MicroStrategy Incorporated Variable Rate Series A Perpetual Stretch Preferred Stock Q4 FY2024 earnings call

1. Rebranding: MicroStrategy rebranded as Strategy for simplicity, continuity, and ambition. The new name is easier to remember, represents an evolution from the past, and reflects ambition. Also launched the official Strategy merchandise store and new websites (strategy.com and strategysoftware.com). 2. Business highlights: - Q4 saw 50% year-over-year increase in current subscription billings and 48% year-over-year increase in subscription services revenues. - Adopted FASB's Fair Value Accounting Standard for Bitcoin Holdings, with a cumulative adjustment to retained earnings of $12.75 billion in Q1 2025. - Included in the NASDAQ 100 Index. - Board of Directors expanded with three new members. - Special shareholder meeting approved increasing authorized Class A common stock and preferred stock. - In 2024, held 471,107 Bitcoins with a total market value of $46 billion, acquired 258,320 Bitcoins in full year 2024. - Made progress under the 21-21 plan, raising $18.8 billion net proceeds through equity and $6.2 billion through convertible notes, and raised $584 million through Strike preferred stock. - Bitcoin Holdings remain fully unencumbered.

Software results: In Q4 2024, total Software revenues were approximately $121 million, down 3% year-over-year. Full year 2024 total Software revenues were approximately $464 million, down 7% year-over-year. Cloud results: Q4 Subscription Services revenues increased 48% year-over-year and now make up approximately 20% of total revenues. Full year 2024 Subscription Services revenues were approximately $106.7 million, reflecting an increase of 32% year-over-year. Cost of revenues: Q4 cost of revenues were approximately $34 million, up 21% compared to Q4 of last year, and approximately $130 million for the full year, up 18% year-over-year. Operating expenses for the software business: Q4 operating expenses were approximately $94 million, down 6% compared to Q4 of last year and full year OpEx was approximately $396 million, which was up 2% year-over-year. Bitcoin impairment charges: Digital asset impairment charges in Q4 were approximately $1 billion and approximately $1.8 billion for the full year, and Q4 will be the last quarter to recognize an impairment charge on Bitcoin Holdings as it moves to fair-value accounting in Q1.

• Target to achieve a minimum of 15% BTC Yield and a $10 billion BTC dollar gain for 2025. - Consider the full spectrum of financing options and explore accretive capital markets transactions and untapped pools of capital to execute the strategy effectively and prudently. - In 2025, shift focus more to fixed income issuances, including convertible notes, preferred stock, and other securities to achieve the BTC Yield and BTC dollar gain targets.

• Volatility of Bitcoin price: Cannot predict Bitcoin price and broader equity and debt capital market conditions. - Tax risk: Potential unrealized capital gains tax on corporate holders. If implemented, it could somewhat slow down growth rate but is not expected to fundamentally affect the company's capital structure strategies.

Q: Congrats on the successful capital raise through Strike convertible preferred and could you please elaborate on the flexibility for the Strike dividend to be paid out in cash or in common stock and how do you plan to fund the dividends going forward?

A: Sure. Thanks for the question. I guess, first off, it's worth just saying again, we believe Strike is an extremely accretive tool to raise capital. And yet today, it's just a pretty small part of our tool chest, so to speak, compared to our ATM and our converts. I guess in terms of meeting the obligations, we will not need to rely solely on cash from operations. We will use all of our capital sources to pay these dividends, including primarily the ATM. I guess it's worth noting too, look, we raised over $20 billion in capital, $20 billion in capital since the beginning of Q4. You really need to compare that to the $14 million-ish in the quarterly dividend payments for Strike. So it's just -- our ability to raise capital relative to the obligation on Strike is immense compared to what we need to pay. So look, I think we have lots of capacity and lots of flexibility to cover the dividends.

Q: What are the company's latest thoughts on the taxes on unrealized capital gains, and what steps are being taken to mitigate this risk? And what are the implications if this tax issue becomes effective at some point in the future?

A: Good question. We've been in dialogue with the IRS on this matter, and we're also in dialogue with members of the cabinet and with supporters on Capitol Hill and the Senate and the House. We don't think that there is any broad-based support for the idea of an unrealized capital gains tax on crypto assets for large corporate holders. So we don't expect over-time that this will come too much. But having said all that, in the event that there was an unrealized capital gains tax on corporate holders. We see it as a second-order impact. It shouldn't affect our convertible bond strategy, our fixed-income strategy, our equity strategies. It would be a nuisance that it would somewhat slow down our growth rate. But at the end of the day, we're arbitraging equity and debt capital markets where the cost-of-capital is 5% to 15% and the volatilities were 5% to 15% against Bitcoin with performance of 60% -- 60 Vol. And so whether or not we're arbitraging 60 versus 10 or 55 versus 10 or 52 versus 10, doesn't really much change the business strategy, might just slightly slow down our growth rate. And we remain confident that we'll manage this issue.