QUALTRICS INTERNATIONAL INC. 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 manage customer, employee, product, and brand experiences. Our platform serves as a business operating system for Experience Management. The Qualtrics Experience Management Platform, or Qualtrics XM, 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$238.6 million and$176.1 million for the three months endedMarch 31, 2021 and 2020, respectively, representing year-over-year growth of 36% in each period, respectively. For the three months endedMarch 31, 2021 and 2020, our net loss was$199.9 million and$44.8 million , respectively. The results of our operations for the three months endedMarch 31, 2021 and 2020 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 99% of our contracts have a subscription period of one year or longer, and we primarily bill annually in advance. Subscription revenue comprised 78% of our total revenue for the three months endedMarch 31, 2021 . We have a diversified customer base consisting of organizations of various sizes across virtually all industries. Our largest customer accounted for less than 3% of revenue during the three months endedMarch 31, 2021 , and our largest industries by annual recurring revenue, or ARR, as ofMarch 31, 2021 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. 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 22 -------------------------------------------------------------------------------- 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 ofthe United States represented 29% and 27% of our total revenue in the three months endedMarch 31, 2021 and 2020. We initially started our expansion outside ofthe United States in English-speaking countries, such asIreland , theUnited Kingdom ,Canada , andAustralia , as we were able to leverage our core technologies and go-to-market motion. Since opening our first international office inDublin, Ireland in 2013, we now have 27 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 increased 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 inSeattle andPoland 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 QPN. Since then, we have built out our partner network to include over 200 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 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 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. We continue to increase the number of customers who have entered into larger subscriptions with us. We had 1,457 customers with ARR of$100,000 or more as ofMarch 31, 2021 , up from 1,338 as ofDecember 31, 2020 . The 23 -------------------------------------------------------------------------------- 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. 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 ofMarch 31, 2021 , our net retention rate was 120%. Our net retention rate was 125% as ofMarch 31, 2020 . 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 Since the SAP Acquisition inJanuary 2019 and until the sale of 6,000,000 shares of our Class A common stock to Q II inDecember 2020 , we operated as a wholly owned subsidiary of SAP. Accordingly, our financial results for the three months endedMarch 31, 2021 differ in comparison to the three months endedMarch 31, 2020 primarily with respect to sales and marketing expenses and equity and cash settled stock-based compensation expense. 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 byQualtrics . Our results also include expenses of SAP directly charged toQualtrics 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 14 "Related Party Transactions" for further details in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. During the three months endedMarch 31, 2021 we recorded$203.0 million in equity and cash settled stock-based compensation expense compared to$12.5 million during the three months endedMarch 31, 2020 . The increase was primarily due to the issuance of RSU awards in connection with our initial public offering partially offset by an increase in forfeitures and a decrease in SAP's stock price during the three months endedMarch 31, 2021 . OnJanuary 28, 2021 , we completed a voluntary exchange offer pursuant to which 5.4 million cash-settled 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. Our stock-based compensation expense for the three months endedMarch 31, 2021 of$203.0 million consisted of$203.1 million in equity settled awards and$(0.1) million in liability-classified awards. We settled$72.0 million of liability-classified awards during the three months endedMarch 31, 2021 . Our stock-based compensation expense for the three months endedMarch 31, 2020 of$12.5 million consisted entirely of liability-classified awards. We settled$98.3 million of liability-classified awards during the three months endedMarch 31, 2020 . As a result of this increase in equity and cash settled stock-based compensation, our cost of revenue, research and development, sales and marketing, and general and administrative costs increased significantly in absolute dollars and as a percentage of revenue during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 . These changes are described in additional detail within our results of operations. 24 -------------------------------------------------------------------------------- SAP Segment Reporting Since the SAP Acquisition, certain of our financial results have been presented as an operating segment within SAP's publicly reported financial results. These Euro-reported financial results are prepared 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 betweenQualtrics 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 In response to the COVID-19 pandemic, we have taken broad actions to mitigate the impact of this public health crisis on our business. In response, we have implemented, among other measures, a COVID-19 task force, a temporary work from home policy across all offices globally, 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 a significant disruption to how we operate our business. 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 duration and extent 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 highly 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, collections of accounts receivable, our IT and other expenses, 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. Moreover, we have seen a reduction in certain operating expenses due to reduced business travel, deferred hiring for some positions, and the virtualization or cancellation of customer and employee events. At our virtual event this year, titled Work Different, we explored how successful organizations are listening to and taking action on the feedback from their customers and employees to reimagine the future of work. 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. The global impact of COVID-19 continues to rapidly evolve, 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 with refund. We primarily bill in advance for our annual contracts and annually in advance for our multi- 25 -------------------------------------------------------------------------------- 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 agreements generally cannot be canceled with 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 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. 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. 26 -------------------------------------------------------------------------------- We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. 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. Other non-operating income (expense), net 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 theU.S. and other foreign jurisdictions in which we conduct business. We maintain a full valuation allowance against ourU.S. deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Our effective tax rate is affected by tax rates in 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 condensed 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. 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, actual transactions included in the consolidated financial statements of SAP may not be included in our separate condensed consolidated financial statements. Similarly, the tax treatment of certain items reflected in our condensed consolidated financial statements may not be reflected in the consolidated financial statements and tax returns of SAP. Therefore, such items as net operating losses, credit carry-forwards and valuation allowances may exist in the standalone financial statements that may or may not exist in SAP's consolidated financial statements. As such, our income taxes as presented in these condensed consolidated financial statements may not be indicative of the income taxes that we will generate in the future. As described above, we have calculated the income taxes in our condensed consolidated financial statements on a separate return basis. However, we were in actuality included in the consolidated, combined or unitaryU.S. federal and state income tax returns with SAP America and its affiliates. As a result, a portion of our net operating loss and credit carryforwards would not be available for our use in future tax periods as the net operating losses, or underlying deductions, and credits have already been partially absorbed by SAP America. 27 -------------------------------------------------------------------------------- Results of Operations The following table sets forth our results of operations for the periods presented: Three Months Ended March 31, 2021 2020 (In thousands) Revenue: Subscription$ 186,896 $ 128,265 Professional services and other 51,747 47,799 Total revenue 238,643 176,064 Cost of revenue(1)(2): Subscription 20,370 13,716 Professional services and other 41,411 34,208 Total cost of revenue 61,781 47,924 Gross profit 176,862 128,140 Operating expenses(1)(2): Research and development 62,806 35,489 Sales and marketing 136,181 107,095 General and administrative 174,449 22,487 Total operating expenses 373,436 165,071 Operating loss (196,574) (36,931) Other non-operating income (expense), net (1,740) 485 Loss before income taxes (198,314) (36,446) Provision for income taxes 1,540 8,389 Net loss$ (199,854) $ (44,835) ________________
(1)Includes equity and cash settled stock-based compensation expense, as follows:
Three
Months Ended
2021 2020
(In thousands)
Cost of subscription revenue $ 2,624 $ 169
Cost of professional services and other revenue 4,430 89
Research and development 21,332 1,964
Sales and marketing 22,777 3,783
General and administrative 151,836 6,497
Total stock-based compensation, including cash settled $
202,999
(2)Includes amortization of acquired intangible assets as follows:
Three Months Ended March 31,
2021 2020
(In thousands)
Cost of subscription revenue $ 266 $ 266
Sales and marketing 51 51
General and administrative 47 47
Total amortization of acquired intangible assets $
364
28
--------------------------------------------------------------------------------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 March 31,
2021 2020
(as a % of revenue)
Revenue:
Subscription 78 73
Professional services and other 22 27
Total revenue 100 % 100 %
Cost of revenue:
Subscription 9 8
Professional services and other 17 19
Total cost of revenue 26 27
Gross profit 74 73
Operating expenses:
Research and development 26 20
Sales and marketing 57 61
General and administrative 73 13
Total operating expenses 156 94
Operating loss (82) (21)
Other non-operating income, net (1) -
Loss before income taxes (83) (21)
Provision for income taxes 1 5
Net loss (84) % (26) %
Comparison of the three months ended March 31, 2021 and 2020
Revenue
Three Months Ended March 31,
2021 2020 $ Change % Change
(In thousands)
Subscription revenue $ 186,896 $ 128,265 $ 58,631 46 %
Professional services and other
revenue 51,747 47,799 3,948 8 %
Total revenue $ 238,643 $ 176,064 $ 62,579 36 %
Subscription revenue increased by $58.6 million , or 46%, for the three months
ended March 31, 2021 as compared to the three months ended March 31, 2020 . This
increase was due primarily to increased demand for our solutions from new and
existing customers. Of the increase in subscription revenue for the three months
ended March 31, 2021 compared to the three months ended March 31, 2020 ,
approximately $34.8 million was attributable to existing customers and
approximately $23.8 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 platform. Pricing
changes were not material to the increase in revenue. Professional services and
other revenue increased $3.9 million , or 8%, for the three months ended March
31, 2021 compared to the three months ended March 31, 2020 . This increase was
primarily due to an increase in revenue from large customers, who generally
require more services.
29
--------------------------------------------------------------------------------Cost of revenue, gross profit, and gross margin
Three Months Ended March 31,
2021 2020 $ Change % Change
(In thousands)
Cost of subscription revenue $ 20,370 $ 13,716 $ 6,654 49 %
Cost of professional services and
other revenue 41,411 34,208 7,203 21 %
Total cost of revenue 61,781 47,924 13,857 29 %
Subscription gross profit 166,526 114,549 51,977 45 %
Professional services and other gross
profit 10,336 13,591 (3,255) (24) %
Total gross profit $ 176,862 $ 128,140 $ 48,722 38 %
Subscription gross margin 89 % 89 %
Professional services and other gross
margin 20 % 28 %
Total gross margin 74 % 73 %
Cost of subscription revenue increased $6.7 million , or 49%, for the three
months ended March 31, 2021 , as compared to the three months ended March 31,
2020 , consistent with the increase in subscription revenue growth over the same
period. This increase was driven by a $2.5 million increase in stock-based
compensation expense, a $0.8 million increase in server costs, a $2.0 million
increase in employee-related costs from headcount growth, and a $1.4 million
increase in amortization of internal use software. Cost of professional services
and other revenue increased $7.2 million , or 21%, for the three months ended
March 31, 2021 , as compared to the three months ended March 31, 2020 . This
increase was driven by a $2.0 million increase in employee-related costs from
headcount growth, a $1.4 million increase in professional services vendor costs,
and a $4.3 million increase in stock-based compensation expense, partially
offset by a $0.5 million decrease in travel-related expenses.
Our gross margins increased from 73% during the three months ended March 31,
2020 to 74% during the three months ended March 31, 2021 , due primarily to an
increase in subscription gross margins, partially offset by a decrease in
professional services and other gross margins based on the changes discussed
above.
Operating Expenses
Research and development
Three Months Ended March 31,
2021 2020 $ Change % Change
(In thousands)
Research and development $ 62,806 $ 35,489 $ 27,317 77 %
Research and development expenses increased $27.3 million , or 77%, for the three
months ended March 31, 2021 , as compared to the three months ended March 31,
2020 . This increase was driven by a $19.4 million increase in stock-based
compensation expense and a $6.5 million increase in employee-related costs from
headcount growth as we continue to add to and enhance our products.
Sales and marketing
Three Months Ended March 31,
2021 2020 $ Change % Change
(In thousands)
Sales and marketing $ 136,181 $ 107,095 $ 29,086 27 %
30-------------------------------------------------------------------------------- Sales and marketing expenses increased$29.1 million , or 27%, for the three months endedMarch 31, 2021 , as compared to the three months endedMarch 31, 2020 . The increase in sales and marketing was primarily driven by a$19.0 million increase in stock-based compensation expense and a$18.0 million increase in employee-related costs from headcount growth, partially offset by a$5.4 million decrease in travel-related expenses and a$2.5 million decrease in marketing spend. General and administrative Three Months Ended March 31, 2021 2020 $ Change % Change (In thousands) General and administrative$ 174,449 $ 22,487 $ 151,962 676 % General and administrative expenses increased$152.0 million , or 676%, for the three months endedMarch 31, 2021 , as compared to the three months endedMarch 31, 2020 . The increase in general and administrative expenses was primarily driven by a$145.3 million increase in stock-based compensation expense. Other non-operating income (expense), net Other non-operating income (expense), net decreased$2.2 million for the three months endedMarch 31, 2021 , as compared to the three months endedMarch 31, 2020 . This change for the periods was primarily driven by a$1.2 million increase in interest expense, the results of changes in interest income due to differences in average cash balances and interest rates, and immaterial changes in foreign currency transactions gains and losses. Provision for income taxes Provision for income taxes decreased$6.8 million for the three months endedMarch 31, 2021 , as compared to the three months endedMarch 31, 2020 , due to lower foreign net income and a decrease in current year tax reserve expense. Our effective tax rate was (0.8)% for the three months endedMarch 31, 2021 , as compared to (23.0)% for the three months endedMarch 31, 2020 . The change was primarily driven by differences in our effective tax rate for the respective years, as described below. Our effective tax rate for the three months endedMarch 31, 2020 was (23.0)%. The difference between theU.S. statutory rate of 21% and our effective tax rate is primarily driven by rate adjustments due to tax reserves, foreign taxes, and the impact of valuation allowances recorded against current year losses inthe United States . Liquidity and Capital Resources As ofMarch 31, 2021 we had cash and cash equivalents of$586.5 million . Our cash and cash equivalents consist primarily of cash and money market funds. As ofMarch 31, 2021 , we had$22.1 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 equity-based 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 for 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 31
--------------------------------------------------------------------------------
acceptance of our platform. OnJanuary 28, 2021 , we completed a voluntary exchange offer pursuant to which 5.4 million cash-settled 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, significantly reducing our stock-based awards liability. 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. Our cash flow activities were as follows for the periods presented:
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