Strategy Inc

Hello, everyone, and good afternoon. I am Shri Jajodhya, Vice President of Investor Relations and Treasury at MicroStrategy. I'll be your moderator for MicroStrategy's 2024 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 the risk factors discussed in our most recent 10k file 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-gap 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 at 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, Fong, 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'll walk you through the agenda for today's call. First, Fong Lee will cover the business results and the key pillars of our strategy. Second, Andrew Kang will cover the financial results for the first quarter of 2024. then michael saylor will provide a strategic review and discuss our recent bitcoin market updates and lastly we will open up to q a with that i will turn the call over to fondly president and ceo of microstrategy thanks sharish hello everyone i'd like to welcome all of you to today's webinar

We're excited to be reporting live from MicroStrategy World 2024 in Las Vegas, Nevada, with a packed agenda lined up for the next three days. And we're excited to see our customers, partners, analysts, shareholders and employees all in person to share our passion for BI, AI, Bitcoin and innovation. The business intelligence track tomorrow will feature my keynote presentation titled Let the Data Lifeblood Flow. and we'll explore how to create more innovative, competitive, high-performing organizations by using AI and BI to make smart data more accessible to the frontline employees. Our Chief Product Officer, Saurabh Abhyankar, will share the latest MicroStrategy technologies for delivering convenient, flexible, and reliable data within operational workflows, not just in dashboards, to everyone who needs it. The keynote presentation will feature guest speakers from Microsoft, Amazon Web Services, Bayer Pharmaceuticals, the U.S. Department of State, and Vuori. Throughout MicroStrategy World, more than 30 top brands, including MassMutual, Pfizer, Fannie Mae, Victoria's Secret, and NBC Universal, will present how they use the MicroStrategy platform, GenAI, and the cloud to become truly data-driven businesses. The Bitcoin for corporations track on Wednesday and Thursday will feature notable institutions and industry luminaries, highlighting the advantages of integrating Bitcoin as a part of their corporate treasury and product offerings. It will be a unique gathering of corporations that are already adopting or looking to adopt Bitcoin strategies, and we are very excited to host this event. Also, for the first time, we will live stream our world keynote as well as all the Bitcoin for corporations sessions. For those of you attending the conference here in Las Vegas, we look forward to seeing you in person. Turning to the business highlights for Q1 2024, MicroStrategy remains the largest corporate holder of Bitcoin in the world, now holding 214,400 Bitcoin with a total Bitcoin market value of $14 billion as of yesterday. Since December 31, 2023, we acquired an additional 25,250 Bitcoin for a total purchase cost of $1.6 billion, an average price of $65,232. This past quarter, the price of Bitcoin appreciated significantly, spurred notably by the approval of the Spot Bitcoin Exchange Traded Products, or ETPs, which has drawn considerable institutional attention. We believe the introduction of spot Bitcoin ETPs further evidences the maturation of Bitcoin as an institutional grade asset class with broader regulatory recognition and institutional adoption. We remain highly committed to our Bitcoin strategy with a long term focus. Andrew will provide further details on our Bitcoin purchase activity for this quarter. MicroStrategy is also positioned as the world's largest independent publicly traded business intelligence company. Our objective is to grow in AI and cloud powered BI software. We have over 1,800 employees focused on our software business devoted to achieving our vision of intelligence everywhere. In the first quarter of 2024, we continue to shift towards we continued our shift towards our cloud offering resulting in subscription services revenues of 23 million dollars an increase of 22 year-over-year a strong growth in our subscription services revenue was driven by both existing customer migrations to the cloud and new customer wins our customer renewal rate continues to remain high and our subscription billings remain strong overall we continue to see further global adoption of our cloud platform as a result of transitioning our business strategy and product offerings from an on-prem perpetual licensed software company to a cloud native organization our key strategic goals in 2024 are to grow cloud innovate with ai and increase profitability customers can benefit from a range of innovative first to market ai powered functionality powered by the Azure OpenAI LLM. Capabilities include AutoSQL, which allows users to generate SQL using natural language, AutoDashboard, which allows natural language generation of new visualizations, AutoAnswers, which allows customers to ask questions of their data sets and dashboards. AutoExpert, which allows users to ask questions of our MicroStrategy knowledge base and log support tickets on our website. And our custom AutoBot, which enables end users to access BI insights from within a custom bot, standalone, or embedded in any application. We also just launched Auto Express, which offers a simple way to trial our AI capabilities in minutes. In April, MicroStrategy One became available on Google Cloud Marketplace, in addition to prior deployments on Azure and AWS, allowing enterprises to easily find and deploy this cloud native platform. Additionally, we expect to provide the ability to deploy MicroStrategy in a private cloud later this year. This will distinguish us from other BI platforms with the flexibility and automation that enterprise customers desire. We believe such investment and capability will encourage current on-prem customers to embrace the benefits of MicroStrategy. Clouds such as containerized architecture, proactive cloud management from experts, seamless backups, and single-click updates. Transitioning our customer base to the technology of the future remains a key focus, and our resource deployment underscores our commitment to the cloud-first approach. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to see a continued decrease in product license revenues, which will in part be offset by increases in subscription services revenues. This will be most pronounced in the balance of 2024. This may result in a decrease in total recognized revenue in the short term. But in the long run, we expect it to be more than offset by increases in subscription services revenue. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately more recurring revenues. As we discussed last quarter, MicroStrategy considers itself to be the world's first Bitcoin development company. We are a publicly traded operating company committed to the continued development of the Bitcoin network through our activities in the financial markets, advocacy, and technology innovation. As an operating business, we are able to use cash flows as well as proceeds from equity and debt financing to accumulate Bitcoin, which serves as our primary treasury reserve asset. We also bring our enterprise analytics software development capabilities to develop Bitcoin applications. We believe that the combination of our operating structure, Bitcoin strategy and focus on technology innovation provides a unique opportunity for value creation. Being an operating company, our software technology business remains our core revenue and cash flow generator. In addition, it also enables us to acquire Bitcoin through the use of excess cash or proceeds from equity capital raises or corporate debt capital raises. These capital market levers allow us to deploy intelligent leverage to increase our Bitcoin holdings in a manner which we believe has created shareholder value. Since our adoption of our Bitcoin strategy, we've used three primary mechanisms to acquire more Bitcoin. Cash flows from software operations. Since 2020, we've invested $825 million of total cash on our balance sheet. Equity issuances. We've issued $3.2 billion in equity in a manner that we believe to be accretive to existing shareholders. And debt financing. We've issued $3.6 billion in debt through the issuance of both senior secured notes and convertible notes. We've used the proceeds from these issuances principally to purchase Bitcoin. The blended cost of our outstanding debt is fixed at 1.3% annually. In the first quarter of 2024, we generated approximately $7.2 billion of incremental value from the effect of increases in the price of Bitcoin on our existing Bitcoin holdings, as well as our strategic use of equity and debt capital market activities. We began the year with 189,150 Bitcoin holdings with a market value of approximately $8 billion. As Bitcoin prices increased from $42,500 to $71,000 by the end of the first quarter, we experienced an increase of $5.4 billion in value based on our Bitcoin holdings at the start of the year. In addition to the incremental value from the price appreciation of the Bitcoin we held as of the beginning of the year, we purchased an additional $1.6 billion of Bitcoin in the first quarter, using proceeds from the issuance of additional equity and two convertible senior note offerings, as well as excess cash from operations. As a result, we added an additional 25,128 Bitcoin to our holdings, an average price of roughly $65,200, which generated an incremental approximately $145 million of value from the increase in the price of Bitcoin after those purchases were made through the end of the first quarter. Overall, 2024 started off as a tremendously successful year, taking into account our Bitcoin purchases and appreciation of our Bitcoin holdings year to date. While the overall market benefited from the increase in Bitcoin prices well, we believe our opportunistic use of leverage and excess cash to acquire Bitcoin, as well as our capital market strategy, generated $1.8 billion of incremental shareholder value. demonstrating our track record of generating value for our shareholders. This slide shows an illustrative example of how intelligent leverage can be used to boost returns when Bitcoin prices are increasing. The baseline returns of any long Bitcoin strategy from spot Bitcoin price appreciation. Bitcoin ETPs also benefit from this, offset by the management fees that are charged for those products. Leverage provides the opportunity to generate higher returns if the price increases. In this illustration, assuming Bitcoin price reaches $250,000, keeping Bitcoin count constant, spot Bitcoin without leverage would return approximately 290%. In this example, adding leverage to acquire more Bitcoin would return between approximately 395% to 425%, depending on the amount of leverage, further boosting returns compared to simply holding spot Bitcoin. If the market value of our Bitcoin increases, we believe this would create more opportunities to manage our leverage targets. With the opportunity to take on more leverage in a prudent risk managed fashion, the value generated from our increasing Bitcoin holdings would be expected to outperform even further if Bitcoin prices continue to rise. We believe our unique value proposition as the world's first Bitcoin development company has enabled us to generate tremendous value for our shareholders. I'll now turn the call over to Andrew to discuss our financials for the quarter in further detail.

Thank you, Phuong. I'll start with first a recap of our software financial results. For the first quarter, total revenues were $115.2 million, which was down about 5% year over year. Consistent with prior recent quarters, the slight decline remains in part due to our ongoing shift of revenue from on-prem to cloud. Q1 on-prem product license revenues, which make up about 11% of total revenue, were about $12.9 million, which was down 26% year over year. As I mentioned in prior calls, we continue to transition our business to the cloud, and we fully anticipate lower product license revenues to continue as we migrate existing customers off on-prem licenses and bring them on to the cloud. More importantly, as Phuong mentioned earlier, we continue to grow subscription services revenues, which reflects stronger, more durable recurring software revenue. In Q1, subscription services revenues, which now make up about 20% of total revenues, were $23 million, which reflects an increase of 22% year over year. Non-GAAP subscription billings, which represent new cloud bookings in the quarter, also grew by 30% in the first quarter to $17.7 million, which is our fourth straight year of quarterly double-digit growth in cloud bookings. Q4 last year was an important milestone for us in the progress toward cloud transition, where for the first time, our subscription services revenues were higher than our product license revenues. This successful trend continued in the first quarter of 2024 which reflects the ongoing progress towards converting our revenue to recurring subscription services. The mix of revenue will continue to shift from on-premise product license to subscription services throughout 2024 as we focus on delivering meaningful AI-based products to our customers, which is only available in the cloud. We are pleased with the progress we have made from the adoption from our customers to our cloud platform worldwide And we still have more to do, and we'll continue to focus on new products and innovation to drive more demand in that space. Beginning with the first quarter of 2024, we modified our reported financials to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related distinctly to our enterprise BI software business. And the corporate and other category reflects the other non-software related components associated with our digital asset holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, which is engaged in design, development, and sales of our software platform through licensing arrangements, cloud subscriptions, and related services, We believe this breakout of our operating results into these two categories provides better transparency with respect to the performance of our software business while isolating the impacts related to changes in Bitcoin prices. In Q1, the software business revenues were $115 million, as mentioned a moment ago, while the cost of revenues were $30 million, up 7.4% compared to Q1 of last year. The increase in costs were in part due to higher cloud hosting, a result of higher usage by new and existing cloud subscription services customers. It was also attributed to costs associated with standing up an enhanced customer success function with an added focus on transitioning customers to our cloud platform in addition to servicing and managing our strong existing customer base. Software business operating expenses were $96.1 million, up 1.7% compared to $94.5 million in Q1 of last year. The increase was primarily due to higher G&A expenses this quarter, which was specifically related to an increase in employer paid payroll taxes in connection with employee stock option exercises in the first quarter. However, overall operating expenses were also offset by lower costs in sales, marketing, and R&D, also consistent with recent quarters as we maintain strong discipline in expenses and we continue to optimize overall headcount. Non-cash stock-based compensation expense was mostly flat year over year at $17.8 million for the quarter. And overall non-GAAP adjusted operating income or profit from the software business category was $6.9 million. If you take into account the employer paid payroll taxes related to stock option exercises in Q1, which were not material in prior periods, non-GAAP adjusted operating income from the core software business would have reflected $14.3 million for the first quarter, more appropriately reflecting the quarter's profitability from our software business. Lastly, the corporate and other operating expense category for the quarter is almost entirely attributable to Bitcoin impairment charges, which are $192 million, compared to $20 million in Q1 of last year, the result of Bitcoin price fluctuations throughout this past quarter. Turning to our Bitcoin strategy more specifically, we had one of the most successful quarters of adding more Bitcoin to our balance sheet, as we acquired 25,128 Bitcoins in the first quarter, our second largest single quarter increase in Bitcoin holdings since Q4 2020. Additionally, after the end of the first quarter, we purchased an additional 122 Bitcoins using $8 million of excess cash. And as of April 26, 2024, the company held a total of 214,400 Bitcoins acquired for an aggregate cost of $7.54 billion, or $35,180 per Bitcoin. To break down the Bitcoin acquisition activity year-to-date by entities, Bitcoin acquired through proceeds from equity capital markets activities that occurred after the issuance of our senior secured notes are held at MacroStrategy, a wholly owned subsidiary of MicroStrategy. Year-to-date, we have added 2,652 Bitcoins to MacroStrategy's holdings at an aggregate purchase price of $137 million using net proceeds from our at-the-market or ATM equity issuance programs in February. Currently, we hold 175,721 unencumbered Bitcoins representing 82% of our total holdings or $11.2 billion in current market value, which are held at macro strategy. These are all unrestricted and provide the option to potentially leverage this strategic asset in the future. Bitcoins acquired through proceeds from debt activities that occurred after the issuance of our senior secured notes, namely the two recent convertible note issuances in Q1, are held at MicroStrategy, the parent, and also serve as collateral securing our 2028 senior secured notes. Year to date, we have added 20,180 Bitcoins to MicroStrategy's holdings at an aggregate purchase price of $1.4 billion using net proceeds from our two convertible note issuances in March. Lastly, Bitcoins purchased through excess cash from the software business are also held at MicroStrategy, the parent entity, and also collateralize our 2028 senior secured notes. Year to date, we have added 2,418 Bitcoins to MicroStrategy's holdings at an aggregate purchase price of $136 million using proceeds from excess cash. As of April 26th, there are in total 38,679 Bitcoins held at MicroStrategy or $2.4 billion in current market value. Our commitment to our Bitcoin strategy remains unchanged and steadfast, and we plan to strategically and opportunistically buy more Bitcoin as we have in every quarter since August of 2020, using excess cash from operations and proceeds from any capital markets activities. MicroStrategy remains the largest corporate holder of Bitcoin in the world, and we remain committed to our Bitcoin acquisition strategy with the utmost conviction, long term focus, and with a strong risk managed approach. As a Bitcoin development company, the unique ability to access the capital markets and the positive impact from using intelligent leverage are illustrated on this slide. During the first quarter of 2024, our total Bitcoin holdings increased by 13.3%. During the same period, our total basic share count, comprised of total basic Class A shares outstanding and total basic Class B shares outstanding, increased by only 4.6%. This is in part due to the deferred dilution impact of leveraging convertible debt and our opportunistic execution of these financings, which has resulted in tremendous value creation for our shareholders. The difference between our Bitcoin accretion and the share dilution is representative of the yield we are able to generate for our shareholders as a Bitcoin development company. Hypothetically, assuming all outstanding convertible notes are fully converted at their respective conversion prices, all outstanding options are fully exercised and all restricted stock units and performance stock units fully vest, the fully diluted share count would have increased by only 4.8% during the first quarter. Thus, the increase in our Bitcoin holdings has outpaced the increase in our total share counts in Q1. Turning to slide 15, Bitcoin has significantly outperformed most other asset classes year to date. Now, as of March 31st, 2024, the aggregate cost of our Bitcoin purchases were $7.5 billion versus the carrying value of our Bitcoin holdings of $5.1 billion. This is compared to the market value of our holdings of $15.2 billion based on the Bitcoin price as of the last day of the quarter. Currently, the market value of our Bitcoin holdings is significantly above our average cost basis, which is equal to an average purchase price of approximately $35,200. The new accounting rule that was approved by the FASB last December requires companies holding digital assets, including Bitcoin, to adopt fair value accounting treatment by Q1 of 2025. We fully plan to adopt the change by when the rule takes effect, and we are determining when the most appropriate time to do so would be. Now turning to our capital markets activities. Since the inception of our Bitcoin strategy, we have issued $3.6 billion of corporate debt through senior secured notes and convertible notes with a very attractive blended interest rate of approximately 1.3%. with staggered maturities over several years through March 2031. Leverage remains a key component of our active capital allocation strategy, which when opportunistically deployed, enables us to add more Bitcoin holdings at an attractive cost. Our two recent convertible note financings were both upsized and well received by the market. we issued $800 million of convertible notes due March 2030 at an annual interest rate of 0.625% and a conversion premium of 42.5% to the closing price of our Class A common stock on the pricing day, reflecting a conversion price of approximately $1,498 per share. The following week, given the strong rally in MSTR stock price, We were able to access the market again in a follow-on offering and issued an additional $603.75 million of convertible notes due March 2031 at an annual interest rate of 0.875%, a conversion premium of 40% to the volume-weighted average price of our Class A common stock on the pricing date, and a conversion price of approximately $2,327 per share. The net proceeds from both convertible note issuances were used expeditiously to acquire additional Bitcoin. In addition to raising debt, we continue to demonstrate a solid track record of issuing permanent equity in a manner that we believe is accretive to shareholders. Since the third quarter of 2021, we have raised a total of $3.2 billion in proceeds, through our ATM offerings with an average price of approximately $464 per share across total equity raised. As we have done in the past, we will continue to actively monitor the capital markets and carefully evaluate the most secretive use of the capital markets to drive incremental value for our shareholders. Debt financing helps us maintain healthy leverage relative to the market value of our Bitcoin holdings and raising equity helps us to deleverage our balance sheet when needed. The primary use of proceeds from our debt and equity capital activities to date have been to acquire additional Bitcoin, which we have done in a manner we believe to be extremely accretive. Our overall capital allocation strategy continues to be focused on increasing our total Bitcoin holdings while managing our debt very closely and prudently. Lastly, as of the end of the first quarter, we grew unrestricted cash and cash equivalents on our balance sheet to $81.3 million. And we continue to maintain more than sufficient overall liquidity to manage our ongoing operating needs. The next slide illustrates our debt maturity profile. And as you can see, the nearest maturity is more than six quarters away and not until late 2025. While the 2025 convertible notes have been trading well in the market, as we have said previously, we continue to monitor the markets and evaluate liability management opportunities in order to manage our debt, as well as opportunities to raise additional financing in the future. The management team has demonstrated a strong track record of disciplined approach to navigate through volatile times in the Bitcoin market. And we believe we have established significant credibility to execute on our strategic goal of generating value for our shareholders. As Fong said earlier, we believe that the combination of our operating structure, Bitcoin strategy and focus on technology innovation provides a unique value proposition for shareholder value creation when compared to other forms of exposure to Bitcoin. Thank you for your time today and for your continued support of MicroStrategy. I'll now turn the call over to Michael for his remarks.