What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-06 · 192 added, 127 removed, 464 unchanged (41% of the section changed)

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Investors are warned that actual results may differ from management’s expectations.

10-for-1 stock split

On August 7, 2024, we completed a 10-for-1 stock split of our class A and class B common stock.

See Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements, for further information.

As a result of the stock split, all applicable share and per share information presented within this “Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been retroactively adjusted to reflect the stock split for all periods presented.

Business Overview

MicroStrategy® considers itself the world’s first Bitcoin development company.

We are a publicly-traded operating company committed to the continued development of the Bitcoin network through our activities in the financial markets, advocacy and technology innovation.

As an operating business, we are able to use cash flows as well as proceeds from equity and debt financings to accumulate bitcoin, which serves as our primary treasury reserve asset.

We also develop and provide industry-leading AI-powered enterprise analytics software that promotes our vision of Intelligence Everywhere, and are using our software development capabilities to develop bitcoin applications.

Our software business, which we have operated for over 30 years, is our predominant operational focus, providing cash flows and enabling us to pursue our bitcoin strategy.

We believe that the combination of our operating structure, bitcoin strategy and focus on technology innovation differentiates us in the digital assets industry.

MicroStrategy® is the world's first and largest Bitcoin Treasury Company.

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 in Bitcoin applications, integrating analytics expertise with our commitment to digital asset growth.

We believe our combination of operational excellence, strategic Bitcoin reserve, and 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.

Bitcoin Strategy

Our bitcoin strategy includes (i) acquiring bitcoin using cash flows from operations and proceeds from equity and debt financings, (ii) developing product innovations that leverage Bitcoin blockchain technology, and (iii) periodically engaging in advocacy and educational activities regarding the continued acceptance and value of bitcoin as an open, secure protocol for an internet-native digital asset.

Our bitcoin acquisition strategy generally involves acquiring bitcoin with our liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin.

Our bitcoin strategy generally involves from time to time, subject to market conditions, (i) issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin and (ii) acquiring bitcoin with our liquid assets that exceed working capital requirements.

We intend to fund further bitcoin acquisitions primarily through issuances of common stock and a variety of fixed-income instruments, including debt, convertible notes and preferred stock.

We view our bitcoin holdings as long-term holdings and expect to continue to accumulate bitcoin.

We have not set any specific target for the amount of bitcoin we seek to hold, and we will continue to monitor market conditions in determining whether to engage in additional financings to purchase additional bitcoin.

This overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes, including to generate cash for treasury management (which may include debt repayment), or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.

This overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.

Additionally, we periodically engage in advocacy and educational activities regarding the continued acceptance and value of Bitcoin as an open, secure protocol for an internet-native digital capital asset, and we leverage our software development capabilities to explore innovation in Bitcoin applications.

Under our Treasury Reserve Policy, our treasury reserve assets consist of:

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During 2023 and 2024, we used proceeds from various capital raising transactions to purchase bitcoin.

As of June 30, 2024, we held an aggregate of approximately 226,331 bitcoins, with 50,610 bitcoins held directly by MicroStrategy and 175,721 bitcoins held by MacroStrategy, a wholly-owned subsidiary of MicroStrategy.

As of June 30, 2024, all of the approximately 50,610 bitcoins held directly by MicroStrategy Incorporated, which had a market value of $3.134 billion based on the $61,926.69 market price of one bitcoin on the Coinbase exchange at 4:00 p.m.

Eastern Time on June 30, 2024, are held in a separate custodial account from those held by MacroStrategy and serve as part of the collateral securing our 2028 Secured Notes.

See below for further disclosure surrounding market value calculations of our bitcoin.

As of September 30, 2024, we held an aggregate of approximately 252,220 bitcoins.

The following table presents a roll-forward of our bitcoin holdings, including additional information related to our bitcoin purchases, sales, and digital asset impairment losses within the respective periods:

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Balance at June 30, 2024

Digital asset purchases

Digital asset impairment losses

Balance at September 30, 2024

(a) In the first quarter of 2023, we purchased bitcoin using $179.3 million of the net proceeds from our sale of class A common stock under our at-the-market offering program.

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(f) In the second quarter of 2024, we purchased $793.8 million of bitcoin using net proceeds from our issuance of the 2032 Convertible Notes and Excess Cash.

(g) In the third quarter of 2024, we purchased bitcoin using $1.105 billion of the net proceeds from our sale of class A common stock under our at-the-market offering program, $458.2 million of the net proceeds from our issuance of the 2028 Convertible Notes, and Excess Cash.

Excess Cash refers to cash in excess of the minimum Cash Assets that we are required to hold under our Treasury Reserve Policy, which may include cash generated by operating activities and cash from the proceeds of financing activities.

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September 30, 2024

(a) The "Lowest Market Price Per Bitcoin During Quarter" represents the lowest market price for one bitcoin reported on the Coinbase exchange during the respective quarter, without regard to when we purchased any of our bitcoin.

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Our digital asset impairment losses have significantly contributed to our operating expenses.

During the three months ended June 30, 2024, digital asset impairment losses of $180.1 million represented 64.1% of our operating expenses, compared to digital asset impairment losses of $24.1 million, representing 20.1% of our operating expenses, during the three months ended June 30, 2023.

During the six months ended June 30, 2024, digital asset impairment losses of $371.7 million represented 65.2% of our operating expenses, compared to digital asset impairment losses of $43.1 million, representing 18.4% of our operating expenses, during the six months ended June 30, 2023.

As of August 5, 2024, we held approximately 226,500 bitcoins that were acquired at an aggregate purchase price of $8.340 billion and an average purchase price of approximately $36,821 per bitcoin, inclusive of fees and expenses.

As of August 5, 2024, at 4:00 p.m.

During the three months ended September 30, 2024, digital asset impairment losses of $412.1 million represented 80.1% of our operating expenses, compared to digital asset impairment losses of $33.6 million, representing 26.2% of our operating expenses, during the three months ended September 30, 2023.

During the nine months ended September 30, 2024, digital asset impairment losses of $783.8 million represented 72.3% of our operating expenses, compared to digital asset impairment losses of $76.6 million, representing 21.1% of our operating expenses, during the nine months ended September 30, 2023.

As of October 30, 2024, we held approximately 252,220 bitcoins that were acquired at an aggregate purchase price of $9.904 billion and an average purchase price of approximately $39,266 per bitcoin, inclusive of fees and expenses.

As of October 30, 2024, at 4:00 p.m.

Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $71,812.70.

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As we continue to transition our business strategy and product offerings to a cloud-native model, we are enhancing our go-to-market and sales strategies with the goal of focusing on acquiring new customers, driving revenue growth, increasing margins, and streamlining our operations.

As part of this strategic transformation, we have taken and will continue to take measures to reorganize and optimize efficiency across our business functions, including sales, marketing, consulting, product, engineering, as well as other corporate functions.

As part of this transition, we have taken and will continue to take measures, including headcount optimization, to reorganize and increase efficiency across our business functions.

Operating Highlights

The following table sets forth certain operating highlights (in thousands) for the three and six months ended June 30, 2024 and 2023:

The following table sets forth certain operating highlights (in thousands) for the three and nine months ended September 30, 2024 and 2023:

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September 30,

Product licenses

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We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance.

As of June 30, 2024, we had a total of 1,839 employees, of whom 603 were based in the United States and 1,236 were based internationally.

As of September 30, 2024, we had a total of 1,637 employees, of whom 478 were based in the United States and 1,159 were based internationally.

The following table summarizes employee headcount as of the dates indicated:

September 30,

Subscription services

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Cost of subscription services revenues

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Total share-based compensation expense

The $5.1 million increase in share-based compensation expense during the three months ended June 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested.

The $5.4 million increase in share-based compensation expense during the six months ended June 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans and the revaluation and exercise of certain liability-classified stock-based awards, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested.

As of June 30, 2024, we estimated that an aggregate of approximately $158.4 million of additional share-based compensation expense associated with the Stock Incentive Plans and the 2021 ESPP will be recognized over a remaining weighted average period of 2.6 years.

The $2.6 million increase in share-based compensation expense during the three months ended September 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested.

The $7.9 million increase in share-based compensation expense during the nine months ended September 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans and the revaluation and exercise of certain liability-classified stock-based awards, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested.

As of September 30, 2024, we estimated that an aggregate of approximately $133.1 million of additional share-based compensation expense associated with the Stock Incentive Plans and the 2021 ESPP will be recognized over a remaining weighted average period of 2.4 years.

Critical Accounting Estimates

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Results of Operations

Comparison of the three and six months ended June 30, 2024 and 2023

Comparison of the three and nine months ended September 30, 2024 and 2023

Except as otherwise indicated herein, the term “domestic” refers to operations in the United States and Canada and the term “international” refers to operations outside of the United States and Canada.

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September 30,

Product Licenses and Subscription Services Revenues:

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Product licenses revenues.

Product licenses revenues decreased $6.2 million and $10.7 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to an overall decrease in the volume and average size of deals.

Product licenses revenues decreased $13.0 million and $23.7 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to an overall decrease in the volume and average size of deals.

Our product licenses revenues may continue to experience declines in future periods as we continue to promote our cloud offering to new and existing customers.

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Subscription services revenues are derived from our MCE cloud subscription service and are recognized ratably over the service period in the contract.

Subscription services revenues increased $4.2 million and $8.4 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, a net increase in the use of subscription services by existing customers, and sales contracts with new customers.

Subscription services revenues increased $6.8 million and $15.2 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, a net increase in the use of subscription services by existing customers, and sales contracts with new customers.

We expect our subscription services revenues to continue to grow in future periods as we continue to promote our cloud offering to new and existing customers.

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Product Support Revenues:

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Product support revenues are recognized ratably over the term of the contract, which is generally one year.

Product support revenues decreased $4.3 million and $7.1 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services offerings.

Product support revenues decreased $5.8 million and $13.0 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services offerings.

Our product support revenues may experience declines in future periods as we continue to promote our cloud offering to new and existing customers.

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September 30,

Other Services Revenues:

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Consulting revenues are derived from helping customers plan and execute the deployment of our software.

Consulting revenues decreased $2.4 million and $5.9 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to a decrease in billable hours worldwide.

Consulting revenues decreased $1.2 million and $7.1 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to a decrease in demand for domestic consulting services.

Education revenues.

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These offerings include self-tutorials, custom course development, joint training with customers’ internal staff, and standard course offerings, with pricing dependent on the specific offering delivered.

Education revenues did not materially change for the three and six months ended June 30, 2024, as compared to the same periods in the prior year.

Education revenues did not materially change for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year.

Costs and Expenses

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Cost of Revenues:

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Cost of product licenses revenues consists of referral fees paid to channel partners, the costs of product manuals and media, and royalties paid to third-party software vendors.

Cost of product licenses revenues did not materially change for the three and six months ended June 30, 2024, as compared to the same periods in the prior year.

Cost of product licenses revenues did not materially change for the three months ended September 30, 2024, as compared to the same period in the prior year.

Cost of product licenses revenues increased $0.8 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to the amortization of the prepaid patent license received as part of the settlement agreement with Daedalus, as described in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements.

Cost of subscription services revenues.

Cost of subscription services revenues consists of equipment, facility and other related support costs (including cloud hosting infrastructure costs), and personnel and related overhead costs.

Cost of subscription services revenues increased $2.3 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to a $2.4 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers.

Cost of subscription services revenues increased $3.1 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to a $3.3 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers.

Cost of subscription services revenues increased $3.4 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to a $2.9 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers.

Cost of subscription services revenues increased $6.5 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to a $6.2 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers.

Cost of product support revenues.

Cost of product support revenues consists of personnel and related overhead costs.

Cost of product support revenues increased $2.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $0.7 million increase in salaries and personnel costs, (ii) a $0.7 million increase in variable compensation, and (iii) a $0.5 million net increase in share-based compensation expense, which were all primarily attributable to an increase in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year, which previously resulted in compensation costs for certain consulting personnel being allocated to cost of product support revenues.

Cost of product support revenues increased $5.2 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.7 million increase in variable compensation, (ii) a $1.5 million increase in salaries and personnel costs, and (iii) a $1.0 million net increase in share-based compensation expense, which were all primarily attributable to an increase in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year.

Cost of product support revenues increased $3.0 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.1 million increase in severance costs due to headcount reductions, (ii) a $0.7 million increase in salaries and personnel costs, (iii) a $0.5 million increase in variable compensation, and (iv) a $0.4 million net increase in share-based compensation expense.

Other than the increase in severance costs, these changes were primarily attributable to an increase in average staffing levels from the internal transfer of certain employees to product support functions, partially offset by the discontinuance of our Enterprise Support program in the current year, which previously resulted in compensation costs for certain consulting personnel being allocated to cost of product support revenues.

Cost of product support revenues increased $8.2 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.3 million increase in salaries and personnel costs, (ii) a $2.2 million increase in variable compensation, (iii) a $1.4 million net increase in share-based compensation expense, (iv) a $1.1 million increase in severance costs due to headcount reductions, and (v) a $0.6 million increase in facility and other related support costs.

Cost of consulting revenues.

Cost of consulting revenues consists of personnel and related overhead costs.

Cost of consulting revenues decreased $1.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $0.8 million decrease in variable compensation and (ii) a $0.7 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year.

Cost of consulting revenues decreased $2.7 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.4 million decrease in variable compensation and (ii) a $1.1 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year.

Cost of consulting revenues increased $0.9 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.1 million increase in severance costs due to headcount reductions, partially offset by (ii) a $0.2 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, substantially offset by the discontinuance of our Enterprise Support program (pursuant to which costs associated with certain consulting personnel had been recognized in cost of product support revenues) in the current year.

Cost of consulting revenues decreased $1.8 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.8 million decrease in variable compensation and (ii) a $0.9 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, partially offset by the discontinuance of our Enterprise Support program (pursuant to which costs associated with certain consulting personnel had been recognized in cost of product support revenues) in the current year, and (iii) a $0.4 million decrease in facility and other related support costs, partially offset by (iv) a $0.8 million increase in subcontractor costs, and (v) a $0.7 million increase in severance costs due to headcount reductions.

Cost of education revenues.

Cost of education revenues consists of personnel and related overhead costs.

Cost of education revenues did not materially change for the three and six months ended June 30, 2024, as compared to the same periods in the prior year.

Cost of education revenues did not materially change for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year.

Sales and marketing expenses.

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Sales and marketing expenses

Sales and marketing expenses decreased $3.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.1 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $1.5 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (iii) a $0.5 million decrease in facility and other related support costs, and (iv) a $0.4 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards, partially offset by the grant of additional awards under the Stock Incentive Plans, partially offset by (v) a $1.0 million increase in marketing costs, and (vi) a $0.5 million increase in subcontractor costs.

Sales and marketing expenses decreased $6.1 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $3.8 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $3.6 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (iii) a $0.9 million decrease in facility and other related support costs, and (iv) a $0.8 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards, partially offset by the grant of additional awards under the Stock Incentive Plans and the fair value remeasurement of certain liability-classified awards upon exercise or at the end of the reporting period, partially offset by (v) a $1.7 million increase in marketing costs, and (vi) a $1.2 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans.

Sales and marketing expenses did not materially change for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.1 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $0.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels (including from the internal transfer of certain employees to product support functions), partially offset by wage increases, (iii) a $0.2 million decrease in non-income taxes, (iv) a $0.2 million decrease in recruiting costs, (v) a $0.2 million decrease in facility and other related support costs, and (vi) a $0.1 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards and the internal transfer of certain employees to product support functions, substantially offset by the grant of additional awards under the Stock Incentive Plans, substantially offset by (vii) a $2.8 million increase in severance costs due to headcount reductions, and (viii) a $0.8 million increase in marketing costs.

Sales and marketing expenses decreased $6.3 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $6.7 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $4.4 million decrease in employee salaries primarily attributable to a decrease in average staffing levels (including from the internal transfer of certain employees to product support functions), partially offset by wage increases, (iii) a $1.0 million decrease in facility and other related support costs, (iv) a $0.8 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards and the internal transfer of certain employees to product support functions, partially offset by the grant of additional awards under the Stock Incentive Plans and the fair value remeasurement of certain liability-classified awards upon exercise or at the end of the reporting period, (v) a $0.6 million decrease in cloud hosting infrastructure costs, and (vi) a $0.5 million decrease in recruiting costs, partially offset by (vii) a $2.6 million increase in severance costs due to headcount reductions, (viii) a $2.5 million increase in marketing costs, and (ix) a $2.4 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans.

Research and development expenses.

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September 30,

Research and development expenses

Research and development expenses increased $1.0 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.8 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans and (ii) a $0.9 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, partially offset

by (iii) a $1.0 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases.

Research and development expenses decreased $1.2 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.6 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases and (ii) a $0.4 million decrease in cloud hosting infrastructure costs, partially offset by (iii) a $1.3 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans and (iv) a $1.0 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain awards.

Research and development expenses increased $3.6 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $5.1 million increase in severance costs due to headcount reductions, and (ii) a $0.3 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain awards, partially offset by (iii) a $0.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, and (iv) a $0.7 million decrease in variable compensation.

Research and development expenses increased $2.4 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $5.1 million increase in severance costs due to headcount reductions, (ii) a $1.4 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans and (iii) a $1.3 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain awards, partially offset by (iv) a $3.5 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (v) a $0.8 million decrease in variable compensation, (vi) a $0.6 million decrease in cloud hosting infrastructure costs, and (vii) a $0.5 million decrease in facility and other related support costs.

General and administrative expenses.

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September 30,

General and administrative expenses

General and administrative expenses increased $7.3 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $3.0 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested, (ii) a $2.9 million increase in legal, consulting, and other advisory costs, (iii) a $2.4 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, and (iv) a $1.0 million increase in custodial fees incurred on our bitcoin holdings, partially offset by (v) a $1.2 million loss recorded in the prior year with respect to the Brazilian matters noted in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements, and (vi) a $0.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases.

General and administrative expenses increased $14.1 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $7.6 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, (ii) a $4.1 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested and the forfeiture of certain awards, (iii) a $3.9 million increase in legal, consulting, and other advisory costs, and (iv) a $1.5 million increase in custodial fees incurred on our bitcoin holdings, partially offset by (v) a $1.6 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases and (iv) a $1.2 million loss recorded in the prior year with respect to the Brazilian matters noted in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements.

General and administrative expenses increased $4.3 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.0 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested, (ii) a $1.6 million increase in legal, consulting, and other advisory costs, (iii) a $1.0 million increase in custodial fees incurred on our bitcoin holdings, and (iv) a $0.6 million increase in severance costs due to headcount reductions, partially offset by (v) a $0.7 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases.

General and administrative expenses increased $18.3 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $7.6 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, (ii) a $6.1 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested and the forfeiture of certain awards, (iii) a $5.5 million increase in legal, consulting, and other advisory costs, (iv) a $2.5 million increase in custodial fees incurred on our bitcoin holdings, (v) a $0.9 million increase in severance costs due to headcount reductions, and (vi) a $0.6 million increase in costs related to the maintenance and operations of our corporate aircraft, partially offset by (vii) a $2.3 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (viii) a $1.2 million loss recorded in the prior year with respect to the Brazilian matters noted in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements, (ix) a $0.7 million decrease in business insurance costs, and (x) a $0.5 million decrease in variable compensation.

Digital asset impairment losses.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Digital asset impairment losses

We did not sell any of our digital assets during the three and six months ended June 30, 2024 and 2023.

We did not sell any of our digital assets during the nine months ended September 30, 2024 or 2023.

We may continue to incur significant digital asset impairment losses in the future.

For example, we have incurred at least $275.5 million in digital asset impairment losses during the third quarter of 2024 on bitcoin we held as of June 30, 2024.

For example, we have incurred at least $18.9 million in digital asset impairment losses during the fourth quarter of 2024 on bitcoin we held as of September 30, 2024.

Interest Expense, Net

Interest expense, net, primarily relates to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements.

The following table sets forth interest expense, net (in thousands) and related percentage changes for the periods indicated:

The following table sets forth interest expense, net (in thousands) for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Interest expense, net:

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2031 Convertible Notes

2032 Convertible Notes

2028 Secured Notes

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Total interest expense, net

Interest expense, net, increased $4.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily as a result of interest incurred related to the 2030 Convertible Notes and 2031 Convertible Notes (which were each issued in March 2024) and interest incurred related to the 2032 Convertible Notes (which were issued in June 2024).

Interest expense, net, increased $1.3 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily as a result of interest incurred related to the 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, partially offset by the repayment of the 2025 Secured Term Loan in March 2023.

Interest expense for future periods in 2024 is expected to increase compared to the same periods in 2023 as a result of the issuances of our 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, partially offset by the 2025 Convertible Notes having been converted or redeemed in their entirety by July 15, 2024.

Interest expense, net, increased $7.1 million and $8.4 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in the prior year, primarily as a result of (i) interest incurred related to the 2032 Convertible Notes (which were issued in June 2024), (ii) interest incurred related to the 2030 Convertible Notes and 2031 Convertible Notes (which were each issued in March 2024), (iii) interest incurred related to the 2028 Convertible Notes (which were issued in September 2024), partially offset by (iv) the repayment of the 2025 Secured Term Loan in March 2023 (for the comparison of the nine months ended September 30, 2024 and 2023), (v) the 2025 Convertible Notes having been converted or redeemed in their entirety by July 15, 2024, and (vi) the 2028 Secured Notes having been redeemed in their entirety on September 26, 2024.

Interest expense for the fourth quarter of 2024 is expected to increase compared to the same period in 2023 as a result of the issuances of our 2028 Convertible Notes, 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, partially offset by the 2028 Secured Notes having been redeemed in their entirety on September 26, 2024 and the 2025 Convertible Notes having been converted or redeemed in their entirety by July 15, 2024.

Refer to Note 5, Long-term Debt, to the Consolidated Financial Statements for further information.

Gain on Debt Extinguishment

For the six months ended June 30, 2023, the $44.7 million gain on debt extinguishment resulted from the repayment of the 2025 Secured Term Loan.

(Loss) Gain on Debt Extinguishment

For the three and nine months ended September 30, 2024, the $22.9 million loss on debt extinguishment resulted from the redemption of the 2028 Secured Notes.

For the nine months ended September 30, 2023, the $44.7 million gain on debt extinguishment resulted from

the repayment of the 2025 Secured Term Loan.

Refer to Note 5, Long-term Debt, to the Consolidated Financial Statements for further information.

Other Income (Expense), Net

For the three and six months ended June 30, 2024, other income, net, of $0.7 million and $2.4 million, respectively, were comprised primarily of foreign currency transaction net gains.

For the three and six months ended June 30, 2023, other expense, net, of $0.3 million and $1.7 million, respectively, were comprised primarily of foreign currency transaction net losses.

We recorded a benefit from income taxes of $273.3 million on a pretax loss of $428.9 million that resulted in an effective tax rate of 63.7% for the six months ended June 30, 2024, as compared to a benefit from income taxes of $513.5 million on a pretax loss of $30.0 million that resulted in an effective tax rate of 1,708.9% for the six months ended June 30, 2023.

During the six months ended June 30, 2024, our benefit from income taxes primarily related to (i) a tax benefit related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units) and (ii) a tax benefit from an increase in our deferred tax asset related to the impairment on our bitcoin holdings.

During the six months ended June 30, 2023, our benefit from income taxes primarily related to the release of a portion of the valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the increase in market value of bitcoin as of June 30, 2023 compared to December 31, 2022.

As of June 30, 2024, we had a valuation allowance of $1.4 million primarily related to our deferred tax assets related to foreign tax credits in certain jurisdictions.

Other (Expense) Income, Net

For the three and nine months ended September 30, 2024, other expense, net, of $5.0 million and $2.6 million, respectively, were comprised primarily of foreign currency transaction net losses.

For the three and nine months ended September 30, 2023, other income, net, of $2.4 million and $0.7 million, respectively, were comprised primarily of foreign currency transaction net gains.

We recorded a benefit from income taxes of $411.8 million on a pretax loss of $907.6 million that resulted in an effective tax rate of 45.4% for the nine months ended September 30, 2024, as compared to a benefit from income taxes of $403.9 million on a pretax loss of $63.9 million that resulted in an effective tax rate of 632.2% for the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, our benefit from income taxes primarily related to (i) a tax benefit from an increase in our deferred tax asset related to the impairment on our bitcoin holdings and (ii) a tax benefit related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units).

During the nine months ended September 30, 2023, our benefit from income taxes primarily related to the release of a portion of the valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the increase in market value of bitcoin as of September 30, 2023 compared to December 31, 2022.

As of September 30, 2024, we had a valuation allowance of $1.4 million primarily related to our deferred tax assets related to foreign tax credits in certain jurisdictions.

The largest deferred tax asset relates to the impairment on our bitcoin holdings.

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Our effective tax rate may fluctuate due to changes in our domestic and foreign earnings and losses, material discrete tax items, or a combination of these factors resulting from transactions or events.

enacted the Inflation Reduction Act of 2022 (“IRA”) in August 2022.

Among other things, unless an exemption by statute or regulation applies, a provision of the IRA imposes a 15% corporate alternative minimum tax (“CAMT”) on a corporation with respect to an initial tax year and all subsequent tax years, if the average annual adjusted financial statement income for any consecutive three-tax-year period preceding the initial tax year exceeds $1 billion.

On September 12, 2024, the Department of Treasury and the Internal Revenue Service issued proposed regulations with respect to the application of the CAMT.

Our adoption of Accounting Standards Update No.

2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60):

Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) will require us to recognize a cumulative-effect adjustment to the opening balance of our retained earnings as of January 1, 2025 and to recognize unrealized gains or losses from changes in the fair value of digital assets in future reporting periods as income or losses.

Unless the proposed regulations with respect to CAMT are revised to provide relief, for purposes of calculating the adjusted financial statement income, the cumulative-effect adjustment to the opening balance of our retained earnings as of January 1, 2025 would be ratably allocated over a 4-year period from 2025 through 2028.

When determining whether we are subject to CAMT and when calculating any related tax liability for an applicable tax year, the proposed regulations provide that our adjusted financial statement income must include the ratable portion of the cumulative-effect adjustment to the opening balance of our retained earnings as of January 1, 2025, in addition to any unrealized gains or losses reported in the applicable tax year.

As a result, we could become subject to CAMT in the tax years beginning in 2026.

As the taxes to which we are subject will depend in significant part on the future price of bitcoin and the size of our bitcoin holdings, we are not able to estimate the impact of CAMT on our future income tax expense.

See “Risk Factors—Risks Related to Our Business in General—We may have exposure to greater than anticipated tax liabilities, including the potential taxation of unrealized gains on our bitcoin holdings.”

Deferred Revenue and Advance Payments

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The following table summarizes deferred revenue and advance payments (in thousands), as of:

September 30,

Deferred product licenses revenue

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The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet in “Accounts receivable, net” and “Deferred revenue and advance payments” and instead are included in the remaining performance obligation disclosure below.

Total deferred revenue and advance payments decreased $25.9 million as of June 30, 2024, as compared to December 31, 2023, primarily due to (i) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts and (ii) a decrease in deferred other services revenue from an increase in revenue recognized from previously deferred other services, partially offset by (iii) an increase in deferred revenue from subscription services contracts.

Total deferred revenue and advance payments increased $3.7 million as of June 30, 2024, as compared to June 30, 2023, primarily due to (i) an increase in deferred revenue from subscription services contracts, partially offset by (ii) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts.

Our remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancelable amounts that will be invoiced and recognized as revenue in future periods.

Total deferred revenue and advance payments decreased $45.9 million as of September 30, 2024, as compared to December 31, 2023, primarily due to (i) a decrease in deferred product support revenue due to the timing of product support renewals and an increase in conversions from on-premises to subscription services contracts and (ii) decreases in deferred other services revenue and deferred product licenses revenues, partially offset by (iii) an increase in deferred revenue from subscription services contracts.

Total deferred revenue and advance payments increased $3.9 million as of September 30, 2024, as compared to September 30, 2023, primarily due to (i) an increase in deferred revenue from subscription services contracts, partially offset by (ii) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts.

Our remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancellable amounts that will be invoiced and recognized as revenue in future periods.

The remaining performance obligation excludes contracts that are billed in arrears, such as certain time and materials contracts.

As of June 30, 2024, we had an aggregate transaction price of $360.7 million allocated to the remaining performance obligation related to subscription services, product support, product licenses, and other services contracts.

As of September 30, 2024, we had an aggregate transaction price of $380.5 million allocated to the remaining performance obligation related to subscription services, product support, product licenses, and other services contracts.

We expect to recognize approximately $237.1 million of the remaining performance obligation over the next 12 months and the remainder thereafter.

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Under our Treasury Reserve Policy and bitcoin acquisition strategy, we use a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoins, which are classified as indefinite-lived intangible assets.

2024, we filed a prospectus for a new at-the-market equity offering program pursuant to which we may sell class A common stock having an aggregate offering price of up to $2.0 billion from time to time.

As of September 30, 2024, approximately $891.3 million of our class A common stock remained available for issuance and sale pursuant to the August 2024 Sales Agreement.

For additional information, see “—At-the-Market Equity Offerings” below.

As of June 30, 2024 and December 31, 2023, the amount of cash and cash equivalents held by our U.S.

As of September 30, 2024 and December 31, 2023, the amount of cash and cash equivalents held by our U.S.

entities was $15.6 million and $10.5 million, respectively, and by our non-U.S.

entities was $30.7 million and $36.3 million, respectively.

We earn a significant amount of our revenues outside the United States.

We did not repatriate any foreign earnings and profits during the six months ended June 30, 2024 or 2023.

We earn a significant

amount of our revenues outside the United States.

We repatriated foreign earnings and profits of $6.5 million and $10.0 million during the nine months ended September 30, 2024 and 2023.

Our material contractual obligations and cash requirements consist of:

• principal and interest payments related to our long-term debt, which includes:

o principal due upon maturity of our long-term debt instruments in the aggregate of $3.762 billion, excluding the 2025 Convertible Notes, which were converted or redeemed in their entirety on or before July 15, 2024;

o principal due upon maturity of our long-term debt instruments in the aggregate of $4.272 billion;

o $3.2 million in coupon interest due each semi-annual period for the 2028 Convertible Notes;

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o $2.6 million in coupon interest due each semi-annual period for the 2031 Convertible Notes;

o $15.3 million in coupon interest due each semi-annual period for the 2028 Secured Notes;

o $9.0 million in coupon interest due each semi-annual period for the 2032 Convertible Notes;

o $0.1 million due monthly in principal and interest related to our other long-term secured debt.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in the Notes to the Consolidated Financial Statements included therein.

Other than our issuances of the 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes described more fully below and in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report, and the conversions and redemption of the 2025 Convertible Notes described more fully below and in Note 5, Long-term Debt, and Note 13, Subsequent Events, to the Consolidated Financial Statements included in this Quarterly Report, there have been no changes to our material contractual obligations and cash requirements since December 31, 2023.

Other than (i) our issuances of the 2030 Convertible Notes, 2031 Convertible Notes, 2032 Convertible Notes, and 2028 Convertible Notes, (ii) the conversions and redemption of the 2025 Convertible Notes, and (iii) the redemption of the 2028 Secured Notes, all of which are described more fully below and in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report, there have been no changes to our material contractual obligations and cash requirements since December 31, 2023.

We believe that existing cash and cash equivalents held by us and cash and cash equivalents anticipated to be generated by us are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months.

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We also have long-term cash requirements for obligations related to our operating leases, the Transition Tax, and our various purchase agreements.

As of June 30, 2024, we do not expect cash and cash equivalents generated by our enterprise analytics software business to be sufficient to satisfy these obligations.

As of September 30, 2024, we do not expect cash and cash equivalents generated by our enterprise analytics software business to be sufficient to satisfy these obligations.

As a result, we would seek to satisfy these obligations through various options that we expect to be available to us, such as refinancing our debt or generating cash from other sources, which may include the issuance and sale of shares of our class A common stock, borrowings collateralized by bitcoin, or the sale of our bitcoin.

Furthermore, if the conditional conversion features of the Convertible Notes are triggered, we may elect to settle the conversions of Convertible Notes in shares of our class A common stock, or a combination of cash and shares of class A common stock, rather than in all cash, which may enable us to reduce the amount of our cash obligations under the Convertible Notes.

The 2028 Secured Notes have a stated maturity date of June 15, 2028, but include a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is (i) 91 days prior to the existing maturity date of the 2027 Convertible Notes (which is November 16, 2026) or (ii) 91 days prior to the maturity date of any future convertible debt that we may issue that is then outstanding, unless on such dates we meet specified liquidity requirements or less than $100,000,000 of aggregate principal amount of the 2027 Convertible Notes or such future convertible debt, as applicable, remains outstanding.

In addition, while the 2030 Convertible Notes, the 2031 Convertible Notes, and the 2032 Convertible Notes have maturity dates of March 15, 2030, March 15, 2031, and June 15, 2032, respectively, the holders of these Convertible Notes each have the right to require us to repurchase for cash all or any portion of these Convertible Notes on September 15, 2028, in the case of the 2030 Convertible Notes and the 2031 Convertible Notes, or June 15, 2029, in the case of the 2032 Convertible Notes, at a repurchase price in each case equal to 100% of the principal amount of the applicable Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding the repurchase date.

As of June 30, 2024, we held approximately 226,331 bitcoins, of which approximately 175,721 are unencumbered.

We do not believe we will need to sell or engage in other transactions with respect to any of our bitcoins within the next twelve months to meet our working

capital requirements, although we may from time to time sell or engage in other transactions with respect to our bitcoins as part of treasury management operations, as noted above.

In addition, while the 2028 Convertible Notes, the 2030 Convertible Notes, the 2031 Convertible Notes, and the 2032 Convertible Notes have maturity dates of September 15, 2028, March 15, 2030, March 15, 2031, and June 15, 2032, respectively, the holders of these Convertible Notes each have the right to require us to repurchase for cash all or any portion of these Convertible Notes on September 15, 2027, in the case of the 2028 Convertible Notes, September 15, 2028, in the case of the 2030 Convertible Notes and the 2031 Convertible Notes, or June 15, 2029, in the case of the 2032 Convertible Notes, at a repurchase price in each case equal to 100% of the principal amount of the applicable Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding the repurchase date.

As of September 30, 2024, we held approximately 252,220 bitcoins, all of which are unencumbered.

We do not believe we will need to sell or engage in other transactions with respect to any of our bitcoins within the next twelve months to meet our working capital requirements, although we may from time to time sell or engage in other transactions with respect to our bitcoins as part of treasury management operations, as noted above.

The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized network.

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The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated:

Six Months Ended June 30,

Net cash provided by operating activities

Nine Months Ended September 30,

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by operating activities.

Net cash (used in) provided by operating activities.

The primary source of our cash provided by operating activities is cash collections of our accounts receivable from customers following the sales and renewals of our product licenses, subscription services and product support, as well as consulting and education services.

Our primary uses of cash in operating activities are for personnel-related expenditures for software development, personnel-related expenditures for providing consulting, education, and subscription services, and for sales and marketing costs, general and administrative costs, interest expense related to our long-term debt arrangements, and income taxes.

Non-cash items to further reconcile net (loss) income to net cash provided by operating activities consist primarily of depreciation and amortization, reduction in the carrying amount of operating lease right-of-use assets, credit losses and sales allowances, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, digital asset impairment losses, amortization of the issuance costs on our long-term debt, and gain on extinguishment of debt.

Net cash provided by operating activities decreased $13.7 million for the six months ended June 30, 2024, as compared to the same period in the prior year, due to a $639.1 million decrease in net income and a $7.2 million decrease from changes in operating assets and liabilities, which was partially offset by a $632.7 million increase in non-cash items (principally related to changes in digital asset impairment losses, deferred taxes, and a gain on extinguishment of debt in the first quarter of 2023).

Non-cash items to further reconcile net (loss) income to net cash (used in) provided by operating activities consist primarily of depreciation and amortization, reduction in the carrying amount of operating lease right-of-use assets, credit losses and sales allowances, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, digital asset impairment losses, amortization of the issuance costs on our long-term debt, and gain and losses on extinguishment of debt.

Net cash used in operating activities increased $47.2 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, due to a $835.8 million decrease in net income and a $6.5 million decrease from changes in operating assets and liabilities, which was partially offset by a $795.1 million increase in non-cash items (principally related to changes in digital asset impairment losses and gains and losses from the extinguishments of certain debt instruments).

In particular, our cash from operations has been negatively impacted by our continued transition of customers to subscription services offerings, which have resulted in (i) reduced cash collections due to invoicing over multiple years, (ii) increased commissions to our sales team to incentivize cloud migrations, and (iii) increased investments in our cloud infrastructure to support increased usage.

We have also incurred additional employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, legal and consulting fees, marketing costs, and bitcoin custodial fees as we continue to pursue our dual software and bitcoin strategies.

Increases in severance costs from headcount reductions were substantially offset by decreases in salary expenses as a result of the reduced headcount.

Our interest payments in 2024 have increased compared to the prior year primarily due to the issuances of the 2030 Convertible Notes and 2031 Convertible Notes and the early extinguishment of the 2028 Secured Notes, partially offset by the extinguishment of the Secured Term Loan in 2023.

Our cash from operations was favorably impacted in the current year by a significant reduction in income tax payments, net of refunds.

Net cash used in investing activities.

The changes in net cash used in investing activities primarily relate to purchases of digital assets and expenditures on property and equipment.

Net cash used in investing activities increased $1.908 billion for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to a $1.907 billion increase in purchases of bitcoins.

During the six months ended June 30, 2024, we purchased $2.433 billion of bitcoin using net proceeds from the issuances of our 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, net proceeds from the sale of class A common stock under our at-the-market equity offering program, and Excess Cash, while during the six months ended June 30, 2023, we purchased $526.3 million of bitcoin using net proceeds from the sale of class A common stock under our at-the-market equity offering program and Excess Cash.

Net cash used in investing activities increased $3.320 billion for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to a $3.320 billion increase in purchases of bitcoins.

During the nine months ended September 30, 2024, we purchased $4.008 billion of bitcoin using net proceeds from the issuances of our 2030 Convertible Notes, 2031 Convertible Notes, 2032 Convertible Notes, and 2028 Convertible Notes, net proceeds from the sale of class A common stock under our at-the-market equity offering program, and Excess Cash, while during the nine months ended September 30, 2023, we purchased $688.0 million of bitcoin using net proceeds from the sale of class A common stock under our at-the-market equity offering program and Excess Cash.

Net cash provided by financing activities.

The changes in cash provided by and used in financing activities primarily relate to the issuance and subsequent repayment of long-term debt, the sale of class A common stock under our at-the-market equity offering program, the exercise or vesting of certain awards under the Stock Incentive Plans, and the sales of class A common stock under the 2021 ESPP.

Net cash provided by financing activities increased $1.926 billion for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.162 billion increase in long-term debt proceeds, net of issuance costs, during the six months ended June 30, 2024 as compared to the same period in the prior year, (ii) the $160.0 million repayment of the 2025 Secured Term Loan and related third-party extinguishment costs during the six months ended June 30, 2023, which was repaid using proceeds from our sale of class A common stock offered under our at-the-market equity offering program, and (iii) a $141.2 million increase in proceeds from the exercise of stock options under the Stock Incentive Plans in the six months ended June 30, 2024, as compared to the same period in the prior year, partially offset by, (iv) a $535.3 million decrease in net proceeds from the sale of class A common stock under our at-the-market equity offering program during the six months ended June 30, 2024 as compared to the same period in the prior year.

Net cash provided by financing activities increased $3.370 billion for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $3.160 billion increase in long-term debt proceeds, net of issuance costs, during the nine months ended September 30, 2024 as compared to the same period in the prior year, (ii) a $422.6 million increase in net proceeds from our sale of class A common stock under our at-the-market equity offering programs, (iii) the $160.0 million repayment of the 2025 Secured Term Loan and related third-party extinguishment costs during the nine months ended September 30, 2023, which was repaid using proceeds from our sale of class A common stock offered under our at-the-market equity offering program, and (iv) a $143.3 million increase in proceeds from the exercise of stock options under the Stock Incentive Plans in the nine months ended September 30, 2024, as compared to the same period in the prior year, partially offset by (v) the $515.3 million repayment of the 2028 Secured Notes and related third-party extinguishment costs during nine months ended September 30, 2024, which was repaid using proceeds from the issuance of the 2028 Convertible Notes.

Long-term Debt

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in March 2024, we issued $800.0 million aggregate principal amount of the 2030 Convertible Notes and $603.8 million aggregate principal amount of the 2031 Convertible Notes;

and in June 2024, we issued $800.0 million aggregate principal amount of the 2032 Convertible Notes.

We principally used the net proceeds from the issuances of the Convertible Notes to acquire bitcoin.

During each of the six months ended June 30, 2024 and 2023, we paid $2.4 million in interest to holders of the Convertible Notes.

in June 2024, we issued $800.0 million aggregate principal amount of the 2032 Convertible Notes;

and in September 2024 we issued $1.010 billion aggregate principal amount of the 2028 Convertible Notes.

We principally used the net proceeds from the issuances of the Convertible Notes to acquire bitcoin, and we used a portion of the net proceeds from the 2028 Convertible Notes to redeem the 2028 Secured Notes, as discussed further below.

During the nine months ended September 30, 2024 and 2023, we paid $7.6 million and $2.4 million, respectively, in interest to holders of the Convertible Notes.

During the period from April 1, 2024 to July 15, 2024, we issued 16,323,050 shares of class A common stock and paid a nominal amount of cash in lieu of fractional shares in connection with conversions of $649.7 million aggregate principal amount of 2025 Convertible Notes and on July 15, 2024 redeemed $0.3 million aggregate principal amount of 2025 Convertible Notes, constituting all of the 2025 Convertible Notes then outstanding, at an aggregate redemption price of $0.3 million, equal to 100% of the principal amount of the 2025 Convertible Notes redeemed, plus accrued and unpaid interest, to but excluding such date.

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We used the net proceeds from the issuance of the 2028 Secured Notes to acquire bitcoin.

As of June 30, 2024, approximately 50,610 of the bitcoins held by the Company serve as part of the collateral for the 2028 Secured Notes.

During each of the six months ended June 30, 2024 and 2023, we paid $15.3 million in interest to holders of the 2028 Secured Notes.

During the nine months ended September 30, 2024 and 2023, we paid $23.9 million and $15.3 million, respectively, in interest to holders of the 2028 Secured Notes.

On September 26, 2024, we redeemed all of the outstanding 2028 Secured Notes at an aggregate redemption price of approximately $523.9 million and all collateral securing the 2028 Secured Notes was released.

In March 2022, MacroStrategy, our wholly-owned subsidiary, entered into a Credit and Security Agreement with Silvergate Bank, pursuant to which Silvergate Bank issued the $205.0 million 2025 Secured Term Loan to MacroStrategy.

We used $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan to acquire bitcoin, $5.0 million of the net proceeds to establish a reserve account that served as collateral for the 2025 Secured Term Loan, and the remaining net proceeds to pay fees, interest, and expenses related to the 2025 Secured Term Loan.

On March 24, 2023, MacroStrategy and Silvergate Bank entered into a Prepayment, Waiver and Payoff to Credit and Security Agreement, pursuant to which MacroStrategy voluntarily prepaid Silvergate approximately $161.0 million (the “Payoff Amount”), in full repayment, satisfaction, and discharge of the 2025 Secured Term Loan and all other obligations under the Credit and Security Agreement.

Upon Silvergate’s receipt of the Payoff Amount on March 24, 2023, the Credit and Security Agreement was terminated, and Silvergate released its security interest in all of MacroStrategy’s assets collateralizing the 2025 Secured Term Loan, including the bitcoin that was serving as collateral.

We principally used net proceeds from the 2025 Secured Term Loan to acquire bitcoin.

On March 24, 2023, MacroStrategy voluntarily prepaid Silvergate approximately $161.0 million (the “Payoff Amount”), in full repayment, satisfaction, and discharge of the 2025 Secured Term Loan, and all collateral securing the 2025 Secured Term Loan, including the bitcoin that was serving as collateral, was released.

During the first quarter of 2023, we made a final $5.1 million interest payment to Silvergate, $1.1 million of which was included in the Payoff Amount.

In June 2022, we, through one of our wholly-owned subsidiaries, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027.

During each of the six months ended June 30, 2024 and 2023, we paid $0.5 million in principal and interest to the lender.

Other than as discussed above, during the six months ended June 30, 2024 and 2023, we did not repurchase or prepay any of our outstanding debt.

During each of the nine months ended September 30, 2024 and 2023, we paid $0.8 million in principal and interest to the lender.

Other than as discussed above, during the nine months ended September 30, 2024 and 2023, we did not repurchase or prepay any of our outstanding debt.

We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.

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The amounts involved in any such repurchase or prepayment may be material.

We may effect debt repurchases or prepayments of certain debt using proceeds from the sale of our class A common stock pursuant to the August 2024 Sales Agreement (under which $2.0 billion is available for sale as of the date hereof), as described in the Use of Proceeds section of the related prospectus.

We may effect debt repurchases or prepayments of certain debt using proceeds from the sale of our class A common stock pursuant to the August 2024 Sales Agreement (under which $891.3 million is available for sale as of the date hereof), as described in the Use of Proceeds section of the related prospectus.

At-the-Market Equity Offerings

From time to time, we have entered into sales agreements with agents pursuant to which we could issue and sell shares of our class A common stock through at-the-market equity offering programs.

See Note 10, At-the-Market Equity Offerings, to the Consolidated Financial Statements for additional information regarding sales of our class A common stock pursuant to each of the sales agreements that were active during the six months ended June 30, 2024 and the year ended December 31, 2023.

See Note 10, At-the-Market Equity Offerings, to the Consolidated Financial Statements for additional information regarding sales of our class A common stock pursuant to each of the sales agreements that were active during the nine months ended September 30, 2024 and the year ended December 31, 2023.

On July 31, 2024, we terminated the November 2023 Sales Agreement.

On August 1, 2024, we filed a prospectus for a new at-the-market equity offering program pursuant to which we may sell class A common stock having an aggregate offering price of up to $2.0 billion from time to time, through TD Securities (USA) LLC, The Benchmark Company, LLC, BTIG, LLC, Canaccord Genuity LLC, Maxim Group LLC and SG Americas Securities, LLC, as agents (the “August 2024 Sales Agents”) under a sales agreement dated August 1, 2024 (the “August 2024 Sales Agreement”).

On October 30, 2024, we filed a prospectus for a new at-the-market equity offering program pursuant to which we may sell class A common stock having an aggregate offering price of up to $21 billion from time to time, through TD Securities (USA) LLC, Barclays Capital Inc., The Benchmark Company, LLC, BTIG, LLC, Canaccord Genuity LLC, Cantor Fitzgerald & Co., Maxim Group LLC, Mizuho Securities USA LLC, and SG Americas Securities, LLC, as agents (the “October 2024 Sales Agents”) under a sales agreement dated October 30, 2024 (the “October 2024 Sales Agreement”).

The following table sets forth total shares sold and total net proceeds received (net of sales commissions and expenses) from shares sold under our at-the-market equity offering programs for the periods indicated (in thousands, except number of shares).

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Total shares sold pursuant to at-the-market equity offering programs

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Reconciliation of non-GAAP loss from operations:

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Non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share

Non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share each exclude the impact of (i) share-based compensation expense, (ii) interest expense arising from the amortization of debt issuance costs on our long-term debt, (iii) gain on extinguishment of debt, and (iv) related income taxes.

We believe non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share offer management and investors insight as they exclude significant non-cash expenses, gains on debt extinguishment, and their related income tax effects.

Non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share each exclude the impact of (i) share-based compensation expense, (ii) interest expense arising from the amortization of debt issuance costs on our long-term debt, (iii) gains and losses on extinguishment of debt, and (iv) related income taxes.

We believe non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share offer management and investors insight as they exclude significant non-cash expenses, gains and losses on debt extinguishment, and their related income tax effects.

The following are reconciliations of our non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share to net (loss) income and diluted (loss) earnings per share, respectively, their most directly comparable GAAP measures (in thousands, except per share data), for the periods indicated.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Reconciliation of non-GAAP net (loss) income:

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Interest expense arising from amortization of debt issuance costs

Gain on debt extinguishment

Loss (gain) on debt extinguishment

Income tax effects (1)

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Interest expense arising from amortization of debt issuance costs (per diluted share) (3)

Gain on debt extinguishment (per diluted share)

Loss (gain) on debt extinguishment (per diluted share)

Income tax effects (per diluted share) (3)

Non-GAAP diluted (loss) earnings per share

(1) Income tax effects reflect the net tax effects of share-based compensation, which includes tax benefits and expenses on exercises of stock options and vesting of share-settled restricted stock units, interest expense for amortization of debt issuance costs, and gain on debt extinguishment.

(2) For reconciliation purposes, the non-GAAP diluted earnings (loss) per share calculations use the same weighted average shares outstanding as that used in the GAAP diluted earnings (loss) per share calculations for the same period.

For example, in periods of GAAP net loss, otherwise dilutive potential shares of common stock from our share-based compensation arrangements and Convertible Notes are excluded from the GAAP diluted loss per share calculation as they would be antidilutive, and therefore are also excluded from the non-GAAP diluted earnings or loss per share calculation.

(3) For the three and six months ended June 30, 2023, interest expense from the amortization of issuance costs of the Convertible Notes has been added back to the numerator in the GAAP diluted earnings per share calculation (as disclosed in Note 9, Basic and Diluted (Loss) Earnings per Share, to the Consolidated Financial Statements), and therefore the per diluted share effects of the amortization of issuance costs of the Convertible Notes have been excluded from the “Interest expense arising from amortization of debt issuance costs (per diluted share)” and “Income tax effects (per diluted share)” lines in the above reconciliation for the three and six months ended June 30, 2023.

(3) For the nine months ended September 30, 2023, interest expense from the amortization of issuance costs of the Convertible Notes has been added back to the numerator in the GAAP diluted earnings per share calculation (as disclosed in Note 9, Basic and Diluted (Loss) Earnings per Share, to the Consolidated Financial Statements), and therefore the per diluted share effects of the amortization of issuance costs of the Convertible Notes have been excluded from the “Interest expense arising from amortization of debt issuance costs (per diluted share)” and “Income tax effects (per diluted share)” lines in the above reconciliation for the nine months ended September 30, 2023.

Non-GAAP Constant Currency Revenues, Cost of Revenues, and Operating Expenses

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Three Months Ended

September 30,

Exchange Rate

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General and administrative expenses

Six Months Ended

Nine Months Ended

September 30,

Exchange Rate

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It shows the increase (decrease) in material international revenues or expenses, as applicable, from the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates.

Beginning in the third quarter of 2023, the term “international” refers to operations outside of the United States and Canada only where the functional currency is the local currency (i.e., excluding any location whose economy is considered highly inflationary).

Prior year comparative periods have been recast to conform to current period presentation.

The term “international” refers to operations outside of the United States and Canada only where the functional currency is the local currency (i.e., excluding any location whose economy is considered highly inflationary).

(2) The “Non-GAAP Constant Currency” reflects the current period GAAP amount, less the Foreign Currency Exchange Rate Impact.

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Market Price Risk of Bitcoin.

We have used a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoin and, as of June 30, 2024, we held approximately 226,331 bitcoins.

The carrying value of our bitcoins as of June 30, 2024 was $5.688 billion, which reflects cumulative impairments of $2.641 billion, on our Consolidated Balance Sheet.

We have used a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoin and, as of September 30, 2024, we held approximately 252,220 bitcoins.

The carrying value of our bitcoins as of September 30, 2024 was $6.851 billion, which reflects cumulative impairments of $3.053 billion, on our Consolidated Balance Sheet.

We account for our bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our bitcoin decreases below their carrying value at any time since their acquisition.

Impairment losses cannot be recovered for any subsequent increase in fair value.

For example, the market price of one bitcoin on the Coinbase exchange (our principal market for bitcoin) ranged from a low of $38,501.00 to a high of $73,835.57 during the six months ended June 30, 2024, but the carrying value of each bitcoin we held at the end of the reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition.

For example, the market price of one bitcoin on the Coinbase exchange (our principal market for bitcoin) ranged from a low of $38,501.00 to a high of $73,835.57 during the nine months ended September 30, 2024, but the carrying value of each bitcoin we held at the end of the reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition.

Therefore, negative swings in the market price of bitcoin could have a material impact on our earnings and on the carrying value of our digital assets.

Positive swings in the market price of bitcoin are not reflected in the carrying value of our digital assets and impact earnings only when the bitcoin is sold at a gain.

For the six months ended June 30, 2024, we incurred an impairment loss of $371.7 million on our bitcoin.

For the nine months ended September 30, 2024, we incurred an impairment loss of $783.8 million on our bitcoin.

Foreign Currency Risk.

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dollar, the currency in which we report our Consolidated Financial Statements.

International revenues accounted for 42.8% and 40.7% of our total revenues for the three months ended June 30, 2024 and 2023, respectively, and 43.5% and 41.8% of our total revenues for the six months ended June 30, 2024 and 2023, respectively.

International revenues accounted for 44.9% and 44.5% of our total revenues for the three months ended September 30, 2024 and 2023, respectively, and 44.0% and 42.7% of our total revenues for the nine months ended September 30, 2024 and 2023, respectively.

We anticipate that international revenues will continue to account for a significant portion of our total revenues.

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dollar-denominated cash and investment accounts.

As of June 30, 2024 and December 31, 2023, a 10% adverse change in foreign currency exchange rates versus the U.S.

As of September 30, 2024 and December 31, 2023, a 10% adverse change in foreign currency exchange rates versus the U.S.

dollar would have decreased our aggregate reported cash and cash equivalents by 4.5% and 5.4%, respectively.

If average exchange rates during the six months ended June 30, 2024 had changed unfavorably by 10%, our revenues for the six months ended June 30, 2024 would have decreased by 3.8%.

During the six months ended June 30, 2024, our revenues were lower by 0.2% as a result of a 0.2% unfavorable change in weighted average exchange rates, as compared to the same period in the prior year.

If average exchange rates during the nine months ended September 30, 2024 had changed unfavorably by 10%, our revenues for the nine months ended September 30, 2024 would have decreased by 3.9%.

During the nine months ended September 30, 2024, our revenues were not significantly impacted by changes in weighted average exchange rates, as compared to the same period in the prior year.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis