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 Strategy 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. Our 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 2024 and 2025, we used proceeds from various capital raising transactions to purchase bitcoin. As of March 31, 2025, we held an aggregate of approximately 528,185 bitcoins. 31 Although we continue to initially record our bitcoin purchases at cost, upon adoption of ASU 2023-08 on January 1, 2025, any subsequent increases or decreases in fair value are recognized as incurred in the Consolidated Statements of Operations, and the fair value of our bitcoin is reflected within the Consolidated Balance Sheets each reporting period-end. Since adopting ASU 2023-08, we are no longer required to account for our bitcoin under a cost-less-impairment accounting model and we no longer record a deferred tax asset related to bitcoin impairment losses. Instead, we establish a deferred tax liability if the market value of bitcoin at the reporting date is greater than the average cost basis of our bitcoin holdings at such reporting date, and any subsequent increases or decreases in the market value of bitcoin will increase or decrease the deferred tax liability. The following table presents a roll-forward of our bitcoin holdings, including additional information related to our bitcoin purchases, bitcoin sales (if any), unrealized loss (gain) on digital assets, digital asset impairment losses, and cumulative effect adjustments 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, 2023 $ 5,895,489 $ (2,269,013 ) $ 3,626,476 189,150 $ 31,168 Digital asset purchases (a) 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 (b) 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 (c) 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 Digital asset purchases (d) 18,064,549 18,064,549 195,250 92,520 Digital asset impairment losses (1,006,055 ) (1,006,055 ) Balance at December 31, 2024 $ 27,968,248 $ (4,058,875 ) $ 23,909,373 447,470 $ 62,503 Source of Capital Used to Purchase Bitcoin Digital Asset Original Cost Basis (in thousands) Digital Asset Carrying Value (in thousands) Approximate Number of Bitcoins Held Approximate Average Purchase Price Per Bitcoin Balance at December 31, 2024 (before adoption of ASU 2023-08) $ 27,968,248 $ 23,909,373 447,470 $ 62,503 Cumulative effect upon adoption of ASU 2023-08 17,881,048 Balance immediately following adoption of ASU 2023-08 $ 27,968,248 $ 41,790,421 447,470 $ 62,503 Digital asset purchases (e) 7,661,663 7,661,663 80,715 94,922 Unrealized loss on digital assets (5,906,005 ) Balance at March 31, 2025 $ 35,629,911 $ 43,546,079 528,185 $ 67,457 (a) In the first quarter of 2024, we purchased bitcoin using $782.0 million of the net proceeds from our issuance of the 2030A 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 sales of class A common stock under our at-the-market offering program for our class A common stock (the “Common Stock ATM Program”), and Excess Cash. (b) In the second quarter of 2024, we purchased bitcoin using $756.0 million of the net proceeds from our issuance of the 2032 Convertible Notes and Excess Cash. (c) In the third quarter of 2024, we purchased bitcoin using $1.105 billion of the net proceeds from sales of class A common stock under the Common Stock ATM Program, $458.2 million of the net proceeds from our issuance of the 2028 Convertible Notes, and Excess Cash. (d) In the fourth quarter of 2024, we purchased bitcoin using $15.090 billion of the net proceeds from sales of class A common stock under the Common Stock ATM Program, and $2.974 billion of the net proceeds from our issuance of the 2029 Convertible Notes. (e) In the first quarter of 2025, we purchased bitcoin using $4.37 billion of the net proceeds from sales of our class A common stock under the Common Stock ATM Program, $1.99 billion of the net proceeds from our issuance of the 2030B Convertible Notes, $593.7 million of the aggregate net proceeds from the initial public offering of our Perpetual Strike Preferred Stock and sales of Perpetual Strike Preferred Stock under the at-the-market offering program for our Perpetual Strike Preferred Stock, and $710.0 million of the net proceeds from the issuance of our Perpetual Strife Preferred Stock in the initial public offering of Perpetual Strife Preferred Stock. 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. 32 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: 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, 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 December 31, 2024 447,470 $ 58,863.90 $ 26,339,829 $ 108,388.88 $ 48,500,772 $ 93,390.21 $ 41,789,317 March 31, 2025 528,185 $ 76,555.00 $ 40,435,222 $ 109,358.01 $ 57,761,287 $ 82,444.71 $ 43,546,079 (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. Unrealized loss on digital assets and digital asset impairment losses have significantly contributed to our operating expenses. During the three months ended March 31, 2025, the unrealized loss on digital assets of $5,906 million represented 98.5% of our operating expenses. During the three months ended March 31, 2024, digital asset impairment losses of $191.6 million represented 66.3% of our operating expenses. As of May 2, 2025, we held approximately 555,450 bitcoins that were acquired at an aggregate purchase price of $38.08 billion and an average purchase price of approximately $68,550 per bitcoin, inclusive of fees and expenses. As of May 2, 2025, at 4:00 p.m. Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $96,972. Enterprise Analytics Software Strategy Strategy 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 drive growth and competitive advantage for our customers by delivering Intelligence Everywhere™. 33 Our cloud-native flagship, Strategy 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 Strategy One platform are Generative AI capabilities that are designed to automate and accelerate the deployment of AI-enabled applications across the enterprise. By making advanced analytics accessible through conversational AI, Strategy One provides non-technical users with timely, actionable insights for decision-making. The analytics market is highly competitive and subject to rapidly changing technology and market conditions. Our ability to compete successfully depends on a number of factors within and outside of our control. Some of these factors include software quality, performance and reliability; the quality of our service and support teams; marketing and prospecting effectiveness, the ability to incorporate artificial intelligence and other technically advanced features; and our ability to differentiate our products. Operating Highlights The following table sets forth certain operating highlights (in thousands) for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 Revenues Product licenses $ 7,270 $ 12,938 Subscription services 37,103 22,966 Total product licenses and subscription services 44,373 35,904 Product support 52,529 62,685 Other services 14,164 16,657 Total revenues 111,066 115,246 Cost of revenues Product licenses 964 567 Subscription services 14,429 8,604 Total product licenses and subscription services 15,393 9,171 Product support 7,354 8,547 Other services 11,224 12,297 Total cost of revenues 33,971 30,015 Gross profit 77,095 85,231 Operating expenses Sales and marketing 27,532 33,451 Research and development 24,423 29,183 General and administrative 40,547 34,666 Unrealized loss on digital assets 5,906,005 0 Digital asset impairment losses 0 191,633 Total operating expenses 5,998,507 288,933 Loss from operations $ (5,921,412 ) $ (203,702 ) Prior to our adoption of ASU 2023-08 on January 1, 2025, we incurred significant impairment losses on our digital assets, and we recognized gains upon sale of our digital assets, which were presented net of any impairment losses within operating expenses. However, the accounting for our digital assets changed upon our adoption of ASU 2023-08. See Note 1, Summary of Significant Accounting Policies to the Consolidated Financial Statements for further information. As a result, fluctuations in the price of bitcoin and fair value changes associated therewith have had and will have a significant impact on our future operating results. In addition, we base our operating expense budgets on expected revenue trends and strategic objectives. Many of our expenses, such as interest expense on debt, declared dividends on our preferred stock, tax liabilities, office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected shortfall in our cash flow. Accordingly, we may be required to take actions to pay expenses, such as selling bitcoin or using proceeds from equity or debt financings, some of which could significantly impact our operating results in any period. We therefore believe that period-to-period comparisons of our operating results may not be a good indication of our future performance. 34 Employees As of March 31, 2025, we had a total of 1,483 employees, of whom 431 were based in the United States and 1,052 were based internationally. The following table summarizes employee headcount as of the dates indicated: March 31, December 31, March 31, 2025 2024 2024 Subscription services 93 95 98 Product support 150 163 201 Consulting 264 275 364 Education 12 11 10 Sales and marketing 287 295 349 Research and development 476 498 613 General and administrative 201 197 216 Total headcount 1,483 1,534 1,851 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 March 31, 2025 2024 Cost of subscription services revenues $ 103 $ 70 Cost of product support revenues 400 918 Cost of consulting revenues 393 385 Cost of education revenues 39 26 Sales and marketing 1,165 4,701 Research and development (724 ) 3,103 General and administrative 10,443 8,588 Total share-based compensation expense $ 11,819 $ 17,791 The $6.0 million decrease in share-based compensation expense during the three months ended March 31, 2025, as compared to the same period in the prior year, was primarily due to the forfeiture of certain stock awards and certain awards that became fully vested, partially offset by the grant of additional awards under the Stock Incentive Plans. As of March 31, 2025, we estimated that an aggregate of approximately $143.1 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 2.8 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, 2024. There have been no significant changes in such estimates and judgments since December 31, 2024. 35 Results of Operations Comparison of the three months ended March 31, 2025 and 2024 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 March 31, % 2025 2024 Change Product Licenses and Subscription Services Revenues: Product Licenses Domestic $ 3,453 $ 5,007 -31.0 % International 3,817 7,931 -51.9 % Total product licenses revenues 7,270 12,938 -43.8 % Subscription Services Domestic 21,650 14,592 48.4 % International 15,453 8,374 84.5 % Total subscription services revenues 37,103 22,966 61.6 % Total product licenses and subscription services revenues $ 44,373 $ 35,904 23.6 % Product licenses revenues. Product licenses revenues decreased $5.7 million for the three months ended March 31, 2025, as compared to the same period 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 Cloud subscription service and are recognized ratably over the service period in the contract. Subscription services revenues increased $14.1 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers (including a larger number of conversions for International 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 March 31, % 2025 2024 Change Product Support Revenues: Domestic $ 31,775 $ 37,408 -15.1 % International 20,754 25,277 -17.9 % Total product support revenues $ 52,529 $ 62,685 -16.2 % 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 $10.2 million for the three months ended March 31, 2025, as compared to the same period 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. 36 Other services revenues. The following table sets forth other services revenues (in thousands) and related percentage changes for the periods indicated: Three Months Ended March 31, % 2025 2024 Change Other Services Revenues: Consulting Domestic $ 6,459 $ 7,407 -12.8 % International 7,244 8,408 -13.8 % Total consulting revenues 13,703 15,815 -13.4 % Education 461 842 -45.2 % Total other services revenues $ 14,164 $ 16,657 -15.0 % Consulting revenues. Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues decreased $2.1 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to a decrease in demand for 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 decreased $0.4 million for the three months ended March 31, 2025, 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 March 31, % 2025 2024 Change Cost of Revenues: Product licenses and subscription services: Product licenses $ 964 $ 567 70.0 % Subscription services 14,429 8,604 67.7 % Total product licenses and subscription services 15,393 9,171 67.8 % Product support 7,354 8,547 -14.0 % Other services: Consulting 10,579 11,746 -9.9 % Education 645 551 17.1 % Total other services 11,224 12,297 -8.7 % Total cost of revenues $ 33,971 $ 30,015 13.2 % 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 increased $0.4 million for the three months ended March 31, 2025, as compared to the same period in the prior year. 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 $5.8 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to a $6.4 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, offset by decreased personnel costs due to headcount reductions and change in the mix between domestic employees and international employees with lower average personnel costs. Cost of product support revenues. Cost of product support revenues consists of personnel and related overhead costs. Cost of product support revenues decreased $1.2 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to a decrease in personnel costs due to headcount reductions. 37 Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs. Cost of consulting revenues decreased $1.2 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to a decrease in personnel costs of $1.9 million due to headcount reductions, partially offset by a $0.7 million increase in billable hours from outside contractor labor costs. 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 months ended March 31, 2025, 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 March 31, % 2025 2024 Change Sales and marketing expenses $ 27,532 $ 33,451 -17.7 % Sales and marketing expenses decreased $5.9 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to a $2.4 million decrease in employee salaries and related benefits primarily attributable to a decrease in average staffing levels and a $3.5 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards. 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 March 31, % 2025 2024 Change Research and development expenses $ 24,423 $ 29,183 -16.3 % Research and development expenses decreased $4.8 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to (i) a $4.0 million decrease in employee salaries and bonuses primarily attributable to a decrease in average staffing levels, and (ii) a $3.9 million net decrease in share-based compensation expense primarily due to the forfeiture of certain awards, partially offset by a (iii) a $3.1 million increase in severance costs due to headcount reductions. 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 March 31, % 2025 2024 Change General and administrative expenses $ 40,547 $ 34,666 17.0 % General and administrative expenses increased $5.9 million for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to (i) a $3.4 million increase in bitcoin custody fees; (ii) a $3.4 million increase related to various bitcoin advocacy initiatives, including political contributions and sponsorships; (iii) a $1.6 million increase in costs related to special shareholder meeting; and (iv) a $1.9 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, partially offset by (v) a $4.7 million decrease due to employer payroll taxes for the first quarter of 2024 related to stock options exercised during that quarter; and (vi) a $1.1 million decrease in legal, and professional fees. Losses (gains) associated with digital assets Upon adoption of ASU 2023-08 on January 1, 2025, any subsequent increases or decreases in fair value are recognized as incurred in the Consolidated Statements of Operations, and the fair value of our bitcoin is reflected within the Consolidated Balance Sheets each reporting period-end. Since adopting ASU 2023-08, we are no longer required to account for our bitcoin under a cost-less-impairment accounting model and no longer establish a deferred tax asset related to bitcoin impairment losses. Instead, we establish a deferred tax liability if the market value of bitcoin at the reporting date is greater than the average cost basis of our bitcoin holdings at such reporting date, and any subsequent increases or decreases in the market value of bitcoin will increase or decrease the deferred tax liability. 38 The following table sets forth the unrealized losses (gains) associated with our digital assets (in thousands): Three Months Ended March 31, % 2025 2024 Change Unrealized loss on digital assets $ 5,906,005 $ 0 n/a Digital asset impairment losses $ 0 $ 191,633 -100.0 % We did not sell any of our digital assets during the three months ended March 31, 2025 or 2024. As a result of our adoption of ASU 2023-08, we may incur greater losses during periods when we previously would have incurred smaller losses or no losses because we had already impaired the carrying value of our bitcoin to a low price observed during a prior period, and we may also incur gains during periods when the market value of bitcoin rises, as compared to periods prior to January 1, 2025, when we would not have incurred any gains under similar circumstances. Accordingly, due in particular to the volatility in the price of bitcoin, we expect the adoption of ASU 2023-08 to increase the volatility of our financial results. Additionally, as a result of ASU 2023-08 requiring a cumulative-effect adjustment to our opening balance of retained earnings as of January 1, 2025 and not permitting retrospective restatement of prior periods, our future results will not be comparable to results from periods prior to our adoption of the guidance. 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 March 31, 2025 2024 Interest expense, net: 2025 Convertible Notes $ 0 $ 1,986 2027 Convertible Notes 401 1,010 2028 Convertible Notes 2,622 0 2029 Convertible Notes 1,818 0 2030A Convertible Notes 2,230 567 2030B Convertible Notes 513 0 2031 Convertible Notes 1,932 280 2032 Convertible Notes 5,168 0 2028 Secured Notes 0 8,085 Other interest (income) expense, net 2,422 (47 ) Total interest expense, net $ 17,106 $ 11,881 Interest expense, net, increased $5.2 million for the three months ended March 31, 2025, as compared to the same period 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 2030A 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), (iv) issuance costs related to the 2029 Convertible Notes (which were issued in November 2024), and (v) issuance costs related to the 2030B Convertible Notes (which were issued in February 2025), partially offset by (vi) the 2025 Convertible Notes having been converted or redeemed in their entirety in July, 2024, (vii) the 2027 Convertible Notes having been converted or redeemed in their entirety in January 2025 and (viii) the 2028 Secured Notes having been redeemed in their entirety in September 2024. Interest expense for future periods in 2025 is expected to decrease compared to the same period in 2024 as a result of a more favorable average interest rate on outstanding debt as of March 31, 2025. Refer to Note 5, Long-term Debt, to the Consolidated Financial Statements for further information. Other (Expense) Income, Net For the three months ended March 31, 2025, other expense, net, of $3.9 million was comprised primarily of foreign currency transaction net losses. For the three months ended March 31, 2024, other income, net, of $1.7 million was comprised primarily of foreign currency transaction net gains. 39 Income Taxes We recorded a benefit from income taxes of $1.73 billion on a pretax loss of $5.94 billion that resulted in an effective tax rate of 29.0% for the three months ended March 31, 2025, as compared to a benefit from income taxes of $160.8 million on a pretax loss of $213.9 million that resulted in an effective tax rate of 75.2% for the three months ended March 31, 2024. During the three months ended March 31, 2025, the Company’s benefit from income taxes primarily related to the tax effect of the unrealized loss on digital assets. During the three months ended March 31, 2024, our benefit from income taxes primarily related to the (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. As of March 31, 2025, we had a valuation allowance of $0.5 million primarily related to our deferred tax assets related to foreign tax credits in certain jurisdictions. As of March 31, 2025, we had deferred tax liabilities with respect to the unrealized gain on our bitcoin holdings of approximately $2.28 billion. Our deferred tax liabilities are partially offset by deferred tax assets, such as net operating losses and capitalized research and development costs. If the market value of bitcoin declines in future periods, our deferred tax liability with respect to the unrealized gain on our bitcoin holdings will decrease, and we may be required to establish additional valuation allowances against our deferred tax assets. Such increases in valuation allowances could materially and adversely affect net income in periods in which such charges are 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 IRA in August 2022. Among other things, unless an exemption by statute or regulation applies, a provision of the IRA imposes a 15% CAMT on a corporation with respect to an initial tax year and 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. Due to our adoption of ASU 2023-08 as of January 1, 2025, we were required to recognize a cumulative-effect adjustment of $12.75 billion to the opening balance of our retained earnings as of January 1, 2025. We will additionally be required to recognize unrealized gains or losses from changes in the fair value of digital assets in future reporting periods as income or losses. For purposes of calculating the adjusted financial statement income, we will be required to ratably allocate this increase to our retained earnings over a four 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, among other adjustments, our adjusted financial statement income must include this ratable amount in addition to any unrealized gains or losses reported in the applicable tax year. Accordingly, as a result of the enactment of the IRA and our adoption of ASU 2023-08 on January 1, 2025, unless the IRA is amended or the proposed regulations, when finalized, are revised to provide relief (or other interim relief is granted), we could become subject to CAMT in the tax years beginning in 2026 and beyond. 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. 40 The following table summarizes deferred revenue and advance payments (in thousands), as of: March 31, December 31, March 31, 2025 2024 2024 Current: Deferred product licenses revenue $ 794 $ 1,777 $ 2,879 Deferred subscription services revenue 94,488 107,119 60,280 Deferred product support revenue 116,975 124,684 148,078 Deferred other services revenue 3,436 4,394 4,718 Total current deferred revenue and advance payments $ 215,693 $ 237,974 $ 215,955 Non-current: Deferred product licenses revenue $ 153 $ 174 $ 0 Deferred subscription services revenue 1,393 2,263 1,992 Deferred product support revenue 2,143 2,111 4,094 Deferred other services revenue 292 422 400 Total non-current deferred revenue and advance payments $ 3,981 $ 4,970 $ 6,486 Total current and non-current: Deferred product licenses revenue $ 947 $ 1,951 $ 2,879 Deferred subscription services revenue 95,881 109,382 62,272 Deferred product support revenue 119,118 126,795 152,172 Deferred other services revenue 3,728 4,816 5,118 Total current and non-current deferred revenue and advance payments $ 219,674 $ 242,944 $ 222,441 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 $23.3 million as of March 31, 2025, as compared to December 31, 2024, primarily due to (i) a decrease in deferred revenue from subscription services contracts, (ii) 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 (iii) decreases in deferred other services revenue and deferred product licenses revenues. Total deferred revenue and advance payments decreased $2.8 million as of March 31, 2025, as compared to March 31, 2024, primarily due to (i) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts, partially offset by (ii) an increase in deferred revenue from 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 March 31, 2025, we had an aggregate transaction price of $442.8 million allocated to the remaining performance obligation related to subscription services, product support, product licenses, and other services contracts. We expect to recognize approximately $275.8 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 Principal and Potential Sources of 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. As of March 31, 2025 and December 31, 2024, the amount of cash and cash equivalents held by our U.S. entities was $32.6 million and $8.8 million, respectively, and by our non-U.S. entities was $27.7 million and $29.3 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 three months ended March 31, 2025 and the three months ended March 31, 2024. Under our Treasury Reserve Policy and bitcoin 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. As of December 31, 2024 and March 31, 2025, we held approximately 447,470 bitcoins and 528,185, respectively, all of which are unencumbered. As of May 2, 2025, we held approximately 555,450 bitcoins, all of which are unencumbered, and which had an aggregate market value of $53.86 billion, based 41 on the market price of one bitcoin as reported on the Coinbase exchange as of 4:00 p.m. Eastern Time. As discussed further below, although we do not anticipate needing to use our bitcoin to meet our obligations in the next twelve months, we believe our substantial bitcoin holdings can serve as a source of liquidity, if necessary. See “—Availability of Bitcoin for Liquidity” below. On May 1, 2025, we entered into the May 2025 Sales Agreement and filed a prospectus supplement for an at-the-market equity offering program pursuant to which we may sell shares of class A common stock having an aggregate offering price of up to $21.0 billion, from time to time, through TD Securities (USA) LLC, The Benchmark Company, LLC, BTIG, LLC, Canaccord Genuity LLC, Cantor Fitzgerald & Co., Mizuho Securities USA LLC, Santander US Capital Markets LLC, and SG Americas Securities, LLC, as sales agents. As of May 2, 2025, approximately $21.00 billion of our class A common stock remained available for issuance and sale pursuant to the May 2025 Sales Agreement. To the extent we make sales under the May 2025 Sales Agreement, we can use the net proceeds from such sales for general corporate purposes, including the acquisition of bitcoin, paying cash dividends on our outstanding preferred stock, and for working capital. See “—At-the-Market Equity Offerings” below. On March 10, 2025, we entered into the Strike Sales Agreement and filed a prospectus supplement for a new at-the-market equity offering program pursuant to which we may issue and sell shares of our Perpetual Strike Preferred Stock, having an aggregate offering price of up to $21.0 billion. As of March 31, 2025 and May 2, 2025, approximately $20.97 billion and $20.87 billion, respectively, of our Perpetual Strike Preferred Stock remained available for issuance and sale pursuant to the Strike Sales Agreement. To the extent we make sales under the Strike Sales Agreement, we can use the net proceeds from such sales for general corporate purposes, including the acquisition of bitcoin and for working capital. See “—At-the-Market Equity Offerings” below. On October 30, 2024, we entered into the October 2024 Sales Agreement and filed a prospectus supplement for an at-the-market equity offering program pursuant to which we could sell shares of class A common stock having an aggregate offering price of up to $21 billion. As of March 31, 2025, approximately $2.37 billion of our class A common stock remained available for issuance and sale pursuant to the October 2024 Sales Agreement. As of May 2, 2025, the October 2024 Sales Agreement has been substantially depleted and further at-the-market sales of class A common stock will be made under the May 2025 Sales Agreement. Initial Public Offerings of Preferred Stock On February 5, 2025, we issued 7,300,000 shares of Perpetual Strike Preferred Stock in a public offering registered under the Securities Act. In connection with such issuance, we filed the Strike Certificate of Designations with the Secretary of State of the State of Delaware designating an aggregate of 7,300,000 shares of, and establishing the terms of, the Perpetual Strike Preferred Stock. We received approximately $563.2 million of net proceeds, after deducting the underwriting discounts and commissions and our offering expenses, from the issuance of our Perpetual Strike Preferred Stock in the initial public offering of Perpetual Strike Preferred Stock. All net proceeds from the offering were used for general corporate purposes, including the acquisition of bitcoin and for working capital. On March 25, 2025, we issued 8,500,000 shares of Perpetual Strife Preferred Stock in a public offering registered under the Securities Act. In connection with such issuance, we filed the Strife Certificate of Designations with the Secretary of State of the State of Delaware designating an aggregate of 8,500,000 shares of, and establishing the terms of, the Perpetual Strife Preferred Stock. We received approximately $710.9 million of net proceeds, after deducting the underwriting discounts and commissions and our offering expenses, from the issuance of our Perpetual Strife Preferred Stock in the initial public offering of Perpetual Strife Preferred Stock. All net proceeds from the offering were used for general corporate purposes, including the acquisition of bitcoin and for working capital. For a discussion of the required dividends payable on and other rights of the Perpetual Strike Preferred Stock and Perpetual Strife Preferred Stock, see Note 9, Redeemable Preferred Stock, to the Consolidated Financial Statements included in this Quarterly Report. Contractual and Other Obligations 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 $8.22 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 2030A 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. 42 • payments under various purchase agreements, primarily related to third-party cloud hosting services and third-party software supporting our products, marketing, and operations, and a new corporate aircraft; • rent payments under noncancellable operating leases; • declared regular dividends on our Perpetual Strike Preferred Stock and Perpetual Strife Preferred Stock.; • $9.2 million payments made in April 2025 related to the mandatory deemed repatriation transition tax (the “Transition Tax”) under the U.S. Tax Cuts and Jobs Act (the “Tax Act”); 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, 2024 and in the Notes to the Consolidated Financial Statements included therein. On March 3, 2025, we announced that our board of directors declared a quarterly cash dividend of approximately $1.24 per share payable on our Perpetual Strike Preferred Stock. On March 31, 2025, we paid a total dividend of $9.2 million to holders of record of our Perpetual Strike Preferred Stock as of March 15, 2025. Other than (i) our issuance of the 2030B Convertible Notes, (ii) the conversions and redemption of the 2027 Convertible Notes, and (iii) the required dividends on our Perpetual Strike Preferred Stock and Perpetual Strife Preferred Stock, all of which are described more fully above and in Note 5, Long-term Debt and Note 9, Redeemable Preferred Stock, 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, 2024. Short-term and Long-term Liquidity Short-term Liquidity. Our short-term liquidity needs include working capital requirements, anticipated capital expenditures, dividend obligations on the Perpetual Strike Preferred Stock (to the extent that we do not pay such dividends in the form of shares of our class A common stock), dividend obligations on the Perpetual Strife Preferred Stock, and contractual obligations due within the next twelve months. We expect our cash and cash equivalents, as of March 31, 2025, together with cash and cash equivalents generated by our operations, will not be sufficient to satisfy these obligations over the next twelve months. However, we anticipate being able to use proceeds from equity or debt financing to meet these obligations. Our ability to obtain equity and debt financing is subject to market conditions and other factors outside of our control, and we may not be able to obtain equity or debt financing in a timely manner, on favorable terms, or at all. Although we do not anticipate needing to use our bitcoin to meet our short-term obligations, to the extent necessary, we would seek to use proceeds from the sale of our bitcoin to meet such obligations. See “—Availability of Bitcoin for Liquidity” below and “Item 1A. Risk Factors— Risks Related to Our Business in General— A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to satisfy our financial obligations” for additional information. Long-Term Liquidity. Beyond the next 12 months, our long-term cash requirements are primarily for obligations related to our long-term debt and for payment of dividends on the Perpetual Strike Preferred Stock (to the extent that we do not pay such dividends in the form of shares of our class A common stock) and Perpetual Strife Preferred Stock. We also have long-term cash requirements for obligations related to our operating leases, delivery of our new corporate aircraft, our various purchase agreements, and potentially CAMT. We expect our cash and cash equivalents as of March 31, 2025, together with cash and cash equivalents generated by our operations, will not 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 proceeds from equity or debt financings, or the sale of our bitcoin. See “—Availability of Bitcoin for Liquidity” below and “Item 1A. Risk Factors—Risks Related to Our Business in General—A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to satisfy our financial obligations” for additional information. Furthermore, if the conditional conversion features of the Outstanding Convertible Notes are triggered, we may elect to settle the conversions of such Outstanding 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 Outstanding Convertible Notes. In addition, while the 2028 Convertible Notes, the 2029 Convertible Notes, the 2030A Convertible Notes, the 2030B Convertible Notes, the 2031 Convertible Notes, and the 2032 Convertible Notes have maturity dates of September 15, 2028, December 1, 2029, March 15, 2030, March 1, 2030, March 15, 2031, and June 15, 2032, respectively, the holders of the Outstanding Convertible Notes each have the right to require us to repurchase for cash all or any portion of the Outstanding Convertible Notes on September 15, 2027, in the case of the 2028 Convertible Notes, June 1, 2028, in the case of the 2029 Convertible Notes, September 15, 2028, in the case of the 2030A Convertible Notes and the 2031 Convertible Notes, March 1, 2028, in the case of the 2030B 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 Outstanding Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding the repurchase date. 43 In May 2025, we announced a capital plan to raise $84 billion in the medium-to-long term, including $42 billion of equity capital and $42 billion of fixed-income instruments, including debt, convertible notes and preferred stock. This capital plan reflects an increase from our capital plan initially announced in October 2024 to raise $42 billion in aggregate, and includes capital raised through the original plan. Availability of Bitcoin for Liquidity 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 liquidity needs, 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. See “Item 1A. Risk Factors— Risks Related to Our Bitcoin Strategy and Holdings—Our bitcoin holdings 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.” The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated: March 31, % 2025 2024 Change Net cash (used in) provided by operating activities $ (2,389 ) $ 28,587 108.4 % Net cash used in investing activities $ (7,670,400 ) $ (1,640,854 ) 367.5 % Net cash provided by financing activities $ 7,694,305 $ 1,648,400 366.8 % Net cash (used in) provided by operating activities. The primary sources of our cash provided by operating activities are 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 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, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, unrealized loss or gain on digital assets, digital asset impairment losses and amortization of the issuance costs on our long-term debt. Net cash used in operating activities increased $31.0 million for the three months ended March 31, 2025, as compared to the same period in the prior year, due to a $4.164 billion increase in net loss and a $15.1 million decrease from changes in operating assets and liabilities, which was partially offset by a $4.148 billion increase in non-cash items (principally related to unrealized losses on digital assets). In particular, our cash from operations has been negatively impacted by our continued transition of customers to subscription services offerings, which has 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 costs of our cloud infrastructure to support increased usage. We have also incurred additional bitcoin advocacy costs and custodial fees as we continue to pursue our bitcoin strategy. Our interest payments for the three months ended March 31, 2025 have increased compared to the same period in the prior year primarily due to the issuances of the 2028 Convertible Notes, 2030A Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes. Net cash used in investing activities. The changes in net cash used in investing activities primarily relate to purchases of digital assets, advance deposits on a new corporate aircraft, and expenditures on property and equipment. Net cash used in investing activities increased $6.030 billion for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to a $6.022 billion increase in purchases of bitcoins and a $6.0 million deposit on a new corporate aircraft. During the three months ended March 31, 2025, we purchased $7.662 billion of bitcoin using net proceeds from the issuances of our 2030B Convertible Notes, net proceeds from the public offering of our Perpetual Strike Preferred Stock, net proceeds from the public offering of our Perpetual Strife Preferred Stock, net proceeds from the sale of class A common stock under our at-the-market common stock equity offering program, net proceeds from the sale of Perpetual Strike Preferred Stock under our at-the-market Perpetual Strike Preferred Stock offering program, while during the three months ended March 31, 2024, we purchased $1.639 billion of bitcoin using net proceeds from the issuances of our 2030A Convertible Notes and 2031 Convertible Notes, net proceeds from the sale of class A common stock under common stock our at-the-market equity offering program then-in-place, 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 common stock offering 44 program, the sale of Perpetual Strike Preferred Stock under our at-the-market Perpetual Strike Preferred Stock offering program, net proceeds from the initial public offering of our Perpetual Strike Preferred Stock, net proceeds from the initial public offering of our Perpetual Strife Preferred Stock, 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 $6.046 billion for the three months ended March 31, 2025, as compared to the same period in the prior year, primarily due to (i) a $4.263 billion increase in net proceeds from our sale of class A common stock under our at-the-market offering programs, (ii) a $1.306 billion increase in net proceeds from the initial public offerings of our Perpetual Strike Preferred Stock and Perpetual Strife Preferred Stock and sales of Perpetual Strike Preferred Stock under our at-the-market Perpetual Strike Preferred Stock offering program during the three months ended March 31, 2025, and (iii) a $610.2 million increase in long-term debt proceeds, net of issuance costs, during the three months ended March 31, 2025, partially offset by (iv) a $125.5 million decrease in proceeds from the exercise of stock options under the Stock Incentive Plans in the three months ended March 31, 2025, as compared to the same period in the prior year and (v) an increase of $9.2 million in dividends paid on our preferred stock during three months ended March 31, 2025. 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, 2024. 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 2030A 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; in September 2024 we issued $1.010 billion aggregate principal amount of the 2028 Convertible Notes, in November 2024 we issued $3.000 billion aggregate principal amount of the 2029 Convertible Notes, and in February 2025 we issued $2.000 billion aggregate principal amount of the 2030B 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 three months ended March 31, 2025, we paid $8.2 million in interest to holders of the Convertible Notes. We did not pay any interest related to the Convertible Notes during the three months ended March 31, 2024. During the three months ended March 31, 2025, we issued 7,373,528 shares of class A common stock and paid a nominal amount of cash in lieu of fractional shares in connection with the full conversion of $1.050 billion aggregate principal amount of 2027 Convertible Notes then outstanding equal to 100% of the principal amount of the 2027 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. We did not pay any interest related to the 2028 Secured Notes during the three months ended March 31, 2025 and 2024. 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 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 three months ended March 31, 2025 and 2024, we paid $0.3 million in principal and interest to the lender. Other than as discussed above, during the three months ended March 31, 2025 and 2024, 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 seek to prepay our outstanding indebtedness. The amounts involved in any such repurchase or prepayment may be material. We could seek to fund any such debt repurchases or prepayments using proceeds from equity offerings that we may choose to undertake from time-to-time. 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, which we refer to as the Common Stock ATM Offerings. On March 10, 2025, we entered into a sales agreement with agents pursuant to which we may issue and sell shares of our Perpetual Strike Preferred Stock through the Strike ATM Offering. See Note 11, At-the-Market Equity Offerings and Note 14, Subsequent Events to the Consolidated Financial Statements for additional information regarding the Common Stock ATM Offerings and the Strike ATM Offering. 45 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 March 31, 2025 2024 Total shares of class A common stock sold pursuant to the Common Stock ATM Offerings 12,624,595 1,951,620 Total net proceeds received from shares of class A common stock sold pursuant to the Common Stock ATM Offerings $ 4,399,205 137,152 Total shares of Perpetual Strike Preferred Stock sold pursuant to the Strike ATM Offering 349,907 0 Total net proceeds received from shares of Perpetual Strike Preferred Stock sold pursuant to the Strike ATM Offering $ 30,404 0 Total net proceeds received from shares sold pursuant to at-the-market equity offering programs $ 4,429,609 $ 137,152 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 March 31, 2025 2024 Reconciliation of non-GAAP loss from operations: Loss from operations $ (5,921,412 ) $ (203,702 ) Share-based compensation expense 11,819 17,791 Non-GAAP loss from operations $ (5,909,593 ) $ (185,911 ) 46 Non-GAAP net loss attributable to common stockholders and non-GAAP diluted loss per common share Non-GAAP net loss attributable to common stockholders and non-GAAP diluted loss per common 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, if any, and (iv) related income taxes. We believe non-GAAP net loss attributable to common stockholders and non-GAAP diluted loss per common 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 attributable to common stockholders and non-GAAP diluted loss per common share to net loss attributable to common stockholders and diluted loss per common share, respectively, their most directly comparable GAAP measures (in thousands, except per share data), for the periods indicated. Three Months Ended March 31, 2025 2024 Reconciliation of non-GAAP net loss attributable to common stockholders of Strategy: Net loss attributable to common stockholders of Strategy $ (4,228,018 ) $ (53,118 ) Share-based compensation expense 11,819 17,791 Interest expense arising from amortization of debt issuance costs 6,048 2,557 Income tax effects (1) (28,232 ) (109,238 ) Non-GAAP net loss attributable to common stockholders of Strategy $ (4,238,383 ) $ (142,008 ) Reconciliation of non-GAAP diluted loss per common share (2): Diluted loss per common share $ (16.49 ) $ (0.31 ) Share-based compensation expense (per diluted common share) 0.05 0.10 Interest expense arising from amortization of debt issuance costs (per diluted common share) 0.02 0.01 Income tax effects (per diluted common share) (0.11 ) (0.63 ) Non-GAAP diluted loss per common share $ (16.53 ) $ (0.83 ) (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, if any. (2) For reconciliation purposes, the non-GAAP diluted earnings (loss) per common share calculations use the same weighted average common shares outstanding as that used in the GAAP diluted earnings (loss) per common 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, Perpetual Strike Preferred Stock and Convertible Notes are excluded from the GAAP diluted loss per common share calculation as they would be antidilutive, and therefore are also excluded from the non-GAAP diluted earnings or loss per common share calculation. 47 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. We account for our bitcoin as indefinite-lived intangible assets. Although we continue to initially record our bitcoin purchases at cost, upon adoption of ASU 2023-08 on January 1, 2025, any subsequent increases or decreases in fair value are recognized as incurred in the Consolidated Statements of Operations, and the fair value of our bitcoin is reflected within the Consolidated Balance Sheets each reporting period-end. As of March 31, 2025, we held approximately 528,185 bitcoins with a carrying value of $43.546 billion on our Consolidated Balance Sheet. Bitcoin is a highly volatile asset that has traded below $50,000 per bitcoin and above $105,000 per bitcoin in our principal market in the 12 months preceding the date of this report. A significant decrease in the price of bitcoin would have a material adverse effect on our earnings. 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 42.9% and 44.1% of our total revenues for the three months ended March 31, 2025 and 2024, 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. 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 March 31, 2025 and December 31, 2024, 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 3.3% and 5.7%, respectively. If average exchange rates during the three months ended March 31, 2025 had changed unfavorably by 10%, our revenues for the three months ended March 31, 2025 would have decreased by 3.8%. During the three months ended March 31, 2025, our revenues were not significantly impacted by changes in weighted average exchange rates, as compared to the same period in the prior year.