10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40526

 

CONFLUENT, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1824387

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

899 W. Evelyn Avenue

Mountain View, California

94041

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 439-3207

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.00001 per share

 

CFLT

 

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

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, 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 July 29, 2021, there were 27,577,309 shares of the registrant’s Class A common stock and 232,832,727 shares of the registrant's Class B common stock, each with a par value of $0.00001 per share, outstanding.

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I. Financial Information

 

 

ITEM 1. Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

3

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020

6

 

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2021 and 2020

7

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

11

 

 

Notes to Condensed Consolidated Financial Statements

13

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

42

 

ITEM 4. Controls and Procedures

43

PART II. Other Information

 

 

ITEM 1. Legal Proceedings

44

 

ITEM 1A. Risk Factors

44

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

83

 

ITEM 3. Defaults Upon Senior Securities

85

 

ITEM 4. Mine Safety Disclosures

85

 

ITEM 5. Other Information

85

 

ITEM 6. Exhibits

86

Signatures

88

 

 


Table of Contents

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

our expectations regarding our revenue, revenue mix, expenses, and other results of operations;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase consumption of our offering and expand features and functionalities;
our ability to achieve or sustain our profitability;
future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
the costs and success of our sales and marketing efforts and our ability to promote our brand;
our growth strategies; 
the estimated addressable market opportunity;
our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel; 
our ability to effectively manage our growth, including international expansion;
our ability to protect our intellectual property rights and any costs associated therewith;
the effects of the COVID-19 pandemic or other public health crises;
our ability to compete effectively with existing competitors and new market entrants; and
the growth rates of the markets in which we compete.

 

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

 

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

 

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be

1


Table of Contents

materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.


Where You Can Find More Information

 

Investors and others should note that we may announce material business and financial information to our investors using our Investor Relations website (investors.confluent.io), our filings with the Securities and Exchange Commission (“SEC”), webcasts, press releases, public conference calls, and blogs published on our website. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

 

We also use our Twitter and LinkedIn accounts as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts, in addition to following our SEC filings, webcasts, press releases, public conference calls, and blogs published on our website. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on our investor relations website.

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

Confluent, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

June 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

860,347

 

 

$

36,789

 

Marketable securities

 

183,526

 

 

 

251,756

 

Accounts receivable, net of allowance

 

117,176

 

 

 

105,971

 

Deferred contract acquisition costs

 

20,516

 

 

 

14,403

 

Prepaid expenses and other current assets

 

32,040

 

 

 

18,775

 

Total current assets

 

1,213,605

 

 

 

427,694

 

Property and equipment, net

 

9,060

 

 

 

6,718

 

Operating lease right-of-use assets

 

43,482

 

 

 

48,273

 

Deferred contract acquisition costs, non-current

 

41,848

 

 

 

33,196

 

Other assets, non-current

 

9,983

 

 

 

10,238

 

Total assets

$

1,317,978

 

 

$

526,119

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

1,834

 

 

$

1,646

 

Accrued expenses and other liabilities

 

49,970

 

 

 

33,711

 

Operating lease liabilities

 

10,288

 

 

 

10,492

 

Deferred revenue

 

172,671

 

 

 

142,901

 

Liability for early exercise of unvested stock options

 

14,217

 

 

 

5,049

 

Total current liabilities

 

248,980

 

 

 

193,799

 

Operating lease liabilities, non-current

 

35,912

 

 

 

40,440

 

Deferred revenue, non-current

 

17,873

 

 

 

16,292

 

Other liabilities, non-current

 

11,668

 

 

 

7,203

 

Total liabilities

 

314,433

 

 

 

257,734

 

Commitments and contingencies (Note 6)

 

 

 

 

 

Redeemable convertible preferred stock, par value $0.00001 per share; 0 and 115,277,850 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 0 and 115,277,850 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $0 and $575,085 as of June 30, 2021 and December 31, 2020, respectively

 

-

 

 

 

574,634

 

 

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Table of Contents

 

June 30, 2021

 

 

December 31, 2020

 

Stockholders’ equity (deficit):

 

 

 

 

 

Preferred stock, par value of $0.00001 per share; 10,000,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020

 

-

 

 

 

-

 

Common stock, par value of $0.00001 per share; 0 and 323,000,000 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 0 and 109,447,843 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

-

 

 

 

1

 

Convertible founder stock, par value of $0.00001 per share; 0 and 635,818 shares authorized June 30, 2021 and December 31, 2020, respectively; 0 and 635,818 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

-

 

 

 

-

 

Class A common stock, par value of $0.00001 per share; 1,000,000,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 27,534,808 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

-

 

 

 

-

 

Class B common stock, par value of $0.00001 per share; 500,000,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 232,301,398 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

2

 

 

 

-

 

Additional paid-in capital

 

1,542,338

 

 

 

99,575

 

Accumulated other comprehensive (loss) income

 

(46

)

 

 

228

 

Accumulated deficit

 

(538,749

)

 

 

(406,053

)

Total stockholders’ equity (deficit)

 

1,003,545

 

 

 

(306,249

)

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

$

1,317,978

 

 

$

526,119

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

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Table of Contents

Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Subscription

$

78,516

 

 

$

46,973

 

 

$

146,508

 

 

$

90,916

 

Services

 

9,822

 

 

 

6,879

 

 

 

18,858

 

 

 

13,840

 

Total revenue

 

88,338

 

 

 

53,852

 

 

 

165,366

 

 

 

104,756

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

20,292

 

 

 

11,734

 

 

 

36,049

 

 

 

22,748

 

Services

 

9,717

 

 

 

5,956

 

 

 

17,798

 

 

 

12,755

 

Total cost of revenue

 

30,009

 

 

 

17,690

 

 

 

53,847

 

 

 

35,503

 

Gross profit

 

58,329

 

 

 

36,162

 

 

 

111,519

 

 

 

69,253

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

33,225

 

 

 

18,875

 

 

 

57,538

 

 

 

38,617

 

Sales and marketing

 

73,206

 

 

 

36,447

 

 

 

131,715

 

 

 

74,764

 

General and administrative

 

37,943

 

 

 

8,334

 

 

 

53,455

 

 

 

16,749

 

Total operating expenses

 

144,374

 

 

 

63,656

 

 

 

242,708

 

 

 

130,130

 

Operating loss

 

(86,045

)

 

 

(27,494

)

 

 

(131,189

)

 

 

(60,877

)

Interest income

 

688

 

 

 

1,303

 

 

 

1,532

 

 

 

1,746

 

Other expense, net

 

(643

)

 

 

(211

)

 

 

(979

)

 

 

(518

)

Loss before income taxes

 

(86,000

)

 

 

(26,402

)

 

 

(130,636

)

 

 

(59,649

)

Provision for (benefit from) income taxes

 

2,170

 

 

 

(106

)

 

 

2,060

 

 

 

282

 

Net loss

$

(88,170

)

 

$

(26,296

)

 

$

(132,696

)

 

$

(59,931

)

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

$

(0.74

)

 

$

(0.25

)

 

$

(1.17

)

 

$

(0.56

)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted

 

118,648,655

 

 

 

105,532,865

 

 

 

113,717,546

 

 

 

106,964,953

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

5


Table of Contents

Confluent, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

$

(88,170

)

 

$

(26,296

)

 

$

(132,696

)

 

$

(59,931

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

(89

)

 

 

1,201

 

 

 

(274

)

 

 

1,002

 

Other comprehensive (loss) income

 

(89

)

 

 

1,201

 

 

 

(274

)

 

 

1,002

 

Total comprehensive loss

$

(88,259

)

 

$

(25,095

)

 

$

(132,970

)

 

$

(58,929

)

 

See accompanying notes to the condensed consolidated financial statements.

 

6


Table of Contents

 

Confluent, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Total

 

 

Redeemable Convertible

 

 

 

 

 

 

Class A

 

 

Class B

 

 

Additional

 

 

Other

 

 

 

 

 

 Stockholders’

 

 

Preferred Stock

 

 

 

Convertible Founder Stock

 

 

Common Stock

 

 

Common Stock

 

 

Paid-In

 

 

 Comprehensive

 

 

 Accumulated

 

 

 Equity

 

 

Shares

 

 

 Amount

 

 

 

Shares

 

 

 Amount

 

 

Shares

 

 

 Amount

 

 

Shares

 

 

 Amount

 

 

Capital

 

 

 (Loss) Income

 

 

 Deficit

 

 

 (Deficit)

 

Balances as of April 1, 2021

 

115,277,850

 

 

$

574,634

 

 

 

$

635,818

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

113,451,522

 

 

$

1

 

 

$

120,449

 

 

$

43

 

 

$

(450,579

)

 

$

(330,086

)

Conversion of redeemable convertible preferred and founder stock to common stock upon initial public offering

 

(115,277,850

)

 

 

(574,634

)

 

 

 

(635,818

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

115,913,668

 

 

 

1

 

 

 

574,633

 

 

 

-

 

 

 

-

 

 

 

574,634

 

Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and other issuance costs

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

23,000,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

783,158

 

 

 

-

 

 

 

-

 

 

 

783,158

 

Issuance of common stock pursuant to charitable donation

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

250,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,290

 

 

 

-

 

 

 

-

 

 

 

13,290

 

Issuance of common stock upon early exercise of unvested options, net of repurchases

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,323,335

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,974

 

 

 

-

 

 

 

-

 

 

 

2,974

 

Issuance of common stock upon exercise of vested options

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

1,505,837

 

 

 

-

 

 

 

4,376,594

 

 

 

-

 

 

 

12,922

 

 

 

-

 

 

 

-

 

 

 

12,922

 

Vesting of restricted stock units

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,250

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of Class B common stock to Class A common stock

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

2,778,971

 

 

 

-

 

 

 

(2,778,971

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

34,912

 

 

 

-

 

 

 

-

 

 

 

34,912

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(89

)

 

 

-

 

 

 

(89

)

Net loss

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(88,170

)

 

 

(88,170

)

Balances as of June 30, 2021

 

-

 

 

$

-

 

 

 

 

-

 

 

$

-

 

 

 

27,534,808

 

 

$

-

 

 

 

232,301,398

 

 

$

2

 

 

$

1,542,338

 

 

$

(46

)

 

$

(538,749

)

 

$

1,003,545

 

 

7


Table of Contents

 

 

 

 

Three Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Redeemable Convertible

 

 

 

Convertible

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Founder Stock

 

 

Common Stock

 

 

Paid-In

 

 

 Comprehensive

 

 

 Accumulated

 

 

 Stockholders’

 

 

 

Shares

 

 

 Amount

 

 

 

Shares

 

 

 Amount

 

 

Shares

 

 

 Amount

 

 

Capital

 

 

 (Loss) Income

 

 

 Deficit

 

 

 Deficit

 

Balances as of April 1, 2020

 

 

105,655,453

 

 

$

430,579

 

 

 

 

7,920,000

 

 

$

-

 

 

 

100,548,882

 

 

$

1

 

 

$

54,595

 

 

$

(2

)

 

$

(209,860

)

 

$

(155,266

)

Issuance of Series E redeemable convertible preferred stock, net of issuance costs

 

 

1,670,155

 

 

 

25,070

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock upon early exercise of unvested options, net of repurchases

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

128,794

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of early exercised options

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,644

 

 

 

-

 

 

 

-

 

 

 

1,644

 

Issuance of common stock upon exercise of vested options

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

1,001,548

 

 

 

-

 

 

 

931

 

 

 

-

 

 

 

-

 

 

 

931

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,253

 

 

 

-

 

 

 

-

 

 

 

7,253

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,201

 

 

 

-

 

 

 

1,201

 

Net loss

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26,296

)

 

 

(26,296

)

Balances as of June 30, 2020

 

 

107,325,608

 

 

$

455,649

 

 

 

 

7,920,000

 

 

$

-

 

 

 

101,679,224

 

 

$

1

 

 

$

64,423

 

 

$

1,199

 

 

$

(236,156

)

 

$

(170,533

)

 

 

 

8


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