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~~March 3031, ~~2022~~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 ~~October~~April 2427, ~~2022~~2023, the registrant had ~~590~~606,~~730~~391,~~721~~893 shares of common stock outstanding, consisting of ~~167~~183,~~560~~221,~~111~~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 September 30, 2022 and December 31, 2021	1
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022	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 for the Three Months Ended March 31, 2023 and 2022	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 Three Months Ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	32
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	40
Item 4.	Controls and Procedures	33
Item 4.	Controls and Procedures	40
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	4235
Item 1A.	Risk Factors	4336
Item 6.	Exhibits	4939
SIGNATURES		5040

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 ~~markets~~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 ~~impact~~effects on our business of ~~geopolitical~~recent ~~events,~~volatility in capital markets and lower market prices for our securities (including ~~the~~possible ~~ongoing~~disruptions ~~conflict~~to ~~between~~the ~~Russia~~Company’s operations and ~~Ukraine~~customer demands due to the continuation of the COVID-19 pandemic);

•our ability to ~~respond~~meet toinvestor and ~~overcome~~customer ~~challenges~~expectations ~~brought~~and byevolving ~~the~~regulations ~~COVID-19~~regarding ~~pandemic~~environmental, social and governance issues;

•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.;

•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 ~~share~~number of shares and par value)

	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

(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 1312 for further details.

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

Qualtrics International Inc.

Condensed Consolidated Statements of ~~Operations~~Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2022

2021

2022

2021

2023

2022

Revenue:

Subscription

~~314~~339,~~765~~803

~~220~~280,~~314~~808

~~896,151~~

~~611,748~~

Professional services and other

6269,~~766~~967

5154,~~320~~839

~~173,392~~

~~147,874~~

Total revenue

~~377~~409,~~531~~770

~~271~~335,~~634~~647

~~1,069,543~~

~~759,622~~

Cost of revenue:

Subscription

5154,~~087~~671

2344,~~802~~774

~~143,454~~

~~65,865~~

Professional services and other

6068,~~577~~511

4354,~~041~~493

~~171,925~~

~~127,522~~

Total cost of revenue

~~111~~123,~~664~~182

6699,~~843~~267

~~315,379~~

~~193,387~~

Gross profit

~~265~~286,~~867~~588

~~204~~236,~~791~~380

~~754,164~~

~~566,235~~

Operating expenses:

Research and development

98108,~~333~~975

83105,~~875~~999

~~320,488~~

~~226,552~~

Sales and marketing

~~225~~252,~~124~~772

~~161~~218,~~570~~330

~~663,098~~

~~449,446~~

General and administrative

~~182~~178,~~280~~672

~~236~~202,~~810~~589

~~572,954~~

~~637,944~~

Total operating expenses

~~505~~540,~~737~~419

~~482~~526,~~255~~918

~~1,556,540~~

~~1,313,942~~

Operating loss

(~~239~~253,~~870~~831)

(~~277~~290,~~464~~538)

~~(802,376)~~

~~(747,707)~~

Other non-operating income (expense), net

3,058

(3,160)

4,239

(6,091)

Other non-operating income, net

1,655

674

Loss before income taxes

(~~236~~252,~~812~~176)

(~~280~~289,~~624~~864)

~~(798,137)~~

~~(753,798)~~

Provision (benefit) for income taxes

(3,264)

5,409

6,981

(4,424)

Provision for income taxes

6,788

2,461

Net loss

(~~233~~258,~~548~~964)

(~~286~~292,~~033~~325)

~~(805,118)~~

~~(749,374)~~

Net loss per share attributable to common stockholders, basic and diluted

(0.40)

(0.56)

(1.38)

(1.49)

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

~~586~~599,~~850~~314,~~097~~127

~~515~~575,~~212~~700,~~996~~568

~~581,664,521~~

~~503,781,082~~

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 ~~Comprehensive~~Stockholders’ ~~Loss~~Equity

(In thousands, except share amounts)

(Unaudited)

		Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31, 2023
		2022				2021			2022				2021
	Class A common stock							Class B common stock							Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total equity
Net loss		$	(233,548)			$	(286,033)		$	(805,118)			$	(749,374)
	Shares			Amount				Shares			Amount
Other comprehensive loss:
Balance, December 31, 2022	170,687,065			$	17			423,170,610			$	42			$	5,428,297	$	(4,945)	$	(3,519,391)	$	1,904,020
Foreign currency translation loss		(5,412)				(2,015)			(11,382)				(3,822)
Stock-based compensation	—			—				—			—				236,027		—		—		236,027
Comprehensive loss		$	(238,960)			$	(288,048)		$	(816,500)			$	(753,196)
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 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,
	Three Months Ended March 31,
	2022		2021
	2023		2022
Cash flows from operating activities
Net loss	$	(~~805~~258,~~118~~964)	$	(~~749~~292,~~374~~325)
Adjustments to reconcile net loss to net cash used in operating activities
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	7226,~~358~~368		2423,~~011~~355
Loss on disposal of property and equipment	232		1,525
Gain on disposal of property and equipment	(25)		(17)
Change in fair value of distribution liability for tax sharing agreement	~~(10~~5,~~500)~~432		—(1,500)
Reduction of right-of-use assets from operating leases	226,~~254~~626		167,~~571~~501
Stock-based compensation expense, including cash settled	~~778~~231,~~592~~970		~~764~~268,~~592~~261
Amortization of deferred contract acquisition costs	5122,~~628~~439		3515,~~977~~812
Deferred income taxes	(~~17,086~~971)		(~~5,544~~227)
Changes in assets and liabilities:
Accounts receivable, net	~~135~~152,~~453~~267		3795,~~261~~414
Prepaid expenses and other current assets	(59,~~558~~752)		(57,~~043~~259)
Deferred contract acquisitions costs	(8434,~~547~~716)		(5426,~~986~~809)
Other assets	(1,~~203~~149)		(131,~~104~~033)
Lease liabilities	(174,~~250~~598)		(103,~~369~~723)
Accounts payable	~~(16~~5,~~858)~~540		14(13,~~875~~472)
Accrued liabilities	(3925,~~124~~318)		(840,~~232~~146)
Deferred revenue	(6112,~~366~~543)		181,~~837~~969
Other liabilities	(32,~~152)~~667		(~~985~~16)
Settlement of stock-based payments liabilities	(~~4,749~~994)		(762,~~875~~682)
Net cash flows used in operating activities	(5,994)		(10,863)
Net cash flows provided by operating activities	104,279		23,103
Cash flows from investing activities
Purchases of property and equipment	(3621,~~203~~811)		(2913,~~711~~173)
Cash paid for business combination, net of cash acquired	—		(25,000)
Cash paid for intangible assets	(2,050)		—
Net cash flows used in investing activities	(3623,~~203~~861)		(5413,~~711~~173)
Cash flows from financing activities
Proceeds from capital contributions from SAP	—		115,000
Payments of tax sharing liabilities to SAP (1)	(12,119)		—
Proceeds from issuance of class A common stock, net of underwriting discounts and commissions	—		2,244,322
Payments for taxes related to net share settlement of equity awards	(2,849)		(208,920)
Payment of costs related to issuance of class A common stock	—		(3,081)
Issuance of common stock of Employee Stock Purchase Plan	19,965		20,380
Repayment of promissory note	—		(1,892,280)
Proceeds from exercise of stock options	866		614
Payments for taxes related to net share settlement of equity awards	(270,909)		(27,800)
Net cash flows provided by (used in) financing activities	5,863		(187,926)
Issuance of class A common stock through Employee Stock Purchase Plan	32,521		16,586
Effect of changes in exchange rates on cash and cash equivalents	545		(67)
Proceeds from exercise of stock options	1,470		—
Net increase (decrease) in cash and cash equivalents	86,826		(178,063)
Net cash flows (used in) provided by financing activities	(236,918)		452,747
Cash and cash equivalents as of 1 January	719,892		1,014,511
Effect of changes in exchange rates on cash and cash equivalents	(3,672)		(1,118)
Cash and cash equivalents as of 31 March	$	806,718	$	836,448
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	$	366,~~226~~460	$	~~7,848~~673
Cash paid for operating leases, net of incentives received	$	184,~~610~~573	$	105,~~008~~662
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~~251	$	~~208~~759
Right-of-use assets obtained in exchange for lease obligations	$	17,508	$	1,374
Stock-based compensation capitalized as internal-use software	$	4,416	$	2,193
Note payable issued for dividend declared	$	—	$	500,000
Right-of-use assets obtained in exchange for lease obligations	$	1,928	$	15,761
Expiration of contingency associated with Class A common stock option exercised	$	—	$	120,000

________________

(1) Includes amounts from related parties. See Note 3 and 12 for further details.

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

6 4

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~~pioneered ~~built~~a ~~the~~new ~~first~~category of software, experience management, ~~platform~~or (“XM, ~~Platform”)~~that enables organizations to ~~design~~find and ~~manage~~fix ~~customer,~~broken ~~employee,~~experiences ~~product,~~ and ~~brand~~drive ~~experiences.~~operational ~~The~~improvements ~~Company~~to ~~sells~~improve ~~subscriptions~~customer toloyalty, ~~its~~increase XMemployee ~~Platform~~retention, and ~~provides~~become ~~professional~~a ~~services~~brand ~~primarily~~that ~~consisting~~people ~~of research services, implementation services, and engineering services~~love.

The Company’s technology helps organizations find and keep customers, retain and engage employees, and improve their competitive position in their product categories and talent markets. The XM Platform helps organizations listen to their employees and customers, understand their feedback, and then take action in response. 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~~March 3031, ~~2022~~2023, 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~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021,~~2022 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~~March 3031, ~~2022,~~2023 and its results of operations ~~for the three~~ and ~~nine months ended September 30, 2022 and 2021, and~~ cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022. 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~~March 3031, ~~2022~~2023 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, ~~2022~~2023 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~~2022, 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, and 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~~Revenue

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 expenses and other current assets and other assets as of ~~September~~March 3031, ~~2022~~2023 were $2322.01 million and $1721.57 million, respectively. The current and noncurrent portion of contract assets included in prepaid expenses and other current assets and other assets as of December 31, ~~2021~~2022 were $1822.13 million and $1419.09 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, wethe ~~receive~~Company receives consideration from customers in advance of a specific service being identified. Total consideration received in advance of a specific service being identified totaled $2830.50 million and $3331.03 million as of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively, and is included in deferred revenue. The following table shows the amount of revenue included in prior period deferred revenue and revenue generated from same period billings for each of the Company’s revenue generating solutions:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

in thousands

~~2022~~2023

~~2021~~2022

~~2022~~

~~2021~~

Subscription revenue:

Revenue included in prior period deferred revenue

~~128~~270,~~932~~659

93228,~~347~~216

~~519,574~~

~~386,916~~

Revenue generated from same period billings

~~185~~69,~~833~~144

~~126~~52,~~967~~592

~~376,577~~

~~224,832~~

Total subscription revenue

~~314~~339,~~765~~803

~~220~~280,~~314~~808

~~896,151~~

~~611,748~~

Professional services and other revenue:

Revenue included in prior period deferred revenue

1643,~~175~~069

1123,~~699~~790

~~62,204~~

~~51,513~~

Revenue generated from same period billings

4626,~~591~~898

3931,~~621~~049

~~111,188~~

~~96,361~~

Total professional services and other revenue

6269,~~766~~967

5154,~~320~~839

~~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 expected future ~~estimated~~ revenue related to unsatisfied performance obligations as of ~~September~~March 3031, ~~2022~~2023 was $12,~~894~~135.7 1 million, of which approximately $1,~~047~~206.20 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~~the Company’s cloud contracts remaining at the balance sheet date and thus, by the timing of contract renewals.

9 6

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,

Three Months Ended March 31,

in thousands

~~2022~~2023

~~2021~~2022

~~2022~~

~~2021~~

United States

~~261~~286,~~421~~367

~~192~~236,~~114~~642

~~745,055~~

~~537,632~~

International

~~116~~123,~~110~~403

7999,~~520~~005

~~324,488~~

~~221,990~~

Total revenue

~~377~~409,~~531~~770

~~271~~335,~~634~~647

~~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~~March 3031, ~~2022~~2023 and ~~2021~~2022.

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~~The Company recognizes the fair value of ~~those~~restricted stock awards that do not contain a performance condition 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 ifbased iton isthe ~~probable~~probability that 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~~the Qualtrics 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 and expected losses. 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 $68.1 3 million and $18.56 million as of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively. Bad debt expense was $23.0 4 million ~~and not material~~ during the three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021, respectively. Bad debt expense was $5.0 million and~~ not material during the ~~nine~~three months ended ~~September 30~~March 31, 2022 ~~and 2021, respectively~~. The Company’s allowance for cancellations was $2025.3 1 million and $1728.58 million as of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively. During the three months ended ~~September~~March 3031, ~~2022 and 2021~~2023, $~~1.3 million and $~~(13.24) million of net additions (reductions) were charged to revenue, ~~respectively,~~ and $~~0.6 million and $~~(5.0.3) million of net additions (reductions) were charged to deferred revenue~~, respectively~~. During the ~~nine~~three months ended ~~September 30~~March 31, 2022 ~~and 2021~~, $~~1.4 million and $~~(30.54) million of net additions (reductions) were charged to revenue, ~~respectively,~~ and $~~1.4 million and $~~(163.50) 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~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022. No single customer accounted for 10% or more of total revenue during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022.

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~~incremental ~~acquisition~~ costs of ~~$31.7~~obtaining ~~million~~a ~~and~~contract ~~$21.1 million~~of ~~during the three months ended September 30, 2022 and 2021, respectively, and~~ $8434.57 million and $5526.08 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, respectively.

~~Sales~~Amortization ~~commissions~~of ~~for~~deferred ~~renewal~~contract ~~contracts~~acquisition ~~are~~costs ~~not~~were ~~considered~~$22.4 million ~~commensurate~~and ~~with~~$15.8 million ~~the commissions paid~~ for the ~~acquisition~~three ofmonths anended ~~initial~~March ~~SaaS subscription contract~~31, ~~given~~2023 ~~the~~and ~~substantive~~2022, ~~difference~~respectively. inAmortization ~~commission~~of ~~rates~~deferred incontract ~~proportion~~acquisition tocosts ~~their~~are ~~respective~~included ~~contract~~in ~~values.~~sales ~~After~~and ~~the~~marketing ~~conclusion~~expense ofin the ~~initial~~accompanying ~~contract~~consolidated ~~period,~~statements ~~commissions~~of ~~paid~~comprehensive onloss. ~~subsequent~~There ~~renewals~~was ~~are~~no ~~commensurate~~impairment ~~year~~loss ~~after~~in ~~year.~~relation Asto ~~such,~~ the ~~Company~~deferred ~~expenses~~costs ~~renewal~~for ~~commissions~~any asperiod ~~incurred~~presented.

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 $57.1 4 million and $3.39 million related to capitalized internal-use software for the three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, respectively, ~~and~~within cost of subscription revenue. The Company capitalized $1317.5 0 million and $106.08 million ~~for~~of expenses to internal-use software during the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, respectively~~, within cost of subscription revenue~~.

~~Income~~Recently ~~Taxes~~Adopted Accounting Pronouncements

~~Income~~In ~~taxes~~October as2021, ~~presented in~~ the ~~consolidated~~FASB ~~financial~~issued ~~statements~~ASU of2021-08, ~~Qualtrics~~Business ~~attribute~~Combinations: ~~current~~Accounting ~~and~~for ~~deferred~~Contract ~~income~~Assets ~~taxes~~and ofContract ~~SAP~~Liabilities tofrom ~~the~~Contracts ~~Company’s~~with ~~standalone~~Customers. ~~financial~~The ~~statements~~new instandard arequires ~~manner~~ that isentities ~~systematic,~~recognize ~~rational~~ and ~~consistent~~measure ~~with~~contract ~~the~~assets ~~asset~~ and ~~liability~~contract ~~method~~liabilities ~~prescribed~~acquired byin ~~FASB~~a ~~ASC~~business ~~Topic~~combination ~~740:~~in ~~Income~~accordance ~~Taxes~~with (“ASC ~~740”). Accordingly~~606, ~~the~~which ~~Company’s~~creates ~~income~~an ~~tax~~exception ~~provision~~to ~~was prepared following~~ the ~~separate~~general ~~return~~recognition ~~method~~and ~~prior~~measurement toprinciples ~~deconsolidation~~of inASC ~~October 2021 for U~~805.S. ~~federal~~The ~~income~~standard ~~tax~~will ~~purposes,~~result ~~and~~in ~~the~~companies ~~separate~~recognizing ~~return~~contract ~~method~~assets ~~continues~~and toliabilities ~~apply~~at ~~for~~amounts ~~other~~consistent ~~jurisdictions~~with ~~where~~those werecorded ~~file~~by ~~returns~~the asacquiree ~~part~~immediately ofbefore athe ~~SAP~~acquisition ~~Tax Group~~date. The ~~separate~~standard ~~return~~is ~~method~~effective ~~applies~~for ~~ASC~~public ~~740~~companies tofor ~~the~~fiscal ~~standalone~~years ~~financial~~beginning ~~statements~~after ofDecember ~~each~~15, ~~member~~2022 ofand ~~the~~interim ~~consolidated~~periods ~~group~~within asthose iffiscal ~~the~~years ~~group~~with ~~members~~early ~~were~~adoption apermitted. ~~separate~~The ~~taxpayer~~Company ~~and~~adopted athe ~~standalone~~standard ~~enterprise.~~as ~~As a result~~ of ~~deconsolidation~~January ~~for~~1, U2023.S. ~~federal~~The ~~income~~impact ~~tax~~will ~~purposes,~~be wedependent ~~have~~upon ~~updated our reported tax attributes in certain jurisdictions to reflect~~ the ~~tax~~occurrence ~~attributes~~and ~~available~~magnitude ~~for~~of any future ~~use by the Qualtrics tax reporting entity that files returns separate from a SAP Tax Group~~acquisitions.

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,
	As of March 31,		As of December 31,
in thousands	~~2022~~2023		~~2021~~2022
Cash	$	~~349~~501,~~990~~081	$	~~123~~589,~~906~~948
Money market mutual funds	~~381~~305,~~734~~637		~~890~~129,~~605~~944
Total cash and cash equivalents	$	~~731~~806,~~724~~718	$	1719,~~014,511~~892

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 and are reported at their fair value on the consolidated balance sheets as of March 31, 2023 and December 31, 2022.

Tax sharing liability

~~Since~~From the date of the SAP Acquisition, weQualtrics ~~have~~has been included in SAP America’s consolidated group for U.S. federal income tax purposes. In October 2021, wethe Company deconsolidated from the SAP Tax Group for U.S. federal income tax purposes. WeThe ~~expect~~Company continues to ~~remain~~be 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, weQualtrics 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 (current portion) and other liabilities (non-current portion) 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~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, the Company’s distribution liability for the tax sharing agreement with SAP based on an estimated fair value totaled $6166.0 million and $7165.50 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. We are using an estimated discount rate of 10%, we have utilized the current stock price as of March 31, 2023 as the best estimate of the future vest date value, and we estimate that the deductions will be utilized in the next one to three years based on the Company's current forecasts. 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~~March 3031, ~~2022,~~2023 the Company had no transfers in orand 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)
Balance as of December 31, 2022	$	(65,000)
Change in the fair value reported in other non-operating income (expense), net	10,500
Change in the fair value reported in other non-operating income, net	(5,432)
Balance as of September 30, 2022	$	(61,000)
Payments of tax sharing liabilities based on estimated fair value to SAP (1)	4,432
Balance as of March 31, 2023	$	(66,000)

14(1) See Note 12 for additional details on the full payment of tax sharing liabilities.

4.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	As of September 30,		As of December 31,
	As of March 31,		As of December 31,
in thousands	~~2022~~2023		~~2021~~2022
Internal-use software	$	4264,~~899~~093	$	2950,~~047~~488
Server equipment	2019,~~388~~058		2819,~~176~~192
Leasehold improvements	86108,~~537~~458		8088,~~301~~254
Computer equipment	2526,~~177~~580		2125,~~470~~999
Land	13,383		13,383
Buildings	61,345		61,~~346~~345
Furniture and fixtures	3,~~073~~191		23,~~857~~158
Software	3,034		3,~~252~~034
Construction in progress	1510,~~506~~889		1027,~~717~~533
Total property and equipment	$	~~271~~310,~~342~~031	$	~~250~~292,~~549~~386
Accumulated depreciation and amortization	(6986,~~579~~703)		(5876,~~222~~741)
Property and equipment, net	$	~~201~~223,~~763~~328	$	~~192~~215,~~327~~645

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,

Three Months Ended March 31,

in thousands

~~2022~~2023

~~2021~~2022

~~2022~~

~~2021~~

Cost of revenue

79,~~227~~279

56,~~132~~097

~~19,853~~

~~15,343~~

Research and development

1,~~462~~490

~~864~~1,364

~~4,561~~

~~2,307~~

Sales and marketing

2,~~228~~285

12,~~508~~005

~~6,399~~

~~4,174~~

General and administrative

~~426~~383

~~343~~472

~~1,469~~

~~897~~

Total depreciation and amortization expense

1113,~~343~~437

79,~~847~~938

~~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 less than 1 to 1413 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,

Three Months Ended March 31,

in thousands

~~2022~~2023

~~2021~~2022

~~2022~~

~~2021~~

Operating lease cost

76,~~341~~626

57,~~388~~501

~~22,254~~

~~16,513~~

Variable and short-term lease cost

23,~~678~~378

2,~~031~~449

~~7,098~~

~~5,498~~

Other information related to leases was as follows:

	As of September 30,		As of December 31,
	As of March 31,		As of December 31,
	2022		2021
	2023		2022
Weighted average remaining lease term	10.94 years		1110.97 years
Weighted average discount rate	2.08	%	2.0708	%

15 10

As of ~~September~~March 3031, ~~2022~~2023, the maturities of lease liabilities under non-cancelable operating leases, net of lease incentives, were as follows:

	As of September 30,
	As of March 31,
in thousands	~~2022~~2023
Remainder of 2022	3,087
Remainder of 2023	$	7,639
2023	14,190
2024	29,880
2024	28,241
2025	32,052
2025	30,396
2026	32,656
2026	31,038
2027	29,939
Thereafter	~~203~~178,~~591~~324
Total minimum lease payments	$	310,~~543~~490
Less: imputed interest	(3533,~~138~~071)
Total	$	~~275~~277,~~405~~419

6.~~BUSINESS~~OTHER ~~COMBINATIONS~~INTANGIBLE ASSETS, NET

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,
	As of March 31,		As of December 31,
in thousands	~~2022~~2023		~~2021~~2022
Patents	$	751	$	751
Developed technology	~~159~~161,~~670~~920		159,~~665~~670
Customer relationships	111,700		111,~~965~~700
Developed content	400		400
Tradename	1,890		1,~~915~~890
Licenses and certifications	6,350		6,~~845~~350
License agreements	1,500		1,500
Total intangible assets	$	~~282~~284,~~261~~511	$	~~283~~282,~~041~~261
Accumulated amortization	(5884,~~617~~777)		(1871,~~541~~846)
Other intangible assets, net	$	~~223~~199,~~644~~734	$	~~264~~210,~~500~~415

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

in thousands

~~2022~~2023

~~2021~~2022

~~2022~~

~~2021~~

Cost of revenue

7,~~452~~358

~~442~~7,572

~~22,529~~

~~973~~

Sales and marketing

5,531

745,527

~~16,589~~

~~176~~

General and administrative

~~320~~42

47318

~~958~~

~~141~~

Total amortization of acquired intangible assets

~~13,303~~$

12,931

~~563~~$

13,417

~~40,076~~

~~1,290~~

~~Estimated amortization expense for intangible assets for the next five years consists of the following:~~11

	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

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


	As of March 31,
in thousands	2023
Remainder of 2023	$	39,009
2024	52,009
2025	50,122
2026	41,366
2027	17,156
Thereafter	72
Total	199,734

87.ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

	As of September 30,		As of December 31,
	As of March 31,		As of December 31,
in thousands	~~2022~~2023		~~2021~~2022
Accrued wages, bonuses and commissions	$	7271,~~793~~739	$	9379,~~021~~518
Accrued payroll taxes	65,~~426~~501		79,~~295~~087
Other accrued expenses	3430,~~481~~236		4432,~~037~~590
Accrued income taxes	10,931		23,049
Employee Stock Purchase Plan (“ESPP”) liability	7,128		18,924
Total accrued liabilities	$	124,631	$	167,402
Accrued income taxes	15,779		15,172
Total accrued liabilities	$	130,383	$	155,291

~~(1)~~8.COMMITMENTS AND CONTINGENCIES

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~~most ~~available~~current atinformation ~~the time of the assessment~~available. 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~~Merger ~~COMPENSATION~~Expenses

~~Stock-based~~As ~~compensation~~previously ~~expense~~disclosed, ~~including~~on ~~cash~~March ~~settled~~12, ~~for~~2023, the ~~three~~Company entered into an Agreement and ~~nine~~Plan ~~months~~of ~~ended~~Merger ~~September~~(the 30“Merger Agreement”) by and among the Company, ~~2022~~Quartz Holdco, LLC, a Delaware limited liability company (“Parent”), and ~~2021~~Quartz ~~was~~MergerCo, ~~recorded~~Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as ~~follows:~~a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Silver Lake (“Silver Lake”). During the three months ended March 31, 2023, the Company has incurred $16.3 million in Merger-related expenses, $7.1 million of which have been paid. The remaining $9.2 million is included in accounts payable.

	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~~9.STOCK-BASED ~~Awards~~COMPENSATION

~~During~~Stock-based ~~the~~compensation ~~three~~expense ~~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~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021,~~2022 ~~less~~was ~~than~~recorded ~~0.1 million~~as ~~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~~ follows:


	Three Months Ended March 31,
in thousands	2023		2022
Cost of subscription revenue	$	5,063	$	4,544
Cost of professional services and other revenue	8,593		8,066
Research and development	40,646		41,275
Sales and marketing	52,196		49,053
General and administrative	125,472		165,323
Total stock-based compensation expense	$	231,970	$	268,261

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~~three months ended ~~September~~March 3031, ~~2022~~2023:

	Number of RSUs (in thousands)	Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2021	82,164	$	43.11
Outstanding as of December 31, 2022	76,673	$	34.17
Granted	3215,~~117~~980	2116.6932
Vested	(2810,~~824~~601)	4238.0353
Forfeited/Canceled	(51,~~208~~910)	3728.1971
Outstanding as of September 30, 2022	80,249	$	35.31
Outstanding as of March 31, 2023	80,142	$	30.18

The total fair value of RSUs that vested during the three months ended ~~September~~March 3031, ~~2022~~2023 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~~176.0 million and $~~184~~529.48 million, respectively. As of ~~September~~March 3031, ~~2022~~2023, there was $21,~~251~~952.04 million of unrecognized stock-based compensation expense related to outstanding Qualtrics RSUs, which is expected to be recognized over a weighted-average period of 2.64 years.

Qualtrics Options

	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 following table sets forth the outstanding common stock options and related activity for the three months ended March 31, 2023:

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.


	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, 2022	1,468	$	4.87	5.1	$	8,091
Exercised	(116)	4.27
Forfeited/Expired	(6)	6.79
Outstanding as of March 31, 2023	1,346	$	4.91	4.9	$	17,388
Vested and exercisable at March 31, 2023	850	$	4.68	4.9	$	11,173

AsThe ofaggregate ~~September~~intrinsic ~~30,~~value ~~2022,~~of ~~there~~options exercised was $111.85 million and $3.0 million for the three months ended March 31, 2023 and 2022. The intrinsic value represents the excess of ~~unrecognized~~the ~~stock-based~~estimated ~~compensation~~fair ~~expense~~value ~~related~~of tothe ~~outstanding~~Company's common stock on the date of exercise over the exercise price of each option. The intrinsic value of options ~~which~~as isof ~~expected~~March to31, be2023 ~~recognized~~is ~~over~~based aon ~~weighted-average~~the ~~period~~market closing price of 2the ~~years~~Company's Class A common stock on that date.

~~Qualtrics~~As ~~Employee~~of ~~Stock~~March ~~Purchase~~31, ~~Plan~~2023, there was $10.4 million of unrecognized stock-based compensation expense related to outstanding stock options which is expected to be recognized over a weighted-average period of 1.5 years.

~~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~~

21The Company recognized compensation expense associated with the ESPP of $4.5 million and $5.1 million during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $4.7 million of unrecognized stock-based compensation expense associated with the ESPP, which is expected to be recognized over a weighted-average period of 0.3 years.

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.14

1110.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~~March 3031,				~~Nine Months Ended September 30,~~
	2022		2021		2022		2021
	2023		2022
Numerator:
Net loss attributable to common shareholders	$	(~~233~~258,~~548~~964)	$	(~~286~~292,~~033~~325)	$	~~(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~~599,~~850~~314,~~097~~127		~~515~~575,~~212~~700,~~996~~568		~~581,664,521~~		~~503,781,082~~
Net loss per share attributable to common stockholders, basic and diluted	$	(0.4043)	$	(0.5651)	$	~~(1.38)~~	$	~~(1.49)~~

The net loss per share amounts are the same for the Class A and Class B common stock because the holders of each class are legally entitled to equal per share distributions, whether through dividends or in liquidation. 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~~antidilutive. 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
	As of March 31, 2023	As of December 31, 2022
Qualtrics restricted stock units	80,~~248~~141,~~895~~929	8276,~~163~~672,~~894~~908
Qualtrics options	1,~~570~~346,~~517~~011	1,~~854~~467,~~965~~828
Qualtrics employee stock purchase program	~~992~~494,~~769~~762	~~687~~2,~~000~~144,827

1211.INCOME TAXES

The Company has an effective tax rate of ~~1.4% and~~ (12.97)% ~~for the three months ended September 30, 2022~~ and ~~2021, respectively, and~~ (0.98)% ~~and 0.6%~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, respectively. The Company has incurred U.S. book 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.

InThe ~~prior years, the~~ Company had historically 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 deconsolidation from SAP during 2021, net operating losses and credits were updated to reflect actual attributes available for use by the ~~federal~~Company. Qualtrics is subject to a tax sharing agreement with SAP that requires the Company to reimburse SAP for the Company's taxable income, or be reimbursed by SAP in cases of a taxable loss, which is included on the consolidated tax returns with SAP, subject to adjustments for hypothetical tax attributes and certain simplifying conventions.

22ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for a valuation allowance, the Company considered all available evidence, both positive and negative, including historical levels of income or loss, legislative developments, expectations, and risks associated with estimates of future taxable income, and prudent and feasible tax planning strategies. The Company has evaluated this evidence and 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, the Company maintains a full valuation allowance against its net U.S. deferred tax assets in these entities.

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.15

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 U12.S.RELATED ~~entities~~PARTY 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.TRANSACTIONS

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~~statements of ~~operations~~comprehensive loss 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~~March 3031, ~~2022~~2023 and ~~2021~~2022, the Company recognized revenue of $108.6 million and $610.0 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 $128.12 million and $1312.30 million during the three months ended ~~September~~March 3031, ~~2022~~2023 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 $30.78 million and $54.58 million during the three months ended ~~September~~March 3031, ~~2022~~2023 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~~March 3031, ~~2022~~2023, the outstanding receivable and payable ~~balance~~ with SAP and its affiliates was $1710.97 million and $818.50 million, respectively. As of December 31, ~~2021~~2022, the outstanding receivable and payable ~~balance~~ with SAP and its affiliates was $4219.02 million and $1315.32 million, respectively.

Because of the SAP Acquisition, weQualtrics had been included in SAP America’s consolidated group for U.S. federal income tax purposes. In October 2021, wethe Company deconsolidated from the SAP Tax Group for ~~U.S.~~ federal ~~income~~ tax purposes. WeThe ~~expect~~Company continues to ~~remain~~be 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, wethe Company will make certain tax sharing payments to SAP. As of ~~September~~March 3031, ~~2022~~2023, the Company’s distribution liability for the tax sharing agreement with SAP totaled $78.0 million, consisting of $1712.0 million based on our separate tax liability included on SAP Tax Group returns and $6166.0 million based on an estimated fair value of the liability related to Pre-IPO Awards. Of the $78.0 million, $57.2 million is recorded within accounts payable and the remaining $20.8 million is recorded within other liabilities on the condensed consolidated balance sheet as of March 31, 2023. As of December 31, ~~2021~~2022, the Company’s distribution liability for the tax sharing agreement with SAP totaled $8884.57 million, consisting of $177.07 million based on ~~our~~2021 ~~separate~~actual tax ~~liability~~return ~~included~~activity, $12.0 million based on ~~SAP~~the ~~Tax~~Company’s ~~Group~~2022 ~~returns~~tax provision and $7165.50 million based on an estimated fair value. Of the $84.7 million, $72.0 million is recorded within accounts payable and the remaining $12.7 million is recorded within other liabilities on the condensed consolidated balance sheet as of December 31, 2022. For the ~~liability~~three ~~related~~months ended March 31, 2023, the Company made a payment of the distribution tax liability to ~~Pre-IPO~~SAP ~~Awards~~of $12.1 million, of which $4.4 million was based on the estimated fair value, which is disclosed in Note 3, “Fair Value Measurements”.

InCertain ~~January~~Board ~~2021,~~members ~~and~~of inthe ~~connection~~Company ~~with~~and ~~the~~certain ~~initial~~Supervisory ~~public~~Board ~~offering,~~and ~~the~~Executive ~~Company~~Board ~~declared~~members aof ~~$2,392 million~~SAP ~~dividend~~SE incurrently ~~the~~hold, ~~form~~or ofheld ~~two~~within ~~promissory~~the ~~notes~~last ~~payable~~year, ~~from~~positions ~~Qualtrics~~of tosignificant ~~SAP~~responsibility ~~AMERICA,~~with ~~INC~~other entities. ~~Promissory~~The ~~Note~~Company 1has ~~was~~relationships ~~issued~~ with acertain ~~principal amount~~ of ~~$1,892 million~~these ~~and~~entities ~~paid~~ in ~~full~~the onordinary ~~February~~course 1,of ~~2021~~business. ~~Promissory~~During ~~Note~~the 2three ~~was~~months ~~issued~~ended ~~with~~March a31, ~~principal~~2023 ~~amount~~and of2022, ~~$500 million~~revenue and ~~interest~~charges ~~rate~~from ofthese ~~1.35%~~related ~~compounded~~parties ~~semi~~were ~~annually~~immaterial. ~~The~~

23On March 12, 2023, concurrently with the execution of the Merger Agreement, the Company and SAP SE (“SAP”) entered into a Separation Agreement (the “Separation Agreement”), which governs, among other things, the terms of the separation of the Company’s business from SAP and its affiliates (other than the Company and its subsidiaries).

~~outstanding principal of $500 million and accrued interest related to Promissory Note 2 was paid in full on November 9, 2021.~~16

~~Certain~~The ~~Board~~Separation ~~members~~Agreement requires the parties to use commercially reasonable efforts to take certain actions between the signing of the ~~Company~~Merger Agreement and the closing of the Merger in respect of separating certain ~~Supervisory~~shared ~~Board~~operations and ~~Executive~~resources ~~Board~~of ~~members~~the ofCompany and SAP SEso ~~currently~~that ~~hold,~~the orCompany ~~held~~can ~~within~~operate ~~the~~on ~~last~~a ~~year,~~standalone ~~positions~~basis independent of ~~significant~~SAP ~~responsibility~~and ~~with~~its affiliates (other ~~entities.~~than Wethe ~~have~~Company ~~relationships~~and ~~with~~its ~~certain~~subsidiaries) following the closing of ~~these~~the ~~entities~~Merger in(the “Separation”). If the ~~ordinary~~Separation ~~course~~has not been fully completed prior to the closing of ~~business.~~the ~~During~~Merger, the ~~three~~Company and ~~nine~~SAP ~~months~~will ~~ended~~enter ~~September~~into ~~30,~~a ~~2022,~~customary ~~and~~transition ~~2021,~~services ~~revenue~~agreement on mutually agreed terms under which SAP will continue providing certain support services and ~~charges~~assistance ~~from~~to ~~these~~the ~~related~~Company ~~parties~~on ~~were~~a ~~immaterial.~~transitional basis as necessary after closing of the Merger.

In December 2020, Ryan Smith, ~~our~~the Company’s 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~~amended ~~$0.3 million~~in ~~and~~Q1 ~~$0.4 million during the three months ended September 30~~2023, ~~2022~~under ~~and~~which ~~2021,~~the ~~respectively,~~Company ~~and~~was billed $20.67 million and $41.2 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, respectively.I

24 17

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~~409.5 8 million and $~~271~~335.6 million for the three months ended ~~September~~March 3031, ~~2022~~2023 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 4122%. For the three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, our net loss was $~~233~~259.~~5 million and $286.~~0 ~~million,~~ ~~respectively, and $805.1~~ million and $~~749~~292.~~4 million~~3 ~~for the nine months ended September 30~~million, ~~2022 and 2021,~~ respectively. The results of our operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022 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 9998% 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~~March 3031, ~~2022, respectively~~2023. We have a diversified customer base consisting of organizations of various sizes across virtually all industries. Our largest customer accounted for less than 32% of revenue during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023, and our largest industries by annual recurring revenue, or ARR, as of ~~September~~March 3031, ~~2022~~2023 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~~March 3031, ~~2022~~2023, we had over 5,~~600~~300 employees. On January 11, 2023, the Company committed to a plan to eliminate approximately 207 roles across the Company globally that do not align with the Company’s highest priorities for 2023. This represents less than 5% of the Company’s work force. As of March 31, 2023, the Company has incurred non-recurring charges of approximately $7.5 million, primarily consisting of severance payments, notice pay (where applicable), employee benefits contributions and related costs.

Merger Agreement

As previously disclosed, on March 12, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Quartz Holdco, LLC, a Delaware limited liability company (“Parent”), and Quartz MergerCo, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Silver Lake.

As a result of the Merger, each share of Class A common stock of the Company, par value $0.0001 per share (“Class A Common Stock”), and Class B common stock of the Company, par value $0.0001 per share (“Class B Common Stock” and together with Class A Common Stock, the “Common Stock”) outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (subject to certain exceptions, including shares of Common Stock held in treasury by the Company or owned by any direct or indirect wholly owned subsidiary of the Company and any shares of Common stock owned by Merger Sub, Parent or any of their respective direct or indirect wholly owned subsidiaries and shares of Common Stock owned by stockholders of the Company who have validly demanded and not withdrawn appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”)) will, at the Effective Time, automatically be cancelled and converted into the right to receive $18.15 in cash (the “Merger Consideration”), without interest and subject to applicable withholding taxes.

Effective as of 11:59 p.m. Eastern Time on April 24, 2023, the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) expired. The consummation of the Merger remains subject to the satisfaction (or written waiver by each of the Company, Parent and Merger Sub if permissible by law) of other closing conditions, including, but not limited to, clearances or approvals having been obtained or waived under applicable specified foreign antitrust laws and foreign investment laws.

The Board of Directors of the Company, after considering the unanimous recommendation of the independent subcommittee of the audit committee of the Board of Directors of the Company, has approved the Merger Agreement and the transactions contemplated thereby and the necessary stockholder approval has been duly executed and delivered, adopting and approving in all respects the Merger Agreement and the transactions contemplated thereby. Completion of the Merger remains subject to certain closing conditions, including (1) the information statement having been mailed to the Company’s stockholders and at least 20 calendar days having elapsed since the completion of such mailing, (2) the obtainment of regulatory clearances or approvals under certain specified foreign antitrust laws and foreign investment laws, (3) the absence of any law enjoining, restraining or otherwise prohibiting or making illegal the consummation of the Merger, (4) the accuracy of the other party’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement, (5) compliance in all material respects with the other party’s covenants, agreements and obligations under the Merger Agreement, and (6) no Material Adverse Effect (as defined in the Merger Agreement) having occurred and being continuing since the date of the Merger Agreement. Subject to the satisfaction or waiver of such closing conditions, the parties expect the transaction to close in the second half of 2023.

If the Merger is consummated, Class A Common Stock will be delisted from the Nasdaq Global Select Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we will no longer file periodic reports with the SEC on account of Company Class A Common Stock.

Separation Agreement

As previously disclosed, on March 12, 2023, concurrently with the execution of the Merger Agreement, the Company and SAP SE (“SAP”) entered into a Separation Agreement (the “Separation Agreement”), which governs, among other things, the terms of the separation of the Company’s business from SAP and its affiliates (other than the Company and its subsidiaries).

The Separation Agreement requires the parties to use commercially reasonable efforts to take certain actions between the signing of the Merger Agreement and the closing of the Merger in respect of separating certain shared operations and resources of the Company and SAP so that the Company can operate on a standalone basis independent of SAP and its affiliates (other than the Company and its subsidiaries) following the closing of the Merger (the “Separation”). If the Separation has not been fully completed prior to the closing of the Merger, the Company and SAP will enter into a customary transition services agreement on mutually agreed terms under which SAP will continue providing certain support services and assistance to the Company on a transitional basis as necessary after closing of the Merger.

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 3130% and 29% of our total revenue ~~during~~in the three months ended ~~September~~March 3031, ~~2022~~2023 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~~400 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.

26We continue to increase the number of customers who have entered into larger subscriptions with us. We had 2,372 customers with ARR of $100,000 or more as of March 31, 2023, up from 2,262 as of December 31, 2022. The number of customers with ARR of $100,000 or more indicates the strategic importance of our platform for enterprise customers and our ability to both initially land significant accounts and grow them over time.

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~~March 3031, ~~2022~~2023, our net retention rate was ~~124~~116%. Our net retention rate was ~~128~~120% as of December 31, ~~2021~~2022.

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 1312 “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~~Certain ~~the SAP Acquisition, certain~~ of our financial results have been presented as an operating segment within SAP’s publicly reported financial results. These Euro- currency reported financial results are prepared and presented 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~~21

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.22

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 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, including bringing back our in-person X4 Summit event that took place this quarter in March 2023. 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.

29Other non-operating income, net

~~periods.~~Other ~~Our~~non-operating ~~general~~income, ~~and~~net ~~administrative~~consists ~~expenses~~of ~~may~~other ~~fluctuate~~non-operating asgains aor ~~percentage~~losses, including those related to changes in the fair value of our ~~revenue~~distribution ~~from~~liability ~~period~~related to ~~period~~our ~~due~~tax tosharing ~~the~~agreement ~~timing~~with SAP, interest income, interest expense and ~~extent~~foreign ofcurrency ~~these~~transaction ~~expenses~~gains and losses.

~~Other non-operating income (expense), net~~23

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 aan 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 ~~were updated in 2021~~ to reflect the ~~actual~~ tax attributes available for future use by the Qualtrics tax reporting ~~entities~~entity that ~~file~~files returns separate from aan SAP Tax Group.

30 24

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,

Three Months Ended March 31,

2022

2021

2022

2021

2023

2022

(In thousands)

Revenue:

Subscription

~~314~~339,~~765~~803

~~220~~280,~~314~~808

~~896,151~~

~~611,748~~

Professional services and other

6269,~~766~~967

5154,~~320~~839

~~173,392~~

~~147,874~~

Total revenue

~~377~~409,~~531~~770

~~271~~335,~~634~~647

~~1,069,543~~

~~759,622~~

Cost of revenue(1)(2):

Subscription

5154,~~087~~671

2344,~~802~~774

~~143,454~~

~~65,865~~

Professional services and other

6068,~~577~~511

4354,~~041~~493

~~171,925~~

~~127,522~~

Total cost of revenue

~~111~~123,~~664~~182

6699,~~843~~267

~~315,379~~

~~193,387~~

Gross profit

~~265~~286,~~867~~588

~~204~~236,~~791~~380

~~754,164~~

~~566,235~~

Operating expenses(1)(2):

Research and development

98108,~~333~~975

83105,~~875~~999

~~320,488~~

~~226,552~~

Sales and marketing

~~225~~252,~~124~~772

~~161~~218,~~570~~330

~~663,098~~

~~449,446~~

General and administrative

~~182~~178,~~280~~672

~~236~~202,~~810~~589

~~572,954~~

~~637,944~~

Total operating expenses

~~505~~540,~~737~~419

~~482~~526,~~255~~918

~~1,556,540~~

~~1,313,942~~

Operating loss

(~~239~~253,~~870~~831)

(~~277~~290,~~464~~538)

~~(802,376)~~

~~(747,707)~~

Other non-operating income (expense), net

3,058

(3,160)

4,239

(6,091)

Other non-operating income, net

1,655

674

Loss before income taxes

(~~236~~252,~~812~~176)

(~~280~~289,~~624~~864)

~~(798,137)~~

~~(753,798)~~

Provision for income taxes

(36,~~264)~~788

52,~~409~~461

~~6,981~~

~~(4,424)~~

Net loss

(~~233~~258,~~548~~964)

(~~286~~292,~~033~~325)

~~(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,

Three Months Ended March 31,

2022

2021

2022

2021

2023

2022

(In thousands)

Cost of subscription revenue

45,~~905~~063

24,~~516~~544

~~13,783~~

~~8,522~~

Cost of professional services and other revenue

98,~~445~~593

68,~~977~~066

~~25,754~~

~~18,161~~

Research and development

2840,~~722~~646

3341,~~697~~275

~~115,553~~

~~89,410~~

Sales and marketing

5552,~~622~~196

3649,~~651~~053

~~155,540~~

~~94,917~~

General and administrative

~~148~~125,~~582~~472

~~196~~165,~~979~~323

~~467,962~~

~~553,582~~

Total stock-based compensation, including cash settled

231,970

268,261

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		2022		2021
	2023		2022
	(In thousands)
Cost of revenue	$	7,~~452~~358	$	~~442~~7,572	$	~~22,529~~	$	~~973~~
Sales and marketing	5,531		745,527		~~16,589~~		~~176~~
General and administrative	~~320~~42		47318		~~958~~		~~141~~
Total amortization of acquired intangible assets	$	12,931	$	13,417

31 25

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,
	Three Months Ended March 31,
	2022		2021		2022		2021
	2023		2022
	(as a % of revenue)
Revenue:
Subscription	83		8184		84		81
Professional services and other	17		1916		16		19
Total revenue	100	%	100	%	~~100~~	%	~~100~~	%
Cost of revenue:
Subscription	1413		913		13		9
Professional services and other	1617		16		16		17
Total cost of revenue	30		2529		29		26
Gross profit	70		7571		71		74
Operating expenses:
Research and development	2627		3132		30		30
Sales and marketing	6062		5965		62		59
General and administrative	4843		8760		54		84
Total operating expenses	~~134~~132		~~177~~157		~~146~~		~~173~~
Operating loss	(6462)		(~~102~~86)		~~(75)~~		~~(99)~~
Other non-operating income (expense), net	1		(1)		—		(1)
Other non-operating income, net	—		—
Loss before income taxes	(6362)		(~~103~~86)		~~(75)~~		~~(100)~~
Provision for income taxes	~~(1)~~2		21		1		~~(1)~~
Net loss	(6264)	%	(~~105~~87)	%	~~(76)~~	%	~~(99)~~	%

Comparison of the three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022

Revenue

	Three Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		$ Change		% Change
	2023		2022		$ Change		% Change
	(In thousands)
Subscription revenue	$	~~314~~339,~~765~~803	$	~~220~~280,~~314~~808	$	9458,~~451~~995	4321	%
Professional services and other revenue	6269,~~766~~967		5154,~~320~~839		1115,~~446~~128		2228	%
Total revenue	$	~~377~~409,~~531~~770	$	~~271~~335,~~634~~647	$	~~105~~74,~~897~~123	3922	%

Subscription revenue increased by $9459.50 million, or 4321%, for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022. 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~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022, approximately $7335.5 6 million was attributable to existing customers and approximately $2123.0 4 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 $1115.41 million, or 2228%, for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022. This increase was primarily due to an increase in revenue from larger customers, who generally require more services.

32 26

Cost of revenue, gross profit, and gross margin

	Three Months Ended September 30,
	Three Months Ended March 31,
	2022			2021			$ Change		% Change
	2023			2022			$ Change		% Change
	(In thousands)
Cost of subscription revenue	$	5154,~~087~~671		$	2344,~~802~~774		$	279,~~285~~897	~~115~~22	%
Cost of professional services and other revenue	6068,~~577~~511			4354,~~041~~493			1714,~~536~~018		4126	%
Total cost of revenue	~~111~~123,~~664~~182			6699,~~843~~267			4423,~~821~~915		6724	%
Subscription gross profit	~~263~~285,~~678~~132			~~196~~236,~~512~~034			6749,~~166~~098		3421	%
Professional services and other gross (loss) profit	2,189			8,279			(6,090)		(74)	%
Professional services and other gross profit	1,456			346			1,110		321	%
Total gross profit	$	~~265~~286,~~867~~588		$	~~204~~236,~~791~~380		$	6150,~~076~~208	3021	%
Subscription gross margin	84		%	8984		%
Professional services and other gross margin	32		%	161		%
Total gross margin	70		%	7570		%

Cost of subscription revenue increased $279.39 million, or ~~115~~22%, for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021.~~2022, ~~This~~consistent ~~increase~~with ~~was~~the ~~driven by a $8.3 million~~ increase in ~~employee-related~~subscription ~~costs~~revenue ~~from~~growth ~~headcount~~over ~~growth~~the ~~related~~same toperiod. ~~our~~This ~~recent~~increase ~~acquisitions~~was ~~and~~driven ~~hiring,~~by a $73.8 5 million increase in ~~server~~amortization ~~costs~~of internal-use software, a $73.0 4 million increase in ~~amortization~~employee-related ~~expense~~costs ~~related~~from toheadcount ~~acquired~~growth ~~intangible~~related ~~assets~~to hiring, a $2.4 7 million increase in ~~stock-based~~server ~~compensation expense~~costs, and a $10.85 million increase in ~~amortization~~stock-based ofcompensation ~~internal use software~~expense. Cost of professional services and other revenue increased $1714.50 million, or 4126%, for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022. This increase was driven by a $97.3 9 million increase in ~~employee-related~~professional ~~costs~~services ~~from~~vendor ~~headcount growth related to our recent acquisitions and hiring~~costs, a $5.7 6 million increase in ~~professional~~employee-related ~~services~~costs ~~vendor~~from ~~costs~~headcount growth related to hiring, and a $20.5 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,
	Three Months Ended March 31,
	2022		2021		$ Change		% Change
	2023		2022		$ Change		% Change
	(In thousands)
Research and development	$	98108,~~333~~975	$	83105,~~875~~999	$	142,~~458~~976	173	%

Research and development expenses increased $143.50 million, or 173%, for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022. This increase was driven by a $174.7 1 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, aand $1.47 million ~~increase~~of restructuring expenses in ~~vendor~~Q1 ~~costs~~2023, ~~and~~partially offset by a $01.43 million ~~increase~~decrease in employer payroll tax on employee stock transactions, ~~offset~~a by$0.8 million andecrease in outside vendor costs, and a $5.0.6 million decrease in stock-based compensation expense.

33 27

Sales and marketing

	Three Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		$ Change		% Change
	2023		2022		$ Change		% Change
	(In thousands)
Sales and marketing	$	~~225~~252,~~124~~772	$	~~161~~218,~~570~~330	$	6334,~~554~~442	3916	%

Sales and marketing expenses increased $6334.64 million, or 3916%, for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022. The increase in sales and marketing was primarily driven by aan $4018.9 0 million increase in employee-related costs from headcount growth related to ~~our recent acquisitions and~~ hiring, a $194.0 9 million increase in ~~stock~~travel-~~based~~related ~~compensation expense~~expenses, a $54.57 million ~~increase~~of restructuring expenses in ~~amortization~~Q1 ~~expense~~2023, a $13.9 5 million increase in ~~travel-related~~marketing ~~expenses~~spend, and a $03.81 million increase in ~~employer payroll tax on employee~~ stock-based ~~transactions,~~compensation ~~offset by a $4~~expense.~~5 million decrease in marketing spend.~~

General and administrative

	Three Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		$ Change		% Change
	2023		2022		$ Change		% Change
	(In thousands)
General and administrative	$	~~182~~178,~~280~~672	$	~~236~~202,~~810~~589	$	(5423,~~530~~917)	(2312)	%

General and administrative expenses decreased $5423.59 million, or 2312%, for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022. The decrease in general and administrative expenses was primarily driven by a $4839.49 million decrease in stock-based compensation expense, a $4.0 million decrease in employer payroll tax on employee stock transactions, and a $130.48 million decrease in acquisition -related costs, partially offset by $16.3 million of expenses related to the pending Merger transaction in Q1 2023, a $62.5 0 million increase in employee-related costs from headcount growth related to ~~our recent acquisitions and~~ hiring, ~~and~~ a $01.5 8 million increase in ~~employer~~travel-related ~~payroll~~expenses, ~~tax~~and on$1.0 ~~employee~~million ~~stock~~of ~~transactions~~restructuring expenses in Q1 2023.

Other non-operating income ~~(expense)~~, net

Other non-operating income ~~(expense)~~, net increased $61.2 0 million for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to the three months ended ~~September~~March 3031, ~~2021~~2022. This increase was primarily driven by a $46.06 million increase in interest income and a $1.3 million ~~non-operating~~increase ~~gain~~in net foreign currency transaction gains, partially offset by an increase of $6.9 million 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~~increased $84.7 3 million for the three months ended ~~September~~March 3031, ~~2022~~2023, as compared to ~~the~~ three months ended ~~September~~March 3031, ~~2021.~~2022, ~~The change was~~ primarily due to achanges ~~decrease~~ in anthe ~~uncertain~~valuation ~~tax~~allowance ~~liability~~recorded ~~and a decrease~~ in ~~current~~our ~~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, 2021entities.

Our effective tax rate was 1(2.47)% for the three months ended ~~September~~March 3031, ~~2022,~~2023 asand ~~compared to~~ (10.98)% for the three months ended ~~September~~March 3031, ~~2021~~2022.

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

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~~March 3031, ~~2022~~2023, we had cash and cash equivalents of $~~731~~806.7 million. Our cash and cash equivalents consist primarily of cash and money market funds. As of ~~September~~March 3031, ~~2022~~2023, we had $2859.85 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.28

We ~~believe~~have financed our ~~existing~~operations ~~cash~~primarily ~~and~~through cash ~~equivalents,~~generated ~~together~~from ~~with~~our ~~cash provided by~~ operations, ~~will~~equity ~~be sufficient to meet our needs for at least the next 12 months. Our future capital requirements will depend on many factors~~issuances, ~~including our revenue growth rate, subscription renewal activity, the timing~~ and ~~extent~~proceeds offrom ~~spending~~capital tocontributions ~~support~~received ~~further~~from ~~infrastructure~~SAP ~~development~~in ~~and~~conjunction ~~research~~with ~~and development efforts,~~ the ~~timing~~SAP ~~and~~Acquisition ~~extent of additional capital expenditures to invest in existing~~ and ~~new~~funding ~~office spaces, the satisfaction~~ of ~~tax~~cash ~~withholding~~settled ~~obligations related to the vesting of share~~stock-based ~~awards,~~compensation ~~the~~expense. ~~settlement~~Our ofprincipal ~~liabilities~~uses ~~related to the tax sharing agreement with SAP, the expansion~~ of ~~sales~~cash ~~and~~in ~~marketing~~recent ~~and~~periods ~~international~~have ~~operation~~been ~~activities,~~funding ~~the introduction of new product capabilities and enhancement of~~ our ~~XM Platform~~operations, ~~and~~making 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~~expenditures, ~~our~~settling ~~business,~~liability-classified ~~results~~stock-based ~~of operations~~awards, and ~~financial~~settling ~~condition~~tax ~~would~~obligations berelated ~~materially~~to ~~and~~stock-based ~~adversely affected~~awards.

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 settlement of future share-based awards, 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 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.

As previously disclosed, on March 12, 2023, we entered into the Merger Agreement with Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Silver Lake. We have agreed to various covenants and agreements in the Merger Agreement, including, among others, agreements to conduct our business in the ordinary course of business between the execution of the Merger Agreement and the closing of the Merger. Outside of certain limited exceptions, we may not take certain specified actions without Parent’s prior consent, which is not to be unreasonably withheld, conditioned or delayed, that could affect our liquidity and capital resource needs or requirements, including (i) acquiring other entities or any assets, properties, or businesses, that are material to the Company, (ii) making capital expenditures above specified thresholds, (iii) incurring additional indebtedness above specified thresholds, (iv) issuing additional securities, or (v) repurchasing or redeeming shares of our Common Stock. We do not believe these restrictions will prevent us from meeting our liquidity and capital resource needs or requirements, including our ongoing costs of operations, working capital needs or capital expenditure requirements.

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

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021
	2023		2022
	(In thousands)
Net cash flows used in operating activities	$	(5,994)	$	(10,863)
Net cash flows provided by in operating activities	$	104,279	$	23,103
Net cash used in investing activities	(3623,~~203~~861)		(5413,~~711~~173)
Net cash flows provided by financing activities	(236,918)		452,747
Net cash flows provided by (used in) financing activities	5,863		(187,926)
Effect of exchange rate changes on cash and cash equivalents	~~(3,672)~~545		(~~1,118~~67)
Net increase in cash and cash equivalents	$	(282,787)	$	386,055
Net increase (decrease) in cash and cash equivalents	$	86,826	$	(178,063)

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.

37 29

For the three months ended March 31, 2023, net cash provided by operating activities was $104.3 million, which resulted from net loss of $259.0 million, adjusted for ~~certain~~$232.0 million in stock-based compensation expense, additional non-cash ~~items,~~charges ~~including~~of ~~depreciation~~$59.9 million and ~~amortization~~net ~~expenses~~cash ~~and~~outflow ~~equity~~of $72.4 million from changes in operating assets and ~~cash~~liabilities. ~~settled~~Additional ~~stock~~non-~~based~~cash ~~compensation~~charges primarily consisted of $26.4 million of depreciation and amortization expense, as$22.4 ~~well~~million asof amortization of deferred contract acquisition costs, $6.6 million related to the ~~effect~~reduction of right-of-use assets from operating leases, and $5.4 million related to the changes in fair value of distribution liability for the tax sharing agreement. The outflow from operating assets and liabilities was primarily due a $19.8 million decrease in accrued liabilities and accounts payable, a $34.7 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 $10.9 million increase in prepaid and other assets, and a $12.5 million increase in deferred revenue from advance invoicing in accordance with our customer contracts, partially offset by a $152.3 million decrease in accounts receivable due to billings growth and timing of collections.

For the ~~nine~~three months ended ~~September~~March 3031, 2022, net cash ~~used~~provided inby operating activities was $623.01 million, which resulted from a net loss of $~~805~~292.13 million, adjusted for $~~778~~268.63 million in stock-based compensation expense, including cash ~~settlement~~settled of stock-based ~~payment~~compensation ~~liabilities~~ of $42.7 million, additional non-cash charges of $~~118~~44.9 million, and net cash outflow of $934.69 million from changes in operating assets and liabilities. Additional non-cash charges primarily consisted of $7223.4 million of depreciation and amortization expense, $5115.68 million of amortization of deferred contract acquisition costs, and $227.35 million related to the reduction of right-of-use assets from operating leases,. ~~offset~~The byoutflow ~~$17.1~~from ~~million~~operating inassets ~~deferred~~and ~~income~~liabilities ~~tax~~was ~~benefits~~primarily ~~and~~due a $1053.56 million ~~change~~decrease in ~~the~~accrued ~~fair~~liabilities ~~value of the tax sharing distribution liability. The outflow from operating assets~~ and ~~liabilities~~accounts ~~was~~payable, ~~primarily~~a ~~due to an~~ $8426.58 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 $618.43 million ~~decrease~~increase in ~~deferred~~prepaid ~~revenue, a $56.0 million decrease in accrued liabilities~~ and ~~accounts~~other ~~payable~~assets, and a $172.30 million ~~decrease~~increase in ~~lease~~deferred ~~liabilities,~~revenue ~~and~~from aadvance ~~$6.8~~invoicing ~~million increase~~ in ~~prepaid~~accordance ~~and~~with ~~other~~our ~~assets~~customer contracts, partially offset by a $~~135~~95.54 million decrease in accounts receivable due to ~~the~~billings growth and 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, and business combinations.

Net cash used in investing activities during the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022 of $3623.29 million, ~~and~~ $5413.72 million, respectively, resulted primarily from purchases of intangible assets and 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~~provided inby financing activities of $~~236~~5.9 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 ~~consisted~~was ofdue to $~~270~~20.98 million in ~~payments~~proceeds from the exercise of ~~payroll~~stock ~~withholding~~options ~~taxes~~and toissuance ~~net~~of ~~settle~~Class ~~equity~~A ~~awards~~stock under our employee stock purchase plan, offset by $3412.01 million in ~~proceeds~~payments ~~from~~of ~~the~~TSA ~~exercise~~Liabilities ofto ~~stock~~SAP ~~options~~ and ~~issuance~~$2.8 ofmillion ~~Class~~in Apayments ~~stock~~of ~~under~~payroll ~~our~~withholding ~~employee~~taxes ~~stock~~to ~~purchase~~net ~~plan~~settle equity awards.

Net cash provided by financing activities of $~~452~~187.79 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 ~~consisted~~was ofdue to $~~115~~208.09 million in ~~proceeds~~payments ~~from~~of apayroll ~~capital~~withholding ~~contribution~~taxes ~~from~~to ~~SAP~~net settle equity awards, offset by $~~2,244~~21.30 million in proceeds from the ~~sales~~exercise of ~~our Class A common~~ stock inoptions ~~connection with our initial public offering,~~ and ~~$16.6 million related to the~~ issuance of Class A ~~common~~ stock ~~related~~under 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.

38 30

Remaining Performance Obligations

	As of September 30,		As of December 31,
	As of March 31,		As of December 31,
	2022		2021
	2023		2022
	(In thousands)
Next 12 Months	$	1,~~047~~206,~~185~~026	$	1,~~011~~202,~~768~~260
Thereafter	~~847~~929,~~515~~035		~~721~~972,~~069~~378
Total	$	12,~~894~~135,~~700~~061	$	12,~~732~~174,~~837~~638

~~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. These amounts include contracts with certain government entities and affiliates that may be subject to laws or enact laws that give the contracting entity a right to terminate the contract based on governmental statutes. No government entity or affiliate has exercised such termination rights.

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~~Annual Report on Form 10-QK for the year ended December 31, 2022, filed with the SEC on ~~August~~February 324, ~~2022~~2023.

As of ~~September~~March 3031, ~~2022~~2023, 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~~estimates ~~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~~2022, filed with the SEC on ~~March~~February 124, ~~2022~~2023.

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.

39 31

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~~806.7 million as of ~~September~~March 3031, ~~2022~~2023. 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 $(40.1) 3 million ~~and $(1.6) million~~ in net foreign currency transaction ~~losses~~gains in the three months ended ~~September~~March 3031, ~~2022 and 2021~~2023, ~~respectively,~~ and $~~(10.6) million and $(~~1.8) 0 million in net foreign currency transaction losses in the ~~nine~~three months ended ~~September~~March 3031, 2022 ~~and 2021, respectively~~. A hypothetical 10% change in foreign currency rates would not have ~~had~~resulted ain material ~~impact~~gains onor ~~our~~losses ~~operating results~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022.

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~~March 3031, ~~2022~~2023. 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, our principal executive officer and principal financial officer have concluded that as of March 31, 2023 our disclosure controls and procedures aswere not effective because of ~~September~~the ~~30,~~material ~~2022,~~weaknesses ~~our~~in ~~principal~~internal ~~executive~~control ~~officer~~over ~~and~~financial ~~principal~~reporting described below.

40Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weaknesses described below, management has concluded that the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America.

~~financial~~Material ~~officer~~Weakness ~~have~~in ~~concluded~~Internal ~~that~~Control asover ofFinancial ~~such date, our disclosure controls and procedures were effective at the reasonable assurance level.~~Reporting

As previously disclosed, management identified certain deficiencies in the Company’s internal control over financial reporting that aggregated to a material weaknesses related to management’s risk assessment process over information technology general controls, including certain controls over logical access and change management, and process level controls including information used in the execution of those controls that impacted our financial reporting processes.

Management’s Remediation Plan and Status

In response to the material weakness management has taken the following actions:

•engaged a third party subject matter expert to assist in the review of our risk assessment process;

•established a remediation steering committee with key members of management to ensure remediation efforts are aligned to the remediation plan;

•enhanced our controls around the identification of new reports and changes to key reports;

•established training of control owners on the appropriate evidence and documentation for financial reporting controls and IT change management and logical access controls; and

•enhanced the design of existing controls, where applicable, and implemented additional controls to further strengthen the control environment.

While we have taken steps to substantially remediate the identified material weakness and will continue to complete the remediation process as quickly as possible, we cannot at this time estimate how long it will take to remediate this material weakness. The material weakness will not be considered remediated until the controls are designed, implemented, and operate for a sufficient period of time and management has concluded, through independent testing, that these controls are operating effectively. As management continues to evaluate and work to improve our disclosure controls and procedures and internal control over financial reporting, we may take additional measures to address these control deficiencies or modify certain remediation measures described above.

Changes in Internal Control Over Financial Reporting

~~There~~Other than continuing to make progress on the ongoing remediation efforts described above, there were no changes in ~~our~~the Company’s internal control over financial reporting ~~(as~~identified ~~defined~~ in ~~Rules~~connection with the evaluation required by Rule 13a-15(fd) and ~~Rule~~ 15d-15(fd) ~~under~~of the Exchange Act) that occurred during the quarter ended ~~September~~March 3031, ~~2022~~2023 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, ~~our~~the Company’s 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.

41 34

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

The information contained in Note 98. “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.

42 35

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~~the ~~Business and Industry~~Merger

IfThe weMerger, ~~fail~~the topendency ~~effectively~~of ~~manage~~the Merger or our ~~growth,~~failure to complete the Merger could have a material adverse effect on our business, ~~and~~ results of operations, ~~could~~financial becondition ~~harmed~~and stock price.

WeAs ~~have~~previously ~~experienced~~disclosed, ~~and~~on ~~may~~March ~~continue to experience~~12, ~~rapid growth~~2023, ~~which has placed, and may continue to place, significant demands on our management and our operational and financial resources. In addition,~~ we ~~operate~~entered ~~globally,~~into ~~sell~~the ~~subscriptions~~Merger toAgreement ~~more~~by ~~than 16,750 customers in more than 120 countries,~~ and ~~have~~among ~~employees in~~ the ~~United States~~Company, ~~Australia, Belgium, Canada, Denmark, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,~~ the ~~Netherlands~~Parent, ~~Poland,~~and ~~Serbia,~~Merger ~~Singapore~~Sub, ~~South~~providing ~~Korea,~~for ~~Spain,~~our ~~Sweden,~~acquisition ~~Switzerland,~~by ~~and~~affiliates ~~the~~of ~~United~~Silver ~~Kingdom as well as SAP employees we work with in numerous other countries~~Lake. WeCompletion ~~plan~~of ~~to continue to expand our international presence in~~ the ~~future,~~Merger ~~which will place additional demands on our resources and operations. Given our international presence, it~~ is ~~difficult~~subject to ~~anticipate how~~ the ~~varying~~satisfaction ~~national~~of ~~responses~~various ~~to the COVID-19 pandemic will continue to affect our customers~~conditions, ~~employees,~~including ~~and~~(1) ~~business~~the ~~operations.~~information ~~The~~statement ~~COVID-19~~having ~~pandemic~~been ~~has,~~mailed ~~and may continue~~ to, ~~put~~the ~~pressure~~Company’s onstockholders ~~global economic conditions~~ and ~~may~~at ~~cause~~least ~~our~~20 ~~customers~~calendar ordays ~~their~~having ~~customers~~elapsed tosince ~~modify~~the ~~spending~~completion ~~priorities~~of orsuch ~~delay or abandon purchasing decisions~~mailing, ~~thereby~~(2) 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~~absence ~~pandemic~~of ~~and~~any ~~unfavorable~~law ~~global economic conditions may be significant and could materially harm our business~~enjoining, ~~operating~~restraining ~~results~~or ~~and~~otherwise ~~financial~~prohibiting ~~condition.~~or ~~Additionally,~~making ~~political~~illegal ~~developments~~the ~~impacting~~consummation ~~government~~of ~~spending~~the ~~and international trade~~Merger, ~~including~~(3) ~~pandemics~~the ~~such~~expiration asor ~~the~~termination ~~COVID-19~~of ~~pandemic~~any ~~and~~applicable ~~geopolitical~~waiting ~~events~~period ~~such~~under as the ~~ongoing~~HSR ~~conflict~~Act ~~between~~(which ~~Russia~~occurred ~~and~~on ~~Ukraine~~April ~~and the related sanctions~~24, ~~may negatively impact our dealings with our international partners. In addition to expanding our global presence~~2023), weand ~~continue to increase~~ the ~~breadth~~obtainment ~~and scope~~ of ~~our~~regulatory XMclearances ~~Platform~~or ~~and~~approvals ~~our~~under ~~operations~~certain ~~and~~specified ~~continue~~foreign toantitrust ~~develop~~laws ~~our~~or ~~partner~~foreign ~~network.~~investment ~~Even~~laws, ~~with~~(4) the ~~support~~accuracy of ~~SAP,~~the inother ~~order~~parties’ torepresentations ~~successfully manage our future growth we will need to continue to improve our IT~~ and ~~financial infrastructures~~warranties, ~~our~~subject ~~operating and administrative systems, and our ability~~ to ~~manage~~certain ~~headcount,~~materiality ~~capital,~~standards ~~and~~set ~~internal~~forth ~~processes~~ in anthe ~~efficient~~Merger ~~manner~~Agreement, ~~and~~(5) ~~deepen~~compliance ~~our industry experience~~ in ~~key~~all ~~verticals.~~material ~~Our~~respects ~~organizational~~with ~~structure~~the isother ~~also~~parties’ ~~becoming~~covenants, ~~more~~agreements ~~complex~~and asobligations weunder ~~grow~~the ~~our~~Merger ~~operational~~Agreement, ~~financial,~~ and ~~management~~(6) ~~infrastructure~~no ~~and~~Material weAdverse ~~must~~Effect ~~continue to improve our internal controls~~ (as ~~well~~defined ~~as our reporting systems and procedures. We intend to continue to invest to expand our business, including investing~~ in ~~technology,~~the ~~sales~~Merger ~~and~~Agreement) ~~marketing~~having ~~operations,~~occurred ~~developing new solutions~~ and ~~features~~being ~~for~~continuing ~~our~~since ~~existing~~the ~~solutions,~~date ~~hiring~~of ~~additional~~the ~~personnel,~~Merger ~~and upgrading our infrastructure~~Agreement. ~~These~~There ~~investments~~is ~~will~~no ~~require~~assurance ~~significant~~that ~~capital~~all ~~expenditures~~of ~~and~~ the ~~allocation~~various ofconditions ~~management~~will ~~resources~~be satisfied, ~~and~~or ~~any~~that ~~investments~~the weMerger ~~make~~ will ~~occur~~be incompleted ~~advance~~on ~~of experiencing~~ the ~~benefits~~proposed ~~from such investments~~terms, ~~making~~within itthe ~~difficult~~expected totimeframe, ~~determine~~or inat aall. ~~timely~~Furthermore, ~~manner~~there ~~if we~~ are ~~efficiently~~additional ~~allocating~~inherent ~~our~~risks ~~resources.~~in ~~If we do not achieve~~ the ~~benefits anticipated from these investments~~Merger, orincluding if the ~~achievement~~risks ofdetailed ~~these benefits is delayed, our results of operations may be adversely affected~~below.

43During the period prior to the closing of the Merger, our business is exposed to certain inherent risks due to the effect of the announcement or pendency of the Merger on our business relationships, financial condition, operating results and business, including:

We•potential ~~are~~uncertainty ~~continuing~~in ~~to expand our operations outside~~ the ~~United States~~marketplace, ~~where~~which wecould ~~may~~lead becurrent ~~subject~~and toprospective ~~increased~~customers, ~~business~~retailers and ~~economic~~distributors ~~risks~~to ~~that~~purchase ~~could~~products ~~impact~~from ~~our~~others ~~results~~or ofdelay ~~operations.~~purchasing from us;

~~A key focus of our company is to continue to expand our operations outside of~~ •the ~~United~~possibility 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~~Merger ~~and~~or ~~nine months ended September 30, 2022, 31% and 30% of our revenue is from outside~~ the ~~United~~Separation ~~States,~~will ~~respectively,~~harm 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~~disrupt 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 SAPCompany’s ~~significant global presence~~business, ~~than~~including itcurrent isplans ~~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:~~operations;

•~~recruiting~~potential ~~and~~business ~~retaining~~uncertainty, ~~talented~~including ~~and~~changes ~~capable~~to ~~employees~~existing ~~outside~~business ~~the~~relationships ~~United~~that ~~States~~could ~~and~~affect ~~maintaining~~the ~~our~~Company’s ~~company~~financial ~~culture across all of our offices~~performance;

•~~providing~~the ~~our~~inability XMto ~~Platform~~retain and ~~operating~~hire ~~our~~key ~~business across a significant distance~~personnel, ~~in different languages~~ and ~~among different cultures, including~~ the ~~potential~~possibility ~~need~~that toour ~~modify~~current ~~our~~employees XMcould ~~Platform~~be distracted, and ~~features~~their toproductivity ~~ensure~~decline ~~that~~as ~~they~~a ~~are~~result, ~~culturally~~due ~~appropriate~~to ~~and~~uncertainty ~~relevant~~regarding inthe ~~different countries~~Merger;

•~~compliance~~the ~~with~~inability ~~applicable international laws and regulations, including laws and regulations with respect~~ to ~~privacy,~~pursue ~~data~~certain ~~protection,~~business ~~consumer~~opportunities ~~protection,~~or ~~and~~strategic ~~unsolicited~~transactions ~~email,~~pending ~~and~~ the ~~risk~~completion of ~~penalties~~the toMerger, ~~our users~~ and ~~individual~~other ~~members~~restrictions ofon ~~management or employees if~~ our ~~practices~~ability ~~are deemed~~ to beconduct ~~out~~our ~~of compliance~~business;

•~~management~~our ofinability anto ~~employee~~solicit ~~base~~other inacquisition ~~jurisdictions~~proposals ~~that~~during ~~may not give us~~ the ~~same~~pendency ~~employment~~of ~~and retention flexibility as does~~ the ~~United States~~Merger;

~~•operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States;~~36

•~~compliance~~potential byadverse usreactions ~~and~~or ~~our~~changes to business ~~partners~~relationships ~~with~~resulting ~~anti-corruption~~from ~~laws,~~the ~~import~~announcement ~~and~~or ~~export~~completion ~~control~~of ~~laws,~~the ~~tariffs,~~proposed ~~trade barriers, economic sanctions, and other regulatory limitations on our ability to provide our XM Platform in certain international markets~~Merger;

•~~foreign~~the ~~exchange controls that might require~~ significant ~~lead~~amount ~~time~~of intransaction ~~setting~~costs, upfees, ~~operations~~expenses ~~in certain geographic territories~~ and ~~might~~charges ~~prevent~~related usto ~~from~~the ~~repatriating~~Merger ~~cash~~Agreement ~~earned~~and ~~outside~~ the ~~United States~~Merger; and

•~~political~~other ~~and~~developments ~~economic~~beyond ~~instability~~our incontrol, ~~countries~~including, ~~where~~but wenot ~~may~~limited ~~operate~~to, ~~including~~changes ~~the~~in ~~potential~~legislative, ~~effects~~regulatory of, ~~the~~domestic ~~current~~or ~~COVID-19~~global ~~pandemic~~economic ~~and~~development that may affect the ~~ongoing~~timing ~~conflict~~or ~~between~~success ~~Russia~~of ~~and~~the ~~Ukraine;~~Merger.

~~•double~~The ~~taxation~~Merger ofmay ~~our~~be ~~international~~delayed, ~~earnings~~ and ~~potentially~~may ~~adverse~~ultimately ~~tax~~not ~~consequences~~be completed, due to ~~changes~~a innumber ~~the income and other tax laws~~ of ~~the~~factors, ~~United States or the international jurisdictions in which we operate;~~ including:

•~~higher~~the ~~costs~~failure ofto ~~doing~~obtain ~~business~~regulatory ~~internationally,~~clearances ~~including~~or ~~increased~~approvals ~~accounting,~~from ~~travel,~~various ~~infrastructure~~governmental entities (or the imposition of any conditions, ~~and~~limitations ~~legal~~or ~~compliance~~restrictions ~~costs;~~on ~~and~~such clearances or approvals);

44•potential future stockholder litigation and other legal and regulatory proceedings, which could delay or prevent the consummation of the Merger; and

•~~other~~the ~~events~~failure orto ~~factors,~~satisfy ~~including~~the ~~those~~other ~~resulting~~closing ~~from~~conditions ~~war~~to ~~such as~~ the ~~ongoing~~consummation ~~conflict~~of ~~between~~the ~~Russia~~Merger, ~~and~~including ~~Ukraine,~~the ~~incidents~~possibility ofthat ~~terrorism,~~a ~~natural~~Material ~~disasters,~~Adverse ~~disease,~~Effect ~~global~~on ~~pandemics~~our ~~such~~business aswould ~~COVID-19,~~permit orParent ~~responses~~not to ~~these~~close ~~events~~the Merger.

~~Compliance~~If ~~with~~the ~~laws~~Merger ~~and~~does ~~regulations~~not ~~applicable~~close, 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~~stockholders aswould ~~they change. Although we have implemented policies and procedures designed to support compliance with these laws and regulations, there can~~ be noexposed 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~~additional ~~with these laws and regulations or manage the complexity of our global operations successfully~~risks, ~~our business, results of operations, and financial condition could be adversely affected.~~including:

We•to ~~are~~the ~~subject~~extent tothat ~~governmental~~the ~~export~~current ~~and~~market ~~import~~price ~~controls,~~of ~~economic~~our ~~sanctions,~~common ~~and~~stock ~~anti-corruption~~reflects ~~laws~~an ~~and~~assumption ~~regulations~~ that ~~could~~the ~~impair~~Merger ~~our~~will ~~ability~~be tocompleted, ~~compete~~the inprice ~~international~~of ~~markets~~our ~~and~~common ~~subject~~stock uscould todecrease ~~liability~~ if wethe ~~are~~Merger is not ~~in full compliance with applicable laws.~~completed;

~~Our~~•investor ~~business~~confidence ~~activities~~could ~~are subject to various restrictions under United States export controls and other similar laws and regulations~~decline, ~~including~~stockholder ~~the~~litigation ~~United~~could ~~States~~be ~~Department~~brought ofagainst ~~Commerce’s Export Administration Regulations~~us, orrelationships ~~the~~with ~~EAR,~~existing and ~~various~~prospective ~~economic and trade sanctions regulations administered by the United States Treasury Department’s Office of Foreign Assets Controls~~customers, 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 countriesdistributors, ~~governments~~retailers, ~~persons~~service ~~and~~providers, ~~entities. In addition~~investors, ~~various~~lenders ~~countries regulate the import of certain technology~~ and ~~have~~other ~~enacted~~business orpartners ~~could~~may ~~enact~~be ~~laws~~adversely ~~that~~impacted, ~~could~~we ~~limit~~may ~~our~~be ~~ability~~unable to ~~provide~~retain ~~our~~key ~~customers~~personnel, ~~access~~and toprofitability ~~our~~may XMbe ~~Platform~~adversely orimpacted ~~could~~due ~~limit our customers’ ability~~ to ~~access~~costs orincurred ~~use our XM Platform~~ in ~~those~~connection ~~countries.~~with ~~Import and export control regulations in~~ the ~~U.S.~~pending ~~and~~Merger; ~~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~~•the werequirement ~~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~~pay ~~will~~a ~~prevent~~termination ~~violations~~fee of ~~export control and sanctions laws~~$311.5 Ifmillion weif ~~are found to be in violation of U.S. economic sanctions or export control laws in~~ the ~~future,~~Merger itAgreement ~~could~~is ~~result~~terminated 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~~circumstances.

InEven ~~addition,~~if insuccessfully ~~July 2018~~completed, wethere ~~filed~~are ~~initial~~certain ~~notifications~~risks ~~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~~stockholders ~~history,~~from ~~including~~ the ~~issuance of a warning letter or cautionary letter~~Merger, ~~may be considered an aggravating factor in any future investigations by or disclosures to these agencies.~~including:

~~In addition, various countries regulate~~ •the ~~import~~amount ~~and export~~ of ~~certain~~cash ~~encryption and other technology, including by imposing permitting and licensing requirements, and have enacted laws that could limit our ability~~ to ~~distribute~~be ~~our~~paid ~~platform~~per orshare ~~could~~under ~~limit~~the ~~our~~Merger ~~users’~~Agreement ~~ability~~is tofixed ~~access our products~~ and ~~services~~will innot ~~those~~be ~~countries.~~adjusted ~~Changes~~for ~~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~~business, ~~in some cases~~assets, ~~prevent the export or import of our products and services to certain countries~~liabilities, ~~governments~~prospects, ~~or persons altogether. Any change in export or import regulations~~outlook, ~~economic~~financial ~~sanctions,~~condition or ~~related~~operating ~~legislation,~~results or ~~change~~ in the ~~countries,~~event ~~governments,~~of ~~persons,~~any orchange ~~technologies~~in ~~targeted~~the bymarket ~~such~~price ~~regulations~~of, ~~could~~analyst ~~result~~estimates ~~in decreased use~~ of, ~~our~~or ~~products~~projections ~~and~~relating ~~services by~~to, ~~or in~~ our common stock;

45•the fact that receipt of the all-cash per share merger consideration under the Merger Agreement is taxable to stockholders that are treated as U.S. holders for U.S. federal income tax purposes; and

~~decreased~~•the ~~ability~~fact tothat, ~~export~~if orthe ~~sell~~Merger ~~subscriptions~~is ~~to our platform to~~completed, ~~existing or potential users with international operations. Any decreased use of~~ our ~~products~~stockholders orwill ~~services~~forego orthe ~~limitation~~opportunity ~~on our ability~~ to ~~export~~realize orthe ~~sell~~potential ~~our~~long-term ~~products~~value orof ~~services~~the ~~would~~successful ~~likely~~execution ~~adversely~~of ~~affect~~ our ~~business,~~current ~~results~~strategy ofas ~~operations,~~an ~~and~~independent ~~financial~~public ~~results~~company.

WeWhile ~~are also subject to various domestic and international anti-corruption laws, such as~~ the ~~United~~Merger ~~States~~Agreement ~~Foreign~~is ~~Corrupt~~in ~~Practices Act and the U.K. Bribery Act~~effect, 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~~are ~~accurate~~subject ~~books and records and maintain compliance procedures designed~~ to ~~prevent~~restrictions ~~any~~on ~~such~~our ~~unlawful~~business 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~~While ~~Risk~~the ~~Factors~~Merger Agreement is in effect, we are generally required to conduct our business in the ordinary course. We are restricted from taking certain specified actions without Parent’s prior consent, which is not to be unreasonably withheld, conditioned or delayed. These limitations include, among other things, certain restrictions on our ability to amend our organizational documents; acquire other businesses and assets; dispose of material property or assets; make investments; repurchase, reclassify or issue securities; make loans; pay dividends; incur indebtedness; make capital expenditures; enter into certain contracts; change accounting policies or procedures; settle litigation; change tax classifications and elections; or take certain actions relating to intellectual property of the Company. These restrictions could prevent us from pursuing strategic business opportunities and taking actions with respect to our business that we may consider advantageous and may, as a result, materially and adversely affect our business, results of operations and financial condition.

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. 37

~~Our~~Risks ~~quarterly~~Related ~~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:Business

~~•fluctuations~~Adverse indevelopments affecting the ~~demand~~financial ~~for~~services ~~our~~industry, XMsuch ~~Platform~~as actual events or concerns involving liquidity, ~~and~~defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect the ~~timing~~Company’s current and projected business operations and its financial condition and results of ~~sales;~~operations.

•Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. In addition, if any of our customers, suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to ~~attract~~pay ~~new~~their ~~customers~~obligations to us or ~~retain~~to ~~existing~~enter ~~customers;~~into new commercial arrangements requiring additional payments to us could be adversely affected. In this regard, counterparties to SVB credit agreements and arrangements, and third parties such as beneficiaries of letters of credit (among others), may experience direct impacts from the closure of SVB and uncertainty remains over liquidity concerns in the broader financial services industry. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.

•Inflation and rapid increases in interest rates have led to a decline in the ~~budgeting~~trading ~~cycles~~value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and ~~internal~~Federal ~~purchasing~~Reserve ~~priorities~~Board have announced a program to provide up to $25 billion of ~~our~~loans ~~customers;~~to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. Additionally, there is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.

~~•the~~Although ~~payment~~we ~~terms~~assess our banking and ~~subscription~~customer ~~term~~relationships ~~length~~as ~~associated~~we ~~with~~believe necessary or appropriate, our XMaccess ~~Platform~~to ~~sales~~funding sources and ~~their~~other ~~effect~~credit onarrangements in amounts adequate to finance or capitalize our ~~billings~~current and ~~free~~projected ~~cash~~future ~~flow;~~business operations could be significantly impaired by factors that affect the Company, the financial institutions with which the Company has credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which the Company has financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

~~•our ability to anticipate or respond to changes in the competitive landscape, including consolidation among competitors;~~38

•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
2.1*						Agreement and Plan of Merger, dated as of March 12, 2023, by and among Qualtrics International Inc., Quartz Holdco, LLC, and Quartz MergerCo, Inc. (incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on March 13, 2023).
2.2*						Separation Agreement, dated as of March 12, 2023, by and between Qualtrics International Inc. and SAP SE (incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on March 13, 2023).
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.

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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~~ 1st day of ~~November~~ May, ~~2022~~2023.


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)

50 40

Filing Compare · Qualtrics International Inc.