Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MicroStrategy Inc (MSTR, Financial) remains the largest corporate holder of bitcoin, with 226,500 bitcoins valued at $15 billion.
- The company achieved a quarterly bitcoin yield of 8.1% in Q1 and 3.7% in Q2, surpassing the annual bitcoin yield in 2023.
- Subscription services revenue increased by 21% year-over-year, driven by cloud migrations and new customer wins.
- MicroStrategy Inc (MSTR) announced a 10-for-1 stock split to enhance accessibility and liquidity for investors.
- The company raised $800 million through convertible notes with a low annual interest rate of 2.25%, demonstrating strong capital market activity.
Negative Points
- Total revenues for the second quarter were $111.4 million, down 7% year-over-year, reflecting the transition from on-premise to cloud.
- Product license revenues declined by 40% year-over-year due to the shift towards subscription services.
- Operating expenses increased by 4% compared to Q2 of last year, partly due to higher stock-based compensation and legal costs.
- The company reported $180 million in bitcoin impairments, impacting the corporate and other operating expense category.
- There is a potential short-term decrease in total recognized revenue due to the transition to cloud services, despite long-term growth expectations.
Q & A Highlights
Q: MicroStrategy's equity premium to bitcoin holdings has remained healthy despite bitcoin price swings. What do you attribute this to?
A: Michael Saylor, Executive Chairman of the Board, explained that long-term bitcoin holders view bitcoin as an apex property that should not be sold. He emphasized that MicroStrategy's ability to achieve a positive BTC yield, as opposed to the negative yield of closed-end funds, contributes to the equity premium. Investors value the company's strategy of acquiring bitcoin and its differentiated investment approach.
Q: How do you feel about the Q2 cloud conversions relative to your expectations, and what are your thoughts on cloud migrations and AI partnerships for the rest of the year?
A: Phong Le, President and CEO, stated that Q2 saw the largest cloud bookings in the company's history, more than doubling previous records. This accelerates long-term ARR and recognized revenue, although it may depress short-term revenue. The cloud conversions also boost AI adoption, as AI products are only available in the cloud, indicating positive business trends.
Q: How does management decide between raising proceeds from debt or equity issuances, and how do you evaluate different options?
A: Michael Saylor explained that the company evaluates various options, including cash purchases, straight debt, convertible debt, and equity, based on market conditions. The decision-making process is influenced by the relationship between the options market, futures market, bitcoin spot market, and equity market. The company aims to generate BTC yield and will pursue opportunities that offer substantial yield.
Q: How do you think about incremental leverage capacity and interest expense capacity given the increased interest expense related to operating cash flows from the software business?
A: Andrew Kang, CFO, stated that the company actively manages and forecasts cash, ensuring adequate cash to service existing debt based on durable software revenues. They consider the full picture, including software business funding and debt service needs, and have additional liquidity sources available through capital markets. The company is comfortable with its ability to service debt while generating BTC yield.
Q: What is the significance of the BTC yield metric for MicroStrategy?
A: Michael Saylor highlighted that BTC yield is a key performance indicator for assessing the company's ability to outperform bitcoin spot ETFs. It reflects the company's strategy to generate positive yield through intelligent leverage and operational flexibility. Investors use this metric to evaluate the company's capital allocation decisions and its potential to deliver value over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
