Annual Report Fiscal 2020 Dear Qualtrics Shareholders
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Annual Report Fiscal 2020 Dear Qualtrics shareholders, 2020 was the year when everything changed. Kitchens became contact centers, bedrooms became classrooms, and all commerce became e-commerce. Companies around the world made the equivalent of seven years of digital transformation progress in one year alone. Many organizations have struggled to adapt, but those that have learned to design and deliver a new set of experiences are ready to thrive in the post-COVID-19 world. Today more than ever, organizations must understand the way their customers and employees think and feel about their business, and then relentlessly design and improve the experiences they provide based on that data. That’s Experience Management (XM), the software category Qualtrics created and continues to pioneer. XM is one of the fastest growing markets in software, with an estimated $60 billion total addressable market. We have a 10 year head start on this market, and we see significant opportunity ahead. 2020 was a very strong year of growth for Qualtrics and the XM category. Our subscription revenue was up 34 percent year-over-year. We now serve more than 13,500 customers who are using XM to shape the most important experiences across their customers, employees, products, and brands. We’re building on this momentum in 2021 as XM becomes an indispensable platform for the world’s leading organizations. Our customers are designing new ways of working by listening to their employees and acting on their needs. They’re able to attract and retain the best talent, increase employee engagement, and improve productivity. Our mission-critical system allows them to design the products, services and experiences that their customers want next – resulting in decreased customer churn, increased lifetime value, and reduced cost to serve. Our vision has always been for Qualtrics to be a force for good. We saw firsthand in 2020 how many of the world’s most pressing problems occur from a lack of understanding and uncertainty about what actions to take. Those are problems XM can solve. We remain committed to powering the experience economy for thelong-term, and that means working to build a business that can outlast any individual, thrive in any market condition, and help our customers overcome any challenge. That is how Qualtrics has always operated. As the creators of the experience management category, we are working hard every day to deliver the best experience to our customers, our employees, and our investors. We’re grateful to share the XM journey with you. Sincerely, Zig Serafin, CEO UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number: 001-39952 QUALTRICS INTERNATIONAL INC. (Exact name of Registrant as specified in its charter) Delaware 47-1754215 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 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 Securities registered pursuant to section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered pu1blic accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ As of June 30, 2020, the last business day of our most recently completed second fiscal quarter, our common stock was not listed on any exchange or over-the-counter market and, therefore, we cannot calculate the aggregate market value of the voting and non-voting common equity held by non-affiliates as of such date. As of March 5, 2021, the registrant had 511,237,032 shares of common stock outstanding, consisting of 88,066,422 shares of Class A common stock and 423,170,610 shares of Class B common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive Proxy Statement relating to its 2021 Annual Meeting of Stockholders, or the 2021 Proxy Statement, are incorporated by reference into Part III of this Form 10-K where indicated. Such 2021 Proxy Statement will be filed with the United States Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates. 2 TABLE OF CONTENTS Page Part I Item 1. Business 1 Item 1A. Risk Factors 14 Item 1B. Unresolved Staff Comments 51 Item 2. Properties 51 Item 3. Legal Proceedings 51 Item 4. Mine Safety Disclosures 51 Part II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Item 5. of Equity Securities 52 Item 6. Selected Consolidated Financial Data 53 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 76 Item 8. Financial Statements and Supplementary Data 78 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 118 Item 9A. Controls and Procedures 118 Item 9B. Other Information 119 Part III Item 10. Directors, Executive Officers and Corporate Governance 120 Item 11. Executive Compensation 121 Security Ownership of Certain Beneficial Owners and Management and Related Item 12. Stockholder Matters 121 Item 13. Certain Relationships and Related Transactions and Director Independence 122 Item 14. Principal Accounting Fees and Services 122 Part IV Item 15. Exhibits and Financial Statement Schedules 123 SIGNATURES 125 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 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