MicroStrategy(MSTR) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Total revenue for Q1 2023 was $121.9 million, representing a 2% year-over-year increase or 6% on a constant currency basis [7] - Total software licenses revenues were$ 36.2 million, up 23% year-over-year or 29% on a constant currency basis [3] - Subscription services revenue was $18.8 million, an increase of 46% year-over-year or 52% on a constant currency basis [8] - Product licenses revenues were$ 17.4 million, up 5% year-over-year, driven by strong international performance [35] - Product support revenues were $65.5 million, down$ 1.7 million year-over-year but flat at constant currency [36] - Other services revenues were $20.2 million, an 11% decrease year-over-year or 8% decrease at constant currency, primarily due to a decline in consulting revenues [36] Business Line Data and Key Metrics - Cloud subscription services revenue grew 46% year-over-year, reflecting strong demand for cloud-based solutions [8] - The company acquired 7,500 Bitcoin in Q1 2023, the most in a single quarter since Q4 2021, for a net aggregate purchase amount of$ 179 million [9] - As of March 31, 2023, the company held 140,000 Bitcoins at an aggregate cost of $4.2 billion, with an average cost of approximately$ 29,800 per Bitcoin [10] - The company repaid a $205 million Bitcoin-backed loan at a 22% discount, recognizing a$ 45 million gain on extinguishment of debt and eliminating annualized interest costs of over $15 million [12] Market Data and Key Metrics - The company's international business showed strong performance, contributing to a 5% increase in product licenses revenues [35] - Renewal rates for product support remained high at over 90% for the last six consecutive quarters [36] - The company's Bitcoin holdings are primarily in the U.S., with institutional-grade custodians and cold storage, ensuring compliance and minimizing risk [53] Company Strategy and Industry Competition - The company is focused on transitioning customers to its cloud solution, with 2/3 of total revenue being recurring in 2022, and expects this trend to improve in 2023 [38] - MicroStrategy One, the company's modern, open cloud-native BI platform, is designed to serve all analytics needs of large enterprises, with multi-cloud support and a focus on innovation in core analytics, augmented analytics, artificial intelligence, and the Lightning network [13][14][17] - The company is developing MicroStrategy Lightning, a product leveraging the Bitcoin Lightning network for e-commerce use cases and cybersecurity challenges, with a disciplined investment approach currently occupying less than 1% of R&D capability [25][27] Management Commentary on Operating Environment and Future Outlook - The company acknowledges the persistence of difficult macroeconomic conditions, which may impact revenue in the coming quarters [9] - Management remains optimistic about 2023, anticipating modest total revenue growth and continued growth in cloud subscriptions as a percentage of total revenue [54] - The company is committed to its dual strategy of growing its business intelligence software business and acquiring Bitcoin for the future [54] Other Important Information - The company raised approximately$ 339 million in net proceeds through the sale of Class A common shares in Q1 2023 [49] - As of March 31, 2023, 89% of the company's total Bitcoin holdings were unencumbered, compared to 63% at the end of 2022 [52] - The company's total non-GAAP operating loss in Q1 2023 was $3 million, primarily driven by a$ 19 million digital asset impairment charge [42] Q&A Session Summary Question: Update on cloud product progress and customer migrations - Cloud revenue grew nearly 50% year-over-year, with launches on AWS and Azure, and plans to offer Google Cloud Platform later in the year [83] - Cloud billings growth slowed to 19% year-over-year in Q1, attributed to macroeconomic conditions and delayed deals, but cloud is expected to remain a key growth driver [85] Question: Key catalysts for Bitcoin adoption by institutions - FASB fair value accounting and regulatory clarity on crypto exchanges and stable coins are seen as important catalysts for Bitcoin adoption [86][87] - Banking market volatility has increased awareness of Bitcoin's value proposition as a non-sovereign store of value [88][89] Question: Explanation of large swing in GAAP earnings related to Bitcoin - A $456 million valuation allowance release due to Bitcoin price increases drove a large tax benefit in Q1, reversing previous losses [96][97] Question: Expectations for new areas of innovation to contribute to revenue - It is too early to attribute revenue to new innovations in core BI, augmented analytics, AI, and Lightning, but more clarity is expected in the next 6-12 months [99] Question: Impact of FASB's decision on accounting rules and expected timeline - The company supports FASB's draft for fair value accounting, which could improve transparency and encourage Bitcoin adoption, with a potential implementation by the end of the year [104][105] Question: Difficulty in selling expansion deals in the current macro environment - Services revenue slowdown and delayed sales cycles indicate some belt-tightening by IT groups, but the full impact on the year remains uncertain [102][103]