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Qualtrics Announces Third Quarter 2022 Financial Results

  • Q3 2022 total revenue of $377.5M, up 39% year over year
  • Q3 2022 subscription revenue of $314.8M, up 43% year over year
  • Total remaining performance obligations1 of $1,894.7M, up 39% year over year
  • Next 12 months remaining performance obligations of $1,047.2M, up 34% year over year

 

Qualtrics (NASDAQ: XM), the leader and creator of the experience management (XM) category, today announced financial results for the third quarter ended September 30, 2022.

“Q3 was another strong quarter for Qualtrics with 39% revenue growth and continued operating margin improvement,” said Qualtrics CEO Zig Serafin. “Our results demonstrate the durability of our business model, and the critical role Qualtrics plays for our customers, as well as the discipline our team is bringing to this moment.”

Third Quarter 2022 Financial Highlights:

  • Revenue: Total revenue for the third quarter was $377.5 million, up from $271.6 million one year ago, an increase of 39% year over year. Subscription revenue for the third quarter was $314.8 million, up from $220.3 million one year ago, an increase of 43% year over year.
  • Operating Income (Loss) and Margin: Third quarter operating loss was $(239.9) million, compared to $(277.5) million one year ago. Non-GAAP operating income for the third quarter (see discussion of non-GAAP operating income and margin measures below) was $22.6 million, compared to non-GAAP operating income of $13.3 million one year ago. For the third quarter, GAAP operating margin was (64)% and non-GAAP operating margin was 6%, compared to GAAP operating margin of (102)% and non-GAAP operating margin of 5% one year ago.
  • Net Income (Loss) and Net Income (Loss) Per Share: Third quarter net loss was $(233.5) million, or $(0.40) per share, compared to $(286.0) million, or $(0.56) per share in the third quarter of fiscal year 2021. Non-GAAP net income (see discussion of the non-GAAP net income measure below) for the third quarter was $26.4 million, or $0.04 per share, compared to non-GAAP net income of $5.9 million, or $0.01 per share, in the third quarter of fiscal year 2021.
  • Cash and Cash Equivalents: Total cash and cash equivalents as of September 30, 2022 was $731.7 million.

Financial Outlook:

Qualtrics is providing guidance for its fourth quarter ending December 31, 2022 as follows:

  • Total revenue between $380 and $382 million.
  • Subscription revenue between $323 and $325 million.
  • Non-GAAP operating margin between 5.5% and 6.5%.
  • Non-GAAP net income per share between $0.02 and $0.03 assuming 595 million weighted shares outstanding.

Qualtrics is updating its guidance for its full year ending December 31, 2022 as follows:

  • Total revenue between $1,450 and $1,452 million.
  • Subscription revenue between $1,219 and $1,221 million.
  • Non-GAAP operating margin of 4%.
  • Non-GAAP net income per share between $0.04 and $0.05 assuming 590 million weighted shares outstanding.

The guidance provided above constitutes 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, 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/.

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 Earnings Call

Qualtrics plans to host a conference call today to review its fiscal third quarter 2022 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 16,750 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 2022 and full year 2022. 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 attract enterprises and international organizations as customers for our products; our ability to expand our network with content consulting partners, delivery partners, and technology partners; the evolution of technology affecting our products and markets; our ability to introduce new products and enhance existing products and to compete effectively with competitors; our ability to successfully enter into new markets and manage our international expansion; the attraction and retention of qualified employees and key personnel; our ability to effectively manage our growth and future expenses and maintain our corporate culture; our anticipated investments in sales and marketing and research and development; our ability to maintain, protect, and enhance our intellectual property rights; our ability to successfully defend litigation brought against us; our ability to maintain data privacy and data security; the sufficiency of our cash and cash equivalents to meet our liquidity needs; our ability to comply with modified or new laws and regulations applying to our business; the impact of geopolitical events, including the ongoing conflict between Russia and Ukraine; our ability to respond to and overcome challenges brought by the COVID-19 pandemic; our reduced ability to leverage resources at SAP as an independent company from SAP; and the increased expenses associated with being an independent public company. 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 Quarterly Reports 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, 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, including employer payroll tax on employee stock transactions, amortization of acquired intangible assets, acquisition related costs, changes in the fair value of our distribution liability for our tax sharing agreement with SAP, and the tax impact of the non-GAAP adjustments, as applicable.

We revised our non-GAAP definitions during 2022 to exclude employer payroll taxes on employee stock transactions. The amount of employer payroll tax on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate with the core operation of our business. Going forward, we expect these expenses to increase relative to prior periods as a result of the vesting of restricted stock units (RSUs), and we believe it is useful to exclude these expenses in order to help investors better understand the long-term performance of our core business. The revisions to these definitions had no material impact on our reported non-GAAP financial measures for periods prior to 2022.

When evaluating the performance of our business and making operating plans, we do not consider the items excluded from our non-GAAP definitions (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 items 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.

Qualtrics International Inc.

Consolidated Balance Sheets

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

 

 

As of September

30, 2022

 

As of December

31, 2021

 

 

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

731,724

 

 

$

1,014,511

 

Accounts receivable, net of allowances

 

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

 

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

 

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 (deficit)

 

1,918,051

 

 

 

2,186,700

 

Total liabilities and equity (deficit)

$

3,151,489

 

 

$

3,582,223

 

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,

 

2022

 

2021

 

2022

 

2021

Revenue:

 

 

 

 

 

 

 

Subscription

$

314,765

 

 

$

220,314

 

 

$

896,151

 

 

$

611,748

 

Professional services and other

 

62,766

 

 

 

51,320

 

 

 

173,392

 

 

 

147,874

 

Total revenue

 

377,531

 

 

 

271,634

 

 

 

1,069,543

 

 

 

759,622

 

Cost of revenue:

 

 

 

 

 

 

 

Subscription

 

51,087

 

 

 

23,802

 

 

 

143,454

 

 

 

65,865

 

Professional services and other

 

60,577

 

 

 

43,041

 

 

 

171,925

 

 

 

127,522

 

Total cost of revenue

 

111,664

 

 

 

66,843

 

 

 

315,379

 

 

 

193,387

 

Gross profit

 

265,867

 

 

 

204,791

 

 

 

754,164

 

 

 

566,235

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

98,333

 

 

 

83,875

 

 

 

320,488

 

 

 

226,552

 

Sales and marketing

 

225,124

 

 

 

161,570

 

 

 

663,098

 

 

 

449,446

 

General and administrative

 

182,280

 

 

 

236,810

 

 

 

572,954

 

 

 

637,944

 

Total operating expenses

 

505,737

 

 

 

482,255

 

 

 

1,556,540

 

 

 

1,313,942

 

Operating loss

 

(239,870

)

 

 

(277,464

)

 

 

(802,376

)

 

 

(747,707

)

Other non-operating income (expense), net

 

3,058

 

 

 

(3,160

)

 

 

4,239

 

 

 

(6,091

)

Loss before income taxes

 

(236,812

)

 

 

(280,624

)

 

 

(798,137

)

 

 

(753,798

)

Provision (benefit) for income taxes

 

(3,264

)

 

 

5,409

 

 

 

6,981

 

 

 

(4,424

)

Net loss

$

(233,548

)

 

$

(286,033

)

 

$

(805,118

)

 

$

(749,374

)

 

 

 

 

 

 

 

 

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

$

(0.40

)

 

$

(0.56

)

 

$

(1.38

)

 

$

(1.49

)

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

 

586,850,097

 

 

 

515,212,996

 

 

 

581,664,521

 

 

 

503,781,082

 

Cost of revenue and operating expenses includes:
 

Stock-based compensation expense(a) as follows:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

in thousands

2022

 

2021

 

2022

 

2021

Cost of subscription revenue

$

4,905

 

$

2,516

 

$

13,783

 

$

8,522

Cost of professional services and other revenue

 

9,445

 

 

6,977

 

 

25,754

 

 

18,161

Research and development

 

28,722

 

 

33,697

 

 

115,553

 

 

89,410

Sales and marketing

 

55,622

 

 

36,651

 

 

155,540

 

 

94,917

General and administrative

 

148,582

 

 

196,979

 

 

467,962

 

 

553,582

Total stock-based compensation expense, including cash settled

$

247,276

 

$

276,820

 

$

778,592

 

$

764,592

________________

(a) During the three months ended September 30, 2022, employer payroll tax on employee stock transactions reported in cost of revenue was $0.2 million and employer payroll tax reported in operating expenses was $1.8 million. During the nine months ended September 30, 2022, employer payroll tax on employee stock transactions reported in cost of revenue was $1.2 million and employer payroll tax reported in operating expenses was $15.6 million. Employer payroll tax on employee stock transactions was not material during the three and nine months ended September 30, 2021.

Amortization of acquired intangible assets as follows:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

in thousands

2022

 

2021

 

2022

 

2021

Cost of revenue

$

7,452

 

$

442

 

$

22,529

 

$

973

Sales and marketing

 

5,531

 

 

74

 

 

16,589

 

 

176

General and administrative

 

320

 

 

47

 

 

958

 

 

141

Total amortization of acquired intangible assets

$

13,303

 

$

563

 

$

40,076

 

$

1,290

Qualtrics International Inc.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

Nine Months Ended September 30,

 

2022

 

2021

Cash flows from operating activities

 

 

 

Net loss

$

(805,118

)

 

$

(749,374

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

 

 

 

Depreciation and amortization

 

72,358

 

 

 

24,011

 

Loss on disposal of property and equipment

 

232

 

 

 

1,525

 

Change in fair value of distribution liability for tax sharing agreement

 

(10,500

)

 

 

 

Reduction of right-of-use assets from operating leases

 

22,254

 

 

 

16,571

 

Stock-based compensation expense, including cash settled

 

778,592

 

 

 

764,592

 

Amortization of deferred contract acquisition costs

 

51,628

 

 

 

35,977

 

Deferred income taxes

 

(17,086

)

 

 

(5,544

)

Changes in assets and liabilities:

 

 

 

Accounts receivable, net

 

135,453

 

 

 

37,261

 

Prepaid expenses and other current assets

 

(5,558

)

 

 

(5,043

)

Deferred contract acquisitions costs

 

(84,547

)

 

 

(54,986

)

Other assets

 

(1,203

)

 

 

(13,104

)

Lease liabilities

 

(17,250

)

 

 

(10,369

)

Accounts payable

 

(16,858

)

 

 

14,875

 

Accrued liabilities

 

(39,124

)

 

 

(8,232

)

Deferred revenue

 

(61,366

)

 

 

18,837

 

Other liabilities

 

(3,152

)

 

 

(985

)

Settlement of stock-based payments liabilities

 

(4,749

)

 

 

(76,875

)

Net cash flows used in operating activities

 

(5,994

)

 

 

(10,863

)

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of property and equipment

 

(36,203

)

 

 

(29,711

)

Cash paid for business combination, net of cash acquired

 

 

 

 

(25,000

)

Net cash flows used in investing activities

 

(36,203

)

 

 

(54,711

)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from capital contributions from SAP

 

 

 

 

115,000

 

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

 

 

 

 

2,244,322

 

Payment of costs related to issuance of class A common stock

 

 

 

 

(3,081

)

Repayment of promissory note

 

 

 

 

(1,892,280

)

Payments for taxes related to net share settlement of equity awards

 

(270,909

)

 

 

(27,800

)

Issuance of class A common stock through Employee Stock Purchase Plan

 

32,521

 

 

 

16,586

 

Proceeds from exercise of stock options

 

1,470

 

 

 

 

Net cash flows provided by (used in) financing activities

 

(236,918

)

 

 

452,747

 

 

 

 

 

Effect of changes in exchange rates on cash and cash equivalents

 

(3,672

)

 

 

(1,118

)

Net increase (decrease) in cash and cash equivalents

 

(282,787

)

 

 

386,055

 

Cash and cash equivalents at the beginning of the period

 

1,014,511

 

 

 

203,891

 

Cash and cash equivalents at the end of the period

$

731,724

 

 

$

589,946

 

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,

 

2022

 

2021

 

2022

 

2021

 

(In thousands)

GAAP gross profit

$

265,867

 

 

$

204,791

 

 

$

754,164

 

 

$

566,235

 

Add: Stock-based compensation expense, including cash settled and employer payroll tax on employee stock transactions(1)(2)

 

14,518

 

 

 

9,493

 

 

 

40,712

 

 

 

26,683

 

Add: Amortization of acquired intangible assets.

 

7,452

 

 

 

442

 

 

 

22,529

 

 

 

973

 

Non-GAAP gross profit

$

287,837

 

 

$

214,726

 

 

$

817,405

 

 

$

593,891

 

Non-GAAP gross margin

 

76

%

 

 

79

%

 

 

76

%

 

 

78

%

We calculate non-GAAP gross profit as GAAP gross profit excluding equity and cash settled stock-based compensation expense allocated to cost of revenue, including employer payroll tax on employee stock transactions 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 and Margin

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

 

(In thousands)

GAAP operating loss

$

(239,870

)

 

$

(277,464

)

 

$

(802,376

)

 

$

(747,707

)

Add: Stock-based compensation expense, including cash settled and employer payroll tax on employee stock transactions(1)(2)

 

249,214

 

 

 

276,820

 

 

 

795,371

 

 

 

764,592

 

Add: Amortization of acquired intangible assets

 

13,303

 

 

 

563

 

 

 

40,076

 

 

 

1,290

 

Add: Acquisition related costs

 

 

 

 

13,430

 

 

 

866

 

 

 

13,430

 

Non-GAAP operating income

$

22,647

 

 

$

13,349

 

 

$

33,937

 

 

$

31,605

 

Non-GAAP operating margin

 

6

%

 

 

5

%

 

 

3

%

 

 

4

%

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

Non-GAAP Net Income and Net Income Per Share

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

 

(In thousands, except share and per share data)

GAAP net loss

$

(233,548

)

 

$

(286,033

)

 

$

(805,118

)

 

$

(749,374

)

Add: Stock-based compensation expense, including cash settled and employer payroll tax on employee stock transactions(1)(2)

 

249,214

 

 

 

276,820

 

 

 

795,371

 

 

 

764,592

 

Add: Amortization of acquired intangible assets

 

13,303

 

 

 

563

 

 

 

40,076

 

 

 

1,290

 

Add: Acquisition related costs

 

 

 

 

13,430

 

 

 

866

 

 

 

13,430

 

Add: Change in fair value of distribution liability for tax sharing agreement

 

(4,000

)

 

 

 

 

 

(10,500

)

 

 

 

Add: Tax impact of the non-GAAP adjustments

 

1,438

 

 

 

1,094

 

 

 

(11,734

)

 

 

3,481

 

Non-GAAP net income

$

26,407

 

 

$

5,874

 

 

$

8,961

 

 

$

33,419

 

 

 

 

 

 

 

 

 

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

 

586,850,097

 

 

 

515,212,996

 

 

 

581,664,521

 

 

 

503,781,082

 

Non-GAAP net income per share attributable to common stockholders, basic

$

0.04

 

 

$

0.01

 

 

$

0.02

 

 

$

0.07

 

 

 

 

 

 

 

 

 

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

 

586,850,097

 

 

 

515,212,996

 

 

 

582,307,187

 

 

 

503,781,082

 

Non-GAAP net income per share attributable to common stockholders, diluted

$

0.04

 

 

$

0.01

 

 

$

0.02

 

 

$

0.07

 

We calculate non-GAAP net income as GAAP net loss excluding equity and cash settled stock-based compensation expense, including employer payroll tax on employee stock transactions, amortization of acquired intangible assets, acquisition related costs, changes in the fair value of our distribution liability for our tax sharing agreement with SAP, and the tax impact of the non-GAAP adjustments, as applicable. Non-GAAP net income per share is calculated as non-GAAP net income 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,

 

2022

 

2021

 

2022

 

2021

 

(In thousands)

Net cash provided by (used in) operating activities

$

(29,162

)

 

$

410

 

 

$

(5,994

)

 

$

(10,863

)

Less: Capital expenditures

 

(9,842

)

 

 

(13,464

)

 

 

(36,203

)

 

 

(29,711

)

Free cash flow

 

(39,004

)

 

 

(13,054

)

 

 

(42,197

)

 

 

(40,574

)

Free cash flow margin

 

(10

) %

 

 

(5

) %

 

 

(4

) %

 

 

(5

) %

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, 2022 and 2021 includes $0.7 million and $2.9 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, 2022 and 2021 includes $4.7 million and $76.9 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 Australia who were not eligible for the January 28, 2021 exchange, pursuant to which less than 0.1 million cash-settled Qualtrics Rights and SAP RSU awards were exchanged and modified into equity-settled Qualtrics RSU awards.
 
(2) During the three months ended September 30, 2022, employer payroll tax on employee stock transactions reported in cost of revenue was $0.2 million and employer payroll tax reported in operating expenses was $1.8 million. During the nine months ended September 30, 2022, employer payroll tax on employee stock transactions reported in cost of revenue was $1.2 million and employer payroll tax reported in operating expenses was $15.6 million. Employer payroll tax on employee stock transactions was not material during the three and nine months ended September 30, 2021. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate with the operation of the business. 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.

 

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