,929	33	%

Subscription gross margin	84		%	89		%
Professional services and other gross margin	1		%	14		%
Total gross margin	71		%	75		%

Cost of subscription revenue increased $77.6 million, or 118%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, consistent with the increase in subscription revenue growth over the same period. This increase was driven by a $26.6 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring, a $21.6 million increase in amortization expense, a $20.5 million increase in server costs, a $5.3 million increase in stock-based compensation expense, and a $3.4 million increase in amortization of internal use software. Cost of professional services and other revenue increased $44.4 million, or 35%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. This increase was driven by a $19.7 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring, a $16.5 million increase in professional services vendor costs, and a $7.6 million increase in stock-based compensation expense.

Our gross margins decreased from 75% during the nine months ended September 30, 2021 to 71% during the nine months ended September 30, 2022, due primarily to a decrease in subscription gross margins driven by an increase in amortization expense and other expenses discussed above and a decrease in professional services and other gross margins based on the changes discussed above. Our professional services and other gross margins reflect our investment in certain of our professional services and our partner ecosystem, which facilitate the adoption of our subscription offerings and help us to secure subscription revenue contracts and ensure our customers' success.

Operating Expenses

Research and development


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Research and development	$	320,488	$	226,552	$	93,936	41	%

Research and development expenses increased $93.9 million, or 41%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. This increase was driven by a $59.8 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring as we continue to add to and enhance our products, a $26.1 million increase in stock-based compensation expense, a $4.3 million increase in employer payroll tax on employee stock transactions, and a $3.7 million increase in outside vendor costs.

Sales and marketing


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Sales and marketing	$	663,098	$	449,446	$	213,652	48	%

Sales and marketing expenses increased $213.7 million, or 48%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase in sales and marketing was driven by an $121.7 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring, a $60.6 million increase in stock-based compensation expense, an $16.4 million increase in amortization expense, a $11.2 million increase in travel-related expenses, and a $4.0 million increase in employer payroll tax on employee stock transactions, offset by a $0.4 million decrease in marketing spend.

General and administrative


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
General and administrative	$	572,954	$	637,944	$	(64,990)	(10)	%

General and administrative expenses decreased $65.0 million, or 10%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease in general and administrative expenses was driven by a $85.6 million decrease in stock-based compensation expense and a $12.6 million decrease in acquisition related costs, offset by a $25.0 million increase in employee-related costs from headcount growth related to our recent acquisitions and hiring and a $7.3 million increase in employer payroll tax on employee stock transactions.

Other non-operating income (expense), net

Other non-operating income (expense), net increased $10.3 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. This increase was driven by a $10.5 million non-

operating gain related to the change in the fair value of our distribution liability related to our tax sharing agreement with SAP, a $4.1 million increase in interest income, and a $4.6 million decrease in interest expense, offset by foreign currency transaction losses.

Provision (benefit) for income taxes

Provision (benefit) for income taxes increased $11.4 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, and our effective tax rate was (0.9)% for the nine months ended September 30, 2022, as compared to 0.6% for the nine months ended September 30, 2021. The change was primarily due to a share-based compensation shortfall recorded in the nine months ended September 30, 2022, as well as the net benefit related to the change in uncertain tax liabilities and tax benefits related to the finalization of tax returns in various foreign jurisdictions, both recorded during the nine months ended September 30, 2021.

Liquidity and Capital Resources

As of September 30, 2022, we had cash and cash equivalents of $731.7 million. Our cash and cash equivalents consist primarily of cash and money market funds. As of September 30, 2022, we had $28.8 million of our cash and cash equivalents held by our foreign subsidiaries.

We have financed our operations primarily through cash generated from our operations, equity issuances, and proceeds from capital contributions received from SAP in conjunction with the SAP Acquisition and funding of cash settled stock-based compensation expense. Our principal uses of cash in recent periods have been funding our operations, making capital expenditures, and settling stock-based awards and related tax obligations.

We believe our existing cash and cash equivalents, together with cash provided by operations, will be sufficient to meet our needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth rate, subscription renewal activity, the timing and extent of spending to support further infrastructure development and research and development efforts, the timing and extent of additional capital expenditures to invest in existing and new office spaces, the satisfaction of tax withholding obligations related to the vesting of share-based awards, the settlement of liabilities related to the tax sharing agreement with SAP, the expansion of sales and marketing and international operation activities, the introduction of new product capabilities and enhancement of our XM Platform, and the continuing market acceptance of our XM Platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be materially and adversely affected.

Our cash flow activities were as follows for the periods presented:


	Nine Months Ended September 30,
	2022		2021
	(In thousands)
Net cash flows used in operating activities	$	(5,994)	$	(10,863)
Net cash used in investing activities	(36,203)		(54,711)
Net cash flows provided by financing activities	(236,918)		452,747
Effect of exchange rate changes on cash and cash equivalents	(3,672)		(1,118)
Net increase in cash and cash equivalents	$	(282,787)	$	386,055

Operating activities

Our largest source of operating cash is cash collections from our paying customers for subscriptions to our XM Platform. Our primary uses of cash from operating activities are for employee-related costs, infrastructure-related expenditures, and marketing expenses. Net cash provided by operating activities is impacted by our net loss adjusted

for certain non-cash items, including depreciation and amortization expenses and equity and cash settled stock-based compensation, as well as the effect of changes in operating assets and liabilities.

For the nine months ended September 30, 2022, net cash used in operating activities was $6.0 million, which resulted from a net loss of $805.1 million, adjusted for $778.6 million in stock-based compensation expense, cash settlement of stock-based payment liabilities of $4.7 million, additional non-cash charges of $118.9 million, and net cash outflow of $93.6 million from changes in operating assets and liabilities. Additional non-cash charges primarily consisted of $72.4 million of depreciation and amortization expense, $51.6 million of amortization of deferred contract acquisition costs, and $22.3 million related to the reduction of right-of-use assets from operating leases, offset by $17.1 million in deferred income tax benefits and a $10.5 million change in the fair value of the tax sharing distribution liability. The outflow from operating assets and liabilities was primarily due to an $84.5 million increase in deferred contract acquisition costs as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions, a $61.4 million decrease in deferred revenue, a $56.0 million decrease in accrued liabilities and accounts payable, a $17.3 million decrease in lease liabilities, and a $6.8 million increase in prepaid and other assets, offset by a $135.5 million decrease in accounts receivable due to the timing of collections.

For the nine months ended September 30, 2021, net cash used in operating activities was $10.9 million, which resulted from a net loss of $749.4 million, adjusted for $764.6 million in stock-based compensation expense, cash settlement of stock-based payment liabilities of $76.9 million, additional non-cash charges of $72.5 million, and net cash outflow of $21.7 million from changes in operating assets and liabilities. Additional non-cash charges primarily consisted of $36.0 million of amortization of deferred contract acquisition costs, $24.0 million of depreciation and amortization expense, and $16.6 million related to the reduction of right-of-use assets from operating leases. The outflow from operating assets and liabilities was primarily due to a $55.0 million increase in deferred contract acquisition costs as our sales commission payments increased due to addition of new customers and expansion of our existing customer subscriptions, an $18.1 million increase in prepaid and other assets, a $10.4 million decrease in lease liabilities, and a $1.0 million decrease in other liabilities, partially offset by a $37.3 million decrease in accounts receivable due to the timing of collections, an $18.8 million increase in deferred revenue, and a $6.6 million increase in accrued liabilities and accounts payable.

Investing activities

Net cash used in investing activities is primarily impacted by purchases of property and equipment, particularly for capital expenditures for our data centers, capitalized software, and improvements to existing and new office spaces.

Net cash used in investing activities during the nine months ended September 30, 2022 and 2021 of $36.2 million and $54.7 million, respectively, resulted primarily from capital expenditures for our XM Platform and office build-outs and $25.0 million cash paid for business combinations during the nine months ended September 30, 2021.

Financing activities

Net cash used in financing activities of $236.9 million during the nine months ended September 30, 2022 consisted of $270.9 million in payments of payroll withholding taxes to net settle equity awards, offset by $34.0 million in proceeds from the exercise of stock options and issuance of Class A stock under our employee stock purchase plan.

Net cash provided by financing activities of $452.7 million during the nine months ended September 30, 2021 consisted of $115.0 million in proceeds from a capital contribution from SAP, $2,244.3 million in proceeds from the sales of our Class A common stock in connection with our initial public offering, and $16.6 million related to the issuance of Class A common stock related to our employee stock purchase plan, partially offset by $1,892.3 million in payments on a promissory note paid to SAP, $3.1 million in payments of costs related to our initial public offering, and $27.8 million in payment of payroll withholding taxes to net settle equity awards.

Remaining Performance Obligations


	As of September 30,		As of December 31,
	2022		2021
	(In thousands)
Next 12 Months	$	1,047,185	$	1,011,768
Thereafter	847,515		721,069
Total	$	1,894,700	$	1,732,837

These amounts are based on our best judgment, as we need to consider estimates of possible future contract modifications. The amount of transaction price allocated to the remaining performance obligations, and changes in this amount over time, are impacted by currency fluctuations, the contract period of our cloud contracts remaining at the balance sheet date and the timing of contract renewals, among others.

Contractual Obligations and Commitments

Our principal commitments consist of obligations under operating leases for office space, non-cancelable contracts for cloud infrastructure services and other services, and obligations under our tax sharing agreement with SAP. There have been no material changes in our contractual obligations and commitments, as disclosed in our Quarterly Report on Form 10-Q filed with the SEC on August 3, 2022.

As of September 30, 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those accounting policies and estimates that are both the most important to the portrayal of our net assets and results of operations and require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the impact of the estimates on financial condition or operating performance is material.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and judgements described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.

Recent Accounting Pronouncements

Refer to Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information about other recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of our business.

Interest rate risk

We had cash and cash equivalents of $731.7 million as of September 30, 2022. We hold our cash and cash equivalents for working capital purposes. Our cash and cash equivalents are held in cash deposits and money market funds. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs, and the control of cash and investments. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Decreases in interest rates, however, would reduce future interest income.

We do not have any long-term debt or financial liabilities with floating interest rates that would subject us to interest rate fluctuations.

A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Foreign currency exchange risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates relative to U.S. dollars, our reporting currency. Our revenue is primarily generated in U.S. dollars, Euros, Australian dollars, British pounds sterling, Canadian dollars, New Zealand dollars, Japanese yen, and Singapore dollars. A portion of our operating expenses are incurred outside the United States, denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British pound sterling, and Australian dollar. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.

We recorded $(4.1) million and $(1.6) million in net foreign currency transaction losses in the three months ended September 30, 2022 and 2021, respectively, and $(10.6) million and $(1.8) million in net foreign currency transaction losses in the nine months ended September 30, 2022 and 2021, respectively. A hypothetical 10% change in foreign currency rates would not have had a material impact on our operating results for the three and nine months ended September 30, 2022 and 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2022. The term “disclosure controls and procedures,” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation of our disclosure controls and procedures as of September 30, 2022, our principal executive officer and principal

financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Disclosure Controls and Procedures

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

The information contained in Note 9. “Commitments and Contingencies—Legal Matters” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q is incorporated herein by reference.

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1a. Risk Factors

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our Class A common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.

A description of the risks associated with our business, financial condition, and results of operations is set forth in Part I, Item 1A, of our Annual Report. There have been no material changes from the risk factors previously disclosed in our Annual Report, except for the following risk factors. The risk factors below should be read in conjunction with the risk factors and other information disclosed in our Annual Report.

Risks Related to Our Business and Industry

If we fail to effectively manage our growth, our business and results of operations could be harmed.

We have experienced, and may continue to experience, rapid growth, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. In addition, we operate globally, sell subscriptions to more than 16,750 customers in more than 120 countries, and have employees in the United States, Australia, Belgium, Canada, Denmark, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, the Netherlands, Poland, Serbia, Singapore, South Korea, Spain, Sweden, Switzerland, and the United Kingdom as well as SAP employees we work with in numerous other countries. We plan to continue to expand our international presence in the future, which will place additional demands on our resources and operations. Given our international presence, it is difficult to anticipate how the varying national responses to the COVID-19 pandemic will continue to affect our customers, employees, and business operations. The COVID-19 pandemic has, and may continue to, put pressure on global economic conditions and may cause our customers or their customers to modify spending priorities or delay or abandon purchasing decisions, thereby lengthening sales cycles, and may make it difficult for us to forecast our sales and operating results and to make decisions about future investments. These and other potential effects on our business due to the COVID-19 pandemic and unfavorable global economic conditions may be significant and could materially harm our business, operating results and financial condition. Additionally, political developments impacting government spending and international trade, including pandemics such as the COVID-19 pandemic and geopolitical events such as the ongoing conflict between Russia and Ukraine and the related sanctions, may negatively impact our dealings with our international partners. In addition to expanding our global presence, we continue to increase the breadth and scope of our XM Platform and our operations and continue to develop our partner network. Even with the support of SAP, in order to successfully manage our future growth we will need to continue to improve our IT and financial infrastructures, our operating and administrative systems, and our ability to manage headcount, capital, and internal processes in an efficient manner and deepen our industry experience in key verticals. Our organizational structure is also becoming more complex as we grow our operational, financial, and management infrastructure and we must continue to improve our internal controls as well as our reporting systems and procedures. We intend to continue to invest to expand our business, including investing in technology, sales and marketing operations, developing new solutions and features for our existing solutions, hiring additional personnel, and upgrading our infrastructure. These investments will require significant capital expenditures and the allocation of management resources, and any investments we make will occur in advance of experiencing the benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our results of operations may be adversely affected.

We are continuing to expand our operations outside the United States, where we may be subject to increased business and economic risks that could impact our results of operations.

A key focus of our company is to continue to expand our operations outside of the United States. In order to do so, we use a hub-and-spoke sales model, comprised of a centralized inside-sales team surrounded by regional direct sales efforts. We have invested significant effort to building and optimizing our international growth. For the three and nine months ended September 30, 2022, 31% and 30% of our revenue is from outside the United States, respectively, and we have continued to add employees and offices in new countries. We expect to continue to expand our international operations, which may include opening additional offices in new jurisdictions and providing our XM Platform in additional languages. Any new markets or countries into which we attempt to sell subscriptions to our XM Platform may not be receptive. For example, we may not be able to expand further in some markets if we are not able to satisfy certain government- and industry-specific requirements. If we are not successful in converting our investments in international expansion to additional revenue, our business and results of operations may be harmed. In addition, our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal and regulatory systems, alternative dispute systems, and commercial markets. International expansion has required, and will continue to require, investment of significant funds and other resources. In addition, in certain ways it was easier for us to expand internationally as a previously wholly-owned subsidiary of SAP, given SAP’s significant global presence, than it is as a majority-owned subsidiary of SAP. Operating internationally subjects us to new risks and may increase risks that we currently face, including risks associated with:

•recruiting and retaining talented and capable employees outside the United States and maintaining our company culture across all of our offices;

•providing our XM Platform and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our XM Platform and features to ensure that they are culturally appropriate and relevant in different countries;

•compliance with applicable international laws and regulations, including laws and regulations with respect to privacy, data protection, consumer protection, and unsolicited email, and the risk of penalties to our users and individual members of management or employees if our practices are deemed to be out of compliance;

•management of an employee base in jurisdictions that may not give us the same employment and retention flexibility as does the United States;

•operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States;

•compliance by us and our business partners with anti-corruption laws, import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory limitations on our ability to provide our XM Platform in certain international markets;

•foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States;

•political and economic instability in countries where we may operate, including the potential effects of the current COVID-19 pandemic and the ongoing conflict between Russia and Ukraine;

•double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate;

•higher costs of doing business internationally, including increased accounting, travel, infrastructure, and legal compliance costs; and

•other events or factors, including those resulting from war such as the ongoing conflict between Russia and Ukraine, incidents of terrorism, natural disasters, disease, global pandemics such as COVID-19, or responses to these events.

Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in international jurisdictions. We may be unable to keep current with changes in laws and regulations as they change. Although we have implemented policies and procedures designed to support compliance with these laws and regulations, there can be no assurance that we will always maintain compliance or that all of our employees, contractors, partners, and agents will comply. Any violations could result in enforcement actions, fines, civil and criminal penalties, damages, injunctions, or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of our global operations successfully, our business, results of operations, and financial condition could be adversely affected.

We are subject to governmental export and import controls, economic sanctions, and anti-corruption laws and regulations that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.

Our business activities are subject to various restrictions under United States export controls and other similar laws and regulations, including the United States Department of Commerce’s Export Administration Regulations, or the EAR, and various economic and trade sanctions regulations administered by the United States Treasury Department’s Office of Foreign Assets Controls, or OFAC. The United States export control laws and United States economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to United States embargoed or sanctioned countries, governments, persons and entities. In addition, various countries regulate the import of certain technology and have enacted or could enact laws that could limit our ability to provide our customers access to our XM Platform or could limit our customers’ ability to access or use our XM Platform in those countries. Import and export control regulations in the U.S. and other countries are subject to change and uncertainty, including as a result of geopolitical developments and relations between the United States and Russia and the ongoing conflict between Russia and Ukraine.

While we take precautions to prevent our products and services from being exported in violation of these laws, including geoblocking and other screening checks, we cannot guarantee that the precautions we take will prevent violations of export control and sanctions laws. If we are found to be in violation of U.S. economic sanctions or export control laws in the future, it could result in substantial fines and penalties for us and for the individuals working for us. We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets, or otherwise.

In addition, in July 2018, we filed initial notifications of Voluntary Self-Disclosure with OFAC regarding the provision of services to some customers in apparent violation of U.S. economic sanction laws, and the U.S. Department of Commerce’s Bureau of Industry and Security, or BIS, regarding the export of software to some customers prior to submitting required filings to BIS. We supplemented the initial notifications with final reports to OFAC and BIS in December 2018. In August 2019, BIS notified us that it had completed its review and closed the matter with the issuance of a warning letter. In December 2019, OFAC notified us that it had completed its review and closed the matter with the issuance of a cautionary letter. Although no monetary penalties or other sanctions were imposed by either agency in connection with their investigations, our compliance history, including the issuance of a warning letter or cautionary letter, may be considered an aggravating factor in any future investigations by or disclosures to these agencies.

In addition, various countries regulate the import and export of certain encryption and other technology, including by imposing permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our platform or could limit our users’ ability to access our products and services in those countries. Changes in our products or services, or future changes in export and import regulations may prevent our users with international operations from utilizing our products and services globally or, in some cases, prevent the export or import of our products and services to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions, or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our products and services by, or in our

decreased ability to export or sell subscriptions to our platform to, existing or potential users with international operations. Any decreased use of our products or services or limitation on our ability to export or sell our products or services would likely adversely affect our business, results of operations, and financial results.

We are also subject to various domestic and international anti-corruption laws, such as the United States Foreign Corrupt Practices Act and the U.K. Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, providing, or accepting improper payments or benefits for improper purposes. These laws also require that we keep accurate books and records and maintain compliance procedures designed to prevent any such unlawful activities. Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.

General Risk Factors

Our quarterly and annual results of operations may vary and may be difficult to predict. If we fail to meet the expectations of investors or securities analysts, our stock price and the value of your investment could decline.

Our quarterly and annual billings, revenue, and results of operations have fluctuated in the past and may vary in the future due to a variety of factors, many of which are outside of our control. Our financial results in any one quarter should not be relied upon as indicative of future performance. We may not be able to accurately predict our future billings, revenue, or results of operations. Factors that may cause fluctuations in our quarterly results of operations include, but are not limited to, those listed below:

•fluctuations in the demand for our XM Platform, and the timing of sales;

•our ability to attract new customers or retain existing customers;

•the budgeting cycles and internal purchasing priorities of our customers;

•the payment terms and subscription term length associated with our XM Platform sales and their effect on our billings and free cash flow;

•our ability to anticipate or respond to changes in the competitive landscape, including consolidation among competitors;

•the timing of expenses and recognition of revenue;

•the timing of our recognition of equity and cash settled stock-based compensation expense for our equity awards, particularly in cases where awards covering a large number of our shares are tied to a specific date;

•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;

•the timing and success of new product features and solutions by us or our competitors;

•actual or perceived security breaches;

•increases or decreases in inflation rate;

•changes in laws and regulations that impact our business;

•macroeconomic conditions and the economic impact of the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine; and

•general economic, industry, and market conditions, including inflation and interest rate fluctuations.

If our billings, revenue, or results of operations fall below the expectations of investors or securities analysts in a particular quarter, or below any guidance that we may provide, the price of our Class A common stock could decline. Our quarterly and annual financial results may fluctuate due to these or other factors, and we do not believe that our financial results in any one quarter or any other period should be relied upon by investors as indicative of our future financial performance.

Uncertainty in the global economy, financial markets, and social and political instability caused by state-based conflicts, terrorist attacks, civil unrest, war, or international hostilities could lead to disruptions in our business.

As a global company, we are influenced by multiple external factors that are difficult to predict and beyond our influence and control. Any of these factors could have a significant adverse effect on the global economy as well as on our business.

We are subject to risks and associated consequences in the following areas, among others:

•General economic, political, social, environmental, public health, and market developments, and general unrest;

•Prolonged deterioration of global economic conditions or budgetary constraints of national governments;

•Diplomatic confrontations, frictions, trade or tariff conflicts, with potential global implications as indicated by a prolonged and widespread economic slowdown;

•Financial market volatility episodes, global economic crises and chronic fiscal imbalances, slowing economic conditions, or disruptions in emerging markets;

•Higher credit barriers for customers, reducing their ability to finance software purchases;

•Increased number of foreclosures and bankruptcies among customers, business partners, and key suppliers;

•The ongoing conflict between Russia and Ukraine, including impacts of government sanctions and other trade controls;

•Terrorist attacks or other acts of violence, civil unrest, global pandemics such as COVID-19, or natural disasters, impacting our business; and

•Regional conflicts, which may affect data centers as critical infrastructure assets.

Any of these events could limit our ability to reach our targets, as they could have a material adverse effect on our operating results and financial position.

The current economic downturn may lead to decreased demand for our XM Platform and otherwise harm our business and results of operations.

Our overall performance depends, in part, on worldwide economic conditions. In recent months, we have observed increased economic uncertainty in the United States and abroad. Impacts of such economic weakness may include:

•falling overall demand for goods and services, leading to reduced profitability;

•reduced credit availability;

•higher borrowing costs;

•reduced liquidity;

•volatility in credit, equity and foreign exchange markets; and

•bankruptcies.

These developments have resulted in supply disruption, inflation, higher interest rates, and uncertainty about business continuity, which may adversely affect our business and our results of operations. As our customers react to global economic conditions and the potential for a global recession, we may see them reduce spending on our products and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity. Reductions in spending on our solutions, delays in purchasing decisions, lack of renewals, inability to attract new customers, as well as pressure for extended billing terms or pricing discounts, would limit our ability to grow our business and negatively affect our operating results and financial condition.

Recent volatility in capital markets and lower market prices for our securities may affect our ability to access new capital through sales of shares of our common stock or issuance of indebtedness, which may materially harm our liquidity, limit our ability to grow our business, pursue acquisitions or improve our operating infrastructure and restrict our ability to compete in our markets.

We intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new solutions, retain or expand our current levels of personnel, improve our existing solutions, enhance our operating infrastructure, and potentially acquire complementary businesses and technologies. Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including the need to:

•finance unanticipated working capital requirements;

•develop or enhance our technological infrastructure and our existing solutions;

•pursue acquisitions or other strategic relationships; and

•respond to competitive pressures.

Accordingly, we may need to pursue equity or debt financings to meet our capital needs. With uncertainty in the capital markets and other factors, such financing may not be available on terms favorable to us or at all. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to obtain adequate financing or financing on terms satisfactory to us, we could face significant limitations on our ability to invest in our operations and otherwise suffer harm to our business.

Item 6. Exhibits


Exhibit Number						Description

3.1						Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed on December 28, 2020).
3.2						Amended and Restated Bylaws of the Registrant (incorporated by reference from Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 filed on December 28, 2020).
4.1						Specimen Class A common stock certificate of the Registrant (incorporated by reference from Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 filed on December 28, 2020).
31.1*						Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**						Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

________________

* Filed herewith.

** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any of the Registrant’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 3rd day of November, 2022.


QUALTRICS INTERNATIONAL INC.

By:			/s/ Zig Serafin
			Zig Serafin
			Chief Executive Officer (Principal Executive Officer)


By:			/s/ Rob Bachman
			Rob Bachman
			Chief Financial Officer (Principal Financial and Accounting Officer)