MicroStrategy Incorporated Variable Rate Series A Perpetual Stretch Preferred Stock Q1 FY2025 earnings call

Phong Le mentioned Strategy World 2025 in Orlando, May 5 - 8. Strategy is largest corporate holder of Bitcoin, holds 553,555 bitcoins. Acquired 106,085 bitcoins in first 4 months of 2025. Trump administration's establishment of strategic Bitcoin reserve and pro - bitcoin regulatory stances boosted Bitcoin's momentum. Raised $6.6 billion net proceeds through ATM equity offering, $2 billion via convertible note offering, $1.4 billion via preferred stock in Q1 and YTD. Introduced 42 - 42 capital plan to raise $42 billion in equity and $42 billion in fixed income by end of 2027. Raised KPI targets for 2025: BTC yield from 15% to 25%, BTC dollar gain from $10 billion to $15 billion. Andrew Kang discussed software results and Bitcoin financials under fair value accounting. Michael Saylor talked about BTC models, MSTR's volatility, various securities' accretive nature, BTC credit model, and called on investors to contact credit rating agencies to rate MSTR's instruments

Software: Q1 total software revenues ~$111 million, down 3.6% YoY. Cloud subscription services revenues up 62% YoY, now ~33% of total revenues. Subscription billings grew 38% to $24.5 million in Q1. Cost of revenues up 13% due to higher cloud hosting costs. Bitcoin: Adopted fair value accounting on Jan 1. Began the year with Bitcoin holdings value ~$42 billion. Recognized $17.9 billion to retained earnings on adoption. Q1 price of Bitcoin declined, resulting in $5.9 billion unrealized fair value loss. Purchased additional 80,715 bitcoins in Q1 at average price ~$94,900, representing $7.7 billion in new purchases. Unrealized fair value loss on new purchases ~$1 billion. As of April 28, holds 553,555 bitcoins with total market value $52 billion. In first 4 months of 2025, acquired 106,085 bitcoins with total purchase cost $9.9 billion at avg price ~$93,600

Raised KPI targets for 2025: BTC yield from 15% to 25%, BTC dollar gain from $10 billion to $15 billion. Filed for a new $21 billion ATM program under the 42 - 42 capital plan. Intend to focus more on fixed income side of the plan through instruments like Strike, Strife, convertible notes, etc., while continuing to utilize equity ATM when favorable and accretive

Actual results may differ materially from forward - looking statements due to factors like risk factors discussed in most recent 10 - Q and 8 - K. Credit risk related to BTC collateral, market inefficiency in pricing MSTR's fixed income securities due to traditional finance practices and OTC market constraints, and potential misperception of BTC as a speculative asset rather than a safe haven which could impact credit ratings and investor demand

Q: Now that you have adopted the fair value accounting, how do you feel about the big swings in earnings as a result of the bitcoin price volatility?

A: Sure. Thanks, Shirish. I guess, first off, the fair value accounting, even with the swings is far more transparent for our investors and more accurately reflects the true value of our bitcoin holdings versus the previous accounting rules. So certainly a win for us and other companies adopting bitcoin. The old accounting was, in many ways, a barrier I feel like -- but with that hurdle gone, we should continue to see a steady stream of new corporate adopters of bitcoin as a treasury asset. So the transparency, I think, is vitally important. So how do we feel about the swings? We, of course, like the positive swings more than the negative swings. But the reality is that bitcoin is volatile. So I think overall, I think we're unfazed by the downswings and believe over time, there will be more upswings. As I noted earlier, my 95,000 bitcoin price example would reflect a $6.7 billion gain. Right now, bitcoin is trading closer to 96.5. So today, we're the end of the quarter and that were the price for -- if that were the price at the end of the quarter, our unrealized gain would be closer to something like $7.6 billion in gain in a single quarter. So I think in the long term, we all believe bitcoin price is going to go up. And over that same long term, our reported gains will reflect that same trend in our overall earnings.

Q: What are your thoughts on the recent MSTR playbook adoptions from other companies? And how does the company plan to sustain its leading role?

A: I think it's a very virtuous cycle, and it's a mutually beneficial competition. The more companies that adopt the bitcoin standard, the more legitimizing it is. As more companies adopt the bitcoin standard, they're out there educating equity investors, and that brings more equity capital to the market. As they start to issue credit instruments, they will educate fixed income investors and credit investors that brings new capital to the market. There's only 450 Bitcoin a day. And so as we're all buying that bitcoin, the price of bitcoin is stabilized, supported and then driven up. And 99.9% of the capital in the world is invested in the traditional fiat physical financial economy. We're just at 1% or 0.1%. And if it grows from 0.1% to 1%, then the advantages of accelerating institutional adoption are profound, and they offset any possible competition for capital. I also think each capital market needs its own set of BTC companies. In France, you need a local French company. You need a local company in Brazil. You need a local company in Japan. You need -- the U.S. market can absorb dozens and dozens of companies because there are so many ways to differentiate. And every company is going to have its own approach. And of course, a lot of investors, they say one incident or one data point is just a random point. And two -- two is a line maybe, but 3 is a trend, right? And so when you get to the point when there's 3, 4, 5, 6 companies, a lot of investors will be more comfortable investing in the space because they're going to want to limit their exposure to anyone to a certain risk responsibility in their portfolio, but they're going to look for the next one, the next one. So I think the more companies that join, the better it is for bitcoin, the better it is for the companies in the space. And they're really going to accelerate the transition to the bitcoin standard such that the companies that don't join will find themselves pressured to join over time.

Q: Can you please update us on the pace of capital raises under the 40 -- 42 plan? -- and how you're thinking about striking the right balance between equity capital and the fixed income capital going forward? And how do you think about the impact of dilution from another $21 billion equity?

A: Well, I'll start with -- I think that's the big question that we spent the last 2 hours addressing, right? And we have conviction in our capital raises and adding to our capital plan, and we talked about that. But you have to start with why did we lay out a BTC financial framework because the existing fiat financial framework doesn't work for BTC, right? So dilution, our BTC KPIs we look at things on a BTC yield, BTC per share, BTC gain basis. And I think you saw in Mike's presentation, every single capital raise we've done via our ATM, if you look at our strategy.com website, has been accretive on a BTC yield and a BTC per share and a BTC gain basis. And so if we issue ATM or equity at greater than 1x NAV, all other things being equal, that's accretive and it's not dilutive to shareholders. That said, if you look at our fixed income instruments, those are even more accretive when you look at BTC yield, all else being equal. But we need that fixed income market to become more mature and more efficient. As NAV rises, the yield curve starts to flatten and issuing equity starts to look more and more like issuing fixed income. And fixed income instruments do require more...