10-Q 1 xm-20220930.htm 10-Q xm-20220930
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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
Or
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)
Delaware47-1754215
(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 classTrading SymbolName of each exchange on which registered
Class A Common Stock, $0.0001 par value per shareXMNasdaq 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 filerAccelerated filer
Non-accelerated filerSmaller 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.

1


TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.



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,
20222021
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, net71,471 60,455 
Prepaid expenses and other current assets72,924 68,887 
Total current assets1,201,515 1,605,683 
Non-current assets:
Property and equipment, net201,763 192,327 
Right-of-use assets from operating leases216,342 227,320 
Goodwill1,117,915 1,118,768 
Other intangible assets, net223,644 264,500 
Deferred contract acquisition costs, net of current portion160,020 145,952 
Deferred tax assets734 96 
Other assets29,556 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 liabilities124,631 167,402 
Liability-classified, stock-based awards1,021 4,519 
Deferred revenue677,621 748,145 
Total current liabilities889,553 1,023,017 
Non-current liabilities:
Lease liabilities, net of current portion258,114 263,307 
Deferred revenue, net of current portion14,752 6,698 
Deferred tax liabilities4,440 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 capital5,193,649 4,645,800 
Accumulated other comprehensive loss(12,626)(1,244)
Accumulated deficit(3,263,031)(2,457,913)
Total equity1,918,051 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.
1

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,
2022202120222021
Revenue:
Subscription$314,765 $220,314 $896,151 $611,748 
Professional services and other62,766 51,320 173,392 147,874 
Total revenue377,531 271,634 1,069,543 759,622 
Cost of revenue:
Subscription51,087 23,802 143,454 65,865 
Professional services and other60,577 43,041 171,925 127,522 
Total cost of revenue111,664 66,843 315,379 193,387 
Gross profit265,867 204,791 754,164 566,235 
Operating expenses:
Research and development98,333 83,875 320,488 226,552 
Sales and marketing225,124 161,570 663,098 449,446 
General and administrative182,280 236,810 572,954 637,944 
Total operating expenses505,737 482,255 1,556,540 1,313,942 
Operating loss(239,870)(277,464)(802,376)(747,707)
Other non-operating income (expense), net3,058 (3,160)4,239 (6,091)
Loss before income taxes(236,812)(280,624)(798,137)(753,798)
Provision (benefit) for income taxes(3,264)5,409 6,981 (4,424)
Net loss$(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 diluted586,850,097 515,212,996 581,664,521 503,781,082 
The accompanying notes are an integral part of these condensed consolidated financial statements.



2

Qualtrics International Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
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.
3

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 stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive income (loss)Accumulated deficitTotal equity (deficit)
SharesAmountSharesAmount
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 options117,273 — — — 786 — — 786 
Issuance of common stock for employee stock purchase plan1,081,677 — — — 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 stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive income (loss)Accumulated deficitTotal equity (deficit)
SharesAmountSharesAmount
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 plan571,681 — — — 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 


4

Nine Months Ended September 30, 2022
Class A common stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive income (loss)Accumulated deficitTotal equity (deficit)
SharesAmountSharesAmount
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 options256,810 — — — 1,470 — — 1,470 
Issuance of common stock for employee stock purchase plan1,852,643 — — — 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 stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive income (loss)Accumulated deficitTotal equity (deficit)
SharesAmountSharesAmount
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 costs81,968,387 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.
5

Qualtrics International Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
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 amortization72,358 24,011 
Loss on disposal of property and equipment232 1,525 
Change in fair value of distribution liability for tax sharing agreement(10,500) 
Reduction of right-of-use assets from operating leases22,254 16,571 
Stock-based compensation expense, including cash settled778,592 764,592 
Amortization of deferred contract acquisition costs51,628 35,977 
Deferred income taxes(17,086)(5,544)
Changes in assets and liabilities:
Accounts receivable, net135,453 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 Plan32,521 16,586 
Proceeds from exercise of stock options1,470  
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 period1,014,511 203,891 
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.
6

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.
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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.
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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 thousands2022202120222021
Subscription revenue:
Revenue included in prior period deferred revenue$128,932 $93,347 $519,574 $386,916 
Revenue generated from same period billings185,833 126,967 376,577 224,832 
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 billings46,591 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.
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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 thousands2022202120222021
United States$261,421 $192,114 $745,055 $537,632 
International116,110 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.
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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
11

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
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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.

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2.CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
As of September 30,As of December 31,
in thousands20222021
Cash$349,990 $123,906 
Money market mutual funds381,734 890,605 
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), net10,500 
Balance as of September 30, 2022
$(61,000)
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4.PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
As of September 30,As of December 31,
in thousands20222021
Internal-use software$42,899 $29,047 
Server equipment20,388 28,176 
Leasehold improvements86,537 80,301 
Computer equipment25,177 21,470 
Land13,383 13,383 
Buildings61,345 61,346 
Furniture and fixtures3,073 2,857 
Software3,034 3,252 
Construction in progress15,506 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 thousands2022202120222021
Cost of revenue$7,227 $5,132 $19,853 $15,343 
Research and development1,462 864 4,561 2,307 
Sales and marketing2,228 1,508 6,399 4,174 
General and administrative426 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 thousands2022202120222021
Operating lease cost$7,341 $5,388 $22,254 $16,513 
Variable and short-term lease cost2,678 2,031 7,098 5,498 
Other information related to leases was as follows:
As of September 30,As of December 31,
20222021
Weighted average remaining lease term
10.9 years
11.9 years
Weighted average discount rate2.08 %2.07 %
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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 thousands2022
Remainder of 2022
3,087 
2023
14,190 
2024
28,241 
2025
30,396 
2026
31,038 
Thereafter203,591 
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 issued1,059,354 
Fair value of stock options assumed127,139 
Total$1,267,682 








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Below is the allocation of the purchase price:
in thousandsClarabridge
Accounts receivable18,538 
Prepaid expenses and other assets2,888 
Property and equipment6,414 
Customer relationships101,160 
Developed technology151,530 
Tradenames1,240 
Goodwill1,064,002 
Total assets acquired1,345,772 
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