Strategy Inc

I'm Sri Chajalkita, Vice President of Investor Relations and Treasury at MicroStrategy. I will be your moderator for MicroStrategy's 2023 Third Quarter Earnings Seminar. Before you 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 the risk factors discussed in our most recent NQ 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, reconciliations showing GAAP versus non-GAAP results are available in our earnings release and presentation, which were issued today and are available on our website, 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, Phuong, or Andrew will answer questions at the end of the session. Please be sure to provide your name and your company's name when submitting your questions. Now, I will walk you through the agenda for today's call. First, Fong Lee will cover the business results for the third quarter of 2023. Second, Andrew Kang will cover the financial results for the third quarter of 2023. Then, Michael Saylor will provide a strategic review and discuss recent Bitcoin market updates. And lastly, we will open up to Q&A. With that, I will turn the call over to Fong Lee, President and CEO at MicroStrategy. Fong?

Thank you, Suresh. Hello, everyone. I'd like to welcome all of you to today's earnings webinar. I'll start with highlights of our software business. Total revenue was $129.5 million, representing an increase of 3% year-over-year. Total software licenses revenues, which consist of total product licenses and subscription services revenues, in a consolidated statement of operations, were $45 million, representing an increase of 16% year-over-year. Total software licenses revenues performance benefited from both increased adoption of our cloud platform and growth in product license revenues. Total subscription services revenue was $21 million, an increase of 28% year-over-year. Our Q3 subscription billings growth was 17% year-over-year. We achieved good revenue results in Q3, with year-over-year growth driven by our cloud business and a strong international license revenue quarter. We plan to continue to drive growth in our recurring revenue model and to transition our business strategy and product offerings to a cloud-native model. Our focus will be on innovation at the intersection of artificial intelligence and business intelligence, using our first-to-market advantage in the enterprise-scale integration of AI and BI to grow revenue in the cloud. I'm excited about the work we're doing in these areas and to share some updates with you in our progress. We're at a major period of innovation in the technology industry. We believe the next innovations to change how the world does business are digital money with a continuing development of the Bitcoin ecosystem and digital intelligence through AI. The technological leaps that have occurred in the past year in generative AI are real, and we expect to be at the forefront of integrating AI with BI. MicroStrategy is well positioned to gain competitive leverage and win in both of these areas of growth. MicroStrategy's mission for the past 30 plus years has been to enable intelligence everywhere for our customers. And with this mission ingrained in our corporate DNA through each major tech innovation, we have moved closer to accomplishing this goal. Whether this was OLAP technologies on relational databases, implementing client-based desktop BI tools, introducing the semantic layer, rolling out web BI, or making the shift to mobile and then cloud, each step has successfully enabled to making BI a more ubiquitous component of business decision-making. We believe generative AI is the next big innovation that will bring us closer to intelligence everywhere. Before diving into the integration of Gen AI in our platform, it's important to distinguish why MicroStrategy is poised to drive value in the AI space beyond the generic applications and hype built up in the broader market. Hyperscalers and mega software companies are investing billions amassing GPUs and legions of data scientists to build the best large language models or LLMs in the world. much like we have done with cloud hyperscalers who plan to openly partner with and leverage the technology investments of these companies rather than invest heavily to build our own models. Hundreds of smaller AI companies are taking a similar approach to us, but we're already differentiating as we have done for decades in BI across four major areas. Number one, our 30 years of enterprise software services and sales capabilities Number two, our trusted, secure, scalable, reusable data layer, what we call our semantic layer. Number three, the ability to quickly build and deploy actual applications utilizing this data through technologies like mobile, embedding, and microservices. And number four, an open multi-cloud architecture, which in this case we will use to easily integrate multiple different LLMs. We believe this uniquely positions us to win at the intersection of artificial intelligence and business intelligence. In addition, we believe the combination of AI and BI to be critical for enterprises looking to integrate AI into their day-to-day decision-making. Let me explain. BI is precise. You use trusted calculations from secured sources of structured data to make informed decisions. But on the other hand, BI can be rigid and difficult to engage with all levels of personas and business users. AI is smart, leveraging natural language generation, reasoning, and unstructured data to answer free-form questions and ideas. However, results can be untrustworthy in producing determinate answers that are reliable and consistent enough to make informed business decisions. This is where MicroStrategy One delivers value, bridging precise BI and smart AI. Right now, many enterprise AI solutions are focused on efficiency and cost gains, building applications to help marketers write better, corporate teams process more efficiently, and engineers code faster. There's even more value to be unlocked when AI helps analysts make better business decisions to drive top-line growth and achieve true strategic advantage. This can be done with generative AI on top of enterprise data. But in doing so, combining AI and BI, the challenges with scale, governance, and trust with AI are amplified, and security and access control are paramount. We expect to see increased customer demand as our platform tackles the primary hurdles customers face with AI adoption. The main customer concerns of Enterprise AI are one, data access and security, two, integration of large language models, natural language processing, and prompt engineering solutions, and three, the ability to distribute AI solutions at scale. Typical AI and BI combinations that do not have a semantic layer have unreliable intelligence. The BI tool acts as a simple repository that provides data to the generative AI engine. There's no intelligence in the LLM results, producing false or inaccurate responses commonly referred to as hallucinations. MicroStrategy One and MicroStrategy AI leverage the semantic layer to define all data objects within a customer configuration. Our BI architecture provides a framework and structure to the AI solution. The AI and MicroStrategy engines collaborate to generate higher quality queries by enhancing and tagging user prompts to pull more tailored results from customer data. MicroStrategy AI is designed to generate answers that are secure, accurate, scalable, and reliable. In September, we introduced our first set of MicroStrategy AI features to the market, which leverages our advanced BI system, fully embedding Microsoft Azure OpenAI. This release marks one of the most exciting product innovations in the history of the company. These new AI features are cloud native and only available through MicroStrategy One. We've implemented four features to address the needs of different business users. One, AutoSQL streamlines the database interaction process. This feature is intended to enhance the technical user experience of MicroStrategy. Our AI application can translate natural language into SQL queries, explain SQL statements in natural language, and review SQL code with suggested optimizations. Two, Auto Dashboard provides automatic dashboard creation, transforming complex data into interactive and beautiful visual insights. MicroStrategy AI processes the data and can produce a beautiful and viable dashboard. AutoExpert is the automated support tool. It's like having a MicroStrategy employee guide you through the BI platform to answer user-based questions, such as, how do I build an advanced metric? AutoExpert is available for free to all registered users on our website. And AutoAnswers, my personal favorite, transforms self-service analytics. The user engages in natural language conversation, asking the AI-assisted questions related to their data. For example, what is the forecasted revenue for Q1 2025? What are drivers of revenue growth? MicroStrategy AI processes the request with contextualized data to rapidly provide answers with a deep level of understanding, vastly increasing the data exploration capabilities of a basic user. MicroStrategy AI is the first to market with a fully integrated AI BI platform. and delivers BI features that enable enterprise-grade AI deployment, which shortens our customers' time to value and enhances the ability to optimize and automate. Furthermore, cloud-native solution drives net new business to the cloud, while incentivizing current customers to migrate and expand their footprint. And it's offering us also our first entry into consumption-based pricing. Customers will consume the AI product question by question. Our initial starter package is $20,000 to 20,000 questions, or simply a dollar a question. We expect this pricing mechanism to drive adoption and grow the subscription revenue stream while providing a relatively low cost of entry for customers to onboard next generation AI applications. We're already seeing this product driving existing on-premise customers to move to the cloud or set up a new environment in the cloud to adopt MicroStrategy AI. Our vision for intelligence everywhere continues to inform our roadmap. We believe that AI BI best empowers customers when it is modular and can be embedded into existing workflows. We also believe that the data that feeds AI BI, the platforms in which it runs, and the LLM and machine learning models used must be flexible and open to fit our customers' needs. Therefore, our roadmap includes the ability to build analytic bots on the platform of the customer's choice, AWS, Azure, Google Cloud, or private cloud, and leverage a variety of LLMs of the customer's choice. The build-your-own-bot tool on the MicroStrategy platform harnesses advanced capabilities in enterprise security, such as governance, integration with third-party tools, and system auditability to allow customers to easily deploy chatbots for broad-use, untrusted data. This feature is standalone and customizable for deployment by any user, and the use cases are myriad. For example, internal users can deploy an FP&A chatbot to answer questions related to budget, or users can develop a product Q&A chatbot for customers on their website. We currently expect the build-your-own-bot capability to be available in December of this year. We're excited about our initial AI offering to the market and for the future as we continue to tap into the potential of AI BI solutions in our product roadmap. Now, moving to developments on our cloud offering, we continue to build modern, scalable, resilient, and cloud native applications that can transition customers from monolithic BI configurations to a microservices architecture that embraces flexibility, agility, and technological diversity. Microservices architecture and containerized structure enable applications to be deployed and scaled independently. These design features are necessary to meet the technological demands of AI and to maintain the highest level of platform functionality. MicroStrategy cloud architecture is designed in the cloud for multi-cloud. In Q4, we plan to deploy our Google Cloud implementation, increasing our functionality to all three primary hyperscalers and further driving integration of AI and BI to every part of a customer's business. This is a fully containerized microservices-based solution, which is the base modern cloud architecture for our MicroStrategy platform. MicroStrategy is now also available on both Azure and AWS marketplaces, firming up our partnership with these hyperscalers. We're also innovating the way we sell our product via partner sales channels with strategic focus aimed to unlock growth, enhance customer success, and deepen market penetration in a rapidly evolving AI and BI market. We've announced recent partnerships with Microsoft Azure, including with OpenAI, AWS, and Snowflake. Key highlights of our expanded partner program include a newly launched streamlined partner portal that centralizes MicroStrategy sales, marketing, and technical assets to facilitate increased partner engagement. expanded training resources to empower partners with the necessary tools to excel, and increased incentives and sales motions to promote synergy between MicroStrategy and its partners' growth objectives. I'm very excited about our product and the direction of the company. Our goal is to be the innovation leader in AI and BI, and BI in the cloud, and we believe we're delivering on this objective. In Q4, we're continuing to work through plans to transform our sales organization to be cloud-focused and capitalize on our innovation and the strength of our cloud platform. We're also creating customer success organization that will be focused on better supporting customers as they attempt to innovate and maximize value for the organization and customers. I look forward to sharing more details on these initiatives and our next earnings call. I'll now turn the call over to Andrew to discuss the updates on our Bitcoin holdings and our financials for the quarter in further detail.