Strategy Inc

All right. I'm giving everyone a few minutes or about a minute to get on board here. Good evening, everyone. I'm Jeremy Price, MicroStrategy's Senior Vice President of Financial Planning and Analysis and Head of Investor Relations. I'll be your moderator for MicroStrategy's 2021 First Quarter Earnings Webinar. Before we proceed, I will read the Safe Harbor Statement. Some of the information we provide during today's call regarding our future expectations, plans, and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including factors discussed in our most recent 10Q filed with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. Also, during today's call, we will refer to certain non-GAAP financial measures. Reconciliation showing GAAP versus non-GAAP results are available in our earnings release and presentation, which were issued today and are available on our website at www.microstrategy.com. I would like to welcome you all to today's webinar and let you know that we will be taking questions using the Q&A feature at the bottom of your screen. You can submit questions throughout the webinar, and Michael or Fong will answer them at the end of the session. Please be sure to provide your name and your company's name when submitting your questions. And with that, I will turn the call over to Michael Saylor, Chairman and CEO of MicroStrategy.

Thank you, Jeremy. Hi, I'm Michael Saylor. I'm the chairman and CEO of MicroStrategy. I'd like to welcome all of you to today's webinar regarding our 2021 first quarter financial results. I'm here with Fong Lee, our president and chief financial officer. First, I'd like to pass the floor to Fong, who's going to provide an update on our operations and finance for the quarter.

Thank you, Michael. I'll start with our first quarter performance. MicroStrategy delivered one of our best quarters in recent history with impressive results across the board as we continue to execute well against each of our strategic priorities. Q1 was our third consecutive strong quarter, which demonstrates that we are seeing real momentum in the enterprise analytics software market and that the product improvements we made are Over the last five years and operational changes we undertook in the first half of 2020 have fundamentally improved our enterprise analytics software business. Total revenues in the quarter grew 10% or 8% at a constant currency basis compared to the first quarter of 2020, which is our strongest quarterly performance in five years. While we clearly benefited from a favorable comparison due to COVID-19 in Q1 of 2020, we had a strong quarter throughout the software business. Product licenses revenue grew 69% year over year, but more impressively, it grew 16% versus the first quarter of 2019. Subscription revenues in the quarter were up 26% compared to the first quarter of 2020. Subscription billings grew 19%, our fourth straight quarter of double-digit billings growth. Operating loss was $183.2 million, which includes an impairment charge of $194.1 million, related to the accounting treatment of our Bitcoin holdings. Non-GAAP operating income was $18.7 million, an increase of $15.6 million, or 514% year-over-year. Overall, we benefited from an attractive sales flywheel that reflects improvement in our marketing and go-to-market efficiency and the product investments we've made to modernize the client experience with solutions like library, dossier, and hyperintelligence, as well as further investments in enterprise capabilities like Workstation and our open APIs. We saw a positive impact on our enterprise analytics software business from our Bitcoin acquisition strategy, which has elevated the overall profile of MicroStrategy and further reinforced our position as a modern forward-leaning company. We are in the early stages of this cycle and are hopeful it will be a sustained benefit for our software business in future periods. Our first quarter results represented the strongest operational performance we've delivered in years. We delivered impressive results across all dimensions of the software business, whether it was products growth, subscription billings growth, consulting revenue growth, renewal rates, non-gap operating margin, or cash flow. Employee engagement and retention rates also are at their best in years. Our focus is to continue building on the momentum that we recognize that our software business regularly experiences some quarter to quarter variability. Looking at our performance in more detail, we had a healthy mix of new customer wins, upsells to existing customers, and conversions of on-premise deployments to cloud during the quarter. Moving more aggressively towards a digital transformation and leveraging cloud technologies for business intelligence are growing areas of focus and IT investment for certain customers. At the same time, we benefited from improved demand from on-premise customers, which drove our recent product license revenues performance. There's a sizable segment of customers who are not in a position to move to the cloud or years away from adoption who need modern open enterprise BI solutions to improve their business performance. While we expect to see our mix of business continue to shift towards the cloud, we believe our ability to add value for customers regardless of how they want to deploy MicroStrategy is a positive. An exciting area for us is our embedded OEM business. This is one of our key focus areas and we are seeing growing interest from existing OEM customers as well as new customers looking to leverage the performance and scale of the MicroStrategy platform in their own products. We believe this is a significant growth opportunity for us as software application providers need best-in-class analytics capabilities built natively into their solutions. We're investing resources in this area and are excited about the opportunities ahead of us. Hyperintelligence continues to be an important entree into new customers and is an important indication to customers of our new product innovation. Hyper.Now is our SaaS version of Hyperintelligence and it has seen increased adoption as well as serving as the foundation of our future enterprise BI SaaS offering. What we believe makes our top-line performance even more impressive is the efficiency with which we are generating this growth. As noted earlier, product license revenues grew 16% since Q1 2019, and subscription revenues have grown 40% over that time, which we have done while reducing sales and marketing expenses by $10.6 million, or 22% during that same period. We're very pleased by the continued improvements we're making to our virtual demand generation and customer engagement efforts. Now that we've had success in moving to a fully virtualized go-to-market operation, we're able to seek increasingly creative and proactive approaches in how we leverage the improved flexibility, greater reach and broader market coverage this model allows. MicroStrategy World, which we held virtually in early February, was a tremendous success. The number of attendees was up nearly 5X to over 12,000, and we were able to deliver 175 hours of live and prerecorded content over the course of a couple of days. One of the greatest benefits of a virtual event is that customers and prospects are not tied to specific times to engage with their content. Many have continued watching videos from the conference after the formal event was completed. Some of the key product enhancements we unveiled during World include HyperNow, HyperSDK, HyperVision, the MicroStrategy application, new gateways and drivers, and even faster enterprise-grade performance. Our ability to generate faster and more iterative product development cycles is allowing us to deliver greater value more quickly than ever before. Our customers are giving us great feedback on our recent innovations, which is an important part of our growth strategy. The most highly anticipated and well-attended session at MicroStrategy World was our Bitcoin for Corporations Trek, which had more than 8,000 attendees and more than 1 million aggregate video views of our content online. As part of this track, we unveiled the Bitcoin for Corporations Playbook, where we compile key lessons we've learned as the world's largest public company holder of Bitcoin for any corporation interested in adding Bitcoin to their balance sheet. We believe it is important for us to share what we've learned in the past year so that it becomes easier for organizations that want to benefit from a digital asset strategy. We continue to have success with our Bitcoin acquisition strategy in the first quarter. An important part of that strategy is acquiring capital we can deploy. To that end, during the first quarter, we completed a second convertible notes offering, this time selling $1.05 billion in aggregate principal amount of notes at even better terms than our first convertible notes offering with a 0% coupon and 50% conversion premium. With this new capital, we acquired an additional 19,452 Bitcoins for $1.026 billion, or approximately $52,765 per Bitcoin. Overall, in the first quarter, we purchased 20,857 Bitcoins for $1.086 billion, or $52,087 per Bitcoin, and ended the quarter holding 91,326 Bitcoins in an average price of $24,214. Bitcoin price more than doubled during the first quarter. We estimate the current market value of our Bitcoin holdings now exceeds $5 billion, including $3.1 billion of unrealized gains. We'll continue to deploy additional capital into our Bitcoin acquisition strategy. Before going into a detailed review of our financial performance, let me finish by saying how pleased we are by our performance against our key priorities. Operationally, we're realizing the benefits of the investments into the enterprise analytics software business, which is leading to both improved revenue growth, increased customer satisfaction, and increased profitability. At the same time, our Bitcoin acquisition strategy has generated substantial value for shareholders and elevated micro strategy to a global leader in the Bitcoin market. These successes have allowed us to reinvest in our employees, leading to the best employee retention, satisfaction, engagement in years, which we were very proud of. We believe our two corporate strategies are proving to be complementary. The increase of visibility and thought leadership from our Bitcoin acquisition strategy is driving an increase in inbound software leads. We believe we are in the early stages of these trends and that there continues to be meaningful opportunities for further improvement in each strategic area. Turning to our first quarter 2021 financial results in more detail, gap revenues for the quarter were $122.9 million, up 10% year over year, and up 7% from the first quarter of 2019. Product license revenues were $21.3 million in the first quarter of 2021, up 69% year over year, and up 16% from the first quarter of 2019. Subscription services revenue in the first quarter of 2021 were $10 million, an increase of 26% year over year. The growth in subscription services revenues reflects the growing portion of our product bookings that are related to our managed cloud platform. Our current subscription billings were $9.5 million, an increase of 19% from the first quarter of 2020. We're pleased with the performance of our cloud business in the quarter. Product support revenues were $70.6 million in the first quarter of 2021, a 1% decrease year over year. The year-over-year decrease was primarily the result of customer conversions to subscription or term licenses. Our renewal rates remain strong this quarter. We're executing our strategy to actively migrate customers to annual term licenses. As we continue to execute on this strategy, product support revenues will continue to move to subscription revenues if customers transition to the cloud, or to product license revenues if the customer converts from an on-premise perpetual to on-premise term license. Finally, other services revenue of $20.9 million in the first quarter of 2021, which largely reflects our consulting services, increased 6% year over year. Despite the necessity of providing remote delivery of our services to customers due to the pandemic, we're very pleased with the results of our consulting business. Total deferred revenue on March 31st, 2021 was $213.5 million. This is up 13% year over year, primarily due to a 104% increase in deferred subscription services and a 5% increase in deferred product support revenues. Foreign currency translations positively impacted deferred revenue by 2%, particularly in support revenue. As we see more existing customers convert to our managed cloud platform, there's a shift from deferred product support revenues to deferred subscription services revenues. Total gap expenses were $306.1 million in the first quarter of 2021, which includes a digital asset impairment charge of $194.1 million. Currently, our Bitcoin holdings are considered indefinite lived intangible assets under applicable accounting rules, meaning that any decrease in their fair value below our book value for such assets at any time subsequent to their acquisition requires us to recognize impairment charges. Total non-GAAP expenses were $104.2 million in the first quarter of 2021, a 4% decrease year over year. The year-over-year cost decrease is driven by efficiencies in staffing, reductions in corporate travel, and a reduction in the number of in-person events such as MicroStrategy World. Total gap operating loss is $183.2 million in the first quarter of 2021, inclusive of an impairment related to Bitcoin of $194.1 million, and stock-based compensation expense of $7.7 million. Total non-GAAP operating income was $18.7 million in the first quarter of 2021, a $15.6 million increase year over year. We're pleased with our non-GAAP operating income. We continue to expect non-GAAP operating income of $70 to $90 million for the full year of 2021. Turning to the balance sheet, we ended the quarter with $82.5 million in cash. We issued $1.05 billion in aggregate principal amount of convertible notes bearing an interest rate of 0% and a conversion premium of 50% or an initial conversion price of $1,432.46. The net proceeds from the sale of the notes were approximately $1.03 billion after deducting the initial purchasers discounts and commissions and customary offering expenses. In accordance with the company's corporate strategy of acquiring Bitcoin, we use the net proceeds from the sale of the notes to purchase Bitcoin. The carrying value of our Bitcoin holdings as of March 31st, 2021 was $1.9 billion, which reflects a $264.8 million cumulative impairment charge that also is reflected as a loss on our GAAP income statement in the period incurred. We exclude the quarterly impact of Bitcoin impairment charges from our non-GAAP operating income and non-GAAP diluted EPS calculations. As mentioned previously, we estimate the current market value of our Bitcoin holdings now exceeds $5 billion, reflecting $3.1 billion of unrealized gains when compared to the carrying value of our Bitcoin in March 31st, 2021. We continue to actively manage our balance sheet and pursue our corporate strategy of acquiring a hold in Bitcoin. On April 5th, 2021, we announced the purchase of an additional 253 Bitcoins for $15.0 million, an average price of approximately $59,339 per Bitcoin, inclusive of fees and expenses. On April 12, 2021, we announced that going forward, our non-employee directors will receive all fees for their services on the company's board in Bitcoin instead of cash. In approving Bitcoin as a form of compensation for board service, the board cited its commitment to Bitcoin given its ability to serve as a store of value, supported by a robust and public open source architecture, untethered to sovereign monetary policy. Going forward, you should expect that we'll purchase additional Bitcoin when our cash, cash equivalents, and short-term investments exceed current working capital requirements. And we may, from time to time, subject to market conditions, issue debt or equity securities and capital raising transactions with the objective of using the proceeds to purchase Bitcoin. We view our Bitcoin holdings as long-term holdings, and we do not plan to engage in regular trading of Bitcoin and have not hedged or otherwise entered into derivative contracts with respect to our Bitcoin holdings, though we may sell Bitcoin in future periods as needed to generate cash for treasury management and other general corporate purposes. We're making significant progress on our two corporate strategies of growing our enterprise software analytics business. and acquiring and holding Bitcoin. The continued investment in our technology, our people, and our processes have laid the foundation for us to execute on these strategies. We're encouraged by our recent performance over the last three quarters in spite of the COVID-19 pandemic, and given that the fact that we are still in the early stages of our cloud transition and our Bitcoin acquisition strategy. We're looking forward to continued progress in 2021. I'll now turn the call over to Michael to discuss observations from MicroStrategy World, our Bitcoin acquisition strategy, and provide additional feedback on our outlook for 2021.