Bitcoin Holdings and Strategy - As of September 30, 2023, MicroStrategy held approximately 158,245 bitcoins, with a market value of $425.2 million based on a price of $27,030.47 per bitcoin[121]. - The total original cost basis of bitcoins held by MicroStrategy was approximately $4.68 billion, with cumulative digital asset impairment losses of $2.23 billion[123]. - In Q3 2023, MicroStrategy purchased bitcoin using $147.3 million from the proceeds of its class A common stock sales and excess cash[125]. - The average purchase price per bitcoin in Q3 2023 was approximately $27,348, with a total of 5,912 bitcoins acquired[123]. - MicroStrategy's bitcoin acquisition strategy aims to accumulate bitcoin as long-term holdings, without a specific target for total bitcoin holdings[119]. - The company believes bitcoin serves as a store of value and a hedge against inflation, enhancing brand awareness through its related activities[120]. - The market value of bitcoins held at the end of Q3 2023, using the ending market price, was approximately $4.28 billion[126]. - The company held approximately 158,400 bitcoins as of October 31, 2023, with an aggregate purchase price of $4.686 billion, averaging $29,586 per bitcoin, while the market price was $34,555.58[133]. - The company held approximately 158,245 bitcoins as of September 30, 2023, with a carrying value of $2.451 billion, reflecting cumulative impairments of $2.230 billion[218]. Financial Performance - Total revenues for Q3 2023 were $129.462 million, a slight increase from $125.360 million in Q3 2022, while total revenues for the nine months ended September 30, 2023, were $371.777 million, compared to $366.710 million in the same period of 2022[146]. - The gross profit for Q3 2023 was $102.801 million, compared to $99.975 million in Q3 2022, indicating a stable gross margin despite rising operating expenses[146]. - Operating expenses for Q3 2023 totaled $128.048 million, significantly higher than $93.917 million in Q3 2022, driven by increased digital asset impairment losses[146]. - Digital asset impairment losses for Q3 2023 were $33.6 million, accounting for 26.2% of operating expenses, compared to $0.7 million (0.8%) in Q3 2022[132]. - Digital asset impairment losses for the nine months ended September 30, 2023, were $76.613 million, a significant decrease from $1.088 billion in the same period of 2022[146]. - The company reported a non-GAAP loss from operations of $(8,441,000) for the three months ended September 30, 2023, compared to a non-GAAP income of $22,957,000 in 2022[210]. - Non-GAAP net loss for Q3 2023 was $127.666 million, compared to a loss of $10.831 million in Q3 2022, while the nine-month period showed a net income of $354.301 million compared to a loss of $1.177 billion in the same period last year[211]. - Non-GAAP diluted loss per share for Q3 2023 was $(8.98), compared to $(0.96) in Q3 2022, with a nine-month figure of $24.59 compared to $(104.19) in the prior year[211]. Revenue Breakdown - Total product licenses and subscription services revenues increased by 16.3% to $45,019,000 for the three months ended September 30, 2023, compared to $38,700,000 in the same period of 2022[153]. - Domestic product licenses revenues decreased by 33.4% to $10,338,000 for the three months ended September 30, 2023, compared to $15,526,000 in the same period of 2022[154]. - International product licenses revenues increased by 102.8% to $13,707,000 for the three months ended September 30, 2023, compared to $6,760,000 in the same period of 2022[156]. - Subscription services revenues increased by 27.8% to $20,974,000 for the three months ended September 30, 2023, compared to $16,414,000 in the same period of 2022[153]. - Product support revenues increased by 1.3% to $66,860,000 for the three months ended September 30, 2023, compared to $66,010,000 in the same period of 2022[159]. - Total consulting revenues decreased by 14.7% to $16,676,000 for the three months ended September 30, 2023, compared to $19,545,000 in the same period of 2022[160]. - Education revenues decreased by $0.9 million for the nine months ended September 30, 2023, compared to the same period in the prior year[161]. - The number of product licenses transactions with recognized revenue of more than $1.0 million increased from 3 to 4 for the three months ended September 30, 2023, compared to the same period in 2022[154]. - The company expects subscription services revenues to continue to grow in future periods as it promotes its cloud offering to new and existing customers[158]. - Product licenses revenues may experience declines in future periods as the company continues to promote its cloud offering[154]. Expenses and Cost Management - Research and development expenses decreased by 2.7% to $29,660,000 for the three months ended September 30, 2023, compared to $30,498,000 in the same period of 2022[167]. - General and administrative expenses increased by 7.1% to $29,223,000 for the three months ended September 30, 2023, compared to $27,283,000 in the same period of 2022[170]. - Sales and marketing expenses increased by 0.6% to $35,606,000 for the three months ended September 30, 2023, compared to $35,409,000 in the same period of 2022[167]. - Share-based compensation expense for Q3 2023 was $16.806 million, relatively stable compared to $16.899 million in Q3 2022, with a projected additional expense of $146.1 million over the next 2.5 years[148]. - The company expects share-based compensation expense to continue as a significant recurring expense over the coming years[209]. Cash Flow and Financing - Net cash provided by operating activities decreased by 46.2% to $11,528,000 for the nine months ended September 30, 2023, compared to $21,409,000 in 2022[191]. - Net cash used in investing activities increased by 196.0% to $(690,550,000) for the nine months ended September 30, 2023, primarily due to a $456.5 million increase in bitcoin purchases[193]. - Net cash provided by financing activities increased by 207.2% to $676,025,000 for the nine months ended September 30, 2023, driven by $819.7 million in net proceeds from the sale of class A common stock[194]. - The company purchased $688.0 million of bitcoin during the nine months ended September 30, 2023, compared to $231.5 million in the same period of 2022[193]. - The company issued and sold 1,348,855 shares of class A common stock under the 2022 Sales Agreement for net proceeds of approximately $339.0 million during the nine months ended September 30, 2023[204]. - The company has initiated an at-the-market equity offering under the August 2023 Sales Agreement, with $602.1 million remaining available for issuance[183]. Tax and Deferred Revenue - The effective tax rate for the nine months ended September 30, 2023, was 632.2%, compared to an effective tax rate of (10.1)% for the same period in 2022, primarily due to the release of a valuation allowance on deferred tax assets[176]. - As of September 30, 2023, the total deferred revenue and advance payments amounted to $186.8 million, a decrease of $43.4 million from December 31, 2022, but an increase of $12.1 million from September 30, 2022[180]. - The remaining performance obligation as of September 30, 2023, was $282.3 million, with approximately $217.7 million expected to be recognized over the next 12 months[181]. Foreign Currency and Risk Management - International revenues accounted for 44.5% of total revenues for the three months ended September 30, 2023, compared to 38.8% for the same period in 2022[219]. - For the nine months ended September 30, 2023, international revenues represented 42.7% of total revenue, up from 40.5% in the prior year[219]. - A 10% adverse change in foreign currency exchange rates would have decreased reported cash and cash equivalents by 4.2% as of September 30, 2023[222]. - If average exchange rates had changed unfavorably by 10%, revenues for the nine months ended September 30, 2023 would have decreased by 3.6%[222]. - The company attempts to minimize foreign currency risk by converting excess foreign currency to U.S. dollar-denominated cash and investment accounts[221]. - Revenues and expenses from foreign subsidiaries are translated at average monthly exchange rates, which may impact operating results due to currency fluctuations[220]. Strategic Initiatives - The company is transitioning to a cloud-native model, enhancing go-to-market strategies to acquire new customers and drive revenue growth[136]. - The company aims to leverage AI capabilities within its MicroStrategy ONE platform to enhance data-driven decision-making and maintain a competitive edge in the analytics market[140]. - MicroStrategy is exploring opportunities to integrate features leveraging the Lightning Network into its software offerings[120].
MicroStrategy Inc Series A Pfd(STRK) - 2023 Q3 - Quarterly Report