xm-20230331

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 March 31, 2023

☐ 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 April 27, 2023, the registrant had 606,391,893 shares of common stock outstanding, consisting of 183,221,283 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 March 31, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	32
Item 4.	Controls and Procedures	33
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 6.	Exhibits	39

SIGNATURES		40

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 address and overcome challenges caused by the current economic downturn;

•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 the competitive landscape;

•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 ability to realize cost savings and achieve other benefits related to our restructuring efforts;

•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, including compliance with the broad spectrum of relevant laws;

•our ability to remediate our material weakness in our internal control over financial reporting;

•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 effects on our business of recent volatility in capital markets and lower market prices for our securities (including possible disruptions to the Company’s operations and customer demands due to the continuation of the COVID-19 pandemic);

•our ability to meet investor and customer expectations and evolving regulations regarding environmental, social and governance issues;

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

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

•the ability of the parties to consummate the Merger (as defined herein) in a timely manner or at all;

•the satisfaction (or waiver) of closing conditions to the consummation of the Merger;

•potential delays in consummating the Merger;

•the ability of the Company to timely and successfully achieve the anticipated benefits of the Merger;

•the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement, including in circumstances that require the Company to pay the Company Termination Fee;

•the Company’s ability to implement its business strategy;

•significant transaction costs associated with the Merger;

•potential litigation relating to the Merger;

•the risk that disruptions from the Merger will harm the Company’s business, including current plans and operations (including risks related to diverting management’s attention from the Company’s ongoing business operations);

•potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed Merger;

•legislative, regulatory and economic developments affecting the Company’s business;

•general economic and market developments and conditions;

•the evolving legal, regulatory and tax regimes under which the Company operates;

•potential business uncertainty, including changes to existing business relationships, during the pendency of the Merger that could affect the Company’s financial performance;

•restrictions during the pendency of the Merger that may impact the Company’s ability to pursue certain business opportunities or strategic transactions; and

•unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as the Company’s response to any of the aforementioned factors.

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 number of shares and par value)

(Unaudited)


	As of March 31,		As of December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	806,718	$	719,892
Accounts receivable, net of allowance (1)	384,501		537,037
Deferred contract acquisition costs, net	88,056		81,130
Prepaid expenses and other current assets	78,015		68,224
Total current assets	1,357,290		1,406,283
Non-current assets:
Property and equipment, net	223,328		215,645
Right-of-use assets from operating leases	213,616		216,514
Goodwill	1,117,915		1,117,915
Other intangible assets, net	199,734		210,415
Deferred contract acquisition costs, net of current portion	189,578		183,741
Deferred tax assets	9,318		9,625
Other assets	36,872		35,713
Total assets	$	3,347,651	$	3,395,851

Liabilities and equity
Current liabilities:
Lease liabilities	$	17,564	$	17,081
Accounts payable (1)	129,579		142,293
Accrued liabilities	130,383		155,291
Liability-classified, stock-based awards	510		1,053
Deferred revenue	848,445		858,186
Total current liabilities	1,126,481		1,173,904
Non-current liabilities:
Lease liabilities, net of current portion	259,855		261,097
Deferred revenue, net of current portion	14,387		16,717
Deferred tax liabilities	11,228		12,447
Other liabilities (1)	35,884		27,666
Total liabilities	1,447,835		1,491,831
Commitments and contingencies
Equity
Preferred stock, par value $0.0001 per share; authorized 100,000,000 shares; no shares outstanding as of March 31, 2023 and December 31, 2022	—		—
Class A common stock, par value $0.0001 per share; authorized 2,000,000,000 shares; issued and outstanding 183,127,510 and 170,687,065 shares as of March 31, 2023 and December 31, 2022	18		17
Class B common stock, par value $0.0001 per share; authorized 1,000,000,000 shares; issued and outstanding 423,170,610 as of March 31, 2023 and December 31, 2022	42		42
Additional paid-in capital	5,682,305		5,428,297
Accumulated other comprehensive loss	(4,194)		(4,945)
Accumulated deficit	(3,778,355)		(3,519,391)
Total equity	1,899,816		1,904,020
Total liabilities and equity	$	3,347,651	$	3,395,851

________________

(1) Includes amounts from related parties. See Note 12 for further details.

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

Qualtrics International Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Revenue:
Subscription	$	339,803	$	280,808
Professional services and other	69,967		54,839
Total revenue	409,770		335,647
Cost of revenue:
Subscription	54,671		44,774
Professional services and other	68,511		54,493
Total cost of revenue	123,182		99,267
Gross profit	286,588		236,380
Operating expenses:
Research and development	108,975		105,999
Sales and marketing	252,772		218,330
General and administrative	178,672		202,589
Total operating expenses	540,419		526,918
Operating loss	(253,831)		(290,538)
Other non-operating income, net	1,655		674
Loss before income taxes	(252,176)		(289,864)
Provision for income taxes	6,788		2,461
Net loss	$	(258,964)	$	(292,325)

Net loss per share attributable to common stockholder, basic and diluted	$	(0.43)	$	(0.51)
Weighted-average Class A and Class B shares used in computing net loss per share attributable to common stockholders, basic and diluted	599,314,127		575,700,568
Other comprehensive income (loss):
Foreign currency translation gains (losses)	751		(448)
Comprehensive loss	$	(258,213)	$	(292,773)

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

Qualtrics International Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


	Three Months Ended March 31, 2023
	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2022	170,687,065	$	17	423,170,610	$	42	$	5,428,297	$	(4,945)	$	(3,519,391)	$	1,904,020
Stock-based compensation	—	—		—	—		236,027		—		—		236,027
Issuance of common stock upon settlement of restricted stock units (RSUs)	10,596,029	1		—	—		(1)		—		—		—
Issuance of common stock upon exercise of stock options	116,278	—		—	—		866		—		—		866
Issuance of common stock for employee stock purchase plan	1,728,138	—		—	—		19,965		—		—		19,965
Common stock withheld related to net share settlement of equity awards	—	—		—	—		(2,849)		—		—		(2,849)
Net loss	—	—		—	—		—		—		(258,964)		(258,964)
Foreign currency translation adjustment	—	—		—	—		—		751		—		751
Balance, March 31, 2023	183,127,510	$	18	423,170,610	$	42	$	5,682,305	$	(4,194)	$	(3,778,355)	$	1,899,816


	Three Months Ended March 31, 2022
	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total equity
	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	—	—		—	—		270,089		—		—		270,089
Issuance of common stock upon settlement of restricted stock units (RSUs)	10,658,728	1		—	—		(1)		—		—		—
Issuance of common stock upon exercise of stock options	123,171	—		—	—		614		—		—		614
Issuance of common stock for employee stock purchase plan	770,966	—		—	—		20,380		—		—		20,380
Common stock withheld related to net share settlement of equity awards	—	—		—	—		(208,920)		—		—		(208,920)
Net loss	—	—		—	—		—		—		(292,325)		(292,325)
Foreign currency translation adjustment	—	—		—	—		—		(448)		—		(448)
Balance, March 31, 2022	158,862,119	$	16	423,170,610	$	42	$	4,727,962	$	(1,692)	$	(2,750,238)	$	1,976,090

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)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(258,964)	$	(292,325)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	26,368		23,355
Gain on disposal of property and equipment	(25)		(17)
Change in fair value of distribution liability for tax sharing agreement	5,432		(1,500)
Reduction of right-of-use assets from operating leases	6,626		7,501
Stock-based compensation expense, including cash settled	231,970		268,261
Amortization of deferred contract acquisition costs	22,439		15,812
Deferred income taxes	(971)		(227)
Changes in assets and liabilities:
Accounts receivable, net	152,267		95,414
Prepaid expenses and other current assets	(9,752)		(7,259)
Deferred contract acquisitions costs	(34,716)		(26,809)
Other assets	(1,149)		(1,033)
Lease liabilities	(4,598)		(3,723)
Accounts payable	5,540		(13,472)
Accrued liabilities	(25,318)		(40,146)
Deferred revenue	(12,543)		1,969
Other liabilities	2,667		(16)
Settlement of stock-based payments liabilities	(994)		(2,682)
Net cash flows provided by operating activities	104,279		23,103

Cash flows from investing activities
Purchases of property and equipment	(21,811)		(13,173)
Cash paid for intangible assets	(2,050)		—
Net cash flows used in investing activities	(23,861)		(13,173)

Cash flows from financing activities
Payments of tax sharing liabilities to SAP (1)	(12,119)		—
Payments for taxes related to net share settlement of equity awards	(2,849)		(208,920)
Issuance of common stock of Employee Stock Purchase Plan	19,965		20,380
Proceeds from exercise of stock options	866		614
Net cash flows provided by (used in) financing activities	5,863		(187,926)
Effect of changes in exchange rates on cash and cash equivalents	545		(67)
Net increase (decrease) in cash and cash equivalents	86,826		(178,063)
Cash and cash equivalents as of 1 January	719,892		1,014,511
Cash and cash equivalents as of 31 March	$	806,718	$	836,448

Supplemental cash flow disclosures
Cash paid for income taxes	$

SEC Form 10-Q filed by Qualtrics International Inc.