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Qualtrics Reports Third Quarter 2021 Financial Results

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·20-min read
In this article:
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  • Q3 2021 total revenue of $271.6M, up 41% year over year

  • Q3 2021 subscription revenue of $220.3M, up 49% year over year

  • Total remaining performance obligations1 of $1,362.1M, up 67% year over year

  • Next 12 months remaining performance obligations of $781.5M, up 58% year over year

PROVO, Utah & SEATTLE, October 20, 2021--(BUSINESS WIRE)--Qualtrics (NASDAQ: XM), the leader and creator of the Experience Management (XM) category, today announced financial results for the third quarter ended Sept. 30, 2021.

"Q3 was another outstanding quarter for Qualtrics, and our leadership position has never been stronger as we continue to innovate and define the category we created," said Qualtrics CEO Zig Serafin. "Companies in every industry are accelerating their experience transformations, and they're increasingly choosing Qualtrics to build critical relationships with their customers and employees."

Third Quarter 2021 Financial Highlights:

  • Revenue: Total revenue for the third quarter was $271.6 million, up from $192.8 million one year ago, an increase of 41% year-over-year. Subscription revenue for the third quarter was $220.3 million, up from $148.3 million one year ago, an increase of 49% year over year.

  • Operating Income (Loss) and Margin: Third quarter operating loss was $(277.5) million, compared to $(82.0) million one year ago. Non-GAAP operating income (see discussion of non-GAAP operating income (loss) and margin measures below) was $13.3 million, compared to non-GAAP operating income of $2.5 million one year ago. For the third quarter, GAAP operating margin was (102)% and non-GAAP operating margin was 5%.

  • Net Income (Loss) and Net Income (Loss) Per Share: Third quarter net loss was $(286.0) million, or $(0.56) per share, compared to $(85.7) million, or $(0.20) per share in the third quarter of fiscal year 2020. Non-GAAP net income (see discussion of the non-GAAP net income (loss) measure below) for the third quarter was $5.9 million, or $0.01 per share, compared to non-GAAP net loss of $(0.4) million, or $0.00 per share in the third quarter of fiscal year 2020.

  • Cash and Cash Equivalents: Total cash and cash equivalents as of Sept. 30, 2021 was $589.9 million.

Financial Outlook:

Qualtrics is providing guidance for its fourth quarter ending Dec. 31, 2021 as follows:

  • Total revenue between $296 and $298 million.

  • Subscription revenue between $242 and $244 million.

  • Non-GAAP operating margin between (1%) and 0%.

  • Non-GAAP net loss per share between $(0.04) and $(0.02) assuming 550 million weighted shares outstanding.

Qualtrics is updating its guidance for its full year ending Dec. 31, 2021 as follows:

  • Total revenue between $1,056 and $1,058 million.

  • Subscription revenue between $854 and $856 million.

  • Non-GAAP operating margin between 2.5% and 3.5%.

  • Non-GAAP net profit per share between $0.02 and $0.04 assuming 515 million weighted shares outstanding.

The guidance provided above are forward-looking statements and actual results may differ materially. Refer to the "Forward-Looking Statements" safe harbor section below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), and non-GAAP net income (loss) per share are non-GAAP financial measures. Additional information on Qualtrics' reported results, including a reconciliation of the non-GAAP financial measures to their most comparable GAAP measures, is included in the financial tables below. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future, although it is important to note that these factors could be material to Qualtrics’ results computed in accordance with GAAP.

A supplemental financial presentation and other information can be accessed through Qualtrics’ investor relations website at https://www.qualtrics.com/investors/.

Qualtrics Earnings Call

Qualtrics plans to host a conference call today to review its fiscal third quarter 2021 financial results and to discuss its financial outlook. The call is scheduled to begin at 3:00 p.m. MT/5:00 p.m. ET. Investors are invited to join the webcast by visiting: https://qualtrics.com/investors/events. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 90 days.

About Qualtrics

Qualtrics, the leader and creator of the Experience Management (XM) category, is changing the way organizations manage and improve the four core experiences of business—customer, employee, product and brand. Over 13,500 organizations around the world use Qualtrics to listen, understand and take action on experience data (X-data™)—the beliefs, emotions and intentions that tell you why things are happening, and what to do about it. The Qualtrics XM Platform™ is a system of action that helps businesses attract customers who stay longer and buy more, engage employees who build a positive culture, develop breakthrough products people love and build a brand people are passionate about.

Forward-Looking Statements

This press release contains express and implied "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial outlook for the fourth quarter of 2021 and full year 2021, Qualtrics’ growth strategy and business aspirations, its market position, and the continued impact of COVID-19 on its business and operations. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "estimate," "expect," "intend," "may," "might," "plan," "project," "will," "would," "should," "could," "can," "predict," "potential," "target," "explore," "continue," or the negative of these terms, and similar expressions intended to identify forward-looking statements. By their nature, these statements are subject to numerous uncertainties and risks, including factors beyond our control, that could cause actual results, performance, or achievement to differ materially and adversely from those anticipated or implied in the statements, including: 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 respond to and overcome challenges brought by the COVID-19 pandemic; our ability to attract enterprises and international organizations as customers for our products; our ability to expand our network with content consulting partners, delivery partners, and technology partners; the evolution of technology affecting our products and markets; our ability to introduce new products and enhance existing products and to compete effectively with competitors; our ability to successfully enter into new markets and manage our international expansion; the attraction and retention of qualified employees and key personnel; our ability to effectively manage our growth and future expenses and maintain our corporate culture; our anticipated investments in sales and marketing and research and development; our ability to maintain, protect, and enhance our intellectual property rights; our ability to successfully defend litigation brought against us; our ability to maintain data privacy and data security; the sufficiency of our cash and cash equivalents to meet our liquidity needs; our ability to comply with modified or new laws and regulations applying to our business; and our reduced ability to leverage resources at SAP as an independent company from SAP. Additional risks and uncertainties that could cause actual outcomes and results to differ materially from those contemplated by the forward-looking statements are and/or will be included under the caption "Risk Factors" and elsewhere in Qualtrics’ Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission and any subsequent public filings. Forward-looking statements speak only as of the date the statements are made and are based on information available to Qualtrics at the time those statements are made and/or management's good faith belief as of that time with respect to future events. Qualtrics assumes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, except as required by law.

Non-GAAP Financial Measures

To supplement our financial results, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly-titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP measures to assist investors in seeing our financial performance using a management view, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry. You should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP. In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our non-GAAP results that our future results will not be affected by these expenses or any unusual or non-recurring items.

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, free cash flow, free cash flow margin: We define these non-GAAP financial measures as the respective GAAP measures, excluding equity and cash settled stock-based compensation expenses, amortization of acquired intangible assets, acquisition related costs, and the tax impact of the non-GAAP adjustments, as applicable. When evaluating the performance of our business and making operating plans, we do not consider these items (for example, when considering the impact of equity award grants, we place a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants). We believe it is useful to exclude these expenses in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies and over multiple periods.

________________

1

Remaining performance obligations represent all 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.

Qualtrics International Inc.

Consolidated Balance Sheets

(Unaudited, in thousands, except share and par value)

As of September
30, 2021

As of December
31, 2020

Assets

Current assets:

Cash and cash equivalents

$

589,946

$

203,891

Accounts receivable, net of allowance

258,809

296,148

Deferred contract acquisition costs, net

51,270

43,429

Prepaid expenses and other current assets

50,711

48,130

Total current assets

950,736

591,598

Non-current assets:

Property and equipment, net

122,152

116,120

Right-of-use assets from operating leases

183,841

195,372

Goodwill

27,092

6,709

Other intangible assets, net

7,749

3,959

Deferred contract acquisition costs, net of current portion

124,785

115,837

Deferred tax assets

3,961

92

Other assets

22,246

9,368

Total assets

$

1,442,562

$

1,039,055

Liabilities and equity (deficit)

Current liabilities:

Lease liabilities

$

15,710

$

7,125

Accounts payable

46,823

30,452

Accrued liabilities

94,849

225,046

Liability-classified, stock-based awards

4,464

209,286

Deferred revenue

514,337

495,638

Total current liabilities

676,183

967,547

Non-current liabilities:

Lease liabilities, net of current portion

221,590

235,620

Liability-classified, stock-based awards, net of current portion

330

76,627

Deferred revenue, net of current portion

5,891

5,477

Note payable

504,564

Deferred tax liabilities

3,966

5,970

Other liabilities

11,110

16,716

Total liabilities

$

1,423,634

$

1,307,957

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 92,680,590 and 6,000,000 shares as of September 30, 2021 and December 31, 2020

9

1

Class B common stock, par value $0.0001 per share; authorized 1,000,000,000 shares; issued and outstanding 423,170,610 and 423,170,610 as of September 30, 2021 and December 31, 2020

42

42

Additional paid in capital

2,167,649

1,126,631

Accumulated other comprehensive income (loss)

(631

)

3,191

Accumulated deficit

(2,148,141

)

(1,398,767

)

Total equity (deficit)

18,928

(268,902

)

Total liabilities and equity (deficit)

$

1,442,562

$

1,039,055

Qualtrics International Inc.

Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Revenue:

Subscription

$

220,314

$

148,259

$

611,748

$

415,000

Professional services and other

51,320

44,590

147,874

134,956

Total revenue

271,634

192,849

759,622

549,956

Cost of revenue:

Subscription

23,802

16,362

65,865

46,974

Professional services and other

43,041

32,674

127,522

100,060

Total cost of revenue

66,843

49,036

193,387

147,034

Gross profit

204,791

143,813

566,235

402,922

Operating expenses:

Research and development

83,875

62,065

226,552

168,985

Sales and marketing

161,570

103,008

449,446

322,775

General and administrative

236,810

60,731

637,944

155,225

Total operating expenses

482,255

225,804

1,313,942

646,985

Operating loss

(277,464

)

(81,991

)

(747,707

)

(244,063

)

Other non-operating expense, net

(3,160

)

(556

)

(6,091

)

(483

)

Loss before income taxes

(280,624

)

(82,547

)

(753,798

)

(244,546

)

Provision (benefit) for income taxes

5,409

3,141

(4,424

)

13,481

Net loss

$

(286,033

)

$

(85,688

)

$

(749,374

)

$

(258,027

)

Net loss per share attributable to common stockholders, basic

$

(0.56

)

$

(0.20

)

$

(1.49

)

$

(0.61

)

Weighted-average Class A and Class B shares used in computing net loss per share attributable to common stockholders, basic

515,212,996

423,170,610

503,781,082

423,170,610

Cost of revenue and operating expenses includes:

Stock-based compensation expense as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

in thousands

2021

2020

2021

2020

Cost of subscription revenue

$

2,516

$

725

$

8,522

$

3,809

Cost of professional services and other revenue

6,977

2,582

18,161

6,193

Research and development

33,697

23,919

89,410

63,165

Sales and marketing

36,651

12,086

94,917

34,933

General and administrative

196,979

44,810

553,582

109,949

Total stock-based compensation expense, including cash settled(a)

$

276,820

$

84,122

$

764,592

$

218,049

________________

(a)

As a result of the SAP Acquisition, our stock-based compensation expense reflects the recognition of both equity-classified awards and liability-classified awards. Liability-classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. Our stock-based compensation expense for the three and nine months ended September 30, 2021 consisted of $276.8 million and $764.6 million, respectively, of liability-classified and equity-classified awards. During the three and nine months ended September 30, 2021 awards of $2.9 million and $76.9 million, respectively, were settled in cash. Our stock-based compensation expense for the three and nine months ended September 30, 2020 consisted of $84.1 million and $218.0 million, respectively, of liability-classified awards. During the three and nine months ended September 30, 2020 awards of $96.9 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.

Amortization of acquired intangible assets as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

in thousands

2021

2020

2021

2020

Cost of subscription revenue

$

442

$

265

$

973

$

797

Sales and marketing

74

51

176

153

General and administrative

47

47

141

141

Total amortization of acquired intangible assets

$

563

$

363

$

1,290

$

1,091

Qualtrics International Inc.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Nine Months Ended September 30,

2021

2020

Cash flows from operating activities

Net loss

$

(749,374

)

$

(258,027

)

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization

24,011

18,570

Loss on disposal of property and equipment

1,525

Reduction of right-of-use assets from operating leases

16,571

12,429

Stock-based compensation expense, including cash settled

764,592

218,049

Amortization of deferred contract acquisition costs

35,977

22,383

Deferred income taxes

(5,544

)

2,672

Changes in assets and liabilities, excluding the effect of business combinations:

Accounts receivable, net

37,261

31,777

Prepaid expenses and other current assets

(5,043

)

(7,578

)

Deferred contract acquisitions costs

(54,986

)

(63,293

)

Other assets

(13,104

)

(6,378

)

Lease liabilities

(10,369

)

213

Accounts payable

14,875

1,205

Accrued liabilities

(8,232

)

(1,842

)

Deferred revenue

18,837

(5,571

)

Other liabilities

(985

)

7,125

Settlement of stock-based payments liabilities

(76,875

)

(283,963

)

Net cash flows used in operating activities

(10,863

)

(312,229

)

Cash flows from investing activities

Purchases of property and equipment

(29,711

)

(43,054

)

Cash paid for business combination, net of cash acquired

(25,000

)

Net cash flows used in investing activities

(54,711

)

(43,054

)

Cash flows from financing activities

Proceeds from capital contributions from SAP

115,000

400,000

Proceeds from issuance of class A common stock, net of underwriting discounts and commissions

2,244,322

Payment of costs related to initial public offering

(3,081

)

Repayment of promissory note

(1,892,280

)

Payments for taxes related to net share settlement of equity awards

(27,800

)

Issuance of class A common stock through Employee Stock Purchase Plan

16,586

Net cash flows provided by financing activities

452,747

400,000

Effect of changes in exchange rates on cash and cash equivalents

(1,118

)

316

Net increase in cash and cash equivalents

386,055

45,033

Cash and cash equivalents at the beginning of the period

203,891

42,467

Cash and cash equivalents at the end of the period

$

589,946

$

87,500

Qualtrics International Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited, in thousands)

Non-GAAP Gross Profit and Margin

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(In thousands)

GAAP gross profit

$

204,791

$

143,813

$

566,235

$

402,922

Add: Stock-based compensation expense, including cash settled(1)

9,493

3,307

26,683

10,002

Add: Amortization of acquired intangible assets

442

265

973

797

Non-GAAP gross profit

$

214,726

$

147,385

$

593,891

$

413,721

Non-GAAP gross margin

79

%

76

%

78

%

75

%

We calculate non-GAAP gross profit, as GAAP gross profit excluding equity and cash settled stock-based compensation expense allocated to cost of revenue and amortization of acquired intangible assets allocated to cost of revenue. Non-GAAP gross margin is calculated as non-GAAP gross profit divided by total revenue.

Non-GAAP Operating Income (Loss) and Margin

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(In thousands)

GAAP operating loss

$

(277,464

)

$

(81,991

)

$

(747,707

)

$

(244,063

)

Add: Stock-based compensation expense, including cash settled(1)

276,820

84,122

764,592

218,049

Add: Amortization of acquired intangible assets

563

363

1,290

1,091

Add: Acquisition related costs

$

13,430

$

$

13,430

$

Non-GAAP operating income (loss)

$

13,349

$

2,494

$

31,605

$

(24,923

)

Non-GAAP operating margin

5

%

1

%

4

%

(5

)%

We calculate non-GAAP operating income (loss), as GAAP operating loss excluding equity and cash settled stock-based compensation expense, amortization of acquired intangible assets and acquisition related costs. Non-GAAP operating margin is calculated as non-GAAP operating income (loss) divided by total revenue.

Non-GAAP Net Income (Loss) and Net Income (Loss) Per Share

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(In thousands, except share and per share data)

GAAP net loss

$

(286,033

)

$

(85,688

)

$

(749,374

)

$

(258,027

)

Add: Stock-based compensation expense, including cash settled(1)

276,820

84,122

764,592

218,049

Add: Amortization of acquired intangible assets

563

363

1,290

1,091

Add: Acquisition related costs

13,430

13,430

Add: Tax impact of the non-GAAP adjustments

1,094

821

3,481

1,046

Non-GAAP net income (loss)

$

5,874

$

(382

)

$

33,419

$

(37,841

)

Weighted-average Class A and Class B shares used in computing non-GAAP net income (loss) per share attributable to common stockholders, basic and diluted

515,212,996

423,170,610

503,781,082

423,170,610

Non-GAAP net income (loss) per share attributable to common stockholders, basic and diluted

$

0.01

$

0.00

$

0.07

$

(0.09

)

We calculate non-GAAP net income (loss) as GAAP net loss excluding equity and cash settled stock-based compensation expense, amortization of acquired intangible assets, acquisition related costs, and the tax impact of the non-GAAP adjustments. Non-GAAP net income (loss) per share is calculated as non-GAAP net income (loss) divided by the weighted-average Class A and Class B shares attributable to common stockholders.

Free Cash Flow and Margin

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(In thousands)

(In thousands)

Net cash provided by (used in) operating activities

$

410

$

(90,007

)

$

(10,863

)

$

(312,229

)

Less: Capital expenditures

(13,464

)

(17,217

)

(29,711

)

(43,054

)

Free cash flow

(13,054

)

(107,224

)

(40,574

)

(355,283

)

Free cash flow margin

(5

)%

(56

)%

(5

)%

(65

)%

We calculate free cash flow as net cash provided by operating activities less capital expenditures. Free cash flow margin is calculated as free cash flow divided by total revenue. We incurred significant cash outflows in connection with the settlement of liability-classified, stock-based awards in accordance with SAP’s employee equity compensation programs. Our free cash flow for the three months ended September 30, 2021 and 2020 includes $2.9 million and $96.9 million, respectively, in cash outflows related to the settlement of liability-classified, stock-based awards. Our free cash flow for the nine months ended September 30, 2021 and 2020 includes $76.9 million and $284.0 million, respectively, in cash outflows related to the settlement of liability-classified, stock-based awards.

________________

(1)

Our stock-based compensation expense reflects the recognition of both equity-classified awards and liability-classified awards. Liability-classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. Liability-classified awards are recorded according to mark-to-market accounting. On January 28, 2021, the Company completed a voluntary exchange offer pursuant to which 5.4 million cash-settled legacy restricted stock awards, restricted stock unit (RSU) awards, and options (together, Qualtrics Rights) and 1.3 million cash-settled SAP RSU awards were exchanged into 12.8 million equity-settled Qualtrics RSU awards, representing 93% of the outstanding Qualtrics Rights and SAP RSU awards. On September 13, 2021, the Company completed an additional voluntary exchange offer for certain employees in Australian that were not eligible for the January 28, 2021 exchange, pursuant to which less that 0.1 million cash-settled Qualtrics Rights and SAP RSU awards were exchanged and modified into equity-settled Qualtrics RSU awards.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211020006013/en/

Contacts

Investor Relations:
Steven Wu
Head of FP&A and Investor Relations
investors@qualtrics.com

Public Relations:
Gina Sheibley
Chief Communications Officer
press@qualtrics.com

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