Palladyne AI Corp. Q3 FY2024 earnings call

• Bitcoin highlights: MicroStrategy is the largest corporate holder of Bitcoin, having acquired more Bitcoin in Q3, with Spot Bitcoin ETPs evidencing Bitcoin's maturation as an institution-grade asset class. • Capital markets: Raised $1.1 billion net proceeds via ATM equity offering and $1.01 billion through 2028 convertible notes, and redeemed $500 million senior secured notes, making all Bitcoin holdings unencumbered. • Software business: Shifted towards cloud offering, with non-GAAP subscription billings growing strongly. Developed new descriptor as the world's first and largest Bitcoin treasury company, leveraging equity and debt financings to accumulate Bitcoin while providing enterprise analytics software.

The software business in Q3 2024 had revenues of $116 million, down 10% year-over-year, consistent with the transition from on-premise to cloud. Non-GAAP subscription billings, representing cloud revenues and next 12 months of deferred subscription services, grew 93% in Q3 to $32.4 million, marking the fourth straight year of quarterly double-digit growth. Subscription services revenues increased 32% year-over-year and now make up approximately 24% of total revenues. For Bitcoin, MicroStrategy remains the largest corporate holder of Bitcoin, with 252,220 Bitcoins held as of yesterday, having acquired an additional 25,889 Bitcoins in Q3 at an average price of $60,839. All Bitcoin holdings are now unencumbered after redeeming $500 million senior secured notes.

• Three-year capital plan: Target to raise $42 billion over 3 years ($21 billion equity, $21 billion fixed income). • Revised BTC yield target: Upgraded to achieve BTC yield of 6% to 10% per year for each of the next three years, aiming to accumulate more Bitcoin using intelligent leverage and proceeds from equity and software operations.

• Bitcoin price volatility: Can impact the valuation of Bitcoin holdings. • Capital market execution risks: Uncertainty in successfully raising capital via equity and debt offerings. • Interest rate risks: Fluctuations in interest rates on debt could affect interest expense and overall financial performance.

Q: Can you provide a framework around how you might cover interest expense, if we continue to issue convertible or fixed income notes that might be beyond servicing from the software cash flows?

A: Sure. We redeemed the 2028 notes, which were our highest cost debt, reducing annual cost by about $30 million. The 21/21 Plan targets raising $42 billion of capital, which could be used to service interest. We feel confident in our ability to issue new debt and fixed income securities.

Q: Given your ambitious ATM plan, are you concerned about the controlled company status, and how do you view it in the long-term?

A: I have slightly more than 50% of the voting stock now, but as we raise additional capital, voting interest will slip. I'm not concerned; we'll operate with common stockholders as partners, and they'll have a greater say, but the company will operate fine.