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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2022
OR
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| ☐ | 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: 001-40528
Sprinklr, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other Jurisdiction of
Incorporation or organization)
29 West 35th Street
New York, NY
(Address of principal executive offices)
47-4771485
(IRS Employer
Identification No.)
10001
(Zip Code)
Registrant’s telephone number, including area code: (917) 933-7800
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class A common stock, par value $0.00003 per share | | CXM | | New York Stock Exchange |
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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 30, 2022, the registrant had 116,694,347 shares of Class A common stock and 144,338,771 shares of Class B common stock, each with a par value of $0.00003 per share, outstanding.
TABLE OF CONTENTS | | | | | | | | |
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| SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS |
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| PART I. | FINANCIAL INFORMATION | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| PART II. | | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
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| Item 6. | | |
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WHERE YOU CAN FIND MORE INFORMATION
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also use Sprinklr’s blog and the following social media channels as a means of disclosing information about the company, our products, our planned financials and other announcements and attendance at upcoming investor and industry conferences, and other matters. This is in compliance with our disclosure obligations under Regulation FD:
•Sprinklr Company Blog (http://sprinklr.com/blog)
•Sprinklr LinkedIn Page (http://www.linkedin.com/company/sprinklr)
•Sprinklr Twitter Account (https://twitter.com/sprinklr)
•Sprinklr Facebook Page (https://www.facebook.com/sprinklr/)
•Sprinklr Instagram Page (https://www.instagram.com/sprinklr)
In addition, investors and others can view Sprinklr videos on YouTube (https://www.YouTube.com/c/sprinklr).
Information posted through these social media channels may be deemed material. Accordingly, in addition to reviewing our press releases, SEC filings, public conference calls and webcasts, investors should monitor Sprinklr’s blog and its other social media channels. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. The channel list on how to connect with us may be updated from time to time and is available on https://www.sprinklr.com and our investor relations website.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
These forward-looking statements include, but are not limited to, statements concerning the following:
•our expectations regarding our revenue, expenses and other operating results;
•our ability to acquire new customers and successfully engage new and existing customers;
•our ability to achieve and maintain our profitability;
•the effects on our business, financial condition and results of operations of current and future economic, business, market and regulatory conditions, including the current global inflation and other economic and market conditions, and their effects on our customers and their spending and ability to finance purchases of our products and technologies;
•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
•the costs and success of our marketing efforts and our ability to promote our brand;
•our growth strategies for our Unified-CXM platform;
•the estimated addressable market opportunity for our Unified-CXM platform;
•our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
•our ability to effectively manage our growth, including any international expansion;
•our ability to obtain, maintain, protect, defend or enforce our intellectual property or other proprietary rights and any costs associated therewith;
•the effects of global events, such as the ongoing COVID-19 pandemic or other public health crises and the Russia-Ukraine war, on our business and the global economy;
•our ability to compete effectively with existing competitors and new market entrants; and
•the growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. And, while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
Unless the context otherwise requires, the terms “Sprinklr,” “the Company,” “we,” “our,” “us” or similar references in this Form 10-Q refer to Sprinklr, Inc. and its subsidiaries.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SPRINKLR, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | |
| October 31,
2022 | January 31,
2022 | | |
| Assets | | | |
| Current assets: | | | | |
| Cash and cash equivalents | $ | 156,025 | | $ | 321,426 | | | |
| Marketable securities | 388,089 | | 210,983 | | | |
Accounts receivable, net of allowance for doubtful accounts of $3.9 million and $2.7 million, respectively | 132,932 | | 163,681 | | | |
| Prepaid expenses and other current assets | 80,557 | | 109,167 | | | |
| Total current assets | 757,603 | | 805,257 | | | |
| Property and equipment, net | 20,679 | | 14,705 | | | |
| Goodwill and other intangible assets | 50,489 | | 50,706 | | | |
| Operating lease right-of-use assets | 13,506 | | — | | | |
| Other non-current assets | 54,718 | | 49,378 | | | |
| Total assets | $ | 896,995 | | $ | 920,046 | | | |
| | | | |
Liabilities and stockholders’ equity | | | | |
| Liabilities | | | | |
| Current liabilities: | | | | |
| Accounts payable | $ | 15,776 | | $ | 15,802 | | | |
| Accrued expenses and other current liabilities | 88,369 | | 100,220 | | | |
| Operating lease liabilities, current | 6,693 | | — | | | |
| | | | |
| Deferred revenue | 257,659 | | 279,028 | | | |
| Total current liabilities | 368,497 | | 395,050 | | | |
| | | | |
| Deferred revenue less current portion | 1,015 | | 5,325 | | | |
| Deferred tax liability, long-term | 1,089 | | 1,101 | | | |
| Operating lease liabilities, long-term | 7,601 | | — | | | |
| Other liabilities, long-term | 1,365 | | 2,721 | | | |
| Total liabilities | 379,567 | | 404,197 | | | |
| | | | |
| Commitments and contingencies (Note 9) | | | | |
Stockholders’ equity: | | | | |
| | | | |
| | | | |
Class A common stock, $0.00003 par value, 2,000,000,000 shares authorized; 114,302,956 and 105,929,885 shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively | 3 | | 3 | | | |
Class B common stock, $0.00003 par value, 310,000,000 shares authorized; 146,607,531 and 150,551,314 shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively | 6 | | 5 | | | |
| | | | |
Treasury stock, at cost, 14,130,784 and 14,130,784 shares | (23,831) | | (23,831) | | | |
| Additional paid-in capital | 1,045,399 | | 982,122 | | | |
| Accumulated other comprehensive loss | (7,444) | | (820) | | | |
| Accumulated deficit | (496,705) | | (441,630) | | | |
| Total stockholders’ equity | 517,428 | | 515,849 | | | |
| Total liabilities and stockholders’ equity | $ | 896,995 | | $ | 920,046 | | | |
See accompanying notes to the unaudited condensed consolidated financial statements
SPRINKLR, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Nine Months Ended October 31, |
| 2022 | 2021 | | 2022 | 2021 |
| Revenue: | | | | |
| Subscription | $ | 139,906 | | $ | 109,941 | | | $ | 400,301 | | $ | 310,020 | |
| Professional services | 17,345 | | 17,115 | | | 52,558 | | 46,708 | |
| Total revenue: | 157,251 | | 127,056 | | | 452,859 | | 356,728 | |
| Costs of revenue: | | | | | |
| Costs of subscription | 26,249 | | 22,835 | | | 76,759 | | 66,228 | |
| Costs of professional services | 14,271 | | 15,865 | | | 47,641 | | 41,520 | |
| Total costs of revenue | 40,520 | | 38,700 | | | 124,400 | | 107,748 | |
| Gross profit | 116,731 | | 88,356 | | | 328,459 | | 248,980 | |
| Operating expenses: | | | | | |
| Research and development | 19,208 | | 16,591 | | | 56,531 | | 44,717 | |
| Sales and marketing | 79,538 | | 74,698 | | | 253,418 | | 204,573 | |
| General and administrative | 22,588 | | 21,833 | | | 67,916 | | 63,364 | |
| Total operating expenses | 121,334 | | 113,122 | | | 377,865 | | 312,654 | |
| Operating loss | (4,603) | | (24,766) | | | (49,406) | | (63,674) | |
| Other income (expense), net | 1,093 | | (1,119) | | | 1,304 | | (4,744) | |
| Loss before provision for income taxes | (3,510) | | (25,885) | | | (48,102) | | (68,418) | |
| Provision for income taxes | 2,350 | | 1,823 | | | 6,973 | | 6,132 | |
| Net loss | $ | (5,860) | | $ | (27,708) | | | $ | (55,075) | | $ | (74,550) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net loss per share attributable to Class A and Class B common stockholders, basic | $ | (0.02) | | $ | (0.11) | | | $ | (0.21) | | $ | (0.43) | |
| Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic | 260,285 | 255,195 | | 258,677 | 174,497 |
| | | | | |
| | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements
SPRINKLR, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, | | Nine Months Ended October 31, |
| 2022 | 2021 | | 2022 | 2021 |
| | | | |
| Net loss | $ | (5,860) | | $ | (27,708) | | | $ | (55,075) | | $ | (74,550) | |
| Foreign currency translation adjustments | (1,831) | | 13 | | | (4,873) | | (770) | |
| Unrealized losses on investments | (446) | | (8) | | | (1,751) | | (22) | |
| Total comprehensive loss | $ | (8,137) | | $ | (27,703) | | | $ | (61,699) | | $ | (75,342) | |
| | | | | |
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| | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements |
SPRINKLR, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Class A and Class B Common Stock | | | | Additional
Paid-in
Amount | | Treasury Stock | | Accumulated
Other
Comprehensive
Loss | | Accumulated
Deficit | | Total Stockholders’ Equity |
| | | | | Shares | | Amount | | | | | | | Shares | | Amount | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at July 31, 2022 | | | | | 259,713 | | | $ | 9 | | | | | | | $ | 1,027,849 | | | 14,131 | | | $ | (23,831) | | | $ | (5,167) | | | $ | (490,845) | | | $ | 508,015 | |
| Stock-based compensation - equity classified awards | | | | | — | | | — | | | | | | | 11,982 | | | — | | | — | | | — | | | — | | | 11,982 | |
| Exercise of stock options and vesting of RSUs | | | | | 1,197 | | | — | | | | | | | 5,568 | | | — | | | — | | | — | | | — | | | 5,568 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Other comprehensive loss | | | | | — | | | — | | | | | | | — | | | — | | | — | | | (2,277) | | | — | | | (2,277) | |
| Net loss | | | | | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (5,860) | | | (5,860) | |
Balance at October 31, 2022 | | | | | 260,910 | | | $ | 9 | | | | | | | $ | 1,045,399 | | | 14,131 | | | $ | (23,831) | | | $ | (7,444) | | | $ | (496,705) | | | $ | 517,428 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Class A and Class B Common Stock | | | | Additional
Paid-in
Amount | | Treasury Stock | | Accumulated
Other
Comprehensive
Loss | | Accumulated
Deficit | | Total Stockholders’ Equity |
| | | | | Shares | | Amount | | | | | | | Shares | | Amount | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 31, 2022 | | | | | 256,481 | | | $ | 8 | | | | | | | $ | 982,122 | | | 14,131 | | | $ | (23,831) | | | $ | (820) | | | $ | (441,630) | | | $ | 515,849 | |
| Stock-based compensation - equity classified awards | | | | | — | | | — | | | | | | | 41,068 | | | — | | | — | | | — | | | — | | | 41,068 | |
| Exercise of stock options and vesting of RSUs | | | | | 3,712 | | | — | | | | | | | 15,997 | | | — | | | — | | | — | | | — | | | 15,997 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common shares upon ESPP purchases | | | | | 717 | | | 1 | | | | | | | 6,212 | | | — | | | — | | | — | | | — | | | 6,213 | |
| Other comprehensive loss | | | | | — | | | — | | | | | | | — | | | — | | | — | | | (6,624) | | | — | | | (6,624) | |
| Net loss | | | | | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (55,075) | | | (55,075) | |
Balance at October 31, 2022 | | | | | 260,910 | | | $ | 9 | | | | | | | $ | 1,045,399 | | | 14,131 | | | $ | (23,831) | | | $ | (7,444) | | | $ | (496,705) | | | $ | 517,428 | |
| | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements |
SPRINKLR, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible
Preferred Stock | | Class A and Class B Common Stock | | Common Stock | | Additional
Paid-in
Amount | | Treasury Stock | | Accumulated
Other
Comprehensive
(Loss) Income | | Accumulated
Deficit | | Total
Stockholders'
Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at July 31, 2021 | — | | | $ | — | | | 269,029 | | | $ | 8 | | | | | | | $ | 947,041 | | | (14,131) | | | $ | (23,831) | | | $ | (10) | | | $ | (377,002) | | | $ | 546,206 | |
| Issuance of common stock upon initial public offering, net of underwriting discounts and issuance costs | — | | | — | | | — | | | — | | | — | | | — | | | 19 | | | — | | | — | | | — | | | — | | | 19 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation - equity classified awards | — | | | — | | | — | | | — | | | — | | | — | | | 12,403 | | | — | | | — | | | — | | | — | | | 12,403 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | — | | | — | | | 486 | | | — | | | | | — | | | 1,234 | | | — | | | — | | | — | | | — | | | 1,234 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | — | | | 5 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (27,708) | | | (27,708) | |
| Balance at October 31, 2021 | — | | | $ | — | | | 269,515 | | | $ | 8 | | | — | | | $ | — | | | $ | 960,697 | | | (14,131) | | | $ | (23,831) | | | $ | (5) | | | $ | (404,710) | | | $ | 532,159 | |
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|
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| | | | | | | | | | | | | | | | | | | | | | | |
| Convertible
Preferred Stock | | Class A and Class B Common Stock | | Common Stock | | Additional
Paid-in
Amount | | Treasury Stock | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Deficit | | Total
Stockholders'
Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at January 31, 2021 | 120,903 | | | $ | 424,992 | | | — | | | $ | — | | | 109,587 | | | $ | 4 | | | $ | 122,061 | | | (14,131) | | | $ | (23,831) | | | $ | 787 | | | $ | (330,160) | | | $ | 193,853 | |
| Issuance of common stock upon initial public offering, net of underwriting discounts and issuance costs | — | | | — | | | 18,288 | | | — | | | — | | | — | | | 275,973 | | | — | | | — | | | — | | | — | | | 275,973 | |
| Conversion of convertible preferred stock to common stock upon initial public offering | (120,903) | | | (424,992) | | | 120,903 | | | 4 | | | — | | | — | | | 424,989 | | | — | | | — | | | — | | | — | | | 1 | |
| Conversion of Senior subordinated secured convertible notes | — | | | — | | | 9,694 | | | — | | | — | | | — | | | 82,114 | | | — | | | — | | | — | | | — | | | 82,114 | |
| Stock-based compensation - equity classified awards | — | | | — | | | — | | | — | | | — | | | — | | | 37,668 | | | — | | | — | | | — | | | — | | | 37,668 | |
| Reclassification of common stock to class A and class B common stock | — | | | — | | | 117,176 | | | 4 | | | (117,176) | | | (4) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Exercise of stock options | — | | | — | | | 1,454 | | | — | | | 7,589 | | | — | | | 17,892 | | | — | | | — | | | — | | | — | | | 17,892 | |
| Net exercise of common stock warrants | — | | | — | | | 230 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of common stock under deferred stock compensation plan | — | | | — | | | 1,770 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (792) | | | — | | | (792) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (74,550) | | | (74,550) | |
| Balance at October 31, 2021 | — | | | $ | — | | | 269,515 | | | $ | 8 | | | — | | | $ | — | | | $ | 960,697 | | | (14,131) | | | $ | (23,831) | | | $ | (5) | | | $ | (404,710) | | | $ | 532,159 | |
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See accompanying notes to the unaudited condensed consolidated financial statements |
SPRINKLR, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | |
| Nine Months Ended October 31, |
| 2022 | 2021 |
| Cash flow from operating activities: | | |
| Net loss | $ | (55,075) | | $ | (74,550) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | |
| Depreciation and amortization expense | 8,727 | | 5,638 | |
| Bad debt expense | 1,161 | | 47 | |
| Stock-based compensation expense, net of amounts capitalized | 39,920 | | 37,953 | |
| Non-cash interest paid in kind and discount amortization | — | | 3,266 | |
| Non-cash lease expense | 4,759 | | — | |
| Deferred income taxes | — | | 1 | |
| Other non-cash items, net | (549) | | (1,187) | |
| Changes in operating assets and liabilities: | | |
| Accounts receivable | 29,358 | | 12,741 | |
| Prepaid expenses and other current assets | 27,246 | | (2,395) | |
| Other noncurrent assets | (5,782) | | (3,151) | |
| Accounts payable | (1,243) | | (5,774) | |
| Operating lease liabilities | (5,448) | | — | |
| Accrued expenses and other current liabilities | (625) | | 16,413 | |
| Litigation settlement | (12,000) | | — | |
| Deferred revenue | (24,578) | | (7,132) | |
| Other liabilities | (1,285) | | 197 | |
| Net cash provided by (used in) operating activities | 4,586 | | (17,933) | |
| Cash flow from investing activities: | | |
| Purchases of marketable securities | (640,173) | | (61,758) | |
| Sales of marketable securities | 2,838 | | 56,652 | |
| Maturities of marketable securities | 459,026 | | 197,555 | |
| Purchases of property and equipment | (2,923) | | (5,197) | |
| Capitalized internal-use software | (7,733) | | (4,150) | |
| Acquisitions, net of cash acquired | — | | (3,625) | |
| Net cash (used in) provided by investing activities | (188,965) | | 179,477 | |
| Cash flow from financing activities: | | |
| | |
| Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts, commissions and other offering costs | — | | 275,973 | |
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| Proceeds from issuance of common stock upon exercise of stock options | 15,997 | | 17,892 | |
| Proceeds from issuance of common stock upon ESPP purchases | 6,213 | | — | |
| Net cash provided by financing activities | 22,210 | | 293,865 | |
| Effect of exchange rate fluctuations on cash and cash equivalents | (3,232) | | (1,060) | |
| Net change in cash and cash equivalents | (165,401) | | 454,349 | |
| Cash and cash equivalents at beginning of period | 321,426 | | 68,037 | |
| Cash and cash equivalents at end of period | $ | 156,025 | | $ | 522,386 | |
| | |
SPRINKLR, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | |
| Nine Months Ended October 31, |
| 2022 | 2021 |
| Supplemental disclosure of cash flow information | | |
| Cash paid for income taxes, net of refunds | $ | 5,137 | | $ | 2,525 | |
| | |
| Supplemental disclosure for non-cash investing and financing | | |
| | |
| | |
| Net exercise of common stock warrants | — | | 18 | |
| Stock-based compensation expense capitalized in internal-use software | 1,898 | | 465 | |
| Accrued purchases of property and equipment | 92 | | 126 | |
| Right of use assets obtained in exchange for operating lease liabilities | 5,222 | | — | |
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See accompanying notes to the unaudited condensed consolidated financial statements |
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1.Organization and Description of Business
Description of Business
Founded in 2009, Sprinklr, Inc. (the “Company”) provides enterprise cloud software products that enable organizations to do marketing, advertising, research, care, sales and engagement across modern channels including social, messaging, chat and text through its unified Customer Experience Management (“CXM”) software platform.
The Company was incorporated in Delaware in 2011 and is headquartered in New York, New York, USA with 18 operating subsidiaries globally.
2.Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, (“U.S. GAAP”), and applicable rules and regulations of the Securities and Exchange Commission, (the “SEC”), regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of January 31, 2022, and related disclosures, have been derived from the audited consolidated financial statements at that date but do not include all of the information required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of the Company’s condensed consolidated financial information. The results of operations for the three and nine months ended October 31, 2022 are not necessarily indicative of the results to be expected for the year ending January 31, 2023 or for any other interim period or for any other future year.
The accompanying interim unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended January 31, 2022 in the Company’s Annual Report on Form 10-K (the “2022 10-K”) filed with the SEC on April 11, 2022.
Other than the adoption of the lease accounting requirements of Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842), there have been no material changes in the significant accounting policies as described in the Company’s consolidated financial statements for the fiscal year ended January 31, 2022 included in the 2022 10-K.
Immaterial Corrections to Prior Periods
In the fourth quarter of fiscal year 2022, the Company identified immaterial corrections to prior periods related to capitalized costs to obtain customer contracts in connection with the adoption of ASC 606, Revenue from Contracts with Customers (“ASC 606”), and the ongoing monitoring of costs to obtain customer contracts considered for capitalization. The Company has evaluated the effects of these corrections on the previously issued condensed consolidated financial statements, individually and in aggregate, in accordance with the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1, Assessing Materiality, and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Although the Company has concluded such corrections to be immaterial to its previously issued financial statements, the cumulative effect would be material if corrected in the fourth quarter of fiscal year 2022. Accordingly, the Company has revised the condensed consolidated financial statements for the prior periods presented herein.
A summary of the effect of the corrections on the condensed consolidated statements of operations for the three and nine months ended October 31, 2021 were as follows (in thousands, except per share data):
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 31, 2021 | | Nine Months Ended October 31, 2021 |
| As reported | | Corrections | | As Adjusted | | As reported | | Corrections | | As Adjusted |
| Operating expenses: | | | | | | | | | | | |
| Research and development | $ | 16,621 | | | $ | (30) | | | $ | 16,591 | | | $ | 44,836 | | | $ | (119) | | | $ | 44,717 | |
| Sales and marketing | 76,191 | | | (1,493) | | | 74,698 | | | 207,079 | | | (2,506) | | | 204,573 | |
| Total operating expenses | 114,645 | | | (1,523) | | | 113,122 | | | 315,279 | | | (2,625) | | | 312,654 | |
| Operating loss | (26,289) | | | 1,523 | | | (24,766) | | | (66,299) | | | 2,625 | | | (63,674) | |
| Loss before provision for income taxes | (27,408) | | | 1,523 | | | (25,885) | | | (71,043) | | | 2,625 | | | (68,418) | |
| Net loss | (29,231) | | | 1,523 | | | (27,708) | | | (77,175) | | | 2,625 | | | (74,550) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net loss per share attributable to Class A and Class B stockholders, basic and diluted | $ | (0.11) | | | $ | — | | | $ | (0.11) | | | $ | (0.44) | | | $ | 0.01 | | | $ | (0.43) | |
A summary of the effect of the corrections on the condensed consolidated statements of cash flows for the nine months ended October 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Nine Months Ended October 31, 2021 |
| As reported | | Corrections | | As Adjusted |
| | | | | |
| Net loss | (77,175) | | | 2,625 | | | (74,550) | |
| Changes in operating assets and liabilities | | | | | |
| Prepaid expenses and other current assets | (1,104) | | | (1,291) | | | (2,395) | |
| Other non-current assets | (1,817) | | | (1,334) | | | (3,151) | |
For all periods in which the Company corrected net loss, the Company made corresponding corrections to net loss and comprehensive loss, in the condensed consolidated statements of comprehensive loss and to net loss, accumulated deficit and total stockholders’ equity in the condensed consolidated statements of stockholders’ equity.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to, common stock valuations and stock-based compensation expense, software costs eligible for capitalization, recoverability of long-lived and intangible assets and the allowance for doubtful accounts. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and on assumptions that it believes are reasonable and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Segments
The Company operates in one operating segment because the Company’s offerings operate on its single Customer Experience Management Platform, the Company’s products are deployed in a similar way, and the Company’s chief operating decision maker evaluates the Company’s financial information and assesses the performance of the Company on a consolidated basis. Because the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.
Leases
On February 1, 2022, the Company adopted the lease accounting requirements of Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842). Under Topic 842, the Company determines if an arrangement is a lease at inception, and leases are classified at commencement as either operating or finance leases. As of October 31, 2022, the Company did not have any finance leases.
Right-of-use (“ROU”) assets and lease liabilities are recognized at commencement based on the present value of the minimum lease payments over the lease term. The Company utilizes certain practical expedients and policy elections available under Topic 842. Leases with an initial term of 12 months or less are not recognized on the balance sheet. Additionally, the Company has elected not to separate lease components from non-lease components for all asset classes. Non-lease components that are not fixed are expensed as incurred as variable lease costs. The Company uses the incremental borrowing rate based on information available at the commencement date in determining the present value of future lease payments. The rate is an estimate of the collateralized borrowing rate the Company would incur on future lease payments over a similar term.
The Company leases facilities under non-cancelable operating lease agreements. Certain of the operating lease agreements contain rent concessions and rent escalations that are included in the present value calculation of minimum lease payments. Topic 842 requires that operating leases recognize expense on a straight-line basis over the lease term. The lease term begins on the date the Company has the right to use the leased property. Lease terms may include options to extend or terminate the lease. These options are included in the ROU asset and lease liability when it is reasonably certain that the option will be exercised. The Company's lease agreements do not contain residual value guarantees or covenants.
Prior to the February 1, 2022 adoption of Topic 842, ROU asset and lease liabilities were not recognized for operating leases. Rent concessions and rent escalation provisions were considered in determining the straight-line rent expense to be recovered over the lease term.
Concentration of Risk and Significant Customers
The Company has no significant off-balance sheet risks related to foreign currency exchange contracts, option contracts or other foreign currency hedging arrangements. The Company’s financial instruments that are potentially subject to credit risk consist primarily of cash and cash equivalents and accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits generally exceed federally insured limits. The Company’s accounts receivable are derived from invoiced customers located primarily in North America and Europe. The Company performs periodic credit evaluations of its customers and generally does not require collateral.
No single customer accounted for more than 10% of total revenue in the three or nine months ended October 31, 2022 and 2021.
In addition, the Company relies upon third-party hosted infrastructure partners globally to serve customers and operate certain aspects of its services, such as environments for development testing, training, sales demonstrations, and production usage. Given this, any disruption of or interference at the Company's hosted infrastructure partners would impact the Company’s operations and could adversely impact its business.
Revenue Recognition
The Company accounts for revenue in accordance with ASC 606. For further discussion of the Company’s accounting policies related to revenue, see Note 3, Revenue Recognition.
Stock-Based Compensation
The Company accounts for stock-based compensation as an expense in the statements of operations based on the awards’ grant date fair values.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company estimates the fair value of service-based options granted using the Black-Scholes option pricing model. Stock options that include service, performance and market conditions are valued using the Monte-Carlo simulation model. The Black-Scholes option pricing model requires inputs based on certain assumptions, including (a) the fair value per share of the Company's common stock (b) the expected stock price volatility, (c) the calculation of expected term of the award, (d) the risk-free interest rate and (e) expected dividends. A Monte-Carlo simulation is an analytical method used to estimate value by performing a large number of simulations or trial runs and determining a value based on the possible outcomes from these trial runs.
The fair value of stock-based payments is recognized as compensation expense, net of expected forfeitures, over the requisite service period, which is generally the vesting period, with the exception of the fair value of stock-based payments for awards that include service, performance and market conditions which is recognized as compensation expense over the requisite service period as achievement of the performance objective becomes probable.
The Company issued certain performance stock units (“PSUs”) that vest upon the satisfaction of time-based service, performance-based and market conditions in prior years. The Company estimates compensation cost based on the grant date fair value and recognize the expense on a graded vesting basis over the vesting period of the award. As the PSUs are subject to a market condition (stock price), the grant date fair value is measured using a Monte Carlo simulation approach, which estimates the fair value of awards based on randomly generated simulated stock-price paths through a lattice-type structure. The performance-based vesting condition was satisfied upon the occurrence of a qualifying event, which was generally defined as a change in control transaction or the effective date of a registration statement of the Company filed under the Securities Act for the sale of the Company's common stock. Upon the effectiveness of the Registration Statement on June 22, 2021, the performance-based vesting condition was satisfied, and therefore, the Company commenced recognition of compensation expense using the accelerated attribution method over the requisite service period.
The Company estimates fair value of its restricted stock units (“RSU”) based on the fair value of the underlying common stock, net of estimated forfeitures. Subsequent to the Company’s initial public offering (“IPO”) in June 2021, the Company determines the fair value using the closing price of its Class A common stock on the date of grant.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), and additional changes, modifications, clarifications or interpretations related to this guidance thereafter (“ASU 2016-02”). ASU 2016-02 requires a reporting entity to recognize ROU assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. Effective February 1, 2022, the Company adopted the standard and elected the package of transition practical expedients that allowed the Company to carry forward prior conclusions related to: (i) whether any expired or existing contracts are or contain leases; (ii) the classification for any expired or existing leases; and (iii) initial direct costs for existing leases. Additionally, the Company elected the practical expedient to not separate lease components from non-lease components for all asset classes. The Company also made an accounting policy election not to record ROU assets or lease liabilities for leases with an initial term of 12 months or less and will recognize payments for such leases in its consolidated statement of operation on a straight-line basis over the lease term. The Company recorded lease liabilities and corresponding ROU assets of approximately $14 million upon adoption of this standard.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, with subsequent amendments, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires immediate recognition of management’s estimates of current expected credit losses. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2022, and interim periods within that fiscal year, with early adoption permitted. The Company expects to adopt this guidance on January 31, 2023 effective February 1, 2022 as the Company will cease to qualify as an “emerging growth company” as of January 31, 2023. There is no material impact to the consolidated financial statements.
3. Revenue Recognition
The Company derives its revenues primarily from (i) subscription revenue, which consists of subscription fees from customers accessing the Company’s cloud-based software platform and applications, as well as related customer support services; and (ii) professional services revenue, which consists of fees associated with providing services that educate and assist the Company’s customers with the configuration and optimization of the Company’s software platform and applications. Professional services revenue also includes managed services fees where the Company’s consultants work as part of its customers’ teams to help leverage the subscription service to execute on their customer experience management goals.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Contracts with Multiple Performance Obligations
The Company executes arrangements that include multiple performance obligations (consisting of subscription and professional services). Additionally, the Company is often party to multiple concurrent contracts or contracts pursuant to which a client may purchase a combination of services. These situations require judgment to determine whether the multiple promises are separate performance obligations. Once the Company has determined the performance obligations, the Company determines the transaction price. The Company allocates the transaction price to each performance obligation on a relative standalone selling price (“SSP”) basis. The SSP is the price at which the Company would sell promised subscription or professional services separately to a customer. The determination of SSP for each distinct performance obligation requires judgement. The Company determines SSP based on its overall pricing objective, taking into consideration contractually stated prices, size of the arrangement, market conditions, costs, renewal contracts, list prices, internal discounting tables and other observable and unobservable inputs.
Costs to Obtain Customer Contracts
Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a straight-line basis over the anticipated period of benefit. The Company determines the period of benefit by taking into consideration the length of its customer contracts, customer relationship period, technology lifecycle, and other factors. The Company has historically estimated such period of benefit to be three years. During the first quarter of fiscal 2023, the Company updated the period of benefit, noting that recent customer relationship periods extended to an average period of five years. Accordingly, the Company noted a change in estimate of the amortization period of these costs and will prospectively amortize over a period of benefit of five years. The change in amortization period resulted in an immaterial impact to sales and marketing expense for the three and nine months ended October 31, 2022. Sales commissions paid for renewals are not commensurate with commissions paid on the initial contract given the substantive difference in commission rates in proportion to their respective contract values. Amortization expense is recorded in sales and marketing expense within the Company’s condensed consolidated statement of operations.
Capitalized costs to obtain customer contracts as of October 31, 2022 were $88.7 million, of which $40.0 million is included in prepaid expenses and other current assets and $48.7 million within other non-current assets.
Capitalized costs to obtain customer contracts as of January 31, 2022 were $83.0 million, of which $40.7 million is included in prepaid expenses and other current assets and $42.3 million within other non-current assets.
During the three months ended October 31, 2022 and 2021, the Company amortized $11.3 million and $9.0 million, respectively, of costs to obtain customer contracts, included in sales and marketing expense. During the nine months ended October 31, 2022 and 2021, the Company amortized $33.5 million and $25.7 million, respectively, of costs to obtain customer contracts, included in sales and marketing expense.
The prior period amounts reflect immaterial corrections related to capitalized costs to obtain customer contracts. Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, for more information regarding immaterial corrections to prior periods.
Deferred Revenue
Deferred revenue consists primarily of customer billings made in advance of performance obligations being satisfied and revenue being recognized. The Company recognized revenue of $131.0 million and $250.6 million for the three and nine months ended October 31, 2022, respectively, and $104.4 million and $194.0 million for the three and nine months ended October 31, 2021, respectively, that was included in the deferred revenue balances at the beginning of the respective periods.
The Company receives payments from customers based on billing schedules as established in its contracts. Contract assets represent amounts for which the Company has recognized revenue in excess of billings pursuant to the revenue recognition guidance. At October 31, 2022 and January 31, 2022, contract assets were $3.7 million and $3.2 million, respectively, and were included in prepaid expenses and other current assets.
Remaining Performance Obligation
Remaining Performance Obligation (“RPO”) represents contracted revenues that had not yet been recognized and includes deferred revenues and amounts that will be invoiced and recognized in future periods. As of October 31, 2022, the Company’s RPO was $586.1 million, approximately $420.2 million of which the Company expects to recognize as revenue over the next 12 months and the remaining balance will be recognized thereafter.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by geographic location and market, as it believes it best depicts how the nature, amount, timing, and uncertainty of its revenues and cash flows are affected by economic factors. Refer to Note 13, Geographic Information, for revenue by geographic location.
4. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheets (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| October 31, 2022 |
| Amortized Cost | | Unrealized Gain | | Unrealized Losses | | Fair value |
| Corporate bonds | $ | 103,088 | | | $ | — | | | $ | (490) | | | $ | 102,598 | |
| U.S. government and agency securities | 131,327 | | | — | | | (610) | | | 130,717 | |
| Commercial paper | 110,482 | | | — | | | (518) | | | 109,964 | |
| Certificate of deposits | 45,142 | | | 1 | | | (333) | | | 44,810 | |
| Marketable securities | $ | 390,039 | | | $ | 1 | | | $ | (1,951) | | | $ | 388,089 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| January 31, 2022 |
| Amortized Cost | | Unrealized Gain | | Unrealized Losses | | Fair value |
| Corporate bonds | $ | 124,639 | | | $ | 1 | | | $ | (163) | | | $ | 124,477 | |
| U.S. government and agency securities | 37,725 | | | — | | | (35) | | | 37,690 | |
| Commercial paper | 48,818 | | | — | | | (2) | | | 48,816 | |
| Marketable securities | $ | 211,182 | | | $ | 1 | | | $ | (200) | | | $ | 210,983 | |
As of October 31, 2022 and January 31, 2022, the maturities of available-for-sale marketable securities did not exceed 12 months.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
5. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of October 31, 2022 and January 31, 2022, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| October 31, 2022 | | January 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Financial Assets: | | | | | | | | | | | | | | | |
| Cash Equivalents: | | | | | | | | | | | | | | | |
| Money market funds | $ | 70,921 | | | $ | — | | | $ | — | | | $ | 70,921 | | | $ | 281,091 | | | $ | — | | | $ | — | | | $ | 281,091 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Marketable Securities: | | | | | | | | | | | | | | | |
| Corporate bonds | — | | | 102,598 | | | — | | | 102,598 | | | — | | | 124,477 | | | — | | | 124,477 | |
| U.S. government and agency securities | — | | | 130,717 | | | — | | | 130,717 | | | — | | | 37,690 | | | — | | | 37,690 | |
| Commercial paper | — | | | 109,964 | | | — | | | 109,964 | | | — | | | 48,816 | | | — | | | 48,816 | |
| Certificate of deposits | — | | | 44,810 | | | — | | | 44,810 | | | — | | | — | | | — | | | — | |
| Total financial assets | $ | 70,921 | | | $ | 388,089 | | | $ | — | | | $ | 459,010 | | | $ | 281,091 | | | $ | 210,983 | | | $ | — | | | $ | 492,074 | |
The Company classifies its highly liquid money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper, corporate debt securities, U.S. government agencies, certificates of deposit, and U.S. government treasury securities within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.
The Company’s primary objective when investing excess cash is preservation of capital, hence the Company’s marketable securities consist primarily of U.S. Treasury securities, high credit quality corporate debt securities and commercial paper. The Company has classified and accounted for its marketable securities as available-for-sale securities as it may sell these securities at any time for use in the Company’s current operations or for other purposes, even prior to maturity.
The Company regularly reviews the changes to the rating of its debt securities by rating agencies as well as reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses. As of October 31, 2022 and January 31, 2022, there were no securities that were in an unrealized loss position for more than 12 months. The Company has not recorded any impairments, as it believes that any such losses would be immaterial based on the high-grade credit rating for each of its marketable securities as of the end of each period.
6.