What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-02 · 178 added, 120 removed, 484 unchanged (38% of the section changed)

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We also believe that bitcoin offers additional opportunity for appreciation in value with increasing adoption due to its limited supply.

We believe that our bitcoin acquisition strategy is complementary to our enterprise analytics software business, as we believe that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand and can provide opportunities to secure new customers for our analytics software offerings.

We are also exploring opportunities to apply bitcoin-related technologies such as blockchain analytics into our software offerings.

In addition, we believe that our bitcoin acquisition strategy is complementary to our enterprise analytics software business, as we believe that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand and can provide opportunities to secure new customers for our analytics software offerings.

We are also exploring opportunities to apply bitcoin-related technologies into our software offerings.

Our Bitcoin Acquisition Strategy

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$500.0 million aggregate principal amount of the 2028 Secured Notes issued in June 2021;

1,413,767 shares of class A common stock issued during the second half of 2021, for aggregate gross proceeds of $1.0 billion pursuant to an Open Market Sale Agreement (the “Open Market Sale Agreement”) with Jefferies LLC, as agent;

1,413,767 shares of class A common stock issued during the second half of 2021, for aggregate gross proceeds of $1.0 billion pursuant to an Open Market Sale Agreement (the “2021 Open Market Sale Agreement”) with Jefferies LLC, as agent (“Jefferies”);

$205.0 million aggregate principal amount of the 2025 Secured Term Loan issued in March 2022.

As of June 30, 2022, we held an aggregate of approximately 129,699 bitcoins, with 14,589 bitcoins held directly by MicroStrategy Incorporated and 115,110 bitcoins held by MacroStrategy LLC, a wholly-owned subsidiary of MicroStrategy.

As of September 30, 2022, we held an aggregate of approximately 130,000 bitcoins, with 14,890 bitcoins held directly by MicroStrategy Incorporated and 115,110 bitcoins held by MacroStrategy LLC, a wholly-owned subsidiary of MicroStrategy.

The approximately 14,890 bitcoins held directly by MicroStrategy Incorporated serve as part of the collateral securing our 2028 Secured Notes, and approximately 30,051 of the 115,110 bitcoins held by MacroStrategy serve as part of the collateral securing our 2025 Secured Term Loan.

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Balance at June 30, 2022

Digital asset purchases

Digital asset impairment losses

Balance at September 30, 2022

In the first quarter of 2021, we purchased bitcoin using $1.026 billion in net proceeds from our issuance of the 2027 Convertible Notes and Excess Cash.

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In the second quarter of 2022, we purchased bitcoin using Excess Cash.

In the third quarter of 2022, we purchased bitcoin using Excess Cash.

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

The following table shows the approximate number of bitcoins held at the end of each respective period, as well as market value calculations of our bitcoin holdings based on the lowest, highest, and ending market prices of one bitcoin on the Coinbase exchange (our principal market for bitcoin ) for each respective quarter, as further defined below:

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June 30, 2022

September 30, 2022

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

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

For the three months ended June 30, 2022, digital asset impairment losses of $917.8 million represented 90.4% of our operating expenses, contributing to our net loss of $1.062 billion for the three months ended June 30, 2022, compared to digital asset impairment losses of $424.8 million in the three months ended June 30, 2021, representing 82.2% of our operating expenses and contributing to our net loss of $299.3 million for the three months ended June 30, 2021.

For the six months ended June 30, 2022, digital asset impairment losses of $1.088 billion represented 85.1% of our operating expenses, contributing to our net loss of $1.193 billion for the six months ended June 30, 2022, compared to digital asset impairment losses of $618.9 million in the six months ended June 30, 2021, representing 77.4% of our operating expenses and contributing to our net loss of $409.4 million for the six months ended June 30, 2021.

As of August 1, 2022, we held approximately 129,699 bitcoins that were acquired at an aggregate purchase price of $3.977 billion and an average purchase price of approximately $30,664 per bitcoin, inclusive of fees and expenses.

As of August 1, 2022, at 4:00 p.m.

While digital asset impairment losses of $0.7 million were not significant for the three months ended September 30, 2022, digital asset impairment losses for the three months ended September 30, 2021 were $65.2 million, representing 42.0% of our operating expenses and contributing to our net loss of $36.1 million for the three months ended September 30, 2021.

For the nine months ended September 30, 2022, digital asset impairment losses of $1.089 billion represented 79.3% of our operating expenses, contributing to our net loss of $1.220 billion for the nine months ended September 30, 2022, compared to digital asset impairment losses of $684.0 million in the nine months ended September 30, 2021, representing 71.6% of our operating expenses and contributing to our net loss of $445.5 million for the nine months ended September 30, 2021.

As of October 31, 2022, we held approximately 130,000 bitcoins that were acquired at an aggregate purchase price of $3.983 billion and an average purchase price of approximately $30,639 per bitcoin, inclusive of fees and expenses.

As of October 31, 2022, at 4:00 p.m.

Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $20,369.41.

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Impact of COVID-19 on Our Software Strategy

The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption despite progress made in the development and distribution of vaccines.

The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption despite progress made in the development and distribution of vaccines and therapeutic treatments.

It has continued to disrupt supply chains and has adversely impacted global commercial activity.

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Significant uncertainty continues to exist concerning the impact of the COVID-19 pandemic on our customers’ and prospects’ business and operations in future periods.

Although our total revenues for the three and six months ended June 30, 2022 and 2021 were not materially impacted by COVID-19, our revenues may be negatively impacted in future periods until the effects of the pandemic and the efforts to address it have fully subsided and the current macroeconomic environment has substantially recovered.

Although our total revenues for the three and nine months ended September 30, 2022 and 2021 were not materially impacted by COVID-19, our revenues may be negatively impacted in future periods until the effects of the pandemic and the efforts to address it have fully subsided and the current macroeconomic environment has substantially recovered.

The uncertainty related to COVID-19 may also result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements.

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Operating Highlights

The following table sets forth certain operating highlights (in thousands) for the three and six months ended June 30, 2022 and 2021:

The following table sets forth certain operating highlights (in thousands) for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Product licenses

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Total operating expenses

Loss from operations

Income (loss) from operations

We have incurred and may continue to incur significant impairment losses on our digital assets and we may recognize gains upon sale of our digital assets in the future, which would be presented net of any impairment losses within operating expenses.

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

As of June 30, 2022, we had a total of 2,158 employees, of whom 779 were based in the United States and 1,379 were based internationally.

As of September 30, 2022, we had a total of 2,172 employees, of whom 765 were based in the United States and 1,407 were based internationally.

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

September 30,

Subscription services

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of subscription services revenues

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Total share-based compensation expense

The $4.2 million and $10.9 million increases in share-based compensation expense during the three and six months ended June 30, 2022, respectively, as compared to the same periods in the prior year, are primarily due to the continued expansion of our equity award programs worldwide.

As of June 30, 2022, we estimated that an aggregate of approximately $191.1 million of additional share-based compensation expense associated with the 2013 Equity Plan and the 2021 ESPP will be recognized over a remaining weighted average period of 3.1 years.

The $4.7 million and $15.6 million increases in share-based compensation expense during the three and nine months ended September 30, 2022, respectively, as compared to the same periods in the prior year, are primarily due to the continued expansion of our equity award programs worldwide.

As of September 30, 2022, we estimated that an aggregate of approximately $184.9 million of additional share-based compensation expense associated with the 2013 Equity Plan and the 2021 ESPP will be recognized over a remaining weighted average period of 2.9 years.

Non-GAAP Financial Measures

We are providing supplemental financial measures for (i) non-GAAP loss from operations that excludes the impact of our share-based compensation expense, (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impacts of our share-based compensation expense, interest expense arising from the amortization of debt issuance costs on our long-term debt, and related income tax effects, and (iii) certain non-GAAP constant currency revenues, cost of revenues, and operating expenses that exclude foreign currency exchange rate fluctuations.

We are providing supplemental financial measures for (i) non-GAAP income (loss) from operations that excludes the impact of our share-based compensation expense, (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impacts of our share-based compensation expense, interest expense arising from the amortization of debt issuance costs on our long-term debt, and related income tax effects, and (iii) certain non-GAAP constant currency revenues, cost of revenues, and operating expenses that exclude foreign currency exchange rate fluctuations.

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.

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We believe the use of these non-GAAP financial measures can also facilitate comparison of our operating results to those of our competitors.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP.

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 the first two non-GAAP financial measures, 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.

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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.

The following is a reconciliation of our non-GAAP loss from operations, which excludes the impact of share-based compensation expense, to its most directly comparable GAAP measures (in thousands) for the periods indicated:

The following is a reconciliation of our non-GAAP income (loss) from operations, which excludes the impact of share-based compensation expense, to its most directly comparable GAAP measures (in thousands) for the periods indicated:

Three Months Ended

Six Months Ended

Reconciliation of non-GAAP loss from operations:

Loss from operations

Nine Months Ended

September 30,

Reconciliation of non-GAAP income (loss) from operations:

Income (loss) from operations

Share-based compensation expense

Non-GAAP loss from operations

Non-GAAP income (loss) from operations

The following are reconciliations of our non-GAAP net loss and non-GAAP diluted loss per share, in each case excluding the impacts of (i) share-based compensation expense, (ii) interest expense arising from the amortization of debt issuance costs on our long-term debt, and (iii) related income tax effects to their most directly comparable GAAP measures (in thousands, except per share data) for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Reconciliation of non-GAAP net loss:

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Three Months Ended

September 30,

Foreign Currency

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General and administrative expenses

Six Months Ended

Nine Months Ended

September 30,

Foreign Currency

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Results of Operations

Comparison of the three and six months ended June 30, 2022 and 2021

Comparison of the three and nine months ended September 30, 2022 and 2021

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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Product Licenses and Subscription Services Revenues:

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Product Licenses Transactions with Recognized Licenses Revenue in the Applicable Period:

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Product Licenses Revenue Recognized in the Applicable Period:

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Less than $0.5 million in licenses revenue recognized

Product licenses revenues decreased $2.0 million and $6.8 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods in the prior year.

For the three months ended June 30, 2022 and 2021, product licenses transactions with more than $0.5 million in recognized revenue represented 52.7% and 40.1%, respectively, of our product licenses revenues.

For the six months ended June 30, 2022, our top three product licenses transactions totaled $8.6 million in recognized revenue, or 23.4% of total product licenses revenues, compared to $8.9 million, or 20.6% of total product licenses revenues, for the six months ended June 30, 2021.

Product licenses revenues decreased $3.5 million and $10.3 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods in the prior year.

For the three months ended September 30, 2022 and 2021, product licenses transactions with more than $0.5 million in recognized revenue represented 41.9% and 38.2%, respectively, of our product licenses revenues.

For the nine months ended September 30, 2022, our top three product licenses transactions totaled $12.1 million in recognized revenue, or 20.5% of total product licenses revenues, compared to $10.1 million, or 14.6% of total product licenses revenues, for the nine months ended September 30, 2021.

Domestic product licenses revenues.

Domestic product licenses revenues increased $5.1 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to an increase in the average deal size of transactions and an increase in the number of transactions with more than $1.0 million in recognized revenue, partially offset by a decrease in the number of transactions with less than $0.5 million in recognized revenue.

Domestic product licenses revenues increased $1.7 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to an increase in the average deal size of transactions, partially offset by a decrease in the number of transactions with less than $0.5 million in recognized revenue.

Domestic product licenses revenues decreased $1.1 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a decrease in the number of transactions, partially offset by an increase in the average deal size of transactions with more than $1.0 million in recognized revenue.

Domestic product licenses revenues increased $0.6 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to an increase in the average deal size of transactions, partially offset by a decrease in the number of transactions.

International product licenses revenues.

International product licenses revenues decreased $7.2 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a decrease in the number of transactions and a $0.6 million unfavorable foreign currency exchange impact.

International product licenses revenues decreased $8.5 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a decrease in the number of transactions and a $1.1 million unfavorable foreign currency exchange impact.

International product licenses revenues decreased $2.4 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a decrease in the number of transactions with less than $0.5 million in recognized revenue and more than $1.0 million in recognized revenue, and a $1.2 million unfavorable foreign currency exchange impact, partially offset by an increase in the number of transactions with more than $0.5 million in recognized revenue and less than $1.0 million in recognized revenue.

International product licenses revenues decreased $10.9 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a decrease in the number of transactions and a $2.3 million unfavorable foreign currency exchange impact.

Subscription services revenues.

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

Subscription services revenues increased $3.7 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, an increase in the use of subscription services by existing customers, and sales contracts with new customers, partially offset by a $0.5 million unfavorable foreign currency exchange impact.

Subscription services revenues increased $6.5 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, an increase in the use of subscription services by existing customers, and sales contracts with new customers, partially offset by a $0.7 million unfavorable foreign currency exchange impact.

Subscription services revenues increased $5.6 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, an increase in the use of subscription services by existing customers, and sales contracts with new customers, partially offset by a $0.8 million unfavorable foreign currency exchange impact.

Subscription services revenues increased $12.1 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, an increase in the use of subscription services by existing customers, and sales contracts with new customers, partially offset by a $1.5 million unfavorable foreign currency exchange impact.

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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Product Support Revenues:

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

Product support revenues decreased $4.5 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $3.0 million unfavorable foreign currency exchange impact and certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses offerings.

Product support revenues decreased $8.0 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $4.7 million unfavorable foreign currency exchange impact and certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses offerings.

Product support revenues decreased $4.4 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $3.8 million unfavorable foreign currency exchange impact and certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses offerings.

Product support revenues decreased $12.4 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to an $8.5 million unfavorable foreign currency exchange impact and certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses offerings.

Other services revenues.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other Services Revenues:

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

Consulting revenues did not materially change for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $1.3 million unfavorable foreign currency exchange impact having been substantially offset by an increase in average bill rates and an increase in billable hours worldwide.

Consulting revenues increased $1.4 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to an increase in billable hours worldwide and an increase in average bill rates, partially offset by a $2.1 million unfavorable foreign currency exchange impact.

Consulting revenues did not materially change for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $1.7 million unfavorable foreign currency exchange impact having been substantially offset by an increase in average bill rates and an increase in billable hours worldwide.

Consulting revenues increased $1.2 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to an increase in billable hours worldwide and an increase in average bill rates, partially offset by a $3.8 million unfavorable foreign currency exchange impact.

Education revenues.

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

Education revenues did not materially change for the three and six months ended June 30, 2022, as compared to the same periods in the prior year.

Education revenues did not materially change for the three and nine months ended September 30, 2022, as compared to the same periods in the prior year.

Costs and Expenses

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of Revenues:

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

Cost of product licenses revenues did not materially change for the three and six months ended June 30, 2022, as compared to the same periods in the prior year.

Cost of product licenses revenues did not materially change for the three and nine months ended September 30, 2022, as compared to the same periods in the prior year.

Cost of subscription services revenues.

Cost of subscription services revenues consists of equipment, facility and other related support costs, and personnel and related overhead costs.

Subscription services headcount increased 48.2% to 83 at June 30, 2022 from 56 at June 30, 2021.

Cost of subscription services revenues increased $1.7 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $1.1 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, and a $0.5 million increase in employee salaries primarily due to periodic wage increases and an increase in average staffing levels.

Cost of subscription services revenues increased $3.5 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $2.2 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, and a $0.9 million increase in employee salaries primarily due to periodic wage increases and an increase in average staffing levels.

Subscription services headcount increased 33.8% to 95 at September 30, 2022 from 71 at September 30, 2021.

Cost of subscription services revenues increased $2.1 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $1.4 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, and a $0.5 million increase in employee salaries primarily attributable to an increase in average staffing levels and wage increases.

Cost of subscription services revenues increased $5.6 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $3.6 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, a $1.4 million increase in employee salaries primarily attributable to an increase in average staffing levels and wage increases, and a $0.5 million increase in variable compensation.

Cost of product support revenues.

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Compensation related to personnel providing Enterprise Support services is reported as cost of product support revenues.

Product support headcount increased 2.5% to 164 at June 30, 2022 from 160 at June 30, 2021.

Cost of product support revenues did not materially change for the three months ended June 30, 2022, as compared to the same period in the prior year.

Cost of product support revenues increased $0.6 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $0.6 million increase in compensation and related costs attributable to an increase in product support average staffing levels and a $0.5 million net increase in share-based compensation expense, partially offset by a $0.6 million decrease in compensation and related costs attributable to non-product support personnel providing a decreased level of Enterprise Support services.

Product support headcount increased 3.6% to 171 at September 30, 2022 from 165 at September 30, 2021.

Cost of product support revenues increased $0.5 million for the three months ended September 30, 2022, as compared to the same period in the prior year.

Cost of product support revenues increased $1.2 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $0.8 million increase in employee salaries primarily attributable to wage increases, and a $0.7 million net increase in share-based compensation expense, partially offset by a $0.5 million decrease in compensation and related costs attributable to non-product support personnel providing a decreased level of Enterprise Support services.

The $0.7 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan.

Included cost of product support revenues for the nine months ended September 30, 2022 is an aggregate $0.7 million favorable foreign currency exchange impact.

Cost of consulting revenues.

Cost of consulting revenues consists of personnel and related overhead costs, excluding those under our Enterprise Support program which are allocated to cost of product support revenues.

Consulting headcount increased 10.3% to 428 at June 30, 2022 from 388 at June 30, 2021.

Cost of consulting revenues did not materially change for the three months ended June 30, 2022, as compared to the same period in the prior year.

Included in cost of consulting revenues for the three months ended June 30, 2022 is an aggregate $1.1 million favorable foreign currency exchange impact.

Cost of consulting revenues increased $1.4 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $0.7 million increase in employee salaries primarily due to an increase in average staffing levels and consulting personnel providing a decreased level of Enterprise Support services, and a $0.6 million net increase in share-based compensation expense.

Consulting headcount increased 15.3% to 453 at September 30, 2022 from 393 at September 30, 2021.

Cost of consulting revenues increased $0.5 million for the three months ended September 30, 2022, as compared to the same period in the prior year.

Included in cost of consulting revenues for the three months ended September 30, 2022 is an aggregate $1.4 million favorable foreign currency exchange impact.

Cost of consulting revenues increased $1.9 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $0.9 million increase in employee salaries primarily attributable to an increase in average staffing levels and consulting personnel providing a decreased level of Enterprise Support services, and a $0.9 million net increase in share-based compensation expense.

The $0.9 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan.

Included in cost of consulting revenues for the six months ended June 30, 2022 is an aggregate $1.7 million favorable foreign currency exchange impact.

Included in cost of consulting revenues for the nine months ended September 30, 2022 is an aggregate $3.1 million favorable foreign currency exchange impact.

Cost of education revenues.

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

Education headcount decreased 5.3% to 36 at June 30, 2022 from 38 at June 30, 2021.

Cost of education revenues did not materially change for the three and six months ended June 30, 2022, as compared to the same periods in the prior year.

Education headcount decreased 38.9% to 22 at September 30, 2022 from 36 at September 30, 2021.

Cost of education revenues did not materially change for the three and nine months ended September 30, 2022, 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.

Sales and marketing headcount decreased 2.8% to 457 at June 30, 2022 from 470 at June 30, 2021 .

Sales and marketing headcount decreased 4.4% to 452 at September 30, 2022 from 473 at September 30, 2021.

The following table sets forth sales and marketing expenses (in thousands) and related percentage changes for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Sales and marketing expenses

Sales and marketing expenses decreased $3.5 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $4.1 million decrease in variable compensation primarily due to a decrease in personnel costs and an increase in capitalized commissions, partially offset by a $1.2 million net increase in share-based compensation expense and a $0.5 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted.

The $1.2 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by the fair value remeasurement of certain liability-classified awards at the end of the reporting period.

Included in sales and marketing expenses for the three months ended June 30, 2022 is an aggregate $1.5 million favorable foreign currency exchange impact.

Sales and marketing expenses decreased $8.4 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to an $11.2 million decrease in variable compensation primarily due to an increase in capitalized commissions and decreases in personnel costs, bonuses, and employee relations expenses, partially offset by a $3.1 million net increase in share-based compensation expense and a $0.7 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted.

Sales and marketing expenses decreased $2.8 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $3.6 million decrease in variable compensation, which decrease was primarily attributable to a net increase in capitalized commissions and a decrease in other personnel costs, and a $0.5 million decrease in employee salaries, which decrease was primarily attributable to a decrease in average staffing levels, partially offset by wage increases.

These decreases were partially offset by a $1.3 million net increase in share-based compensation expense and a $0.5 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted.

The $1.3 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan.

Included in sales and marketing expenses for the three months ended September 30, 2022 is an aggregate $1.8 million favorable foreign currency exchange impact.

Sales and marketing expenses decreased $11.2 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $14.8 million decrease in variable compensation, which decrease was primarily attributable to a net increase in capitalized commissions and decreases in other personnel costs and employee relations expenses, a $0.9 million decrease in employee salaries, which decrease was primarily attributable to a decrease in average staffing levels, partially offset by wage increases, and a $0.7 million decrease in facility and other related support costs, partially offset by a $4.4 million net increase in share-based compensation expense and a $1.3 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted.

The $4.4 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by the forfeiture of certain awards and the fair value remeasurement of certain liability-classified awards at the end of the reporting period.

Included in sales and marketing expenses for the six months ended June 30, 2022 is an aggregate $2.3 million favorable foreign currency exchange impact.

Included in sales and marketing expenses for the nine months ended September 30, 2022 is an aggregate $4.2 million favorable foreign currency exchange impact.

Research and development expenses.

Research and development expenses consist of the personnel costs for our software engineering personnel, depreciation of equipment, and other related costs.

Research and development headcount increased 9.8% to 728 at June 30, 2022 from 663 at June 30, 2021.

Research and development headcount increased 7.7% to 712 at September 30, 2022 from 661 at September 30, 2021.

The following table summarizes research and development expenses (in thousands) and related percentage changes for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Research and development expenses

Research and development expenses increased $3.2 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $2.4 million increase in employee salaries primarily due to periodic wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, and a $0.6 million net increase in share-based compensation expense.

Research and development expenses increased $2.3 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $1.7 million increase in employee salaries primarily attributable to wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, and a $0.8 million net increase in share-based compensation expense.

The $0.8 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan.

Research and development expenses increased $7.3 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $5.0 million increase in employee salaries primarily due to periodic wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, and a $1.9 million net increase in share-based compensation expense, partially offset by a $0.5 million decrease in facility and other related support costs.

The $1.9 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by the fair value remeasurement of certain liability-classified awards at the end of the reporting period and certain awards that became fully vested.

Included in research and development expenses for the three months ended September 30, 2022 is an aggregate $0.8 million favorable foreign currency exchange impact.

Research and development expenses increased $9.6 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $6.7 million increase in employee salaries primarily attributable to wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, and a $2.7 million net increase in share-based compensation expense, partially offset by a $0.9 million decrease in facility and other related support costs.

The $2.7 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by certain awards that became fully vested and the fair value remeasurement of certain liability-classified awards at the end of the

reporting period .

Included in research and development expenses for the nine months ended September 30, 2022 is an aggregate $ 1 .

2 million favorable foreign currency exchange impact.

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.

General and administrative headcount increased 1.2% to 262 at June 30, 2022 from 259 at June 30, 2021.

General and administrative headcount increased 3.5% to 267 at September 30, 2022 from 258 at September 30, 2021.

The following table sets forth general and administrative expenses (in thousands) and related percentage changes for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

General and administrative expenses

General and administrative expenses increased $5.6 million for the three months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $2.5 million increase in costs related to the maintenance and operations of our corporate aircraft, a $1.8 million net increase in share-based compensation expense, and a $1.2 million increase in legal, consulting, and other advisory costs which includes costs from executing our bitcoin acquisition strategy, partially offset by a $1.0 million decrease in custodial fees incurred on our bitcoin holdings.

General and administrative expenses increased $3.5 million for the three months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $2.1 million net increase in share-based compensation expense, a $0.6 million increase in facility and other related support costs, and a $0.5 million increase in compensation and related costs, partially offset by a $0.6 million decrease in custodial fees incurred on our bitcoin holdings.

The $2.1 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by certain awards that became fully vested.

General and administrative expenses increased $10.6 million for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $4.7 million net increase in share-based compensation expense, a $2.6 million increase in costs related to the maintenance and operations of our corporate aircraft, a $1.4 million increase in legal, consulting, and other advisory costs which includes costs from executing our bitcoin acquisition strategy, a $1.1 million increase in facility and other related support costs, a $0.6 million increase in employee salaries primarily due to an increase in average staffing levels, and a $0.5 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted, partially offset by a $1.1 million decrease in custodial fees incurred on our bitcoin holdings and a $0.6 million decrease in variable compensation.

Included in general and administrative expenses for the three months ended September 30, 2022 is an aggregate $0.5 million favorable foreign currency exchange impact.

General and administrative expenses increased $14.1 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $6.8 million net increase in share-based compensation expense, a $2.8 million increase in costs related to the maintenance and operations of our corporate aircraft, a $1.7 million increase in facility and other related support costs, a $1.4 million increase in legal, consulting, and other advisory costs which includes costs from executing our bitcoin acquisition strategy, a $1.0 million increase in employee salaries primarily attributable to wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, a $0.8 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted, and a $0.6 million increase in bad debt expense, partially offset by a $1.7 million decrease in custodial fees incurred on our bitcoin holdings.

The $6.8 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by certain awards that became fully vested.

Included in general and administrative expenses for the six months ended June 30, 2022 is an aggregate $0.7 million favorable foreign currency exchange impact.

Included in general and administrative expenses for the nine months ended September 30, 2022 is an aggregate $1.2 million favorable foreign currency exchange impact.

Digital asset impairment losses.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Digital asset impairment losses

We did not sell any of our digital assets during the three and six months ended June 30, 2022 and 2021.

We did not sell any of our digital assets during the three and nine months ended September 30, 2022 and 2021.

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

Interest Expense, Net

For the three and six months ended June 30, 2022, interest expense, net, of $13.2 million and $24.2 million, respectively, was primarily related to the contractual interest expense related to our 2028 Secured Notes, 2025 Secured Term Loan, and 2025 Convertible Notes, and the amortization of issuance costs related to our long-term debt arrangements.

For the three and six months ended June 30, 2021, interest expense, net, of $4.4 million and $6.8 million, respectively, was primarily related to the contractual interest expense related to our 2025 Convertible Notes and 2028 Secured Notes, and the amortization of issuance costs related to our Convertible Notes.

For the three and nine months ended September 30, 2022, interest expense, net, of $14.1 million and $38.3 million, respectively, was primarily related to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements.

For the three and nine months ended September 30, 2021, interest expense, net, of $10.7 million and $17.5 million, respectively, was primarily related to the contractual interest expense and the amortization of issuance costs related to our long-term debt arrangements.

Refer to Note 4, Long-term Debt, to the Consolidated Financial Statements for further information.

Other Income (Expense), Net

For the three and six months ended June 30, 2022, other income, net, of $5.1 million and $7.3 million, respectively, were comprised primarily of foreign currency transaction net gains.

For the three months ended June 30, 2021, other expense, net, of $0.9 million was comprised primarily of foreign currency transaction net losses.

For the six months ended June 30, 2021, other income, net of $0.4 million was comprised primarily of foreign currency transaction net gains.

Other Income, Net

For the three and nine months ended September 30, 2022, other income, net, of $4.9 million and $12.2 million, respectively, were comprised primarily of foreign currency transaction net gains.

For the three and nine months ended September 30, 2021, other income, net, of $1.3 million and $1.6 million, respectively, were comprised primarily of foreign currency transaction net gains.

Provision for (Benefit from) Income Taxes

We recorded a provision for income taxes of $88.1 million on a pretax loss of $1.105 billion for the six months ended June 30, 2022 and a benefit from income taxes of $194.5 million on a pretax loss of $603.8 million for the six months ended June 30, 2021.

Our provision for income taxes increased from the same period in the prior year primarily due to an increase in the valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the decrease in the market value of bitcoin as of June 30, 2022.

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

We recorded a provision for income taxes of $112.0 million on a pretax loss of $1.108 billion for the nine months ended September 30, 2022 and a benefit from income taxes of $217.4 million on a pretax loss of $662.9 million for the nine months ended September 30, 2021.

Our provision for income taxes increased from the same period in the prior year primarily due to the establishment of a valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the decrease in the market value of bitcoin as of September 30, 2022.

As of September 30, 2022, we had a valuation allowance of $411.8 million primarily related to our deferred tax asset related to the impairment on our bitcoin holdings that, in our present estimation, more likely than not will not be realized.

If the market value of bitcoin continues to decline or we are unable to regain profitability in future periods, we may be required to increase further the valuation allowance against our deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred.

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

September 30,

Deferred product licenses revenue

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

Total deferred revenue and advance payments decreased $21.4 million as of June 30, 2022, as compared to December 31, 2021, primarily due to the timing of product support renewals and an increase in conversions from on-premises to subscription services and revenue recognized on previously deferred other services, partially offset by an increase in deferred revenue from new subscription services contracts.

Total deferred revenue and advance payments increased $6.5 million as of June 30, 2022, as compared to June 30, 2021, primarily due to an increase in deferred revenue from new subscription services contracts, partially offset by an increase in conversion from on-premises to subscription services and revenue recognized on previously deferred other services.

Included in our international deferred revenue balances at June 30, 2022 are $6.7 million and $10.2 million unfavorable foreign currency impacts from the general strengthening of the U.S.

dollar compared to December 31, 2021 and June 30, 2021, respectively.

Total deferred revenue and advance payments decreased $43.3 million as of September 30, 2022, as compared to December 31, 2021, primarily due to a decrease in deferred product support revenue from the timing of product support renewals and an increase in conversions from on-premises to subscription services contracts and revenue recognized on previously deferred other services revenue, partially offset by an increase in deferred revenue from new subscription services contracts.

Total deferred revenue and advance payments increased $5.7 million as of September 30, 2022, as compared to September 30, 2021, primarily due to an increase in deferred revenue from new subscription services contracts, partially offset by a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts and revenue recognized on previously deferred product licenses and other services revenues.

Included in our international deferred revenue balances at September 30, 2022 are $9.9 million and $11.0 million unfavorable foreign currency impacts from the general strengthening of the U.S.

dollar compared to December 31, 2021 and September 30, 2021, respectively.

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

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

As of June 30, 2022, we 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.

As of September 30, 2022, we had an aggregate transaction price of $255.9 million allocated to the remaining performance obligation related to product support, subscription services, product licenses, and other services contracts.

We expect to recognize approximately $190.6 million of the remaining performance obligation over the next 12 months and the remainder thereafter.

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

As of June 30, 2022 and December 31, 2021, the amount of cash and cash equivalents held by our U.S.

In September 2022, we entered into a new at-the-market equity offering program, pursuant to which we may from time-to-time issue and sell shares of our class A common stock having an aggregate offering price of up to $500.0 million.

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

As of September 30, 2022 and December 31, 2021, the amount of cash and cash equivalents held by our U.S.

entities was $27.3 million and $13.1 million, respectively, and by our non-U.S.

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

We repatriated foreign earnings and profits of $57.5 million during 2021 and $21.1 million during the six months ended June 30, 2022.

We repatriated foreign earnings and profits of $57.5 million during 2021 and $34.7 million during the nine months ended September 30, 2022.

Our material contractual obligations and cash requirements consist of:

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Beyond the next 12 months, our long-term cash requirements are primarily for obligations related to our long-term debt.

We have principal due upon maturity of our long-term debt instruments in the aggregate of $2.413 billion in addition to $2.4 million in coupon interest due each semi-annual period for the 2025 Convertible Notes, $15.3 million in coupon interest due each semi-annual period for the 2028 Secured Notes, an estimated $0.8 million due monthly in variable coupon interest for the 2025 Secured Term Loan (based on the interest rate in effect at June 30, 2022), and $0.1 million due monthly in principal and interest related to our other long-term secured debt.

We have principal due upon maturity of our long-term debt instruments in the aggregate of $2.413 billion in addition to $2.4 million in coupon interest due each semi-annual period for the 2025 Convertible Notes, $15.3 million in coupon interest due each semi-annual period for the 2028 Secured Notes, an estimated $1.1 million due monthly in variable coupon interest for the 2025 Secured Term Loan (based on the interest rate in effect at September 30, 2022), and $0.1 million due monthly in principal and interest related to our other long-term secured debt.

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

If cash and cash equivalents generated by future operating activities are not sufficient to enable us to satisfy these obligations, we may seek to generate cash and cash equivalents from other sources.

The sources could include the sale of bitcoins, additional borrowings collateralized by our bitcoins, as well as the issuance and sale of shares of our class A common stock.

The sources could include the

sale of bitcoins, additional borrowings collateralized by our bitcoins, as well as the issuance and sale of shares of our class A common stock.

Furthermore, if certain conditions are met, we may have the right to elect to settle the Convertible Notes upon a conversion of such Convertible Notes in shares of our class A common stock, or a combination of cash and shares of class A common stock, which may enable us to reduce the amount of our cash obligations under the Convertible Notes.

As of June 30, 2022 , we held approximately 129,699 bitcoins , of which approximately 85,059 are unencumbered .

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

The b itcoin 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 , and various other risk s inherent in its entirely electronic, virtual form and decentralized network.

During times of instability in the b itcoin market, we may not be able to sell our bitcoins at reasonable prices or at all.

A s a result, our bitcoin s 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 .

As of September 30, 2022, we held approximately 130,000 bitcoins, of which approximately 85,059 are unencumbered.

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

The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, 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.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by operating activities

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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, income taxes, and interest expense related to our long-term debt arrangements.

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

Net cash provided by operating activities decreased $53.8 million for the six months ended June 30, 2022, as compared to the same period in the prior year, due to a $783.7 million increase in net loss and a $23.7 million decrease from changes in operating assets and liabilities, partially offset by a $753.6 million increase from changes in non-cash items.

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

Net cash provided by operating activities decreased $69.2 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, due to a $774.6 million increase in net loss and a $26.4 million decrease from changes in operating assets and liabilities, partially offset by a $731.8 million increase from changes in non-cash items.

Net cash used in investing activities.

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

Net cash used in investing activities decreased $1.390 billion for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to a $1.390 billion decrease in purchases of bitcoins.

During the six months ended June 30, 2022, we purchased bitcoin using $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan and excess cash.

During the six months ended June 30, 2021, we purchased bitcoin using the net proceeds from the issuance of our 2027 Convertible Notes and 2028 Secured Notes, and excess cash .

Net cash used in investing activities decreased $1.804 billion for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $1.804 billion decrease in purchases of bitcoins.

During the nine months ended September 30, 2022, we purchased bitcoin using $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan and Excess Cash.

During the nine months ended September 30, 2021, we purchased bitcoin using the net proceeds from the issuance of our 2027 Convertible Notes and 2028 Secured Notes, the sale of class A common stock under the 2021 Open Market Sale Agreement, and Excess Cash .

Net cash provided by financing activities.

The changes in net cash provided by (used in) financing activities primarily relate to the issuance of our long-term debt, the exercise of stock options under the 2013 Equity Plan, the sales of class A common stock under the 2021 ESPP, and the payment of withholding tax on vesting of restricted stock units.

Net cash provided by financing activities decreased $1.320 billion for the six months ended June 30, 2022, as compared to the same period in the prior year, primarily due to $1.050 billion in gross proceeds from our 2027 Convertible Notes during the six months ended June 30, 2021, $500.0 million in gross proceeds from our 2028 Secured Notes during the six months ended June 30, 2021, a $23.4 million decrease in proceeds from the exercise of stock options under the 2013 Equity Plan, and $0.5 million of withholding tax paid on vesting of restricted stock units during the six months ended June 30, 2022, partially offset by $204.7 million in gross proceeds, net of lender fees, from our 2025 Secured Term Loan during the six months ended June 30, 2022, $24.7 million in issuance costs paid for our Convertible Notes during the six months ended June 30, 2021, $11.3 million in issuance costs paid for our 2028 Secured Notes during the six months ended June 30, 2021, $11.1 million in gross proceeds from other long-term secured debt during the six months ended June 30, 2022, and $2.8 million in proceeds from the sales of class A common stock under the 2021 ESPP in the six months ended June 30, 2022.

The changes in net cash provided by (used in) financing activities primarily relate to the issuance of our long-term debt, the sale of class A common stock under the 2021 Open Market Sale Agreement, the exercise of stock options under the 2013 Equity Plan, the sales of class A common stock under the 2021 ESPP, the payment of withholding tax on vesting of restricted stock units, and the repayments of other long-term secured debt.

Net cash provided by financing activities decreased $1.726 billion for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to $1.050 billion in gross proceeds from our 2027 Convertible Notes during the nine months ended September 30, 2021, $500.0 million in gross proceeds from our 2028 Secured Notes during the nine months ended September 30, 2021, $404.0 million in gross proceeds from the sale of class A common stock offered under the 2021 Open Market Sale Agreement during the nine months ended September 30, 2021, a $30.0 million decrease in proceeds from the exercise of stock options under the 2013 Equity Plan in the nine months ended September 30, 2022 compared to the same period in the prior year, and $1.1 million of withholding tax paid on vesting of restricted stock units during the nine months ended September 30, 2022, partially offset by $204.7 million in gross proceeds, net of lender fees, from our 2025 Secured Term Loan during the nine months ended September 30, 2022, $24.7 million in issuance costs paid for our Convertible Notes during the nine months ended September 30, 2021, $12.8 million in issuance costs paid for our 2028 Secured Notes during the nine months ended September 30, 2021, $11.1 million in gross proceeds from the issuance of other long-term secured debt during the nine months ended September 30, 2022, $4.5 million of issuance costs paid related to the 2021 Open Market Sale Agreement during the nine months ended September 30, 2021, and a $1.6 million increase in proceeds from the sales of class A common stock under the 2021 ESPP during the nine months ended September 30, 2022 compared to the same period in the prior year.

Long-term Debt

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The terms of the Convertible Notes are discussed more fully in Note 4, 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, 2021.

For the three and six months ended June 30, 2022, we paid $2.4 million in interest to holders of the 2025 Convertible Notes.

For the three and six months ended June 30, 2021, we paid $2.5

million in interest to holders of the 2025 Convertible Notes .

The 2027 Convertible Notes do not bear regular interest and we ha ve not paid any special interest to holders of the 2027 Convertible Notes to date.

For the three months ended September 30, 2022 and 2021, we did not pay any interest to holders of the 2025 Convertible Notes.

For the nine months ended September 30, 2022 and 2021, we paid $2.4 million and $2.5 million, respectively, in interest to holders of the 2025 Convertible Notes.

The 2027 Convertible Notes do not bear regular interest and we have not paid any special interest to holders of the 2027 Convertible Notes to 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.

As of June 30, 2022, approximately 14,589 of the bitcoins held by the Company serve as part of the collateral for the 2028 Secured Notes.

As of September 30, 2022, approximately 14,890 of the bitcoins held by the Company serve as part of the collateral for the 2028 Secured Notes.

The terms of the 2028 Secured Notes are discussed more fully in Note 4, 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, 2021.

For the three and six months ended June 30, 2022, we paid $15.3 million in interest to holders of the 2028 Secured Notes.

For the three and six months ended June 30, 2021, we did not pay any interest to holders of the 2028 Secured Notes.

For the three months ended September 30, 2022 and 2021, we did not pay any interest to holders of the 2028 Secured Notes.

For the nine months ended September 30, 2022, we paid $15.3 million in interest to holders of the 2028 Secured Notes.

We did not pay any interest to holders of the 2028 Secured Notes for the nine months ended September 30, 2021.

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

We used $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan to acquire bitcoin, used $5.0 million of the net proceeds to establish the Reserve Account which serves as collateral for the 2025 Secured Term Loan, and expect to use the remaining net proceeds to pay fees, interest, and expenses related to the 2025 Secured Term Loan or for general corporate purposes.

As of June 30, 2022, approximately 30,051 of the bitcoins held by MacroStrategy serve as part of the collateral for the 2025 Secured Term Loan, which amount includes 10,585 bitcoins that in June 2022, as the price of bitcoin declined causing the LTV Ratio to increase, MacroStrategy deposited into the Bitcoin Collateral Account to help ensure that the LTV Ratio remained below the Maximum LTV Ratio.

As of September 30, 2022, approximately 30,051 of the bitcoins held by MacroStrategy serve as part of the collateral for the 2025 Secured Term Loan.

Subject to certain conditions described in Note 4, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report, MacroStrategy can withdraw excess collateral held in the Bitcoin Collateral Account.

The terms of the 2025 Secured Term Loan are discussed more fully in Note 4, Long-term Debt, to the Consolidated Financial Statements.

For the three and six months ended June 30, 2022, we paid $1.6 million in interest to Silvergate.

For the three and nine months ended September 30, 2022, we paid $2.7 million and $4.3 million, respectively, in interest to Silvergate.

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.

For the three and nine months ended September 30, 2022, we paid $0.3 million in principal and interest to the lender.

At-the-Market Equity Offerings

On June 14, 2021, we entered into the 2021 Open Market Sale Agreement with Jefferies, pursuant to which we issued and sold shares of our class A common stock having an aggregate offering price of approximately $1.0 billion from time to time through Jefferies.

The terms of the 2021 Open Market Sale Agreement are discussed more fully in Note 10, Open Market Offerings, to the Consolidated Financial Statements.

During the three and nine months ended September 30, 2021, we issued and sold 555,179 shares of our class A common stock under the 2021 Open Market Sale Agreement, at an average gross price per share of approximately $727.64, for aggregate net proceeds (less $4.5 million in sales commissions and expenses) of approximately $399.5 million.

As of December 31, 2021, the cumulative aggregate offering price of the shares of class A common stock sold under the 2021 Open Market Sale Agreement was approximately $1.0 billion, inclusive of sales commissions, constituting the maximum program amount under the 2021 Open Market Sale Agreement.

On September 9, 2022, we entered into a Sales Agreement (the “2022 Sales Agreement”) with Cowen and Company LLC and BTIG, LLC, as agents (collectively, the “2022 Sales Agents”), pursuant to which we may issue and sell shares of our class A common stock having an aggregate offering price of up to $500.0 million from time to time through the 2022 Sales Agents.

The terms of the 2022 Sales Agreement are discussed more fully in Note 10, At-the-Market Equity Offerings, to the Consolidated Financial Statements.

As of September 30, 2022, we had not issued and sold any shares of class A common stock under the 2022 Sales Agreement.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis