MicroStrategy (MSTR) Q3 2024 Earnings Call Transcript – CryptoMonitor.In

MSTR earnings call for the period ending September 30, 2024.

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MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

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MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

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MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

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MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

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MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

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MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

More MSTR analysis

All earnings call transcripts

MSTR earnings call for the period ending September 30, 2024.

Image source: The Motley Fool.

MicroStrategy (MSTR -4.23%)
Q3 2024 Earnings Call
Oct 30, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia — MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, vice president of investor relations and treasury at MicroStrategy. I will be your moderator for MicroStrategy’s 2024 third-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 10-q 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 at microstrategy.com. I would now 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 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, formally, we’ll cover the business and operational the third quarter of 2024. Second, Andrew Kang will cover the financial results for the third quarter of 24. Then Michael Saylor will provide a strategic review and the vision and discuss the recent bitcoin market updates.

And lastly, we’ll open up to the Q&A. With that, I will now turn the call over to Phong Le, president and CEO of MicroStrategy.

Phong Q. Le — President and Chief Executive Officer

Thank you, Shirish. Hello everyone. I’d like to welcome all of you to today’s webinar. Starting with the bitcoin highlights for Q3 2024.

MicroStrategy remains the largest corporate holder of bitcoin in the world, now holding 252,220 bitcoins, with a total bitcoin market value of $18 billion as of yesterday. Since June 30, 2024, we acquired an additional 25,889 bitcoin for a total purchase cost of $1.6 billion, an average price of $60,839. Year-to-date 2024, the price of Bitcoin has appreciated, spurred notably by the approval of the bitcoin exchange-traded products, or ETPs, which has drawn considerable institutional attention to the asset class. We believe the introduction and initial success at the spot bitcoin ETPs evidences the maturation of bitcoin as an institution grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front, we made significant progress toward the advancement of our bitcoin strategy. In September, we raised $1.1 billion net proceeds through our At the market or ATM equity offering program and raised $1.01 billion. Through the issuance of our 2028 convertible notes using part of the proceeds from the 2028 convertible notes, we also redeemed our $500 million senior secured notes due 2028 in full. As a result, all of our Bitcoin holdings are now unencumbered.

Andrew will provide further details on our capital markets and bitcoin purchase activity for this quarter. As we continue to focus on acquiring more bitcoin through our capital market activities, we believe that the value proposition in the company centers increasingly on our bitcoin treasury strategy. As a result, we’ve developed a new descriptor for what we are, which is the world’s first and largest bitcoin treasury company, the acronym being, coincidentally, BTC. So what does this mean? We are a publicly traded company that has adopted bitcoin as our primary treasury reserve asset.

By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI powered enterprise analytics software, advancing our vision of intelligence everywhere. We leverage our development capabilities to explore innovation and bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, a strategic Bitcoin reserve, and our focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Michael will further elaborate on our vision as a bitcoin treasury company. Since our adoption of our bitcoin strategy, we’ve used three primary mechanisms to acquire more bitcoin. One, debt financing.

We have $4.3 billion in principal amount of convertible debt outstanding at an attractive blended cost of debt fixed at 0.8% annually. Two, equity issuances. We’ve issued $4.3 billion in equity in a manner that we believe to be accretive to existing shareholders. And three, cash flows from our software operations.

Since August 2020, we’ve invested $836 million of total cash on our balance sheet. 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. So where do we go next from here? For those who are familiar with The Hitchhiker’s Guide to the Galaxy by Douglas Adams, they would know what is the answer to the ultimate question of life, the universe, and everything. In this science fiction series, an enormous supercomputer named Deep Thought calculated the answer to this question over a period of 7.5 million years.

And of course, the answer to the ultimate question of life, the universe, and everything is the number 42. We also think it’s the answer to important question, and we spent about four years thinking about this question. We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of bitcoin.

There can only ever be a maximum of 21 million bitcoins in circulation. MicroStrategy owns about 1.2% of this bitcoin today. Today, MicroStrategy is announcing its ambitious capital market strategic plan for the next three years. From the years 2025 to 2027, the company is targeting to raise $42 billion of capital, comprised of $21 billion of equity capital and $21 billion of fixed income capital, primarily for the purpose of acquiring bitcoin.

Today, we have filed a prospectus supplement for a new $21 billion ATM equity program. This is the largest ATM in the history of capital markets. Fixed income capital can consist of various debt and debt-like instruments, including convertible debt, preferred equity, hybrid capital, or other similar instruments. So I’d like to provide more detail on our capital-raising targets over the next three years.

For the year 2025, we target raising $10 billion dollars total, comprised of approximately $5 billion each of equity capital and fixed income capital. For the year 2026, we target raising $14 billion comprised of approximately $7 billion each of equity capital and fixed income capital. And for the year 2027, we target raising $18 billion comprised of approximately $9 billion each of equity capital and fixed income capital. We plan to address increased interest costs from any incremental fixed income capital raise through efficient management of our overall capital raising plan, including alternating between equity raises and debt raises, as appropriate, to maintain our overall intelligent leverage.

By managing our treasury strategy in this way, so long as we continue to access to equity capital in favorable terms, we believe we will not be limited by the cash flows from our software business to scale up our bitcoin capital markets initiatives. Turning to the software business, MicroStrategy is also positioned as the world’s largest independent, publicly traded business intelligence company. In the third quarter of 2024, we continued our shift toward our cloud offering. Non-GAAP subscription billings, which represent cloud revenues in the quarter, along with just the next 12 months of deferred subscription services revenues, grew by 93% in Q3 to $32.4 million, our fourth straight year of quarterly double digit growth.

The strong growth in our subscription billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rates continue to remain high, and our subscription services revenues remain strong. Overall, we see strong demand for our cloud platform, and Q3 was a particularly strong quarter for customers migrating to the cloud. Our objective continues to be to increase cloud revenue by migrating customers to cloud while maintaining profitability.

MicroStrategy 1 is now available on Azure, AWS, and Google Cloud marketplaces, allowing enterprises to easily find and deploy this cloud-native platform. Customers can benefit from a range of innovative, first-to-market, AI-powered functionality powered by the Azure OpenAI LLM, which also creates demand for our cloud platform. Transitioning our customer base to the technology of the future remains a key focus, and our Hyperscaler partners are key part of this migration. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to continue to see a decrease in product license revenues and support revenues, which will in part be offset by increases in subscription services revenues.

We expect this trend to continue 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 revenues. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately growing recurring and overall revenues.

I’ll now turn the call over to Andrew to discuss our financials for the first quarter in further detail.

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Thank you. Phong. First, I’ll take a few minutes to expand upon the software business results. Moving to slide 12.

Earlier this year, we enhanced our reported numbers to break out our quarterly results into two categories. First, the software business category reflects income or loss from operations related specifically to our BI business. The corporate and other category represents the non-software related areas associated with our digital assets holdings, which include impairment charges and other related third party costs. While we continue to operate under one reportable operating segment, we believe the breakout of our operating results into these two categories provides more transparency with respect to the performance of our software business, while isolating the impacts related to changes in bitcoin price.

In Q3, software business revenues were $116 million, down 10% year over year. Consistent with recent quarters, the overall revenue trend reflects the ongoing transition of our business from on premise to cloud. As part of that transition, we fully expect product license along with support revenues to decline, impacting total revenues consistent with this quarter’s results. We are building up stronger, more durable cloud recurring revenues that come in over time, which is consistent for any on prem to cloud transition.

Q3 cloud bookings was strong in line with the prior quarter. And if you recall, Q2 was the strongest single quarter of cloud bookings today. This increase last quarter helps offset the lower-than-expected product license contracts we closed this quarter and reflects the transition taking shape. As Phong mentioned earlier, non-GAAP subscription billings, which represent cloud revenues in the quarter along with the next 12 months of deferred subscription services revenues, grew by 93% in Q3 year over year to $32.4 million, reflecting double digit growth in every quarter for the last four straight years since launching our cloud transition.

Q3 subscription services revenues increased 32% year over year and now make up approximately 24% of total revenues. Subscription services revenues are now larger than our product license revenues and will continue to grow, while product license revenue will continue to decline further going forward. While we will see the initial benefits of last quarter’s strong cloud migrations flow through revenue beginning next quarter, the lower product license bookings in 2024 will result in recognized revenue below our target for the full year, but in line with the revised target we discussed last quarter. We expect this year and next year will reflect the transition point in our long-term strategy, after which we expect total revenues will begin to grow again.

Cost of revenues were $34 million, which was up 29% compared to Q3 of last year. The increase was due in part to higher cloud hosting costs, a direct result of our growing cloud, which we expect to continue in future periods. Software business operating expenses were $100 million, up 7% compared to Q3 of last year. While overall personnel costs were down year over year, the increase that I just described year over year was in part largely attributed to higher stock-based compensation and higher custody fees related to our increased bitcoin holdings, but also offset by savings and other G&A categories.

In Q3, we also recognized close to $14 million in severance costs related to workforce optimization in the quarter, which will result in approximately $30 million in lower salary costs next year. This strategic planning across all departments in the company is focused on rightsizing overall staffing levels, optimizing organizational structures, and focusing on a disciplined performance management culture. As a result, annual staffing costs are expected to be approximately 13% lower next year, which will further benefit our margin profile in 2025. Overall non-GAAP operating income or profit from the software business category was $0.9 million.

Lastly, the corporate and other operating expense category for the quarter was $414 million, the majority of which was due to bitcoin impairment in Q3. Now turning to our bitcoin strategy. We had another very successful quarter and adding more Bitcoin to our treasury reserves as we acquired 25,889 bitcoins in the third quarter for approximately $1.6 billion at an average price of $60,839 per bitcoin. As of September 30, the company held a total of 252,200 bitcoins acquired for an aggregate cost of $9.9 billion or approximately $39,000 per bitcoin.

I will speak to our overall treasury operations for the quarter in a moment, but a significant result of redeeming our 2028 senior secured notes in Q3 was to release all bitcoin that was held at the MicroStrategy entity. And now 100% of our bitcoin holdings are fully unencumbered, including now all bitcoins held at both macro strategy and MicroStrategy entities. We have added bitcoin to our treasury balance sheet in every quarter since August 2020. And as we continue to champion bitcoin as a strategic treasury reserve asset, we are encouraged by the number of both public and private companies that are adopting the bitcoin treasury standard to help impact shareholder value.

As of as of September 30, 2024, the market value of our bitcoin holdings was $16 billion at an aggregate cost of $9.9 billion and an average purchase price of $39,000. This is in contrast to the carrying value of our bitcoin holdings of $6.9 billion as of the last day of the quarter. We will adopt the new FASB Fair Accounting Rule, which will require fair value treatment for bitcoin holdings when the rule takes effect in Q1 2025. As of January 1st, 2025, we will recognize a cumulative adjustment to the opening balance of our retained earnings, reflecting in large part the significant difference between the market value and carrying value of our bitcoin holdings.

Now, turning to our treasury operations, we had one of our most impactful quarters from a capital markets execution perspective. Following the two convertible note financings we completed earlier in March and in June of this year, we executed a new convertible note financing in September, which was upsized and well-received by the market. We issued $1.01 billion of convertible senior notes due September 2028 at an annual interest rate of 0.625%, with a conversion premium of 40% and a conversion price of approximately $183 per share. The net proceeds from the new convert were used to redeem the 2028 senior secured notes and to acquire additional bitcoin.

We redeemed in full the $500 million 2028 senior secured notes at a redemption price equal to 103.063% of the principal amount of the 2028 secured notes, plus accrued and unpaid interest. We achieved multiple benefits through early redemption. All restrictive covenants in connection with the secured notes were eliminated. All of our bitcoin holdings became fully unencumbered, and we realized the net annualized interest expense savings of $24 million for the next four years, equaling close to $100 million in total future debt expense savings.

In Q3, we also issued $1.1 billion worth of common equity under our, at-the-market, ATM program. Under the existing ATM program, approximately $891 million of common equity remains available for issuance. As Phong mentioned earlier today, as part of our new 21-21 three-year strategic capital plan, we filed a new prospectus supplement for a $21 billion ATM program. This will be the single largest ATM program filed in the U.S.

across all sectors. Under our current capital structure, we now have $4.3 billion of unsecured convertible debt outstanding with a sub 1% blended interest rate of 0.81%, with staggered maturities over several years starting in February 2027 through June 2032, all which are currently trading above par. Year-to-date 2024, we are the number one issuer of convertible notes in the U.S. by aggregate principal raised.

Intelligent leverage remains a key component of our active capital allocation strategy, which, when deployed in a thoughtful and disciplined manner, enables us to add more bitcoin to our treasury reserve at an attractive cost and in a manner that achieves BTC yield. I’ll elaborate on the intelligent leverage and BTC yield concepts in the next few slides. This slide lays out our debt maturity profile. And as you can see, the nearest debt maturity is more than two years away and not until early 2027.

The remainder of our debt maturities are evenly spread over several years out to 2032, with a weighted average debt maturity of approximately five years. We actively monitor the capital markets and will continuously evaluate liability management opportunities to manage our debt and interest expense, as well as opportunities to raise additional financings in the future. Year to date in 2024, our total bitcoin holdings increased by 33.3%. During the same period, our assumed diluted shares outstanding increased by only 13.2%.

When we refer to assumed diluted shares outstanding, we are 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, in each case without regard to exercise or conversion price or vesting, or any other contractual condition. As a bitcoin treasury company based on market conditions, we intend to continue to access equity capital markets and to explore various opportunities in the debt and fixed income capital markets to effectively manage our overall leverage.

Our track record of using equity, debt, and excess cash to acquire bitcoin as part of our treasury operations has resulted in value creation for our shareholders and establishes the foundation to execute on our 21-21 capital plan. Our objective continues to be to accumulate bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC yield. To reiterate again, we define BTC yield as the period-to-period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding.

We use this KPI to help assess the achievement of our strategic objective and to evaluate capital allocation decisions. If we increase our total Bitcoin holdings over a given period at a faster pace than we increase our assumed diluted shares outstanding, we achieve a positive BTC, yield. I should note here that BTC yield is not equivalent to yield in the traditional financial context. It is simply a measure of the percentage change period to period in the ratio of our bitcoin holdings to our assumed diluted shares outstanding.

In addition, when we use BTC, we assume all indebtedness will be refinanced or, in the case of our convertible notes, converted into shares of common stock at their respective conversion prices, and that it does not take into account debt and/or other liabilities. Although BTC yield is not actually a yield in the traditional sense, we internally think about this metric as some might think about a bond yield or a yield of another financial instrument. We view this metric as helping us and our shareholders assess whether we’re using our capital most efficiently to increase our bitcoin holdings over time. The historical performance of this KPI is shown on this slide.

We achieved an annual BTC yield of 43.3% in 2021, 1.8% in 2022, and 7.3% in 2023, as we have achieved quarterly BTC yield of 8.1% in Q1. 3.7% in Q2 and 5.1% in Q3. Management uses BTC to evaluate capital allocation decisions and to measure the achievement of our strategy. Achieving BTC yields sets us apart from spot bitcoin ETPs and other bitcoin investment vehicles that charge a management fee and would therefore reflect a negative BTC yield as we measure it.

Building on the 21-21 plan discussed, we have a clear strategy to increase our bitcoin holdings and deliver a positive annual BTC yield. Our year to-date 2024 BTC yield of 17.8% has surpassed the annual BTC held in 2023. Last quarter, we laid out our target to achieve a BTC yield of 4% to 8% annually for the next three years through 2027. Today, we are revising our target up to achieve yield of 6% to 10% per year for each of the next three years.

To do this, we will seek to accumulate more Bitcoin holdings by responsibly using intelligent leverage with a risk managed approach using proceeds from equity when we believe accretive and using the excess cash generated by our software business. We will continue to consider the full spectrum of financing options and also explore creative capital market transactions and untapped pools of capital to execute this strategy effectively and prudently. We will remain disciplined in the use of both the ATM and other capital-raising alternatives and financings, doing so in a manner to achieve BTC yield in line with our targets. By providing a three-year KPI, we are reinforcing our goal of achieving consistent, positive BTC yield over time.

We pride ourselves on being at the forefront of institutional Bitcoin adoption. And as we look to the future, we anticipate that our ability to consistently achieve BTC yield will become a crucial benchmark for investors. MicroStrategy has demonstrated a strong track record of applying a disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established a credibility to execute on our strategic goal of adding value for our shareholders. 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.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you. Andrew. I’m delighted to see you all on the call today. Thank you for joining us.

And for all of our shareholders, thank you for your support. I was really excited about this call because this is the chance to share our strategy and our vision looking out over the next three years, and we’re going to be doing it more detail than we have in the past. So, Shirish, go ahead to the next slide. I don’t have to remind anybody that we’re still in the early stage of adoption of bitcoin as digital capital.

2024 has been a great year. The launch of the ETFs at the beginning of the year was a major milestone. The embrace of Bitcoin by major political parties is a second milestone. I think we can see movement toward normalization of Bitcoin.

The approval of options trading that’s moving through the pipeline for the ETFs is a big deal. The movements toward banks beginning to custody Bitcoin is very exciting. A lot of companies have adopted fair value accounting this year. That’s another exciting milestone.

And of course, anybody’s been paying attention to the flows into the Bitcoin. ETFs have noticed that they’ve been picking up over the past few weeks, and it’s generally acknowledged that these Bitcoin spot ETFs are the most successful ETFs ever launched. And so while we’re early, it’s very promising. Bitcoin is about a $1.4 trillion asset class.

And as you can see, Bitcoin is gradually going to draw capital from equities, from real estate, from bonds, from currency derivatives, and of course, from gold. We can go to the next slide. It’s a very powerful slide because it tells the story of investing in finance over the past four years. Since MicroStrategy adopted the bitcoin standard in August 10 of 2020, bonds are down 5% a year.

As you’ll recall, we had $500 million of our treasury and bonds, substantially all of it. So we were invested in the far right side of this curve, and we saw it as being a dead end, and we needed to find something else. And you can see since that time there has been an expansion of the money supply. Probably the best surrogate for that expansion is the S&P 500, and you can see the S&P 500 is up 14%.

14% is effectively the traditional cost of capital for 20th century assets for financial assets, for physical assets. If you’re getting less than 14%, you’re losing wealth, you’re losing purchasing power, and you’re not meeting the cost of capital in the mainstream. If you’re ahead of 14%, then you’re accreting power. And so you can see what’s happening is gold can’t keep up, bonds don’t work, real estate is trying to keep up, but it doesn’t.

The Magnificent Seven are doing double. The great companies, the Apples, the Amazons, the Googles, the Facebooks. They’re actually outstripping the S&P. And of course, as they outstripped the S&P, most of the other companies in the S&P are falling behind.

Bitcoin has far outstripped the Magnificent Seven. If you’ve been following our journey, you know that our thesis was Bitcoin is like the Facebook of money or the Google of money. It is the dominant digital monetary network. It’s a network that everybody in the world needs, nobody in the world can stop, and most conventional investors don’t understand.

That has always been the thesis. Bitcoin is proving that it is incredible. It is the strongest asset. MicroStrategy through its lot and with Bitcoin, but I’m happy to say here today that not only is MicroStrategy managed to become 100% Bitcoin.

We’ve managed to almost two times the performance of Bitcoin, and we’ve done it through taking advantage of our unique opportunities and our unique capabilities as an operating company to assume intelligent leverage, to sell volatility, and to manage our balance sheet. So this is just — it’s a great outcome. Shall we go to the next slide? Not only is MicroStrategy outperforming asset classes, it turns out that MicroStrategy has outperformed all 500 of the S&P 500. So we looked at everybody.

We even looked at companies that weren’t in the S&P 500 on August 10th, like Tesla, like Supermicro. And MicroStrategy has, as in essence, using a Bitcoin strategy, come out of nowhere to get 1,989% growth in, um, in the equity value over this time period. And you can see it’s not even close, right? I mean we’ve dramatically outperformed Supermicro. We’ve dramatically outperformed Nvidia.

And then when you get down to the No. 5 or No. 6 company, we’re four times. And so this is really a testament to the power of digital capital if you understand it properly.

Let’s go to the next slide. You know we’re a very special company in a lot of ways. Now, you can compare us to Bitcoin. If you’re comparing MicroStrategy to holding a diversified portfolio of the S&P and Nasdaq, you can see we’re far outperforming I mean this chart really is showing that the Bitcoin is the winning asset class by far.

Bitcoin is really compelling because not only is it beating all the other major asset classes, but in terms of assets that in a publicly traded operating company could hold, an operating company could hold a small portion of securities. It could hold a lot of bonds, or it could hold bitcoin. And so when you look at that chart, it’s not even close. There’s one good answer for a treasury reserve asset.

There is one not good answer. And there’s a lot of imperfect solutions that you just can’t you can’t easily hold because of a 40% limit on securities in your portfolio as an operating company. You can also see our performance against big tech stocks. And of course, they’re all great companies.

But at the end of the day, these companies haven’t embraced digital capital. And so, of course, the winner is Nvidia has embraced digital intelligence. But digital intelligence is not an easy strategy to copy. What I say often is if you can copy Nvidia, go ahead.

Have at it. I don’t think it’s easy to copy. MicroStrategy, on the other hand, you can copy. It is easy to copy.

We’ve been publishing the playbook, and we continue to do so enthusiastically. And so MicroStrategy doesn’t just represent a company that made a good investment at the right time. We really represent the beginning of a wave of digital transformation of capital, right? The capital markets are transforming. Bitcoin is digital capital.

In time, dozens of companies will realize this, then hundreds, then thousands. Next slide. The conundrum for most companies is like 1% of the companies in the S&P 500 are generating most of the gain, 99% of the companies can’t keep up. And so the Magnificent Seven steal the show.

Most companies underperform. bitcoin is dramatically beating the Magnificent Seven, and your best hope to actually keep up with the Magnificent Seven and is constructive bitcoin strategy. And of course if it’s a levered, long strategy, you beat everybody. Next slide.

Now here’s an interesting insight that we haven’t ever shown before in one of these calls. MicroStrategy is not just the No. 1 performing stock out of the S&P 500. We’re also the most volatile stock.

And there’s a conventional wisdom in finance, which is volatility is bad, and you shouldn’t take risk with your balance sheet. But we’re turning that conventional wisdom on its head. When you basically invest all of your capital into treasuries, when you’re on the UST standard, you’re stripping the volatility down to a ball of five. Bitcoin is a ball of 50 or 55.

When you strip to the vol of five, what it means is your returns are 10% weaker than the S&P index, that you’re generating 10% less than the cost of capital. So capital becomes toxic to the company when you actually issue volatility, and you issue bitcoin. When you embrace volatility, then you’re outperforming the S&P. And now the capital isn’t toxic.

The capital is healthy. So a company with a conventional strategy strips the volatility, embraces low risk treasuries, loses 10% of its capital every year. Its equity markets die. Its option markets become unhealthy.

It becomes a sick company, only they don’t know they’re sick, because conventional wisdom says that’s the right thing to do. And by the time they’ve stripped the volatility off their balance sheet and stripped the volatility off their P&L, they have damped their appeal to the capital markets. And then you ask the question, why do you even want to be a public company if you’re not actually tapping into the capital markets in order to provide them with a public security that’s interesting for them to buy, sell, trade, talk about hedge arbitrage etc.? So this volatility has a very interesting effect, and I’ll show it on the next slide. Shirish? If you look at the top 10 performers in the S&P 500 and you consider options open interest, MicroStrategy is actually No.

7. We’re in the top 10. Even though, we’re much smaller than most of these companies, right? Obviously, we’re not as big as a Walmart or a Coca-Cola or a McDonald’s or any of the household names you’ve heard about your entire life. But of course, because we’re high volatility, the options market wants to trade those options.

So we jump into the top 10 leaderboard because we have a high volatility balance sheet. If we look at daily trading volume and the top 10, you can see MicroStrategy again jumps to No. 7. We’re in the top 10 out of all the S&P 500 companies in daily trading volume.

And it’s pretty extraordinary outcome given the fact that in some cases, these companies are 100 times bigger than us. And of course, if you look at the impact of that volatility on a market cap-weighted basis, if you compare open interest in the options market as a percentage of market cap for all 500 companies in the S&P 500, MicroStrategy is No. 1. We are the most optioned optional per weight or per market cap stock in in this entire universe.

And if you look at daily trading volume, the liquidity of the equity as a percentage of market cap, we are also No. 1. Another way to say it is MicroStrategy is the hottest stock in this universe, right? Volatility is as vitality as we say. What’s interesting about this is I describe volatility as like RPM on an engine.

And if you have RPM on a small — a paper straw and you spin it 50 times a minute, it’s like a kid’s toy. And then if you take that paper straw and you replace it with a 5-pound dumbbell and you spent 50 times a minute, it’s a weapon. Now, if you put some leverage on it, if you extend it by 50% more and it goes to 90 rpm, it gets quite scary. Now imagine what happens when you put $18 billion of capital into a balance sheet and you spend it 90 or 100 rpm, you’ve got a turbine, you have a motor that will move an aircraft carrier, right? You can move a small city or light up a city with it.

The conventional wisdom in the market is capital is toxic, give it back to the shareholders, make it go away. Dividend it out, buy the stock back, get rid of the money. And if you’re going to keep the money, invest it in a five-vault asset, which is like take your money, put it in the basement and lock the vault and then make sure it never moves. It’s dead money.

MicroStrategy’s approach is to embrace the volatility, embrace an asset that is outperforming the S&P. And in that world, instead of being negatively polarized to capital, we are positively polarized to capital. The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is — it’s totally counterintuitive because everybody else in the world thinks you sell equity, you dilute the shareholders.

That’s true if you don’t have a use of proceeds, the gross faster and yields more than the S&P 500 index. The cost of capital is the S&P 500. If you want to be positively polarized to capital, you want two conditions. You want to be able to invest the capital in something that beats the S&P consistently.

That’s the first condition. It needs to have performance. The second condition is you want velocity. You’d like to invest the capital in five days, not five years.

If you can invest the capital in five days and then you can show that it actually beat the S&P index, then you’ve actually got the holy grail now. Now you’ve got a magnet which is attracting capital. And MicroStrategy has pioneered this by combining capital markets activity with bitcoin as a treasury reserve asset. With the embrace of BTC yield, and the BCT yield shows that, in fact, we acquired the capital in a manner that was accretive to our shareholders as opposed to dilutive, and that means that when we’re actually engaging in capital markets activity, we’re doing it in a creative, high velocity fashion.

That, of course, is what is driving this trading volume, what’s driving this open interest. And of course, because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into bitcoin and then delivering that to our shareholders in the form of a BTC yield. Shall we go to the next slide? Now here’s another slide that no one’s ever seen before in one of our presentations. Many of you know about MSTR stock.

And you know what I’ve said is oh MSTR stock, it’s beaten the S&P 500. And now some of you know about options. MSTR options are more traded. You know pound for pound than anything else in the S&P 500.

And so you know that we are the volatility winner, you know the we’re liquidity winner, you know where the performance winner. What you might not know is that MicroStrategy has sold six convertible bonds. And if you had bought any of them you’re up 224%, 86%, 67%, 90%, 41% or 54%. They’ve all been successful.

They’ve been some of the most successful bonds ever sold to the convertible bond market. They’re extraordinary in that regard. But here’s the real extraordinary aha. How do you buy bitcoin at the all-time high, get the upside of bitcoin and get your principal protection and get the downside protected? How do you strip the volatility and the risk off of the investment and keep the performance? You can’t do that with an ETF.

You can’t do it with a straight equity that’s 100% upside, 100% downside. But if you look at the chart on the right, and this is just — it just blew me away when I saw it. You realize bitcoin has delivered 47% performance since those bonds were sold. And our bonds delivered 90% performance.

And what that means is if you had bought $1 million of bitcoin on the day we sold the 25 convert or $1 million of the convert, or if you just — across all of these, you bought $1 million of each of them and the convert, you would have got a 90% return. And if you had bought $1 million of bitcoin, you would have got a 47% return. So not only do you get the return of bitcoin, you also get the downside protection. And in this particular case, I’m kind of delighted to say we outperform bitcoin not with our equity.

We outperform bitcoin with our bonds. Now people, they struggle with, what is MicroStrategy’s unique advantage in the market? What is what justifies the market capitalization of the company? Well, one very obvious thing is we are the primary — perhaps the major creator of or issuer of bitcoin backed bonds in the world, and we’re able to do these at scale. And we’re able — we’ve got the credibility to issue them. We’ve got to know how to issue them.

And we have the permanent capital. We have the $18 billion of permanent bitcoin, and we have the large equity market cap that provides the floor that gives — that provides the credit for a bond buyer. And yet, you couldn’t really reproduce this performance. If you took $300 billion of cash and treasury bills and you sold these convertible bonds, well, you could guarantee that the buyer of the bond gets their money back, but you wouldn’t be able to beat bitcoin performance.

You would be lucky to be able to beat the US Treasury performance. And so if you’re going to issue Bitcoin-backed bonds or convertible bonds like this, you need to be 100% Bitcoin, and it needs to be permanent capital. You need to know that you’ve got it and no one’s going to call it away from you. So MicroStrategy’s got a very exciting business here.

This is right now the best the best understood part of our fixed income strategy, and it’s not the only thing we can do. But what you can see is that we have very successfully executed this strategy to the benefit of the bondholders and of course, also to the benefit of the equity holders. Next slide. There’s a lot of confusion in the market.

I mean MicroStrategy’s misunderstood. It’s a little bit underestimated, I think I think the company is undervalued. And it starts from this observation that MicroStrategy is just a holding company that has some bitcoin on its balance sheet, that trades at a premium. And somehow, you know, people that are short to company, they want to work through this logic of maybe the company’s just worth its net asset value in a little bit of a premium.

But that’s kind of like saying a bank is only worth it. It’s not — its book value of its capital. Or maybe you know, Apple Computer, 98.5% of Apple is based on forward expectations of the business, and only 1.5% is based upon the liquid assets of the company. So most companies are valued based upon their operations and their reserves.

And so if we think about MicroStrategy as a Bitcoin treasury company, what are we doing? Well, we are plugged into the macro economy. The macro economy is being driven by technology, by inflation, by entropy, by chaos. And that macro economy drives the crypto economy. The crypto economy trades 24/7/365.

And people, move around all the crypto assets and they also trade back and forth bitcoin. And that’s what makes it very volatile. That’s what. That’s why you can sell $1 billion on Saturday night.

That’s why you can buy $1 billion of it on Sunday morning, right? That the crypto economy or the crypto exchanges plugged into bitcoin, they are picking up the vibrations and the sentiments and the positive and negative developments of the macro economy. Now why do people go to bitcoin? Capital preservation and productivity. And of course, they will continue to do that, and that’s a $1.4 trillion asset class. Now bitcoin is a commodity.

It’s a digital commodity. MicroStrategy taps into that digital commodity with our treasury operations, and one thing we do is acquire bitcoin. We acquire the bitcoin. We custody the Bitcoin.

And we do that on behalf of our investors because many of them either can’t or choose not to hold bitcoin and custody of the bitcoin. We also issue securities like our equity and like our convertible bonds, and we adjust our leverage from time to time. We leverage up. We deleverage.

If we have something like this, $500 million 2028 note that’s expensive, we repay it, we replace it with cheaper leverage. So we’re always doing that. And in the future, if necessary, we’ll fund dividends and, and any other payments necessary to our security holders. Now, that’s the operational business.

That business is made possible by our bitcoin reserves. We have 252,220 bitcoin. What’s special? It’s permanent capital. It can’t be — it’s not overnight deposits.

It’s we can lean on the capital. We can leverage it. We know that we can take out a four-year debt instrument and know that we’ll have the capital in four years, and then the person that’s buying the security knows we have the capital. So our reserves established the creditworthiness of the company.

What else do they do? Well, we create leverage with our reserves by mixing fixed income and equity together. Whenever we sell equity at a premium to the underlying net asset value, we create leverage. Whenever we sell debt, we create leverage. If we sell convertible or create conversion rights at a large premium, we create leverage.

As the duration of our instruments stretch out — stretches out, we create leverage. So our reserves have some intelligent leverage in them. They’re worth about $18 billion right now. We are the largest holder of permanent bitcoin capital.

Now, what can we do with it? Well, if we look to the right side, there’s a lot — the market wants to buy securities. So for example one security they really like that everybody understands this a spot bitcoin ETF. I bet BTC, etc., there’s like 42 of them right now. There are going to be spot ETFs in every country on Earth.

They meet compliance requirements, custody requirements. And they provide you with one X leverage. If bitcoin doubles, you’ll mostly double it. If bitcoin is cut in half, you’ll probably lose half your capital.

They charge a fees of 2025 basis points. They are kind of like the institutional banks and the business their trust companies, and they take overnight deposits. And they’re very limited in what they can do. You give them $1 million, they can buy bitcoin.

You ask for the million dollars back, they give you the million dollars back. That’s what they do. They don’t have permanent deposits. They can’t hold your money for a decade.

They have very, very simple daily redemption windows. And so they never traded a premium. They won’t trade at a discount. And that means that they look pretty much like bitcoin.

Their volatility looks like bitcoin. If bitcoin is 50 vol, they’ll be 50 vol. Their performance will look like bitcoin. If bitcoin looks like 50.

ARR, they’ll look like 50 ARR. It’s a great product for people that want to buy the spot commodity and they want it in a wrapper as a security. And I have no doubt, in time, it’ll be very common that people use this instrument. That’s a direct connection.

Now, if you think about MicroStrategy, MicroStrategy offers something slightly more — less risky, less volatile than that. That’s my MSTR convert. When we sell a convertible bond, if the price of bitcoin is 70,000, and if we were to sell the convertible bond or, say, when the price of bitcoin — in fact, by definition, every single convertible bond we’ve ever sold was at the high of bitcoin, right? We’re selling we’re selling convertible bonds at the market. People are either buying the bitcoin or they’re buying the bond.

And if you wanted bitcoin long exposure, you buy the bond, you get a conversion right to our stock. And then a Bitcoin trades down by 50%. You’ll be able to put the bond back or you’ll get redeemed at par. So those converts are part of our fixed income strategy.

They give you some portion of bitcoin performance because they have the MSRT conversion right. Now we don’t really know exactly how they will perform against Bitcoin. I just showed you in the past we’ve outperformed Bitcoin with the converts. But I don’t have a crystal ball.

I don’t know what I’ll do in the future. But common sense says that if we sell a convertible bond at a 40% or 50% premium to our stock, then when Bitcoin doubles and doubles again and you’re getting a decent fraction of the Bitcoin performance, and maybe you’ll get more, maybe you’ll get slightly less, but you’re getting it in a bond instrument. That’s in the market right now, and that creates a lot of leverage. And one of the results is MSTR equity outperforms bitcoin.

That’s a 1.5 times or more. Historically we’re almost two times leverage. But I mean it changes every day. Our goal right with the equity is use intelligent leverage to outperform bitcoin in the way that we outperform is on the upside.

We have to have some leverage on the downside. And what we’re doing is we’re stripping the volatility, stripping the risk, stripping some of the performance out of the fixed income instrument. And then we — and then that benefit accrues to the equity holder. And so you see MicroStrategy straddling both sides of the spot market.

Now because we straddle both sides, that MSR equity that trades one and a half times the performance of bitcoin, it happens to be 1.5 is volatile. So bitcoin’s 50 vol, we’re 75 or 80 vol. If bitcoin’s 50 ARR, we might be 75 or 80 ARR. Right? So who wants that? Well the derivative traders want it.

So if you look at these derivatives like MSTX and MSTU, in a matter of weeks, they raised more than $1 billion of capital by offering the proposition of two times MSTR. But if you think about my chart, what they’re really offering is if MSTR is 1.5, they’re offering three. If we’re two times, they’re offering four. So they’re offering leverage to people that want that leverage, and they’re long Bitcoin investors.

I showed you how MicroStrategy has a large options market. Well, there are a lot of people that want five times or ten times leverage. And they — and the best way to get it in their view is a high volatility equity with deep liquidity. And I showed you how MicroStrategy is very liquid in the spot and very volatile.

And so if you’re volatile and you’re liquid, then the only other question is are you credible? Are you trustworthy or transparent? What are we going to do? And then the thing about MicroStrategy is every day for the past four years, we’ve said one thing, bitcoin, long bitcoin. We’re going to acquire bitcoin. So if you’re a trader and you’re trying to figure out what’s MicroStrategy’s strategy, you don’t have to worry where we’re going to hedge. You don’t have to worry we’re going to trade against you.

We’re long bitcoin. We’re going to be 1.5 times bitcoin. And that means you can create MSTX or MSTU. That means you can create MSTY.

It means you can create an options market. It means that if you want a short bitcoin, then we’re giving you extra juice to short it. If you want to go long, we go that way. And so you can see of course those three securities above the baseline offer high volatility, high leverage, and they’re built on a Bitcoin treasury company that has a large pool of permanent capital and has an adept treasury operation.

If we look below the baseline, we’ve announced that we’re going to pursue a target of $21 billion in fixed income, capital raise. Well, so converts are — convertible bonds are an obvious thing for us to do. We also look at other types of fixed income. And in the future, we could imagine preferred stocks that might be compelling to people that want some of the performance of bitcoin, but they want downside protection.

Some people would like a convertible preferred. Others might want a dividend of some sort. And then there’s always the market for just providing fixed income, just a straight fixed coupon. If Bitcoin — I’ve said before Bitcoin returns 50% ARR, but there’s a large portion of the world that would be happy if we stripped away 80% of the performance, 90% or 95% of the volatility, a lot of the risk.

And if we stripped away risk and volatility and performance, and we gave them a coupon that was compelling and an instrument that they felt good about the credit of, if they understood the balance sheet, then we would be providing a useful product to the market based upon a digital commodity. Everybody knows they want income. Everybody knows they want appreciation. Everybody would like to have it with varying degrees of risk and volatility.

MicroStrategy’s treasury operations are we assess the capital market, we figure out what the capital markets want, we figure out what’s the best way, what is the security we might issue that’s beneficial to all our other stakeholders. And of course, that changes from time to time. And we don’t have any specific plan today, and so you’ll just have to stay tuned. But this chart helps you understand that MicroStrategy is the sum of its bitcoin reserves and its treasury operations.

And they go hand in hand in a very complimentary, synergistic fashion. Shirish, next slide. I wanted to show this chart because people — a lot of people have said, well, so what are you really doing? Is there a historical precedent for this? And the answer is yes. If you think about the energy industry, if you think about Standard Oil or oil refining companies, what is an oil refining company doing? It is starting with a commodity crude oil, crude oil that has a lot of energy in it.

Bitcoin has a lot of energy in it. Bitcoin is crude capital. Standard Oil discovered crude oil. The demand for that and the market is driven by technology.

The supply is a function of technology, entropy, chaos, inflation. And everybody wants — they want that energy because they want power, or they want mobility, or they want to drive human progress. And that’s a — and those oil companies are a $10 trillion asset class. So it’s a big market.

It’s a global market. It’s based on a commodity. Now what do oil companies do? Well, they have oil reserves. They have proven reserves and unproven reserves.

You would never value an oil company just on their reserves. It’s like, oh, well, they’re just 50% or they’re 1.5 times their reserves. Well, the answer is what else are they doing? Well, they have an oil refining operation. So what is an oil company do? I mean it refines the petrochemicals into products that are either more refined or less refined.

So if you ranked the top seven products that come from the crude oil commodity, the most refined is jet fuel. You want to you’re going to put it in your jet, fly across the Atlantic. It’s pretty important. You’ll pay a lot of money for jet fuel.

Gasoline is the next most refined. Diesel is another product. Liquefied petroleum gas. LPG is another product.

Then heating oil, then fuel oil. And then you get down to asphalt we put it on the street. Now none of these users can use the crude oil. You can’t put crude oil in your car engine.

You can’t put crude oil down on the pavement for a highway. You can’t put crude oil in your Boeing jet. So it’s pretty obvious why you need an oil refining operation. And what does the company do? Well, it refines the petrochemicals.

It prospects and drills. It extracts, it transports, and it manages the sales and distribution. And what is the company worth? It’s worth the combination of those two things, right? And you have to figure out how valuable each of the two things are, but you are adding value to the crude oil when you refine it and purify it. When we create securities from bitcoin, we’re adding value.

We’re creating something which someone with a large pool of capital finds very compelling. They can’t use, they can’t put the commodity in their engine, right? They just can’t. They need the security, and we give it to them in a refined format, and that’s worth a lot of money to them. And because of that, there oftentimes is what I’ll call a BTC spread.

There’s a difference between the value of that security to the investor and the amount of bitcoin in that security. And so in that particular case, if the BTC spread is 50%, then we sell $100 million of a security backed by $50 million of bitcoin, and we capture $50 million in a BTC gain, and that is the value that we create for our shareholders. That BTC gain is reflected in the BTC yield that we show you. Next slide.

MicroStrategy started just thinking we were going to hold bitcoin on our balance sheet so we wouldn’t bleed capital. Then we became opportunistic, then we became strategic. And somewhere along the way, we realized that the capital markets around the world will benefit and are undergoing a digital transformation. We are able to create an issue securities that provide everybody with the right amount of bitcoin performance and volatility in the security that they need.

And so — and we can do it because we have this bitcoin-backed reserve and bitcoin treasury operation. So if you think about our equity, what kind of investor would buy it? Well, someone that buys Magnificent Seven stocks, a bitcoin investor, a bitcoin maximalist that likes bitcoin might buy our equity because they want more bitcoin. Options traders, they would — they don’t directly by our equity. But the options traders trade the options, which then end up getting hedged into our equity.

So the options are built on the equity. So indirectly, they’re using the equity. And then any other kind of derivative like the MSTUs or MSTXs or MSTYs I referred to. So we’re actually digitally transforming those markets.

The reason MicroStrategy equity is exploding and trading volume is because the market likes a security backed by digital capital. The reason that the options markets are exploding, and open interest is the market likes to trade something backed by digital capital, right? If we look at the another set of investors, there’s equity indexes. They buy QQ or SPY. There’s hedge funds, there’s arbitrageurs, there’s alternative investors.

They’re looking for something which is not correlated to traditional risk assets, and maybe they want it for capital gain. And when we sell a convertible bond, we’re actually offering somebody something that has downside protection. It’s not correlated to their other portfolio. Maybe they get some bitcoin upside.

It’s a different thing for a different type of investor. But these are large markets. And just like those — the 15 of the 20 most successful ETFs this year, they’re bitcoin- or MicroStrategy-backed ETFs. Right? Well, what’s going on there? The market’s telling you that they love the vol.

They love the performance. And they love the idea of — I mean who wouldn’t love the idea of a big tech global network that feels like Google or Apple but 10 years early but isn’t attached to a company, right? Like it’s the big tech monitoring network, a different thing. So there are certain investors that won’t like the equity because they just don’t like the volatility. They don’t like the risk.

But they’ll like sort of a part equity, part bond instrument like our converts. Then there’s a third class of investors, the ones that buy preferred stock or high yield or private credit or real estate or hedge funds or alternatives, and it’s not a market that we’ve served before. And as I said, we don’t have any particular announcement right now. But it occurs to us that we’re in an ideal position as a bitcoin treasury company to take this bitcoin high performance, high volatility capital and then strip away a — strip of dividend out of it or strip away some of the volatility and performance and provide people with bitcoin with guardrails or bitcoin with downside protection or bitcoin low volatility maybe with some kind of dividend of sorts.

And of course the last market, here’s the very conventional market. They buy corporate debt, they buy real estate, they buy mortgage-backed securities, they buy structured products, they buy preferred stocks, and they’re looking for like a fixed coupon. And like we’ve generated fixed coupons. We just had a $500 million note, and it was paying 6.25% interest, and it was like 5, 10 times over collateralized.

It was like the most secure thing in the world. It was in $500 million at the base of $25 billion, $30 billion tower of other assets. So I don’t think we minded so much paying the 6%. What we minded was we didn’t want the EBITDA covenants, the liens, all of the other prohibitions, all of the other encumbrances.

And we didn’t want to have all our bitcoin encumbered. But I could imagine under other circumstances that we’d be happy to pay a coupon that’s compelling if we found the right security. So you can see MicroStrategy’s — I think we’re transforming and expanding all the markets we enter. We’re the first company that ever did a convertible bond one week and another one the next week.

And as Andrew said, we’re the most common issuer, the biggest issuer this year in terms of frequency. So we think that bitcoin is actually providing and revitalizing, injecting performance into options, into equity, into convertible bonds. We think it’ll expand the markets. We think we can expand all these markets.

We think ultimately it’s going to be good for investors. It’s going to be good for our common stock shareholders. There’s really no — nobody’s really losing because, as I’ve said before, it’s like bitcoin is giving us 50 vol, 50 ARR, and the world’s full of people that would be delighted to take 20 vol, 20 ARR. And if we gave it to them over a long enough time frame, it looks like it’s like a 60% BTC spread product where $100 million of capital results in $60 million, a BTC gains for our shareholders.

And it still results in a very compelling instrument that’s very easy to understand for a new class of investors. So we’re excited about the opportunities. And we’ve got a three-year plan. As I said, don’t have a crystal ball.

I don’t know where we’ll go with this. But over the next three years, we’ll explore this mix, and we’ll find the right combination for the capital markets, for bitcoin and for our common stock shareholders. Next, we’re really excited to increase our targets for BTC yield. We took them up by 2% from 4% to 8% to 6% to 10%.

But here is, I think, where it’s appropriate for me just to make a few comments, right? Like as I said, I think our company’s misunderstood. And I also think it’s undervalued. Investors have been concerned about a lot of things. They’ve been concerned about our ability to raise more capital via equity and debt issuance.

I think as you can see from our performance so far and the 21-21 plan, those concerns are unfounded. There’s no reason that we have to stop issuing fixed income instruments. We’re not encumbered by any EBITDA covenants or any particular other cash flow covenants that’ll keep us from doing that. And as you can see, some people have asked, can you keep doing ATMs and I think we put that to rest by filing a $21 billion ATM.

We’re going to expand, and we’re going to accelerate our treasury operations and our capital raising activities based upon the performance you’ve seen and with our newfound insights. We just keep getting — we get new insights every single quarter in this market, and we’re learning. But as we learn, we get a bit more sophisticated in how we do this. Now I’m going to wade into the to the big premium debate here.

Like what’s the appropriate premium for net asset against net asset value of MicroStrategy? And I just want to make one obvious point. We’re a growth company. We’re a bitcoin treasury company, and we are growing. We are built on an asset, bitcoin, which is growing 50% a year, and we are growing with that asset.

If you review the market for common multiples of growth companies, if you had a 20% growth company, oftentimes they’re valued at 25 times 40, 25 to 40 PTE. If you have a 30% growth company, oftentimes they’re valued at 35 to 55 PTE. If you have a 40% growth company, they’re valued at 45 to 70 sometimes. And a company growing 50% is oftentimes valued at 60 to 100 times.

And of course, bitcoin is growing 50%. We don’t know what it’ll do in the future. But my personal long-term view is over 21 years, bitcoin is going to grow 29% ARR. And looking backward, it’s definitely been growing fast, 50% every year for four years.

So how do you think about the value of the BTC, the bitcoin treasury operations, right? Not the balance sheet, not the not the reserves. But what’s the operation worth? And if you expect 30% to 50% growth for bitcoin, then it’s not unreasonable to have a 30 to 50 times multiple for that growth. And a 30 times to 50 times multiple means, if you were to look at this 6% to 10% target, 30 times ten is a 300% premium to net asset value, 50 times ten is a 500% premium. So you’re talking about an operation that’s 3 to 5 net asset value.

And if you tack on the actual treasury, you go from there and you realize you’re talking about an enterprise that could be $80 billion to $100 billion, and you could establish it just by looking at this and realizing it — these are not U.S. T-bills that we’re holding on our balance sheet. If you had if you had a U.S. Treasury bill that was growing 0% a year, you would multiply it times 20 in order to get a rate multiple.

But bitcoin is growing more than 0% a year. So 20 times is probably conservative. So that’s one way to approach it. Another way to approach it is just look at the BTC gain.

And that is what’s really happening here. When we have a 5% BTC yield in the quarter, that’s the same as acquiring 12,500 bitcoin for our shareholders without dilution. That’s like 50,000 bitcoin on an annualized basis. That’s like a $3.6 billion annualized BTC gain.

If you had a $3.6 billion annualized gain and you put a 30 to 50 multiple on it, you’ve all of a sudden got an operation that’s got a $108 billion to $180 billion value. And then you tack on the other 18 billion for the bitcoin, and you see where you get. It’s like the operation 6 to 10 times net asset value plus the reserves. And so most of the market doesn’t understand it, and most of the debate has been this assumption that we’re somehow some holding company that just got lucky and occasionally sell some equity and we — don’t we’re not adding any value to the market.

But hopefully, if you look at these numbers I’ve shown you, you realize that the value we’re adding to the market is to create high performance, high volatility securities for one group of investors and do that based on our unique structure and provide low volatility, lower performance, lower risk securities for another set of investors. And in that regard, we are the leader. Nobody else has $18 billion of permanent capital. In order to create a company like ours, you’re going to have to actually go 100% all bitcoin.

And how do you do that at our scale? If you do it with a big tech company, they’ll never be 100% bitcoin because they’ve got too much other stuff in their enterprise. And if you do it with $1 billion company, they’re not going to catch us. Because as you could see, we’re not slowing down. We’re actually going to — we’re going to target $10 billion of capital next year.

So unless you’re going to target $42 billion of capital in the next three years, then MicroStrategy is kind of in a unique position. So if you if you start thinking about like that, and I’ll just leave one other thought with you, which is if you — and again, like, I don’t have a crystal ball, there’s risk and all this. But you understand our 21-21 plan. If we achieve our 21-21 plan, if Bitcoin grows in excess of 21%, if that happens, MicroStrategy is capable of BTC gains in excess of $10 billion a year within four years.

And so thinking about a business like that that’s growing more than 20%, starts to put in perspective that, yeah, we shouldn’t just be valued based on our bitcoin reserves. The real issue is what are the opportunities for us as a bitcoin treasury company. And so with that, we can go to the next slide, Shirish. Phong said it, but I’ll say it again.

The world’s largest ATM equity offering is to buy bitcoin. And you could look at us and say, oh yeah, great, I get it. But do you really get it? Here’s the big idea, the reason that this is the largest ATM equity offering to, and it is to buy bitcoin, is because any other company that announced a $21 billion ATM would be expected to invest the capital in something dilutive. If you sold 21 billion of equity and you bought T-bills, you would be losing $2 billion a year, guaranteed.

That’s an awful idea. If you sold $21 billion of equity and you went and bought another company, it’s a risky acquisition. It’ll take 3 to 5 years. I can tell you, as a public company CEO for 30 years of my life, well, from ’98 all the way to 2022, 24 years, I can tell you that 90% to 95% of acquisitions all failed dismally.

Just a couple of percent ever really worked. So issuing this equity to do an acquisition is very risky. And so then what are you going to do? You’re going to buy up real estate, build a building for five years, or you’re going to build a new product? Are you going to hire 10,000 people? The problem in the market is most people don’t have a good use of proceeds. Bitcoin is the best use of proceeds, maybe in the history of the capital markets.

We’re building, in essence, a digital building in five days. We could raise $500 million, buy Bitcoin with it, show that there’s a BTC yield, announce it a few days later, and then build another $500 million building. And all along the way, our shareholders have complete transparency into the credit, complete transparency into the risk. And we’ve got a metric that, at a glance, tells you whether it’s a creative or dilutive and whether or not we’re getting more efficient, right? Is the BTC spread improving to the benefit of the shareholders or is it degrading? So we’re very straightforward, very transparent.

And because we have a balance sheet positively polarized toward capital and we have a transparent creative use of capital and because it’s a high speed investment cycle, it’s five days instead of five years, this makes total sense for our investors. In fact, I can tell you I’ve met with a lot of our investors. Their No. 1 concern isn’t are you going to dilute us or issue more equity.

Their No. 1 concern has been all along. You’re not going to stop, are you? Are you? Do you have to stop? Because we don’t want you to stop. So this is actually addressing concerns and the needs and the benefits that accrue to our MST, our common stock shareholders.

And I think it just illustrates the strength of our overall treasury strategy and the strength of the Bitcoin market. Next slide. Okay. You’ve been troupers.

You’ve stayed with me the entire time. I appreciate your attention, and I want to end with these principles. And I think they’re very important because if you’re a MicroStrategy shareholder, you’re coming with us on this journey. And hopefully, you see that we’re in this for the long term, and we want to be as transparent and consistent and reliable and understandable as we can possibly be to you.

So these are our bitcoin treasury company, BTC principles. One, we are going to buy and hold bitcoin indefinitely, exclusively, securely. Right? The company is built on this idea. If you’re waiting for us to hedge, to sell it, to get on top, if you’re looking for us to diversify, go elsewhere.

Right? If you’re a banker pitching me the idea of buying a value stock, buy some other cash cow company with my stock so that I can get them on the bitcoin standard, my answer is what are you going to offer me that’s better than 29% ARR risk-free for the next 21 years, right? We are focused on bitcoin long term, right? Long, hot time horizon. So that’s the No. 1 principle. It’s very important.

Everything else is built on it. No. 2 principle, we’re going to prioritize MicroStrategy common stock shareholders for long and long term, and we’re going to prioritize long-term value creation. If you own MSTR, you’re my partner.

You and I are in it together. When I meet with the MSTR shareholders, we talk about their ideas. They say you should do an ATM. Well, how much leverage should we take on? What should we be wanting to do or not to? How do you feel about this? Right? And their interests are my interests.

They are the management team’s interests. And if there’s any question in your mind, like what do you want to own for maximum performance over the next decade or 20 years, right, the way we keep score is MSTR performance. No. 3, treat all investors with respect, consistency, and transparency.

Note every investors are expected counterparty. If you know if you’ve got a call option on MicroStrategy that expires in 30 days, I respect you. I’m glad you do business with us. We appreciate the support, right? But we’re not going to run the business in order to maximize the call option on day 29.

If the call option expires out of the money, I’m sorry. I couldn’t do anything about that. We’re going to optimize for the long-term common stock because otherwise nobody can do anything else. All of the other securities above and below the common stock wouldn’t work.

So if you want to short us, have at it. I respect that, too. By all means, more the merrier, because you’re only a short $1 billion, you’re going to buy $1 billion when we need you to buy it. And so it’s fine.

But of course, don’t make the mistake of thinking that I’m going to serve your interests either, right? My — our interests are to make sure that we make good on our obligations. If we make a promise, we will meet our promise to our creditors, to everybody else. And that just means be consistent, be transparent, be respectful. And I want people to know they can trust us to do what we said we’re going to do.

I expect that we will have lots of different types of investors with lots of different strategies. In fact, there’s already almost infinite number of strategies, long, short, hedged, people trading vol, people selling vol, people levering up. It’s like it’s impossible to figure them out. Just be clear that we’re going to think about one and two.

And then we — I don’t try to outthink the quants with the Bloomberg. I know they are smarter and faster, and they have an opinion. Let them do what they’re going to do. All I want to say is we’re going to do our best not to compete with you.

We’re going to let you do your thing. We’re going to respect you. And whatever we say we’re going to do, we’re going to do. Four, structure MSTR to outperform BTC.

No offense to BTC. I love BTC. I tweet about BTC every day of my life. But MicroStrategy stock is going to be intelligently levered.

And our goal is to be more than BTC, more volatile, higher performance. I’d be happy if we’re 1.5. If you told me we were 2, I’m like pleasantly surprised, and I love it. But I we can’t guarantee what that number will be.

We can’t even guarantee we will. But what I can tell you is our principle is we will structure the business so rationally. We — everything we’ve done is with the aim of MicroStrategy being like it a 1.5 times BTC. We want a comfortable, responsible boost so that we can support everybody else in the market.

No. 5, we’re going to acquire BTC continually. We’ll just — we’re going to keep stacking, and the way that we’re going to stack is while pursuing positive BTC yield. Look, I mean, we could sell the stock at a negative premium and add BTC, but it would be dilutive to the shareholders.

There are a lot of times when we could raise capital. And it’s actually quite a creative, but it’s not as a — but we don’t like the spreads and it looks worse than we think they’ll be like next week. And so we’ll just hold out and wait because we want to support the market, and we just don’t think it’s appropriate. So we have the ability to move aggressively when the opportunity presents itself, and we have the ability to wait and do nothing when that’s the right thing to do.

But you can invest in 500 other companies, and 500 other companies can make 10,000 capital investments. And after they make them, you can talk to the management team and try to figure out was that building profitable, was that acquisition profitable, should we have done that with shareholder money, was that a good idea or not? And to tell you the truth, you could write 100,000 pages on that, and sometimes you never really know. And I think the thing that’s special about MicroStrategy, which is really nice, is we’re giving you the true north BTC yield. We’re telling you, every time we look at a deal, somebody calls me and says, hey, you, you should do this and this.

And I calculate it, I calculate the BTC yield. And I say, well, that’s not the most compelling option. Our shareholders won’t respect me. We will publish it.

We will be transparent. And so BTC yield really simplifies things a lot. It’s like I said, you want to make the investment in five days, and you want to know whether it was a created for your shareholders. And then if you’re really honest and truthful and transparent, you tell them.

And that’s what we do. We’re very proud of the fact that we tell you exactly what we’re going to do, and we’ll report on ourself, and some quarters are better BTC than others. Some deals have a greater BTC yield than others. And so understand it.

And we’re going to be pursuing it because at the end of the day, we generate BTC yield, we generate BTC gain. We generate BTC gain, we put value in the bitcoin operation. And that’s the motor that drives the common stock, and it drives Bitcoin. Six, our sixth principle is we’re going to grow rapidly but responsibly.

And of course, we’re going to do it subject to market dynamics. The market changes every week. Sometimes every day. We’re paying attention.

I can’t tell you what we’re going to do because the thing that makes sense when the market is in one dynamic state, all of a sudden doesn’t make sense three days later. But what you can be sure is we’re going to pursue growth, and we’re going to do it in responsible fashion. Our seventh principle, we’re going to issue innovative fixed income securities that are backed by bitcoin, right? I just showed you those convertible bonds. That’s a great secret, but it’s pretty extraordinary.

How do you buy bitcoin with less volatility, less risk and get bitcoin returns? Pretty neat idea. There are other good ideas. There are other ideas that we think will appeal to people in the capital market. Some of them will appeal to bitcoin investors.

Some will appeal to crypto enthusiasts. Some will appeal to conventional investors. We’re going to stay in our lane. Our lane is we have a Bitcoin treasury reserve and its permanent capital, and that means that we can find innovative fixed income ideas.

Why do I single out fixed income? Because fixed income is what creates the most leverage that drives MSTR common. And when we do it, when we do fixed income correctly, we’re going to generate that 1.5 times or two times bitcoin return, and that makes everybody happy. And that leads me to eight, right? If you’re going to do seven, you got to think eight. Eight is maintain a healthy, robust, pristine balance sheet.

Now people are going to say, well, what does pristine mean? Well, it means transparent. It means homogeneous. There is one risk you take when you invest in MicroStrategy. There’s a risk you take when you buy our fixed income securities.

The risk, the obvious overarching risk is you take bitcoin risk, right? You’re accepting the risk that Bitcoin itself could fail. And if you’re not willing to accept a bitcoin existential systemic risk, then you probably shouldn’t own any of our securities, right, because we’re a bitcoin company. But once you’ve accepted bitcoin risk, there’s a lot of people in the world, a lot of investors, they’ll say to me, Mike, I love bitcoin, I believe in bitcoin, I just can’t stand the volatility. Or I believe in bitcoin, but I need like a guaranteed coupon.

Or I believe in bitcoin, but I can’t be marking this to market in my strategy, or my strategy doesn’t let me do this. So there are a lot of people that will accept that. But after that, they want to know that we’re going to execute responsibly. So that means we want to we want a straightforward balance sheet.

We want you to understand it. It’s very, very straightforward. These are our assets. These are our liquid assets.

Right? We don’t want to have complications. The reason we wanted to repay the ’28 $500 million senior bond, too many complications, too many caveats, too many restrictions. And what we’ve learned over the four years is when we have complications in the balance sheet, like the Silver gate loan or like this ’28 senior note, those things undermine our ability to serve our common stock shareholders, and they undermine our ability to issue converts, and they undermine our ability to serve bitcoin and to do the right thing for the capital market. So we are enthusiastic, but we’re also very disciplined, and we know that we need to be viewed as having a pristine balance sheet and the bitcoin business and the bitcoin treasury business.

And so that’s why we value that. And the nine, and I’ll end with this, we’re going to promote global adoption of BTC as a treasury reserve asset. Promote it to countries, promote it to cities, promote it to states, promote it to companies, to public companies, to promote it to private companies. I speak with public company executives, I speak with private company and executives, we sponsor bitcoin for corporations.

Our belief is that bitcoin is a solution to the problem that 95% of public companies have, and I guess 99% of private companies have, which is they don’t have healthy balance sheets. Bitcoin fixes the balance sheet. It’ll bring your stock back to life. It’ll bring your options back to life.

It’ll bring volatility. It’ll everybody is negatively polarized to capital. We want to flip the switch and positively polarize them to capital. So unlike a lot of industries where you don’t want competitors, in our business, we’re happy to share the playbook.

We’re happy to advocate. We’ll show you how to do it. Everybody can win. There are no losers on the Bitcoin standard.

There are only varying degrees of winners. And so with that, I would like to thank everybody for your time. And I guess, Shirish, let’s go to questions.

Shirish Jajodia — MicroStrategy Incorporated

Great. Thank you so much Michael. That was a fantastic session. And we went way over our assigned time of one hour.

However, what we’ll do is we’ll take two quick questions. So, by the way, thank you to all the viewers. There were 4,000 people who joined in, and there are hundreds of questions that we received. So we’ll just take two questions in the interest of time.

And the first question is for Andrew. Andrew, can you please provide a framework around how you might cover interest expense if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. This is in the near term, I guess I’d say. I mentioned earlier, we redeemed the ’28 notes, which was our highest cost debt.

And by doing so, we reduced our annual cost by about $30 million, or about 50% of our debt load. So that obviously frees up cash. And then your term, taken out the ’28 also released us from all the covenants. So there may be some opportunities to get creative there.

And, you know, lastly, but probably more importantly, the 21-21 plan, we plan to raise, $42 billion of capital, and that capital could be used to service interest needed. So overall, I think we feel pretty good about our ability to issue new debt issue new fixed income securities, and we’ll look forward to those opportunities in the future.

Shirish Jajodia — MicroStrategy Incorporated

Great. And we’ll take one question for Michael. Given your ambitious ATM plan, are you concerned about the control company status? And how do you view it in the long term?

Michael J. Saylor — Chair, President, and Chief Executive Officer

I have slightly more than 50% of the voting stock right now. And as we raise additional capital, I expect that my voting interests will slip below into the high 40s. If we raise a lot of capital, it might slip into — move into the mid-40s or the low 40s, but I’m not at all concerned about it. First of all, we’re going to run this company in partnership with our common stock shareholders, and I meet with them routinely.

There’s nothing that we’re going to do that they’re not going to want us to do. And so perhaps, in order to get over 50%, I might have two or three of them join with me on occasion. But I actually look forward to that. So, I think our common stock shareholders should know that there are partners, and they deserve a say in the company.

They’ll have a greater say in the company, and that’s fine. I don’t really think there’s any reason that our company can’t operate just fine with me having 48% of the vote instead of 52% of the vote. As you know, you can see our principles. You can see our plan.

I think, substantially I’ll have enough voting shares to ensure that the company stays on track, but I’m not at all concerned about issuing additional equity.

Shirish Jajodia — MicroStrategy Incorporated

Thank you. Michael, I think with that, we will conclude the Q&A portion of the webinar, and I will hand the call over to Phong for the final closing remarks.

Phong Q. Le — President and Chief Executive Officer

I want to thank the several thousands of you who attended our earnings call today. I understand it’s an elongated session, and I appreciate your support. And hopefully, you’ve seen from our remarks, we are quite enthusiastic about the future of bitcoin and the future of MicroStrategy and the potential for value creation for all of our shareholders. We believe that the bitcoin treasury company strategy and the enterprise software strategy is going to create growth and value.

So we wish everybody a good quarter, a happy holidays, and we look forward to seeing all of you again in 12 weeks. Thank you all.

Michael J. Saylor — Chair, President, and Chief Executive Officer

Thank you.

Duration: 0 minutes

Call participants:

Shirish Jajodia — MicroStrategy Incorporated

Phong Q. Le — President and Chief Executive Officer

Andrew Kang — Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor — Chair, President, and Chief Executive Officer

Michael Saylor — Chair, President, and Chief Executive Officer

Phong Le — President and Chief Executive Officer

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