MicroStrategy Inc Series A Pfd(STRK) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited Q1 2025 statements reflect a significant net loss, primarily from a $5.91 billion unrealized loss on digital assets, with total assets surging to $43.9 billion Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands of USD) | Account | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $60,298 | $38,117 | +58.2% | | Digital assets | $43,546,079 | $23,909,373 | +82.1% | | Total assets | $43,919,760 | $25,843,685 | +69.9% | | Long-term debt, net | $8,140,156 | $7,191,158 | +13.2% | | Total liabilities | $10,394,027 | $7,613,701 | +36.5% | | Total mezzanine equity | $1,304,497 | $0 | N/A | | Retained earnings (deficit) | $6,351,847 | ($2,166,876) | N/A | | Total stockholders' equity | $32,221,236 | $18,229,984 | +76.8% | - The significant increase in Digital Assets is due to both additional purchases and the adoption of ASU 2023-08, which requires measurement at fair value. The company also issued $1.3 billion in new perpetual preferred stock, classified as Mezzanine Equity[8][24] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands of USD, except per share data) | Account | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | $111,066 | $115,246 | -3.6% | | Gross profit | $77,095 | $85,231 | -9.5% | | Unrealized loss on digital assets | ($5,906,005) | $0 | N/A | | Digital asset impairment losses | $0 | ($191,633) | N/A | | Loss from operations | ($5,921,412) | ($203,702) | +2807.4% | | Net loss | ($4,217,370) | ($53,118) | +7838.6% | | Net loss attributable to common stockholders | ($4,228,018) | ($53,118) | +7858.8% | | Basic loss per common share | ($16.49) | ($0.31) | +5219.4% | - The massive net loss in Q1 2025 was primarily driven by a $5.91 billion unrealized loss on digital assets, a new line item resulting from the adoption of accounting standard ASU 2023-08 This replaced the previous digital asset impairment model[10][24] - Total revenues slightly decreased, with a 61.6% increase in Subscription services revenue ($37.1 million vs $23.0 million) being offset by a 43.8% decline in Product licenses revenue ($7.3 million vs $12.9 million) and a 16.2% decline in Product support revenue ($52.5 million vs $62.7 million), reflecting the ongoing shift to cloud-based offerings[10][208][210] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands of USD) | Category | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($2,389) | $28,587 | ($30,976) | | Net cash used in investing activities | ($7,670,400) | ($1,640,854) | ($6,029,546) | | Net cash provided by financing activities | $7,694,305 | $1,648,400 | $6,045,905 | - Investing activities were dominated by $7.66 billion in digital asset purchases These purchases were funded by $7.69 billion in net cash from financing activities, which included proceeds from new convertible notes ($2.0 billion), preferred stock offerings ($1.34 billion), and common stock offerings ($4.41 billion)[18] Notes to Consolidated Financial Statements Notes detail ASU 2023-08 adoption, fair value accounting for digital assets, a $12.75 billion retained earnings adjustment, and capital raises - Effective January 1, 2025, the company adopted ASU 2023-08, requiring bitcoin holdings to be measured at fair value with changes recognized in net income This resulted in a cumulative-effect adjustment increasing the opening balance of retained earnings by $12.75 billion[24][25] Digital Asset Holdings | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Approximate number of bitcoins held | 528,185 | 447,470 | | Digital asset carrying value (in thousands of USD) | $43,546,079 | $23,909,373 | - In Q1 2025, the company issued $2.0 billion of 0% Convertible Senior Notes due 2030 (2030B Notes) Additionally, all $1.05 billion of the 0% Convertible Senior Notes due 2027 were redeemed or converted into 7,373,528 shares of class A common stock[49][51][64] - The company issued two new series of perpetual preferred stock in Q1 2025: 8.00% Series A Perpetual Strike Preferred Stock (STRK) and 10.00% Series A Perpetual Strife Preferred Stock (STRF), raising combined net proceeds of approximately $1.27 billion[112][113][127] - Subsequent to quarter end, through May 2, 2025, the company purchased an additional 27,265 bitcoins for $2.45 billion and raised approximately $2.46 billion from its at-the-market equity offerings[171][172][175] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its dual strategy of bitcoin accumulation and enterprise software, reporting a $4.22 billion net loss in Q1 2025 due to fair value accounting, and relying on financing for future obligations - The company's primary business strategy is to use proceeds from equity and debt financings, as well as cash from operations, to strategically accumulate Bitcoin as its primary treasury reserve asset[179][181] Bitcoin Holdings Roll-Forward | Date | Approximate Bitcoins Held | Average Purchase Price Per Bitcoin (USD) | | :--- | :--- | :--- | | Dec 31, 2024 | 447,470 | $62,503 | | Mar 31, 2025 | 528,185 | $67,457 | | May 2, 2025 | 555,450 | $68,550 | - Management states that cash and cash equivalents from operations are not expected to be sufficient to satisfy obligations over the next twelve months They anticipate relying on equity or debt financing to meet these obligations[250] - The adoption of ASU 2023-08 is expected to increase the volatility of financial results due to the requirement to recognize fair value changes of bitcoin in net income each period[224][332] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks include bitcoin price volatility, which significantly impacts earnings, and foreign currency fluctuations due to substantial international revenues - The company's primary market risk is the price volatility of bitcoin As of March 31, 2025, it held approximately 528,185 bitcoins with a carrying value of $43.5 billion[278][279] - The company is exposed to foreign currency risk, as international revenues accounted for 42.9% of total revenues for the three months ended March 31, 2025[280] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[284] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[285] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but management does not expect a material adverse effect on its financial position or results - The company states that it does not expect the resolution of its various legal proceedings to have a material adverse effect on its financial condition or results[287] Item 1A. Risk Factors Key risks include bitcoin price volatility, potential CAMT liabilities, custody risks, regulatory uncertainty, competition from ETPs, substantial indebtedness, and reliance on capital markets - A primary risk is the high volatility of bitcoin The adoption of ASU 2023-08, requiring fair value accounting, is expected to significantly increase the volatility of reported earnings[317][332] - The company may become subject to the 15% Corporate Alternative Minimum Tax (CAMT) starting in 2026 due to unrealized gains on its bitcoin holdings, which could result in a material cash tax obligation[298][301] - The company's enterprise analytics software business is not expected to generate sufficient cash flow to satisfy its financial obligations (including debt service and preferred stock dividends) over the next twelve months, creating a reliance on capital markets[296] - The recent approval and trading of spot bitcoin ETPs may adversely affect the market price of the company's stock, as investors may view ETPs as a more direct or preferable way to gain exposure to bitcoin[333][334][335] - As of March 31, 2025, the company had $8.22 billion in outstanding indebtedness, which could limit its ability to raise additional capital and places it at a competitive disadvantage compared to less leveraged companies[471][473] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities In Q1 2025, 7,373,528 shares of class A common stock were issued to settle $1.05 billion in 2027 Convertible Notes, exempt from registration - In Q1 2025, 7,373,528 shares of class A common stock were issued upon the conversion of $1.05 billion of the 2027 Convertible Notes The issuance was exempt from registration under Section 3(a)(9) of the Securities Act[483] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the quarter ended March 31, 2025[485] Item 6. Exhibits This section indexes all exhibits filed with the Form 10-Q, including corporate governance, debt indentures, preferred stock designations, and sales agreements