Strategy Inc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Information This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements regarding industry prospects and our results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. The important factors discussed under “Part II. Item 1A. Risk Factors,” among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. 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® 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 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 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: • cash and cash equivalents and short-term investments (“Cash Assets”) held by us that exceed working capital requirements; and • bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets. During 2023 and 2024, we used proceeds from various capital raising transactions to purchase bitcoin. As of September 30, 2024, we held an aggregate of approximately 252,220 bitcoins. 26 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: Source of Capital Used to Purchase Bitcoin Digital Asset Original Cost Basis (in thousands) Digital Asset Impairment Losses (in thousands) Digital Asset Carrying Value (in thousands) Approximate Number of Bitcoins Held Approximate Average Purchase Price Per Bitcoin Balance at December 31, 2022 $ 3,993,190 $ (2,153,162 ) $ 1,840,028 132,500 $ 30,137 Digital asset purchases (a) 179,275 179,275 7,500 23,903 Digital asset impairment losses (18,911 ) (18,911 ) Balance at March 31, 2023 $ 4,172,465 $ (2,172,073 ) $ 2,000,392 140,000 $ 29,803 Digital asset purchases (b) 347,003 347,003 12,333 28,136 Digital asset impairment losses (24,143 ) (24,143 ) Balance at June 30, 2023 $ 4,519,468 $ (2,196,216 ) $ 2,323,252 152,333 $ 29,668 Digital asset purchases (c) 161,681 161,681 5,912 27,348 Digital asset impairment losses (33,559 ) (33,559 ) Balance at September 30, 2023 $ 4,681,149 $ (2,229,775 ) $ 2,451,374 158,245 $ 29,582 Digital asset purchases (d) 1,214,340 1,214,340 30,905 39,293 Digital asset impairment losses (39,238 ) (39,238 ) Balance at December 31, 2023 $ 5,895,489 $ (2,269,013 ) $ 3,626,476 189,150 $ 31,168 Digital asset purchases (e) 1,639,309 1,639,309 25,128 65,238 Digital asset impairment losses (191,633 ) (191,633 ) Balance at March 31, 2024 $ 7,534,798 $ (2,460,646 ) $ 5,074,152 214,278 $ 35,164 Digital asset purchases (f) 793,828 793,828 12,053 65,861 Digital asset impairment losses (180,090 ) (180,090 ) Balance at June 30, 2024 $ 8,328,626 $ (2,640,736 ) $ 5,687,890 226,331 $ 36,798 Digital asset purchases (g) 1,575,073 1,575,073 25,889 60,839 Digital asset impairment losses (412,084 ) (412,084 ) Balance at September 30, 2024 $ 9,903,699 $ (3,052,820 ) $ 6,850,879 252,220 $ 39,266 (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. (b) In the second quarter of 2023, we purchased bitcoin using $336.9 million of the net proceeds from our sale of class A common stock under our at-the-market offering program, and Excess Cash. (c) In the third quarter of 2023, we purchased bitcoin using $147.3 million of the net proceeds from our sale of class A common stock under our at-the-market offering program, and Excess Cash. (d) In the fourth quarter of 2023, we purchased bitcoin using $1.201 billion of the net proceeds from our sale of class A common stock under our at-the-market equity offering program, and Excess Cash. (e) In the first quarter of 2024, we purchased bitcoin using $782.0 million of the net proceeds from our issuance of the 2030 Convertible Notes, $592.3 million of the net proceeds from our issuance of the 2031 Convertible Notes, $137.3 million of the net proceeds from our sale of class A common stock under our at-the-market equity offering program, and Excess Cash. (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. The following table shows the approximate number of bitcoins held at the end of each respective period, as well as market value calculations of our bitcoin holdings based on the lowest, highest, and ending market prices of one bitcoin on the Coinbase exchange (our principal market) for each respective quarter, as further defined below: 27 Approximate Number of Bitcoins Held at End of Quarter Lowest Market Price Per Bitcoin During Quarter (a) Market Value of Bitcoin Held at End of Quarter Using Lowest Market Price (in thousands) (b) Highest Market Price Per Bitcoin During Quarter (c) Market Value of Bitcoin Held at End of Quarter Using Highest Market Price (in thousands) (d) Market Price Per Bitcoin at End of Quarter (e) Market Value of Bitcoin Held at End of Quarter Using Ending Market Price (in thousands) (f) December 31, 2022 132,500 $ 15,460.00 $ 2,048,450 $ 21,478.80 $ 2,845,941 $ 16,556.32 $ 2,193,712 March 31, 2023 140,000 $ 16,490.00 $ 2,308,600 $ 29,190.04 $ 4,086,606 $ 28,468.44 $ 3,985,582 June 30, 2023 152,333 $ 24,750.00 $ 3,770,242 $ 31,443.67 $ 4,789,909 $ 30,361.51 $ 4,625,060 September 30, 2023 158,245 $ 24,900.00 $ 3,940,301 $ 31,862.21 $ 5,042,035 $ 27,030.47 $ 4,277,437 December 31, 2023 189,150 $ 26,521.32 $ 5,016,508 $ 45,000.00 $ 8,511,750 $ 42,531.41 $ 8,044,816 March 31, 2024 214,278 $ 38,501.00 $ 8,249,917 $ 73,835.57 $ 15,821,338 $ 71,028.14 $ 15,219,768 June 30, 2024 226,331 $ 56,500.00 $ 12,787,702 $ 72,777.00 $ 16,471,691 $ 61,926.69 $ 14,015,930 September 30, 2024 252,220 $ 49,050.01 $ 12,371,394 $ 70,000.00 $ 17,655,400 $ 63,462.97 $ 16,006,630 (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. (b) The "Market Value of Bitcoin Held at End of Quarter Using Lowest Market Price" represents a mathematical calculation consisting of the lowest market price for one bitcoin reported on the Coinbase exchange during the respective quarter multiplied by the number of bitcoins we held at the end of the applicable period. (c) The "Highest Market Price Per Bitcoin During Quarter" represents the highest market price for one bitcoin reported on the Coinbase exchange during the respective quarter, without regard to when we purchased any of our bitcoin. (d) The "Market Value of Bitcoin Held at End of Quarter Using Highest Market Price" represents a mathematical calculation consisting of the highest market price for one bitcoin reported on the Coinbase exchange during the respective quarter multiplied by the number of bitcoins we held at the end of the applicable period. (e) The "Market Price Per Bitcoin at End of Quarter" represents the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective quarter. (f) The "Market Value of Bitcoin Held at End of Quarter Using Ending Market Price" represents a mathematical calculation consisting of the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective quarter multiplied by the number of bitcoins we held at the end of the applicable period. The amounts reported as “Market Value” in the above table represent only a mathematical calculation consisting of the price for one bitcoin reported on the Coinbase exchange (our principal market) in each scenario defined above multiplied by the number of bitcoins held by us at the end of the applicable period. Bitcoin and bitcoin markets may be subject to manipulation and the spot price of bitcoin may be subject to fraud and manipulation. Accordingly, the Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of our bitcoin may be different from such amounts and such deviation may be material. Moreover, (i) the bitcoin market historically has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks that are, or may be, inherent in its entirely electronic, virtual form and decentralized network and (ii) we may not be able to sell our bitcoins at the Market Value amounts indicated above, at the market price as reported on the Coinbase exchange (our principal market) on the date of sale, or at all. Our digital asset impairment losses have significantly contributed to our operating expenses. 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. Enterprise Analytics Software Strategy MicroStrategy is a pioneer in AI-powered business intelligence (BI), and a global leader in enterprise analytics solutions. We provide software and services designed to turn complex, chaotic data environments into rich, reliable, and convenient information feeds for our customers. Our vision is to make every worker a domain expert by delivering Intelligence Everywhere™. 28 Our cloud-native flagship, MicroStrategy ONE™, powers some of the largest analytics deployments in the world for customers spanning a wide range of industries, including retail, banking, technology, manufacturing, insurance, consulting, healthcare, telecommunications, and the public sector. Integral to the MicroStrategy ONE platform are Generative AI capabilities that are designed to automate and accelerate the deployment of AI-enabled applications across our customers’ enterprises. By making advanced analytics accessible through conversational AI, MicroStrategy ONE provides non-technical users with the ability to directly access novel and actionable insights for decision-making. MicroStrategy ONE combines the flexibility and scalability afforded by a modern, cloud application with the reliability and security of our robust data governance model. It empowers users by making rich analytics easily accessible and personalized, while enabling organizations to harness the value of their data wherever it is needed. 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 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 nine months ended September 30, 2024 and 2023: Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Revenues Product licenses $ 11,087 $ 24,045 $ 33,311 $ 56,979 Subscription services 27,800 20,974 74,846 59,662 Total product licenses and subscription services 38,887 45,019 108,157 116,641 Product support 61,015 66,860 185,440 198,422 Other services 16,169 17,583 49,162 56,714 Total revenues 116,071 129,462 342,759 371,777 Cost of revenues Product licenses 769 342 2,130 1,320 Subscription services 11,454 8,028 29,618 23,100 Total product licenses and subscription services 12,223 8,370 31,748 24,420 Product support 8,572 5,531 25,312 17,115 Other services 13,554 12,760 38,239 40,188 Total cost of revenues 34,349 26,661 95,299 81,723 Gross profit 81,722 102,801 247,460 290,054 Operating expenses Sales and marketing 35,414 35,606 103,116 109,372 Research and development 33,301 29,660 92,795 90,372 General and administrative 33,505 29,223 104,300 85,959 Digital asset impairment losses 412,084 33,559 783,807 76,613 Total operating expenses 514,304 128,048 1,084,018 362,316 Loss from operations $ (432,582 ) $ (25,247 ) $ (836,558 ) $ (72,262 ) We have incurred and may continue to incur significant impairment losses on our digital assets, and we have recognized and may continue to recognize gains upon sale of our digital assets in the future, which are presented net of any impairment losses within operating expenses. In addition, we base our internal operating expense forecasts on expected revenue trends and strategic objectives in our enterprise analytics software business. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed. Accordingly, any decrease in the price of bitcoin during any quarter, any sales by us of our bitcoin at prices above their then current carrying costs or any shortfall in revenue in our software business may cause significant variation in our operating results. We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance. 29 Employees 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, December 31, September 30, 2024 2023 2023 Subscription services 97 100 105 Product support 168 154 161 Consulting 305 399 411 Education 10 13 12 Sales and marketing 316 390 398 Research and development 529 642 645 General and administrative 212 236 252 Total headcount 1,637 1,934 1,984 Share-based Compensation Expense As discussed in Note 8, Share-based Compensation, to the Consolidated Financial Statements, we have awarded stock options to purchase shares of our class A common stock, restricted stock units, performance stock units, and certain other stock-based awards under our Stock Incentive Plans. Each restricted stock unit and performance stock unit represents a contingent right to receive a share of our class A common stock upon the satisfaction of applicable vesting requirements. We also provide opportunities for eligible employees to purchase shares of our class A common stock under our 2021 ESPP. Share-based compensation expense (in thousands) from these awards was recognized in the following cost of revenues and operating expense line items for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Cost of subscription services revenues $ 98 $ 101 $ 287 $ 254 Cost of product support revenues 966 565 2,951 1,597 Cost of consulting revenues 468 535 1,349 1,423 Cost of education revenues 37 28 99 72 Sales and marketing 3,153 3,221 11,719 12,532 Research and development 3,542 3,269 10,659 9,426 General and administrative 11,113 9,087 30,725 24,551 Total share-based compensation expense $ 19,377 $ 16,806 $ 57,789 $ 49,855 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 Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and equity, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes could differ from these estimates and assumptions. Critical accounting estimates involve a significant level of estimation uncertainty and are estimates that have had or are reasonably likely to have a material impact on our financial condition or results of operations. We consider certain estimates and judgments related to revenue recognition to be critical accounting estimates for us, as discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes in such estimates and judgments since December 31, 2023. 30 Results of Operations Comparison of the three and nine months ended September 30, 2024 and 2023 Revenues 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. Product licenses and subscription services revenues. The following table sets forth product licenses and subscription services revenues (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change Product Licenses and Subscription Services Revenues: Product Licenses Domestic $ 3,109 $ 10,338 -69.9 % $ 12,920 $ 29,404 -56.1 % International 7,978 13,707 -41.8 % 20,391 27,575 -26.1 % Total product licenses revenues 11,087 24,045 -53.9 % 33,311 56,979 -41.5 % Subscription Services Domestic 17,579 13,515 30.1 % 47,087 38,718 21.6 % International 10,221 7,459 37.0 % 27,759 20,944 32.5 % Total subscription services revenues 27,800 20,974 32.5 % 74,846 59,662 25.5 % Total product licenses and subscription services revenues $ 38,887 $ 45,019 -13.6 % $ 108,157 $ 116,641 -7.3 % Product licenses revenues. 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. Subscription services revenues. 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 $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. Product support revenues. The following table sets forth product support revenues (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change Product Support Revenues: Domestic $ 35,891 $ 39,510 -9.2 % $ 110,348 $ 119,064 -7.3 % International 25,124 27,350 -8.1 % 75,092 79,358 -5.4 % Total product support revenues $ 61,015 $ 66,860 -8.7 % $ 185,440 $ 198,422 -6.5 % Product support revenues are derived from providing technical software support and software updates and upgrades to customers. Product support revenues are recognized ratably over the term of the contract, which is generally one year. 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. 31 Other services revenues. The following table sets forth other services revenues (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change Other Services Revenues: Consulting Domestic $ 7,105 $ 8,392 -15.3 % $ 21,424 $ 26,639 -19.6 % International 8,384 8,284 1.2 % 25,484 27,354 -6.8 % Total consulting revenues 15,489 16,676 -7.1 % 46,908 53,993 -13.1 % Education 680 907 -25.0 % 2,254 2,721 -17.2 % Total other services revenues $ 16,169 $ 17,583 -8.0 % $ 49,162 $ 56,714 -13.3 % Consulting revenues. Consulting revenues are derived from helping customers plan and execute the deployment of our software. 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. Education revenues are derived from the education and training that we provide to our customers to enhance their ability to fully utilize the features and functionality of our software. 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 nine months ended September 30, 2024, as compared to the same periods in the prior year. Costs and Expenses Cost of revenues. The following table sets forth cost of revenues (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change Cost of Revenues: Product licenses and subscription services: Product licenses $ 769 $ 342 124.9 % $ 2,130 $ 1,320 61.4 % Subscription services 11,454 8,028 42.7 % 29,618 23,100 28.2 % Total product licenses and subscription services 12,223 8,370 46.0 % 31,748 24,420 30.0 % Product support 8,572 5,531 55.0 % 25,312 17,115 47.9 % Other services: Consulting 13,005 12,134 7.2 % 36,546 38,326 -4.6 % Education 549 626 -12.3 % 1,693 1,862 -9.1 % Total other services 13,554 12,760 6.2 % 38,239 40,188 -4.8 % Total cost of revenues $ 34,349 $ 26,661 28.8 % $ 95,299 $ 81,723 16.6 % Cost of product licenses revenues. 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 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 $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. 32 Cost of product support revenues. Cost of product support revenues consists of personnel and related overhead costs. 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. 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. Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs. 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 nine months ended September 30, 2024, as compared to the same periods in the prior year. Sales and marketing expenses. Sales and marketing expenses consist of personnel costs, commissions, office facilities, travel, advertising, public relations programs, and promotional events, such as trade shows, seminars, and technical conferences. The following table sets forth sales and marketing expenses (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change Sales and marketing expenses $ 35,414 $ 35,606 -0.5 % $ 103,116 $ 109,372 -5.7 % 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. 33 Research and development expenses. Research and development expenses consist of the personnel costs for our software engineering personnel and related overhead costs. The following table summarizes research and development expenses (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change Research and development expenses $ 33,301 $ 29,660 12.3 % $ 92,795 $ 90,372 2.7 % 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. General and administrative expenses consist of personnel and related overhead costs, and other costs of our executive, finance, human resources, information systems, and administrative departments, as well as third-party consulting, legal, and other professional fees, and third-party costs associated with our digital asset holdings. The following table sets forth general and administrative expenses (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change General and administrative expenses $ 33,505 $ 29,223 14.7 % $ 104,300 $ 85,959 21.3 % 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. 34 Digital asset impairment losses. Digital asset impairment losses are recognized when the carrying value of our digital assets exceeds their lowest fair value at any time since their acquisition. Impaired digital assets are written down to fair value at the time of impairment, and such impairment loss cannot be recovered for any subsequent increases in fair value. Gains (if any) are not recorded until realized upon sale. The following table sets forth digital asset impairment losses (in thousands) and related percentage changes for the periods indicated: Three Months Ended Nine Months Ended September 30, % September 30, % 2024 2023 Change 2024 2023 Change Digital asset impairment losses $ 412,084 $ 33,559 1127.9 % $ 783,807 $ 76,613 923.1 % 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 $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) for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Interest expense, net: 2025 Convertible Notes $ 38 $ 1,980 $ 3,865 $ 5,935 2027 Convertible Notes 1,012 1,008 3,033 3,021 2028 Convertible Notes 320 0 320 0 2030 Convertible Notes 2,224 0 5,013 0 2031 Convertible Notes 1,929 0 4,133 0 2032 Convertible Notes 5,159 0 5,904 0 2028 Secured Notes 7,738 8,072 23,915 24,193 2025 Secured Term Loan 0 0 0 3,812 Other interest (income) expense, net (291 ) (54 ) (707 ) 70 Total interest expense, net $ 18,129 $ 11,006 $ 45,476 $ 37,031 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. (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 35 the repayment of the 2025 Secured Term Loan. Refer to Note 5, Long-term Debt, to the Consolidated Financial Statements for further information. 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. Income Taxes 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. During 2023, the value of bitcoin increased substantially which allowed us to release the valuation allowance recorded against the deferred tax asset for impairment on our bitcoin holdings. Changes to the valuation allowance against the deferred tax asset are largely dependent on the change in the market value of bitcoin from the previous reporting date. If the market value of bitcoin declines or we are unable to regain profitability in future periods, we may be required to increase the valuation allowance against our deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred. We routinely consider actions necessary to preserve or utilize tax attributes. We will continue to regularly assess the realizability of deferred tax assets. 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. The U.S. 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 Deferred revenue and advance payments represent amounts received or due from our customers in advance of our transferring our software or services to the customer. In the case of multi-year service contract arrangements, we generally do not invoice more than one year in advance of services and do not record deferred revenue for amounts that have not been invoiced. Revenue is subsequently recognized in the period(s) in which control of the software or services is transferred to the customer. 36 The following table summarizes deferred revenue and advance payments (in thousands), as of: September 30, December 31, September 30, 2024 2023 2023 Current: Deferred product licenses revenue $ 409 $ 3,579 $ 2,814 Deferred subscription services revenue 74,164 65,512 45,737 Deferred product support revenue 106,866 152,012 126,087 Deferred other services revenue 2,963 7,059 4,529 Total current deferred revenue and advance payments $ 184,402 $ 228,162 $ 179,167 Non-current: Deferred product licenses revenue $ 0 $ 0 $ 9 Deferred subscription services revenue 3,373 3,097 2,845 Deferred product support revenue 2,635 4,984 4,304 Deferred other services revenue 336 443 480 Total non-current deferred revenue and advance payments $ 6,344 $ 8,524 $ 7,638 Total current and non-current: Deferred product licenses revenue $ 409 $ 3,579 $ 2,823 Deferred subscription services revenue 77,537 68,609 48,582 Deferred product support revenue 109,501 156,996 130,391 Deferred other services revenue 3,299 7,502 5,009 Total current and non-current deferred revenue and advance payments $ 190,746 $ 236,686 $ 186,805 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 $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 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. However, the timing and ultimate recognition of our deferred revenue and advance payments and other remaining performance obligations depend on our satisfaction of various performance obligations, and the amount of deferred revenue and advance payments and remaining performance obligations at any date should not be considered indicative of revenues for any succeeding period. Liquidity and Capital Resources Liquidity. Our principal sources of liquidity are cash and cash equivalents and on-going collection of our accounts receivable. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments, certificates of deposit, and U.S. Treasury securities. 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. 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. 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. 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. For additional information, see “—At-the-Market Equity Offerings” below. 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 37 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 $4.272 billion; o $3.2 million in coupon interest due each semi-annual period for the 2028 Convertible Notes; o $2.5 million in coupon interest due each semi-annual period for the 2030 Convertible Notes; o $2.6 million in coupon interest due each semi-annual period for the 2031 Convertible Notes; o $9.0 million in coupon interest due each semi-annual period for the 2032 Convertible Notes; and o $0.1 million due monthly in principal and interest related to our other long-term secured debt. • rent payments under noncancellable operating leases; • payments related to the mandatory deemed repatriation transition tax (the “Transition Tax”) under the U.S. Tax Cuts and Jobs Act (the “Tax Act”); • payments under various purchase agreements, primarily related to third-party cloud hosting services and third-party software supporting our products, marketing, and operations; and • ongoing personnel-related expenditures and vendor payments. The above items are explained in further detail in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report as well as under “Item 7. 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 (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. Beyond the next 12 months, our long-term cash requirements are primarily for obligations related to our long-term debt. We also have long-term cash requirements for obligations related to our operating leases, the Transition Tax, and our various purchase agreements. 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. 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. During times of instability in the bitcoin market, we may not be able to sell our bitcoins at reasonable prices or at all. As a result, our bitcoins are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. In addition, upon sale of our bitcoin, we may incur additional taxes related to any realized gains or we may incur capital losses as to which the tax deduction may be limited. 38 The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated: Nine Months Ended September 30, % 2024 2023 Change Net cash (used in) provided by operating activities $ (35,708 ) $ 11,528 409.8 % Net cash used in investing activities $ (4,010,904 ) $ (690,550 ) 480.8 % Net cash provided by financing activities $ 4,046,067 $ 676,025 498.5 % 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 (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 $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 $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 The terms of each of the long-term debt instruments are discussed more fully in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report as well as Note 8, Long-term Debt, to the Consolidated Financial Statements of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. 39 In December 2020, we issued $650.0 million aggregate principal amount of the 2025 Convertible Notes; in February 2021, we issued $1.050 billion aggregate principal amount of the 2027 Convertible Notes; 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; 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. In June 2021, we issued $500.0 million aggregate principal amount of the 2028 Secured Notes. We used the net proceeds from the issuance of the 2028 Secured Notes to acquire bitcoin. 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 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 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. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We may also prepay our outstanding indebtedness. 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 $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 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”). 40 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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Total shares sold pursuant to at-the-market equity offering programs 8,048,449 4,033,620 10,000,069 28,313,870 Total net proceeds received from shares sold pursuant to at-the-market equity offering programs $ 1,105,141 $ 147,218 $ 1,242,293 $ 819,674 Non-GAAP Financial Measures We are providing supplemental non-GAAP financial measures below which management uses internally to help understand, manage, and evaluate our business performance and to help make operating decisions. We believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. We also believe the use of these non-GAAP financial measures can facilitate comparison of our operating results to those of our competitors. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures are subject to material limitations as they are not measurements prepared in accordance with GAAP, and are not a substitute for such measurements. For example, we expect that share-based compensation expense, which is excluded from certain of the non-GAAP financial measures below, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors. Similarly, we expect that interest expense arising from the amortization of debt issuance costs on our long-term debt, which is excluded from certain of the non-GAAP financial measures below, will continue to be a recurring expense over the terms of our long-term debt arrangements. Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP. We rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP financial measures only supplementally. Non-GAAP loss from operations Non-GAAP loss from operations excludes share-based compensation expense, which is a significant non-cash expense that we believe is not reflective of our general business performance, and for which the accounting requires management judgment. Consequently, our accounting for share-based compensation expense could vary significantly in comparison to other companies. The following is a reconciliation of our non-GAAP loss from operations to loss from operations, its most directly comparable GAAP measure, (in thousands) for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Reconciliation of non-GAAP loss from operations: Loss from operations $ (432,582 ) $ (25,247 ) $ (836,558 ) $ (72,262 ) Share-based compensation expense 19,377 16,806 57,789 49,855 Non-GAAP loss from operations $ (413,205 ) $ (8,441 ) $ (778,769 ) $ (22,407 ) 41 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) 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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Reconciliation of non-GAAP net (loss) income: Net (loss) income $ (340,174 ) $ (143,441 ) $ (495,851 ) $ 339,995 Share-based compensation expense 19,377 16,806 57,789 49,855 Interest expense arising from amortization of debt issuance costs 3,832 2,199 10,231 6,599 Loss (gain) on debt extinguishment 22,933 0 22,933 (44,686 ) Income tax effects (1) (13,764 ) (3,230 ) (180,964 ) 2,538 Non-GAAP net (loss) income $ (307,796 ) $ (127,666 ) $ (585,862 ) $ 354,301 Reconciliation of non-GAAP diluted (loss) earnings per share (2): Diluted (loss) earnings per share $ (1.72 ) $ (1.01 ) $ (2.71 ) $ 2.39 Share-based compensation expense (per diluted share) 0.10 0.12 0.32 0.34 Interest expense arising from amortization of debt issuance costs (per diluted share) (3) 0.02 0.02 0.06 0.01 Loss (gain) on debt extinguishment (per diluted share) 0.12 0.00 0.13 (0.31 ) Income tax effects (per diluted share) (3) (0.08 ) (0.03 ) (1.01 ) 0.03 Non-GAAP diluted (loss) earnings per share $ (1.56 ) $ (0.90 ) $ (3.21 ) $ 2.46 (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 gains and losses 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 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. 42 Non-GAAP Constant Currency Revenues, Cost of Revenues, and Operating Expenses We present certain of our revenues, cost of revenues, and operating expenses on a non-GAAP constant currency basis, which excludes certain changes resulting from fluctuations in foreign currency exchange rates. These non-GAAP constant currency metrics allow our management and investors to compare operating results to the same period in the prior year without the effects of certain changes in foreign currency exchange rates, which are not reflective of our general business performance and may vary significantly between periods. The following are reconciliations our non-GAAP constant currency revenues, cost of revenues, and operating expenses to their most directly comparable GAAP measures (in thousands) for the periods indicated: Three Months Ended September 30, GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2024 2024 2024 2023 2024 2024 Product licenses revenues $ 11,087 $ (163 ) $ 11,250 $ 24,045 -53.9 % -53.2 % Subscription services revenues 27,800 109 27,691 20,974 32.5 % 32.0 % Product support revenues 61,015 147 60,868 66,860 -8.7 % -9.0 % Other services revenues 16,169 76 16,093 17,583 -8.0 % -8.5 % Cost of product support revenues 8,572 40 8,532 5,531 55.0 % 54.3 % Cost of other services revenues 13,554 125 13,429 12,760 6.2 % 5.2 % Sales and marketing expenses 35,414 102 35,312 35,606 -0.5 % -0.8 % Research and development expenses 33,301 194 33,107 29,660 12.3 % 11.6 % General and administrative expenses 33,505 51 33,454 29,223 14.7 % 14.5 % GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2023 2023 2023 2022 2023 2023 Product licenses revenues $ 24,045 $ 368 $ 23,677 $ 22,286 7.9 % 6.2 % Subscription services revenues 20,974 410 20,564 16,414 27.8 % 25.3 % Product support revenues 66,860 1,530 65,330 66,010 1.3 % -1.0 % Other services revenues 17,583 446 17,137 20,650 -14.9 % -17.0 % Cost of product support revenues 5,531 73 5,458 5,224 5.9 % 4.5 % Cost of other services revenues 12,760 543 12,217 13,360 -4.5 % -8.6 % Sales and marketing expenses 35,606 643 34,963 35,409 0.6 % -1.3 % Research and development expenses 29,660 (197 ) 29,857 30,498 -2.7 % -2.1 % General and administrative expenses 29,223 209 29,014 27,283 7.1 % 6.3 % 43 Nine Months Ended September 30, GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2024 2024 2024 2023 2024 2024 Product licenses revenues $ 33,311 $ (265 ) $ 33,576 $ 56,979 -41.5 % -41.1 % Subscription services revenues 74,846 70 74,776 59,662 25.5 % 25.3 % Product support revenues 185,440 27 185,413 198,422 -6.5 % -6.6 % Other services revenues 49,162 (12 ) 49,174 56,714 -13.3 % -13.3 % Cost of product support revenues 25,312 48 25,264 17,115 47.9 % 47.6 % Cost of other services revenues 38,239 326 37,913 40,188 -4.8 % -5.7 % Sales and marketing expenses 103,116 (57 ) 103,173 109,372 -5.7 % -5.7 % Research and development expenses 92,795 (230 ) 93,025 90,372 2.7 % 2.9 % General and administrative expenses 104,300 128 104,172 85,959 21.3 % 21.2 % GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2023 2023 2023 2022 2023 2023 Product licenses revenues $ 56,979 $ (127 ) $ 57,106 $ 58,928 -3.3 % -3.1 % Subscription services revenues 59,662 (7 ) 59,669 43,276 37.9 % 37.9 % Product support revenues 198,422 377 198,045 199,682 -0.6 % -0.8 % Other services revenues 56,714 (202 ) 56,916 64,824 -12.5 % -12.2 % Cost of product support revenues 17,115 (43 ) 17,158 15,542 10.1 % 10.4 % Cost of other services revenues 40,188 165 40,023 42,107 -4.6 % -4.9 % Sales and marketing expenses 109,372 26 109,346 105,511 3.7 % 3.6 % Research and development expenses 90,372 (1,284 ) 91,656 95,811 -5.7 % -4.3 % General and administrative expenses 85,959 13 85,946 82,491 4.2 % 4.2 % (1) The “Foreign Currency Exchange Rate Impact” reflects the estimated impact of fluctuations in foreign currency exchange rates on international components of our Consolidated Statements of Operations. 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. 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. (3) The “Non-GAAP Constant Currency % Change” reflects the percentage change between the current period Non-GAAP Constant Currency amount and the GAAP amount for the same period in the prior year. 44 Item 3. Quantitative and Qualitat ive Disclosures About Market Risk The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to the impact of market price changes in bitcoin and foreign currency fluctuations. 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 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 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 nine months ended September 30, 2024, we incurred an impairment loss of $783.8 million on our bitcoin. Foreign Currency Risk. We conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our Consolidated Financial Statements. 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. The functional currency of each of our foreign subsidiaries is generally the local currency. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the applicable Balance Sheet date and any resulting translation adjustments are included as an adjustment to stockholders’ equity. Revenues and expenses generated from these subsidiaries are translated at average monthly exchange rates during the quarter in which the transactions occur. Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in the results of operations. As a result of transacting in multiple currencies and reporting our Consolidated Financial Statements in U.S. dollars, our operating results may be adversely impacted by currency exchange rate fluctuations in the future. The impact of foreign currency exchange rate fluctuations on current and comparable periods is described in the “Non-GAAP Financial Measures” section under “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We cannot predict the effect of exchange rate fluctuations upon our future results. We attempt to minimize our foreign currency risk by converting our excess foreign currency held in foreign jurisdictions to U.S. dollar-denominated cash and investment accounts. 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 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.