Related Party Transactions

3 Months Ended

Mar. 31, 2023

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

Since the SAP acquisition in 2019, SAP and its affiliates are related parties to the Company. The Company has entered into certain arrangements for services and products with SAP and its affiliates.

The consolidated statements of comprehensive loss include all revenue and costs directly attributable and/or allocable to the Company, including costs for facilities, functions, and services used by Qualtrics. The consolidated statements of comprehensive loss also includes expenses of SAP directly charged to Qualtrics for certain functions provided by SAP, including, but not limited to, sales organization costs, insurance, employee benefits, human resources and usage of data centers. The Company directly charges SAP for certain functions provided to SAP, including sales support. These charges were determined based on actual expenses incurred on Qualtrics’ or SAP’s behalf or by usage.

During the three months ended March 31, 2023 and 2022, the Company recognized revenue of $8.6 million and $10.0 million, respectively, from SAP and its affiliates in exchange for services and products. Total costs charged from SAP and its affiliates to the Company were $8.2 million and $12.0 million during the three months ended March 31, 2023 and 2022, respectively. Total costs charged from the Company to SAP and its affiliates were $0.8 million and $4.8 million during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the outstanding receivable and payable with SAP and its affiliates was $10.7 million and $18.0 million, respectively. As of December 31, 2022, the outstanding receivable and payable with SAP and its affiliates was $19.2 million and $15.2 million, respectively.

Because of the SAP Acquisition, Qualtrics had been included in SAP America’s consolidated group for U.S. federal income tax purposes. In October 2021, the Company deconsolidated from the SAP Tax Group for federal tax purposes. The Company continues to be a member of the SAP Tax Group for certain state filings. Pursuant to the tax sharing agreement with SAP, for taxable periods beginning after December 31, 2020, the Company will make certain tax sharing payments to SAP. As of March 31, 2023, the Company’s distribution liability for the tax sharing agreement with SAP totaled $78.0 million, consisting of $12.0 million based on our separate tax liability included on SAP Tax Group returns and $66.0 million based on an estimated fair value of the liability related to Pre-IPO Awards. Of the $78.0 million, $57.2 million is recorded within accounts payable and the remaining $20.8 million is recorded within other liabilities on the condensed consolidated balance sheet as of March 31, 2023. As of December 31, 2022, the Company’s distribution liability for the tax sharing agreement with SAP totaled $84.7 million, consisting of $7.7 million based on 2021 actual tax return activity, $12.0 million based on the Company’s 2022 tax provision and $65.0 million based on an estimated fair value. Of the $84.7 million, $72.0 million is recorded within accounts payable and the remaining $12.7 million is recorded within other liabilities on the condensed consolidated balance sheet as of December 31, 2022. For the three months ended March 31, 2023, the Company made a payment of the distribution tax liability to SAP of $12.1 million, of which $4.4 million was based on the estimated fair value, which is disclosed in Note 3, “Fair Value Measurements”.

Certain Board members of the Company and certain Supervisory Board and Executive Board members of SAP SE currently hold, or held within the last year, positions of significant responsibility with other entities. The Company has relationships with certain of these entities in the ordinary course of business. During the three months ended March 31, 2023 and 2022, revenue and charges from these related parties were immaterial.

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

The Separation Agreement requires the parties to use commercially reasonable efforts to take certain actions between the signing of the Merger Agreement and the closing of the Merger in respect of separating certain shared operations and resources of the Company and SAP so that the Company can operate on a standalone basis independent of SAP and its affiliates (other than the Company and its subsidiaries) following the closing of the Merger (the “Separation”). If the Separation has not been fully completed prior to the closing of the Merger, the Company and SAP will enter into a customary transition services agreement on mutually agreed terms under which SAP will continue providing certain support services and assistance to the Company on a transitional basis as necessary after closing of the Merger.In December 2020, Ryan Smith, the Company’s Founder and Executive Chair, acquired a majority interest in the Utah Jazz basketball franchise, the associated venue, and certain related sports teams and operations and business interests. In 2019, the Company entered into multi-year agreements with the Utah Jazz related to ticket purchases, advertising, sponsorships, and the Utah Jazz Five for the Fight Campaign which were amended in Q1 2023, under which the Company was billed $0.7 million and $1.2 million during the three months ended March 31, 2023 and 2022, respectively.I