MicroStrategy Incorporated (NASDAQ:MSTR) Q1 2024 Earnings Call Transcript

MicroStrategy Incorporated (NASDAQ:MSTR) Q1 2024 Earnings Call Transcript April 29, 2024

MicroStrategy Incorporated misses on earnings expectations. Reported EPS is $-8.26 EPS, expectations were $0.33. MSTR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello everyone and good afternoon. I am Shirish Jajodia, Vice President of Investor Relations and Treasury at MicroStrategy. I’ll be your moderator for MicroStrategy’s 2024 First Quarter Earnings Webinar. Before we proceed, I will read the Safe Harbor statement. Some of the information we provide during today’s call regarding our future expectations, plans, and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-K 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 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, Phong, 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, Phong Le will cover the business results and the key pillars of our strategy. Second, Andrew Kang will cover the financial results for the Q1 of 2024. Then Michael Saylor will provide a strategic review and discuss our recent Bitcoin market updates. And lastly, we will open up to Q&A. With that, I will turn the call over to Phong Le, President and CEO of MicroStrategy.

Phong Le: Thanks, Shirish. Hello, everyone. I’d like to welcome all of you to today’s webinar. We’re excited to be reporting live from MicroStrategy World 2024 in Las Vegas, Nevada. We have a packed agenda lined up for the next three days and we’re excited to see our customers, partners, analysts, shareholders, and employees all in person to share our passion for BI, AI, Bitcoin, and Innovation. The business intelligence track tomorrow will feature my keynote presentation titled Let The Data Lifeblood Flow, and we’ll explore how to create more innovative, competitive, high performing organizations by using AI and BI to make smart data more accessible to the frontline employees. Our Chief Product Officer, Saurabh Abhyankar will share the latest MicroStrategy technologies for delivering convenient, flexible and reliable data within operational workflows, not just in dashboards, to everyone who needs it.

The keynote presentation will feature guest speakers from Microsoft, Amazon Web Services, Bayer Pharmaceuticals, the U. S. Department of State, and Vuori. Throughout MicroStrategy World, more than 30 top brands, including MassMutual, Pfizer, Fannie Mae, Victoria’s Secret, and NBCUniversal, will present how they use the MicroStrategy platform, Gen AI, and the cloud to become truly data-driven businesses. The Bitcoin for corporations track on Wednesday and Thursday will feature notable institutions and industry luminaries highlighting the advantages of integrating Bitcoin as a part of their corporate treasury and product offerings. It will be a unique gathering of corporations that are already adopting or looking to adopt Bitcoin strategies, and we are very excited to host this event.

Also, for the first time, we will livestream our World Keynote, as well as all the Bitcoin for Corporation sessions. For those of you attending the conference here in Las Vegas, we look forward to seeing you in person. Turning to the business highlights for Q1 2024. MicroStrategy remains the largest corporate holder of Bitcoin in the world, now holding 214,400 Bitcoin with a total Bitcoin market value of $14 billion as of yesterday. Since December 31, 2023, we acquired an additional 25,250 Bitcoin for a total purchase cost of $1.6 billion at an average price of $65,232. This past quarter, the price of Bitcoin appreciated significantly, spurred notably by the approval of the spot Bitcoin exchange traded products or ETPs, which has drawn considerable institutional attention.

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Q&A Session

We believe the introduction of spot Bitcoin ETPs further evidences the maturation of Bitcoin as an institutional grade asset class with broader regulatory recognition and institutional adoption. We remain highly committed to our Bitcoin strategy with a long-term focus. Andrew will provide further details on our Bitcoin purchase activity for this quarter. MicroStrategy is also positioned as the world’s largest independent publicly traded business intelligence company. Our objective to grow in AI, our objective is to grow in AI and cloud powered BI software. We have over 1,800 employees focused on our software business, devoted to achieving our vision of intelligence everywhere. In the first quarter of 2024, we continued our shift towards our cloud offering, resulting in subscription services revenues of $23 million, an increase of 22% year-over-year.

A strong growth in our subscription services revenue was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rate continues to remain high and our subscription billings remain strong. Overall, we continue to see further global adoption of our cloud platform as a result of transitioning our business strategy and product offerings from an on-prem perpetual licensed software company to a cloud native profitability. Our key strategic goals in 2024 are to grow cloud, innovate with AI, and increase profitability. Customers can benefit from a range of innovative first to market AI powered functionality, powered by the Azure, OpenAI, LLM. Capabilities include Auto SQL, which allows users to generate SQL using natural language, auto dashboard, which allows natural language generation of new visualizations.

Auto Answers, which allows customers to ask questions of their datasets and dashboards, Auto Expert which allows users to ask questions of our MicroStrategy knowledge base and log support tickets on our website and our custom Auto Bot, which enables end users to access BI insights from within a custom bot, stand alone or embedded in any application. We also just launched Auto Express, which offers a simple way to trial our AI capabilities in minutes. In April, MicroStrategy one became available on Google Cloud Marketplace in addition to prior deployments on Azure and AWS, allowing enterprises to easily find and deploy this cloud native platform. Additionally, we expect to provide the ability to deploy MicroStrategy in a private cloud later this year.

This will distinguish us from other BI platforms with the flexibility and automation that enterprise customers desire. We believe such investment and capability will encourage current on-prem customers to embrace the benefits of MicroStrategy. Cloud, such as containerized architecture, proactive cloud management from experts, seamless backups and single click updates. Transitioning our customer base to the technology of the future remains a key focus, and our resource deployment underscores our commitment to the cloud first approach. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to see a continued decrease in product license revenues, which will in part be offset by increases in subscription services revenues.

This will be most pronounced in the balance of 2024. This may result in a decrease in total recognized revenue in the short-term, but in the long run, we expect it to be more than offset by increases in subscription services revenue. Additional benefits include more engaged customer is using our very latest software, higher retention rates, and ultimately more recurring revenue. As we discussed last quarter, MicroStrategy considers itself to be the world’s first Bitcoin development company. We are a publicly traded operating company committed to the continued development of the Bitcoin network throughout our activities in the financial markets, advocacy and technology innovation. As an operating business, we are able to use cash flows, as well as proceeds from equity and debt financing in this to accumulate Bitcoin, which serves as our primary treasury reserve asset.

We also bring our enterprise analytics software development capabilities to develop Bitcoin applications. We believe that the combination of our operating structure, Bitcoin strategy, and focus on technology innovation provides a unique opportunity for value creation. Being an operating company, our software technology business remains our core revenue and cash flow generator. In addition, it also enables us to acquire Bitcoin through the use of excess cash or proceeds from equity capital raises or corporate debt capital raises. These capital market levers allow us to deploy intelligent leverage to increase our Bitcoin holdings in a manner, which we believe has created shareholder value. Since our adoption of our Bitcoin strategy, we’ve used three primary mechanisms to acquire more Bitcoin: cash flows from software operations.

Since 2020, we’ve invested $825 million of total cash on our balance sheet. Equity issuances, we have issued $3.2 billion in equity in a manner that we believe to be accretive to existing shareholders. And debt financing, we’ve issued $3.6 billion in debt through the issuance of both senior secured notes and convertible notes. We’ve used the proceeds from these issuances principally to purchase Bitcoin. The blended cost of our outstanding debt is fixed at 1.3% annually. In the first quarter of 2024, we generated approximately $7.2 billion of incremental value from the effect of increases in the price of Bitcoin on our existing Bitcoin holdings, as well as our strategic use of equity and debt capital market activities. We began the year with 189,150 Bitcoin holdings with a market value of approximately $8 billion.

As Bitcoin prices increased from $42,500 to $71,000 by the end of the first quarter, we experienced an increase of $5.4 billion in value based on our Bitcoin Holdings at the start of the year. In addition to the incremental value from their price appreciation of the Bitcoin we held as of the beginning of the year, we purchased an additional $1.6 billion of Bitcoin in the first quarter using proceeds from the issuance of additional equity and two convertible senior note offerings, as well as excess cash from operations. As a result, we added an additional 25,128 Bitcoin to our holdings at an average price of roughly $65,200, which generated an incremental approximately $145 million of value from an increase in the price of Bitcoin after those purchases were made through the end of Q1.

Overall, 2024 started off as a tremendously successful year taking into account our Bitcoin purchases and appreciation of our Bitcoin holdings year-to-date. While the overall market benefited from the increase in Bitcoin price as well, we believe our opportunistic use of leverage and excess cash to acquire Bitcoin, as well as our capital market strategy generated $1.8 billion of incremental shareholder value, demonstrating our track record of generating value for our shareholders. This slide shows an illustrative example of how intelligent leverage can be used to boost returns when Bitcoin prices are increasing. The baseline returns of any long Bitcoin strategy from spot Bitcoin price appreciation. Bitcoin ETPs also benefit from this, offset by the management fees that are charged for those products.