What changed in this filing

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Item 1. Financial Statements

2022-08-02 compared with 2022-05-03 · 241 added, 120 removed, 452 unchanged (44% of the section changed)

14 unchanged sentences

Deferred tax assets, net

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ (Deficit) Equity

Current liabilities:

11 unchanged sentences

Commitments and Contingencies

Stockholders’ Equity

Stockholders’ (Deficit) Equity

Preferred stock undesignated, $ 0.001 par value;

11 unchanged sentences

(Accumulated deficit) retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total stockholders’ (deficit) equity

Total liabilities and stockholders’ (deficit) equity

The accompanying notes are an integral part of these Consolidated Financial Statements.

24 unchanged sentences

Interest expense, net

Other income (expense), net

Loss before income taxes

Provision for (benefit from) income taxes

Basic loss per share (1)

Weighted average shares outstanding used in computing basic loss per share

Diluted loss per share (1)

Weighted average shares outstanding used in computing diluted loss per share

Basic and fully diluted loss per share for class A and class B common stock are the same.

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Six Months Ended

Product licenses

Subscription services

Total product licenses and subscription services

Product support

Other services

Total revenues

Cost of revenues:

Product licenses

Subscription services

Total product licenses and subscription services

Product support

Other services

Total cost of revenues

Operating expenses:

Sales and marketing

Research and development

General and administrative

Digital asset impairment losses

Total operating expenses

Loss from operations

Interest expense, net

Other income, net

Loss before income taxes

Benefit from income taxes

Provision for (benefit from) income taxes

Basic loss per share (1)

8 unchanged sentences

Three Months Ended

Other comprehensive (loss) income, net of applicable taxes:

Foreign currency translation adjustment

Total other comprehensive (loss) income

Comprehensive loss

Six Months Ended

Other comprehensive loss, net of applicable taxes:

4 unchanged sentences

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(in thousands, unaudited)

31 unchanged sentences

Balance at March 31, 2022

Other comprehensive loss

Issuance of class A common stock upon exercise of stock options

Issuance of class A common stock upon vesting of restricted stock units, net of withholding taxes

Share-based compensation expense

Balance at June 30, 2022

The accompanying notes are an integral part of these Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Operating activities:

25 unchanged sentences

Issuance costs paid for convertible senior notes

Proceeds from senior secured notes

Issuance costs paid for senior secured notes

Proceeds from secured term loan, net of lender fees

Issuance costs paid for secured term loan, excluding lender fees

Proceeds from other long-term secured debt

Issuance costs paid for other long-term secured debt

Proceeds from exercise of stock options

3 unchanged sentences

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash

Net increase in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash, beginning of period

19 unchanged sentences

All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company is not aware of any subsequent event that would require recognition or disclosure.

(2) Digital Assets

8 unchanged sentences

The carrying value represents the lowest fair value (based on Level 1 inputs in the fair value hierarchy) of the bitcoins at any time since their acquisition.

Therefore, these fair value measurements were made during the period from their acquisition through March 31, 2022 or December 31, 2021, respectively, and not as of March 31, 2022 or December 31, 2021, respectively.

Therefore, these fair value measurements were made during the period from their acquisition through June 30, 2022 or December 31, 2021, respectively, and not as of June 30, 2022 or December 31, 2021, respectively.

The following table summarizes the Company’s digital asset purchases and digital asset impairment losses (in thousands, except number of bitcoins) for the periods indicated:

Three Months Ended

Six Months Ended

Approximate number of bitcoins purchased

1 unchanged sentence

Digital asset impairment losses

The Company did no t sell any of its bitcoins during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, approximately 14,109 of the bitcoins held by the Company serve as part of the collateral for the Company’s 6.125 % Senior Secured Notes due 2028 (the “2028 Secured Notes”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements and in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

As of March 31, 2022, approximately 19,466 of the bitcoins held by the Company serve as part of the collateral for a $ 205.0 million term loan (the “2025 Secured Term Loan”) issued to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of the Company, by Silvergate Bank (“Silvergate”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements.

The Company did no t sell any of its bitcoins during the three and six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, approximately 14,589 of the bitcoins held by the Company serve as part of the collateral for the Company’s 6.125 % Senior Secured Notes due 2028 (the “2028 Secured Notes”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements and in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

As of June 30, 2022, approximately 30,051 of the bitcoins held by the Company serve as part of the collateral for a $ 205.0 million term loan (the “2025 Secured Term Loan”) issued to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of the Company, by Silvergate Bank (“Silvergate”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements.

(3) Contract Balances

7 unchanged sentences

Accounts receivable, net

Changes in the allowance for credit losses were not material for the three months ended March 31, 2022.

In estimating its allowance for credit losses as of March 31, 2022 and December 31, 2021, the Company continued to consider the impact from the pandemic caused by a novel strain of coronavirus (“COVID-19”) on the Company’s reserves.

Changes in the allowance for credit losses were not material for the three and six months ended June 30, 2022.

In estimating its allowance for credit losses as of June 30, 2022 and December 31, 2021, the Company continued to consider the impact from the pandemic caused by a novel strain of coronavirus (“COVID-19”) on the Company’s reserves.

Rights to consideration that are subject to a condition other than the passage of time are considered contract assets and presented within “Prepaid expenses and other current assets” in the Consolidated Balance Sheets since the rights to consideration are expected to become unconditional and transfer to accounts receivable within one year.

2 unchanged sentences

These true-up adjustments are generally not material.

During the three months ended March 31, 2022 and 2021, there were no significant impairments to the Company’s contract assets, nor were there any significant changes in the timing of the Company’s contract assets being reclassified to accounts receivable.

Contract assets included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheets consisted of $ 0.9 million and $ 1.1 million in accrued sales and usage-based royalty revenue as of March 31, 2022 and December 31, 2021, respectively.

During the three and six months ended June 30, 2022 and 2021, there were no significant impairments to the Company’s contract assets, nor were there any significant changes in the timing of the Company’s contract assets being reclassified to accounts receivable.

Contract assets included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheets consisted of $ 0.8 million and $ 1.1 million in accrued sales and usage-based royalty revenue as of June 30, 2022 and December 31, 2021, respectively.

Contract liabilities are amounts received or due from customers in advance of the Company transferring the software or services to the customer.

15 unchanged sentences

Total non-current deferred revenue and advance payments

During the three months ended March 31, 2022, the Company recognized revenues of $ 74.9 million from amounts included in the total deferred revenue and advance payments balances at the beginning of 2022.

During the three months ended March 31, 2021, the Company recognized revenues of $ 70.3 million from amounts included in the total deferred revenue and advance payments balances at the beginning of 2021.

For the three months ended March 31, 2022 and 2021, there were no significant changes in the timing of revenue recognition on the Company’s deferred balances.

During the three and six months ended June 30, 2022, the Company recognized revenues of $ 58.9 million and $ 133.8 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2022.

During the three and six months ended June 30, 2021, the Company recognized revenues of $ 55.7 million and $ 125.9 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2021.

For the three and six months ended June 30, 2022 and 2021, there were no significant changes in the timing of revenue recognition on the Company’s deferred balances.

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

1 unchanged sentence

The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet within contract balances and are instead included in the following remaining performance obligation disclosure.

As of March 31, 2022, the Company had an aggregate transaction price of $ 280.6 million allocated to the remaining performance obligation related to subscription services, product support, product licenses, and other services contracts.

As of June 30, 2022, the Company had an aggregate transaction price of $ 273.9 million allocated to the remaining performance obligation related to product support, subscription services, product licenses, and other services contracts.

The Company expects to recognize $ 207.3 million within the next 12 months and the remainder thereafter .

1 unchanged sentence

The net carrying value of the Company’s long-term debt (in thousands) consisted of the following, as of:

March 31, 2022

June 30, 2022

December 31, 2021

3 unchanged sentences

2025 Secured Term Loan

Other long-term secured debt

Convertible Senior Notes

11 unchanged sentences

The terms of the 2025 Convertible Notes and 2027 Convertible Notes (collectively, the “Convertible Notes”) are discussed more fully in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no adjustments to the initial conversion rates for each of the Convertible Notes as of March 31, 2022.

As of March 31, 2022, the maximum number of shares into which the Convertible Notes could be potentially converted if the conversion features are triggered are 1,633,190 and 733,005 shares for the 2025 Convertible Notes and 2027 Convertible Notes, respectively.

During the three months ended March 31, 2022, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes.

During the three months ended March 31, 2021, the 2025 Convertible Notes were not convertible at any time.

During the three months ended March 31, 2022 and 2021, the 2027 Convertible Notes were not convertible at any time.

No conversions of the Convertible Notes occurred during the three months ended March 31, 2022 or 2021.

There have been no adjustments to the initial conversion rates for each of the Convertible Notes as of June 30, 2022.

As of June 30, 2022, the maximum number of shares into which the Convertible Notes could be potentially converted if the conversion features are triggered are 1,633,190 and 733,005 shares for the 2025 Convertible Notes and 2027 Convertible Notes, respectively.

During the six months ended June 30, 2022, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes during the first quarter of 2022 only.

During the six months ended June 30, 2021, the 2025 Convertible Notes were convertible during the second quarter of 2021 only.

During the six months ended June 30, 2022 and 2021, the 2027 Convertible Notes were not convertible at any time.

No conversions of the Convertible Notes occurred during the six months ended June 30, 2022 or 2021.

The Convertible Notes may be convertible in future periods if one or more of the conversion conditions is satisfied during future measurement periods.

As of March 31, 2022 and December 31, 2021, the net carrying value of the Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the Company’s convertible debt instruments as of March 31, 2022 (in thousands):

As of June 30, 2022 and December 31, 2021, the net carrying value of the Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the Company’s convertible debt instruments as of June 30, 2022 (in thousands):

Principal Amount

8 unchanged sentences

The fair value of the Convertible Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2).

For the three months ended March 31, 2022 and 2021 , interest expense related to the Convertible Notes was as follows (in thousands):

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

For the three months ended June 30, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

Amortization of

6 unchanged sentences

2027 Convertible Notes

The Company did no t pay any interest expense related to the 2025 Convertible Notes during the three months ended March 31, 2022 or 2021.

For the six months ended June 30, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

Amortization of

Interest Expense

Issuance Costs

Interest Expense

Issuance Costs

2025 Convertible Notes

2027 Convertible Notes

For the three and six months ended June 30, 2022, the Company paid $ 2.4 million in interest expense related to the 2025 Convertible Notes.

For the three and six months ended June 30, 2021, the Company paid $ 2.5 million in interest related to the 2025 Convertible Notes.

The Company has no t paid any special interest expense related to the 2027 Convertible Notes to date.

8 unchanged sentences

The 2028 Secured Notes are governed by an indenture containing certain covenants with which the Company must comply, including covenants with respect to limitations on (i) additional indebtedness, (ii) liens, (iii) certain payments and investments, (iv) the ability to merge or consolidate with another person, or sell or otherwise dispose of substantially all the Company’s assets, and (v) certain transactions with affiliates.

The Company was in compliance with its debt covenants as of March 31, 2022.

As of March 31, 2022 and December 31, 2021, the net carrying value of the 2028 Secured Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2028 Secured Notes as of March 31, 2022 (in thousands):

The Company was in compliance with its debt covenants as of June 30, 2022.

As of June 30, 2022 and December 31, 2021, the net carrying value of the 2028 Secured Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2028 Secured Notes as of June 30, 2022 (in thousands):

Principal Amount

6 unchanged sentences

The fair value of the 2028 Secured Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2).

For the three months ended March 31, 2022 , interest expense related to the 2028 Secured Notes was as follows (in thousands):

Three Months Ended March 31, 2022

For the three months ended June 30, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

Amortization of

Interest Expense

Issuance Costs

Interest Expense

Issuance Costs

2028 Secured Notes

The Company did no t pay any interest expense related to the 2028 Secured Notes during the three months ended March 31, 2022.

For the six months ended June 30, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

Amortization of

Interest Expense

Issuance Costs

Interest Expense

Issuance Costs

2028 Secured Notes

For the three and six months ended June 30, 2022, the Company paid $ 15.3 million in interest expense related to the 2028 Secured Notes.

The Company did no t pay any interest expense related to the 2028 Secured Notes during the three and six months ended June 30, 2021.

Secured Term Loan

6 unchanged sentences

In accordance with the terms of the Credit and Security Agreement, the 2025 Secured Term Loan was collateralized at closing by bitcoin with a value of approximately $ 820.0 million placed in a collateral account with a custodian mutually authorized by Silvergate and MacroStrategy (the “Bitcoin Collateral Account”).

While the 2025 Secured Term Loan is outstanding, MacroStrategy is required to maintain a Loan to collateral value ratio (“LTV Ratio”) of 50 % or less, which would amount to at least $ 410.0 million worth of bitcoin being required to be held in such account assuming the full $ 205.0 million of 2025 Secured Term Loan principal remains outstanding.

While the 2025 Secured Term Loan is outstanding, MacroStrategy is required to maintain a Loan to collateral value ratio (“LTV Ratio”) of 50 % or less (the “Maximum LTV Ratio”), which would amount to at least $ 410.0 million worth of bitcoin being required to be held in such account assuming the full $ 205.0 million of 2025 Secured Term Loan principal remains outstanding.

If the price of bitcoin drops such that the LTV Ratio exceeds 50 %, MacroStrategy is required to either deposit additional bitcoin in the Bitcoin Collateral Account or prepay a portion of the 2025 Secured Term Loan such that the LTV Ratio is reduced to 25 % or less (or 35 % or less, provided that in such case the interest rate on the 2025 Secured Term Loan will be increased by 25 basis points until such time as the LTV Ratio is reduced to 25 % or less).

In June 2022, as the price of bitcoin declined causing the LTV Ratio to increase, MacroStrategy deposited 10,585 additional bitcoins into the account securing the borrowing under the Credit and Security Agreement to help ensure that the LTV Ratio remained below the Maximum LTV Ratio.

If at any time the LTV Ratio is less than 25 % as a result of excess collateral in the Bitcoin Collateral Account, MacroStrategy is entitled to a return of such excess collateral so long as the LTV Ratio would not exceed 25 % after giving effect to such return .

2 unchanged sentences

The collateral for the 2025 Secured Term Loan does not extend beyond assets in the Bitcoin Collateral Account and the Reserve Account.

As of March 31, 2022, the Reserve Account is presented within “Restricted cash” in the Company’s Consolidated Balance Sheet and the Bitcoin Collateral Account is presented within “Digital assets” in the Company’s Consolidated Balance Sheet as further described in Note 2, Digital Assets, to the Consolidated Financial Statements.

As of June 30, 2022, the Reserve Account is presented within “Restricted cash” in the Company’s Consolidated Balance Sheet and the Bitcoin Collateral Account is presented within “Digital assets” in the Company’s Consolidated Balance Sheet as further described in Note 2, Digital Assets, to the Consolidated Financial Statements.

The 2025 Secured Term Loan is not guaranteed by any party.

5 unchanged sentences

Upon an event of default, Silvergate has the right to accelerate the 2025 Secured Term Loan in full, increase the interest accrual rate by an additional 2 %, and liquidate the collateral to pay the 2025 Secured Term Loan.

MacroStrategy was in compliance with its debt covenants as of March 31, 2022.

MacroStrategy was in compliance with its debt covenants as of June 30, 2022.

The Company incurred approximately $ 0.4 million in lender fees and third-party costs (“issuance costs”) associated with the 2025 Secured Term Loan.

The Company accounts for these issuance costs as a reduction to the principal amount of the 2025 Secured Term Loan and amortizes the issuance costs to interest expense over the contractual term of the 2025 Secured Term Loan at an effective interest rate of 3.87 %.

As of March 31, 2022 the net carrying value of the 2025 Secured Term Loan was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2025 Secured Term Loan as of March 31, 2022 (in thousands):

As of June 30, 2022, the net carrying value of the 2025 Secured Term Loan was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2025 Secured Term Loan as of June 30, 2022 (in thousands):

Principal Amount

1 unchanged sentence

2025 Secured Term Loan

The carrying value of the 2025 Secured Term Loan as of March 31, 2022 approximates the fair value since the 2025 Secured Term Loan was executed within close proximity to the end of the quarter.

For the three months ended March 31, 2022, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):

Three Months Ended March 31, 2022

The principal or par value of the 2025 Secured Term Loan approximates its fair value as of June 30, 2022.

The fair value of the 2025 Secured Term Loan is determined using unobservable inputs provided by the lender, specifically hypothetical lending terms attainable as of the end of the reporting period, which are comparable to the loan's original terms (Level 3).

For the three and six months ended June 30, 2022, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Amortization of

Interest Expense

Issuance Costs

Interest Expense

Issuance Costs

2025 Secured Term Loan

The Company did no t pay any interest expense related to the 2025 Secured Term Loan during the three months ended March 31, 2022.

The following table shows the maturities of the Company’s debt instruments as of March 31, 2022 (in thousands).

The Company paid $ 1.6 million in interest expense related to the 2025 Secured Term Loan during the three and six months ended June 30, 2022.

Other long-term secured debt

In June 2022, the Company, through a wholly-owned subsidiary, 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 .

The loan is secured by certain non-bitcoin assets of the Company that are not otherwise serving as collateral for any of the Company’s other indebtedness.

The following table shows the maturities of the Company’s debt instruments as of June 30, 2022 (in thousands).

The principal payments related to the 2028 Secured Notes are included in the table below based on the First Springing Maturity Date of September 15, 2025, as if the springing maturity feature discussed above were triggered.

The Company’s expectation is that the springing maturity feature of the 2028 Secured Notes will not be triggered.

Payments due by period ended March 31,

Payments due by period ended June 30,

2025 Convertible Notes

2 unchanged sentences

2025 Secured Term Loan

Other long-term secured debt

(5) Commitments and Contingencies

5 unchanged sentences

Historically, the Company has not been obligated to make significant payments for these obligations and does not currently expect to incur any material obligations in the future.

Accordingly, the Company has not recorded an indemnification liability on its Balance Sheets as of March 31, 2022 or December 31, 2021.

Accordingly, the Company has not recorded an indemnification liability on its Balance Sheets as of June 30, 2022 or December 31, 2021.

(b) Contingencies

32 unchanged sentences

On March 9, 2022, the court issued an order overruling all parties’ objections and adopting the special master’s Reports and Recommendations in full.

The court also ordered that the parties submit a joint proposed schedule within 30 days providing new deadlines for the close of fact discovery, expert reports, expert discovery, and dispositive motions.

As per court order, the parties submitted a joint proposed schedule, which the court adopted on April 7, 2022, providing new deadlines for the close of fact discovery, expert reports, expert discovery, and dispositive motions.

Fact discovery reopened on April 18, 2022 and closed on June 1, 2022.

The case has proceeded to expert discovery and the parties exchanged their opening expert reports on issues for which they bear the burden of proof on July 1, 2022 and exchanged their rebuttal expert reports on July 29, 2022.

The outcome of this matter is not presently determinable.

7 unchanged sentences

The Share Repurchase Program may be funded using the Company’s working capital, as well as proceeds from any other funding arrangements that the Company may enter into in the future.

During the three months ended March 31, 2022 and 2021, the Company did no t repurchase any shares of its class A common stock pursuant to the Share Repurchase Program.

As of March 31, 2022, the Company had repurchased an aggregate of 5,674,226 shares of its class A common stock at an average price per share of $ 104.13 and an aggregate cost of $ 590.9 million pursuant to the Share Repurchase Program.

As of March 31, 2022, $ 209.1 million of the Company’s class A common stock remained available for repurchase pursuant to the Share Repurchase Program.

During the three and six months ended June 30, 2022 and 2021, the Company did no t repurchase any shares of its class A common stock pursuant to the Share Repurchase Program.

As of June 30, 2022, the Company had repurchased an aggregate of 5,674,226 shares of its class A common stock at an average price per share of $ 104.13 and an aggregate cost of $ 590.9 million pursuant to the Share Repurchase Program.

As of June 30, 2022, $ 209.1 million of the Company’s class A common stock remained available for repurchase pursuant to the Share Repurchase Program.

The average price per share and aggregate cost amounts disclosed above include broker commissions.

4 unchanged sentences

As a result of these factors, and due to potential changes in the Company’s period-to-period results, fluctuations in the Company’s effective tax rate and respective tax provisions or benefits may occur.

For the three months ended March 31, 2022, the Company recorded a benefit from income taxes of $ 48.0 million on a pretax loss of $ 178.8 million, which resulted in an effective tax rate of 26.9 %.

For the three months ended March 31, 2021, the Company recorded a benefit from income taxes of $ 74.3 million on a pretax loss of $ 184.3 million, which resulted in an effective tax rate of 40.3 %.

The change in the effective tax rate in 2022 is primarily due to higher excess tax benefits from share-based compensation expense in 2021 as compared to 2022.

As of March 31, 2022, the Company had a valuation allowance of $ 1.0 million primarily related to certain foreign tax credit carryforward tax assets that, in the Company’s present estimation, more likely than not will not be realized.

If the market value of bitcoin declines or the Company is unable to regain profitability in future periods, the Company may be required to increase the valuation allowance against its 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.

For the six months ended June 30, 2022, the Company recorded a provision for income taxes of $ 88.1 million on a pretax loss of $ 1.105 billion, which resulted in an effective tax rate of ( 8.0 )%.

For the six months ended June 30, 2021, the Company recorded a benefit from income taxes of $ 194.5 million on a pretax loss of $ 603.8 million, which resulted in an effective tax rate of 32.2 %.

The change in the effective tax rate, as compared to the same period in the prior year, is primarily due to the establishment of a valuation allowance on the Company’s deferred tax asset related to the impairment on its bitcoin holdings, attributable to the decrease in the market value of bitcoin as of June 30, 2022.

As of June 30, 2022, the Company had a valuation allowance of $ 391.3 million primarily related to the Company’s deferred tax asset related to the impairment on its bitcoin holdings that, in the Company’s present estimation, more likely than not will not be realized.

If the market value of bitcoin continues to decline or the Company is unable to regain profitability in future periods, the Company may be required to increase further the valuation allowance against its 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.

To the extent the market value of bitcoin rises, the Company may decrease the valuation allowance against its deferred tax asset.

The Company will continue to regularly assess the realizability of deferred tax assets.

The Company records liabilities related to its uncertain tax positions.

As of March 31, 2022 and December 31, 2021, the Company had gross unrecognized tax benefits of $ 6.2 million, of which $ 2.1 million was recorded in “Other long-term liabilities” and $ 4.1 million was recorded in “Deferred tax assets, net” in the Company’s Consolidated Balance Sheets.

As of June 30, 2022 and December 31, 2021, the Company had gross unrecognized tax benefits of $ 6.2 million, of which $ 2.1 million was recorded in “Other long-term liabilities” and $ 4.1 million was recorded in “Deferred tax assets, net” in the Company’s Consolidated Balance Sheets.

(8) Share-based Compensation

1 unchanged sentence

The Company’s 2013 Stock Incentive Plan (as amended, the “2013 Equity Plan”) authorizes the issuance of various types of share-based awards to the Company’s employees, officers, directors, and other eligible participants.

As of March 31, 2022, a total of 2,750,000 shares of the Company’s class A common stock were authorized for issuance under the 2013 Equity Plan.

As of March 31, 2022, there were 241,334 shares of class A common stock reserved and available for future issuance under the 2013 Equity Plan.

As of June 30, 2022, a total of 2,750,000 shares of the Company’s class A common stock were authorized for issuance under the 2013 Equity Plan.

As of June 30, 2022, there were 179,462 shares of class A common stock reserved and available for future issuance under the 2013 Equity Plan.

Stock option awards

As of March 31, 2022, there were options to purchase 1,465,779 shares of class A common stock outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended March 31, 2022:

As of June 30, 2022, there were options to purchase 1,489,404 shares of class A common stock outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended June 30, 2022:

Stock Options Outstanding

3 unchanged sentences

Remaining Contractual

Balance as of January 1, 2022

Balance as of April 1, 2022

Forfeited/Expired

Balance as of March 31, 2022

Exercisable as of March 31, 2022

Expected to vest as of March 31, 2022

Stock options outstanding as of March 31, 2022 are comprised of the following range of exercise prices per share (in thousands, except per share data and years):

Stock Options Outstanding at March 31, 2022

Balance as of June 30, 2022

Exercisable as of June 30, 2022

Expected to vest as of June 30, 2022

Stock options outstanding as of June 30, 2022 are comprised of the following range of exercise prices per share (in thousands, except per share data and years):

Stock Options Outstanding at June 30, 2022

Weighted Average

6 unchanged sentences

$400.01 - $500.00

An aggregate of 123,625 stock options with an aggregate grant date fair value of $ 28.4 million vested during the three months ended March 31, 2022.

The weighted average grant date fair value of stock option awards using the Black-Scholes valuation model was $ 227.51 and $ 381.26 for each share subject to a stock option granted during the three months ended March 31, 2022 and 2021, respectively, based on the following assumptions:

$600.01 - $691.23

An aggregate of 26,250 stock options with an aggregate grant date fair value of $ 2.3 million vested during the three months ended June 30, 2022.

The weighted average grant date fair value of stock option awards using the Black-Scholes valuation model was $ 152.69 and $ 252.81 for each share subject to a stock option granted during the three months ended June 30, 2022 and 2021, respectively, based on the following assumptions:

Three months ended

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Expected dividend yield

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 10.4 million and $ 5.3 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan.

As of March 31, 2022, there was approximately $ 154.2 million of total unrecognized share-based compensation expense related to unvested stock options.

As of March 31, 2022, the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3.3 years.

For the three and six months ended June 30, 2022, the Company recognized approximately $ 12.3 million and $ 22.7 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan.

For the three and six months ended June 30, 2021, the Company recognized approximately $ 8.8 million and $ 14.1 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan.

As of June 30, 2022, there was approximately $ 145.2 million of total unrecognized share-based compensation expense related to unvested stock options.

As of June 30, 2022, the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3.1 years.

Share-settled restricted stock units

As of March 31, 2022, there were 108,273 share-settled restricted stock units outstanding under the 2013 Equity Plan.

As of June 30, 2022, there were 131,953 share-settled restricted stock units outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s share-settled restricted stock unit activity (in thousands) for the periods indicated:

Share-Settled Restricted Stock Units Outstanding

Balance as of January 1, 2022

Balance as of March 31, 2022

Expected to vest as of March 31, 2022

During the three months ended March 31, 2022, 3,927 share-settled restricted stock units having an aggregate grant date fair value of $ 2.7 million vested, and 1,473 shares were withheld to satisfy tax obligations, resulting in 2,454 issued shares.

The weighted average grant date fair value of share-settled restricted stock units granted during the three months ended March 31, 2022 and 2021 was $ 404.60 and $ 691.99 , respectively, based on the fair value of the Company’s class A common stock.

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 3.2 million and $ 1.2 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan.

As of March 31, 2022, there was approximately $ 44.1 million of total unrecognized share-based compensation expense related to unvested share-settled restricted stock units.

As of March 31, 2022, the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3.2 years.

Balance as of April 1, 2022

Balance as of June 30, 2022

Expected to vest as of June 30, 2022

During the three months ended June 30, 2022, 367 share-settled restricted stock units having an aggregate grant date fair value of $ 0.2 million vested, and 134 shares were withheld to satisfy tax obligations, resulting in 233 issued shares.

The weighted average grant date fair value of share-settled restricted stock units granted during the three months ended June 30, 2022 and 2021 was $ 222.66 and $ 616.88 , respectively, based on the fair value of the Company’s class A common stock.

For the three and six months ended June 30, 2022, the Company recognized approximately $ 3.2 million and $ 6.4 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan.

For the three and six months ended June 30, 2021, the Company recognized approximately $ 1.4 million and $ 2.6 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan.

As of June 30, 2022, there was approximately $ 45.2 million of total unrecognized share-

based compensation expense related to unvested share-settled restricted stock units.

As of June 30, 2022 , the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3 .

Other stock-based awards and cash-settled restricted stock units

2 unchanged sentences

Due to their required cash settlement feature, these awards are classified as liabilities in the Company’s Consolidated Balance Sheets and the fair value of the awards is remeasured each quarterly reporting period.

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 0.1 million and $ 0.9 million, respectively, in share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

As of March 31, 2022, there was approximately $ 2.0 million of total unrecognized share-based compensation expense related to other stock-based awards and cash-settled restricted stock units.

As of March 31, 2022, the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 2.8 years, subject to additional fair value adjustments through the earlier of settlement or expiration.

For the three and six months ended June 30, 2022, the Company recognized a reduction of approximately $ 0.7 million and $ 0.5 million, respectively, in share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

For the three months ended June 30, 2021, the Company recognized an insignificant amount of share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

For the six months ended June 30, 2021, the Company recognized $ 0.9 million in share-based compensation expense from other stock-based awards and cash-settled restricted stock units.

As of June 30, 2022, there was approximately $ 0.4 million of total unrecognized share-based compensation expense related to other stock-based awards and cash-settled restricted stock units.

As of June 30, 2022, the Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 2.7 years, subject to additional fair value adjustments through the earlier of settlement or expiration.

The Company also maintains the 2021 Employee Stock Purchase Plan (the “2021 ESPP”).

3 unchanged sentences

An aggregate of 100,000 shares of the Company’s class A common stock has been authorized for issuance under the 2021 ESPP.

During the three months ended March 31, 2022, 7,450 shares of class A common stock were issued in connection with the 2021 ESPP.

As of March 31, 2022, 87,938 shares of the Company’s class A common stock remained available for issuance under the 2021 ESPP.

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 0.6 million and $ 0.4 million, respectively, in share-based compensation expense related to the 2021 ESPP.

As of March 31, 2022, there was approximately $ 0.8 million of total unrecognized share-based compensation expense related to the 2021 ESPP.

As of March 31, 2022, the Company expects to recognize this remaining share-based compensation expense over a period of approximately 0.4 years.

During the three months ended June 30, 2022, no shares of class A common stock were issued in connection with the 2021 ESPP.

As of June 30, 2022, 87,938 shares of the Company’s class A common stock remained available for issuance under the 2021 ESPP.

For the three and six months ended June 30, 2022, the Company recognized approximately $ 0.5 million and $ 1.1 million, respectively, in share-based compensation expense related to the 2021 ESPP.

For the three and six months ended June 30, 2021, the Company recognized approximately $ 0.8 million and $ 1.2 million, respectively, in share-based compensation expense related to the 2021 ESPP.

As of June 30, 2022, there was approximately $ 0.3 million of total unrecognized share-based compensation expense related to the 2021 ESPP.

As of June 30, 2022, the Company expects to recognize this remaining share-based compensation expense over a period of approximately 0.2 years.

Tax Benefits Related to Equity Plans

During the three months ended March 31, 2022, the Company recognized tax expense on exercises of stock options and vesting of share-settled restricted stock units of approximately $ 0.1 million and tax benefits on share-based compensation expense of approximately $ 2.9 million, for a total tax benefit of $ 2.8 million related to the Company’s equity plans.

During the three months ended March 31, 2021, the Company recognized tax benefits on exercises of stock options of approximately $ 22.1 million and tax benefits on share-based compensation expense of approximately $ 1.3 million, for a total tax benefit of $ 23.4 million related to the Company’s equity plans.

For the three and six months ended June 30, 2022 and 2021, tax (benefit) expense related to the Company’s equity plans was as follows (in thousands):

Three Months Ended

Six Months Ended

Tax (benefit) expense related to:

Share-based compensation expense

Exercises of stock options and vesting of share-settled restricted stock units

Total tax benefit related to the Company's equity plans

(9) Basic and Diluted Loss per Share

5 unchanged sentences

The Company has never declared or paid any cash dividends on either class A or class B common stock.

As of March 31, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.

As of June 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.

Potential common shares are included in the diluted earnings per share calculation when dilutive.

Potential common shares consisting of class A common stock issuable upon the exercise of outstanding stock options, the vesting of restricted stock units, and in connection with the 2021 ESPP are computed using the treasury stock method.

Potential common shares consisting of class A common stock issuable upon the exercise of outstanding stock options, the vesting of restricted stock units, and in connection

with the 2021 ESPP are computed using the treasury stock method.

Potential common shares consisting of class A common stock issuable upon conversion of the Convertible Notes are computed using the if-converted method.

In computing diluted earnings per share, the Company first calculates the earnings per incremental share (“EPIS”) for each class of potential common shares and ranks the classes

from the most dilutive (i.e.

In computing diluted earnings per share, the Company first calculates the earnings per incremental share (“EPIS”) for each class of potential common shares and ranks the classes from the most dilutive (i.e.

, lowest EPIS) to the least dilutive (i.e.

1 unchanged sentence

Basic earnings per share is then adjusted for the effect of each class of shares, in sequence and cumulatively, until a particular class no longer produces further dilution.

For the three months ended March 31, 2022 and 2021, the following weighted average shares of potential class A common stock were excluded from the diluted loss per share calculation because their impact would have been anti-dilutive (in thousands):

For the three and six months ended June 30, 2022 and 2021, the following weighted average shares of potential class A common stock were excluded from the diluted loss per share calculation because their impact would have been anti-dilutive (in thousands):

Three Months Ended

Six Months Ended

Stock Options

10 unchanged sentences

Other Regions

Three months ended March 31, 2022

Three months ended June 30, 2022

Total revenues

Three months ended March 31, 2021

Three months ended June 30, 2021

Total revenues

As of March 31, 2022

Six months ended June 30, 2022

Total revenues

Six months ended June 30, 2021

Total revenues

As of June 30, 2022

Long-lived assets

4 unchanged sentences

The other regions include all other foreign countries, generally comprising Latin America and the Asia Pacific region.

For the three months ended March 31, 2022 and 2021, no individual foreign country accounted for 10% or more of total consolidated revenues.

For the three months ended March 31, 2022 and 2021, no individual customer accounted for 10% or more of total consolidated revenues.

As of March 31, 2022 and December 31, 2021, no individual foreign country accounted for 10% or more of total consolidated assets.

For the three and six months ended June 30, 2022 and the six months ended June 30, 2021, no individual foreign country accounted for 10% or more of total consolidated revenues.

For the three months ended June 30, 2021, no individual foreign country other than Germany accounted for 10% or more of total consolidated revenues.

For the three and six months ended June 30, 2022 and 2021, no individual customer accounted for 10% or more of total consolidated revenues.

As of June 30, 2022 and December 31, 2021, no individual foreign country accounted for 10% or more of total consolidated assets.

(11) Related Party Transaction

In June 2021, Michael J.

Saylor , the Company’s Chairman of the Board of Directors & Chief Executive Officer, entered into an indemnification agreement with the Company for an initial term of 90 days.

The indemnification agreement provides that Mr.

Saylor will provide during the term of the agreement, from his personal funds, directors’ and officers’ indemnity coverage to the Company for the benefit of the directors and officers of the Company and its subsidiaries in the event such coverage is not indemnifiable by the Company, up to a total of $ 40 million.

Saylor , the Company’s Chairman of the Board of Directors & Chief Executive Officer, entered into an indemnification agreement (the “Original Agreement”) with the Company for an initial term of 90 days and subject to successive 90-day term extensions at the election of the Company.

All term extensions were exercised, most recently in February 2022 for a final 90-day period that began in March 2022.

Pursuant to the Original Agreement, Mr.

Saylor provided during the term of the agreement, from his personal funds, indemnity coverage to the Company for the benefit of the directors and officers (“D&Os”) of the Company and its subsidiaries in the event such coverage was not indemnifiable by the Company, up to a total of $ 40 million.

In return, the Company paid Mr.

Saylor a one-time fee of $ 388,945 for the initial 90-day term.

In 2021, pursuant to the terms of the indemnification agreement, the Company elected to extend the term for two additional 90-day periods which began in September 2021 and December 2021, respectively, and paid Mr.

Saylor an additional $ 777,890 in the aggregate for these extensions.

In February 2022, pursuant to the terms of the indemnification agreement, the Company elected to extend the term for a final 90-day period which began in March 2022, and paid Mr.

Saylor an additional $ 388,945 for the final extension.

Prior to entering into the indemnification agreement with Mr.

Saylor, the Company obtained and considered binding market quotes for directors’ and officers’ liability insurance policies.

The Company determined that these policies would have provided insufficient coverage and would have required substantial premiums.

(12) Subsequent Events

The Company has incurred at least $ 30.2 million in digital asset impairment losses during the second quarter of 2022 on bitcoin held as of March 31, 2022.

See Note 2, Digital Assets, to the Consolidated Financial Statements for further detail on accounting for digital assets.

Saylor $ 388,945 for each of the initial and successive 90-day terms.

On June 12, 2022, Mr.

Saylor and the Company entered into a renewed indemnification agreement (the “Renewed Agreement”) for an initial term of 90 days, which became effective upon the expiration of the final 90-day extension of the Original Agreement.

In return, the Company paid Mr.

Saylor a one-time fee of $ 388,945 for the initial 90-day term (the “Renewal Payment”).

On June 24, 2022, the Company bound D&O liability insurance policies (the “Commercial Policies”) with several third-party carriers for $ 30 million in coverage.

Concurrently, Mr.

Saylor and the Company also entered into (i) an indemnification agreement (the “Excess Agreement”) for Mr.

Saylor to provide $ 10 million in excess indemnity coverage payable only after the exhaustion of the Commercial Policies, and (ii) an indemnification agreement (the “Tail Agreement”) for Mr.

Saylor to provide $ 40 million in indemnity coverage for claims made at any time based on actions or omissions occurring prior to the inception date of the Commercial Policies.

The Company paid Mr.

Saylor $ 600,000 for a one-year term under the Excess Agreement , and $ 150,000 for a 90-day term under the Tail Agreement.

At the option of the Company, the Company may elect to extend the term under the Tail Agreement for up to a total of twenty-three additional 90 -day periods, for $ 150,000 per additional 90-day term.

Under the Excess Agreement and Tail Agreement, Mr.

Saylor will provide, during the term of each agreement, from his personal funds, indemnity coverage to the Company for the benefit of the D&Os of the Company and its subsidiaries in the event such coverage is not provided by the Commercial Policies or indemnifiable by the Company.

The Excess Agreement and the Tail Agreement expressly supersede the Original Agreement and the Renewed Agreement.

Saylor refunded the Company $ 337,086 , which is the pro rata portion of the Renewal Payment, in connection with the release of his obligations under the Renewed Agreement.

Prior to entering into the Original Agreement, Renewed Agreement, Excess Agreement, and Tail Agreement with Mr.

Saylor, the Company obtained and considered market quotes for D&O liability insurance policies.

The Company determined that the policies considered at such times would have provided insufficient coverage and would have required substantial premiums to the extent coverage were available, and that obtaining indemnification coverage provided by Mr.

Saylor was appropriate and in the best interest of the Company.

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

What changed 10-Q

Item 1. Financial Statements