MicroStrategy Announces Second Quarter 2023 Financial Results

• Acquired 12,800 bitcoins since Q1 for $361.4 million, or $28,233 per bitcoin
• As of July 31, 2023, held 152,800 bitcoins acquired for total cost of $4.53 billion, or $29,672 per bitcoin
• Total Revenues of $120.4 million, 1% decrease year-over-year, flat at constant currency
• Software Licenses Revenues of $35.4 million, 4% increase year-over-year, 7% on a constant currency basis
• Subscription Services Revenues of $19.9 million, 42% increase year-over-year, 44% on a constant currency basis

MicroStrategy^® Incorporated (NASDAQ:MSTR) ("MicroStrategy" or the "Company"), the largest independent publicly-traded business intelligence company, today announced financial results for the three-month period ended June 30, 2023 (the second quarter of its 2023 fiscal year).

"Our new MicroStrategy ONE platform is the most important product innovation in the history of our company because it represents a fundamental shift in our industry to harness the power of business intelligence and artificial intelligence together to upgrade the way organizations do business. The growth in our recurring revenue this quarter illustrated the strength of our enterprise cloud platform, despite ongoing macroeconomic headwinds," said Phong Le, President and Chief Executive Officer, MicroStrategy.

"Our bitcoin holdings increased to 152,800 bitcoins as of July 31, 2023, with the addition in the second quarter of 12,333 bitcoins being the largest increase in a single quarter since Q2 2021. We efficiently raised capital through our at-the-market equity program and used cash from operations to continue to increase bitcoins on our balance sheet. And we did so against the promising backdrop of increasing institutional interest, progress on accounting transparency, and ongoing regulatory clarity for bitcoin," said Andrew Kang, Chief Financial Officer, MicroStrategy.

Second Quarter 2023 Financial Highlights

• Revenues: Total revenues for the second quarter of 2023 were $120.4 million, a 1.4% decrease, or a 0.5% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2022. Product licenses and subscription services revenues for the second quarter of 2023 were $35.4 million, a 3.7% increase, or a 6.6% increase on a non-GAAP constant currency basis, compared to the second quarter of 2022. Product support revenues for the second quarter of 2023 were $66.1 million, a 0.7% decrease on both a GAAP basis and non-GAAP constant currency basis, compared to the second quarter of 2022. Other services revenues for the second quarter of 2023 were $18.9 million, an 11.6% decrease, or a 10.9% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2022.
• Gross Profit: Gross profit for the second quarter of 2023 was $93.3 million, representing a 77.5% gross margin, compared to a gross profit of $96.9 million, representing a gross margin of 79.4%, for the second quarter of 2022.
• Operating Expenses: Operating expenses for the second quarter of 2023 were $120.0 million, an 88.2% decrease compared to the second quarter of 2022. Operating expenses include impairment losses on the Company's digital assets, which were $24.1 million during the second quarter of 2023, compared to $917.8 million in the second quarter of 2022.
• Loss from Operations and Net Income (Loss): Loss from operations for the second quarter of 2023 was $26.7 million, compared to $918.1 million for the second quarter of 2022. Net income for the second quarter of 2023 was $22.2 million, or $1.52 per share on a diluted basis, as compared to a net loss of $1.062 billion, or $94.01 per share on a diluted basis, for the second quarter of 2022. Digital asset impairment losses of $24.1 million and $917.8 million for the second quarter of 2023 and 2022, respectively, were reflected in these amounts. Benefit from income taxes of $60.3 million and provision for income taxes of $136.1 million for the second quarter of 2023 and 2022, respectively, were reflected in net income (loss).
• Cash and Cash Equivalents: As of June 30, 2023, the Company had cash and cash equivalents of $66.0 million, as compared to $43.8 million as of December 31, 2022, an increase of $22.1 million.
• Digital Assets: As of June 30, 2023, the carrying value of the Company's digital assets (comprised of approximately 152,333 bitcoins) was $2.323 billion, which reflects cumulative impairment losses of $2.196 billion since acquisition and an average carrying amount per bitcoin of approximately $15,251. As of June 30, 2023, the original cost basis and market value of the Company's bitcoin were $4.519 billion and $4.625 billion, respectively, which reflects an average cost per bitcoin of approximately $29,668 and a market price per bitcoin of $30,361.51, respectively.
• Sales Agreement: On May 1, 2023, MicroStrategy entered into a Sales Agreement (the "2023 Sales Agreement") with Cowen and Company, LLC and Canaccord Genuity LLC as agents (collectively, the "2023 Sales Agents"), pursuant to which MicroStrategy may issue and sell shares of its class A common stock having an aggregate offering price of up to $625.0 million from time to time through the 2023 Sales Agents. During the three months ended June 30, 2023, the Company issued and sold 1,079,170 shares of its class A common stock under the 2023 Sales Agreement for aggregate net proceeds (less sales commissions and expenses) of approximately $333.5 million. As of June 30, 2023, approximately $290.0 million of the Company's class A common stock remained available for issuance and sale pursuant to the 2023 Sales Agreement.

The tables provided at the end of this press release include a reconciliation of the most directly comparable financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP") to non-GAAP financial measures for the three months ended June 30, 2023 and 2022. An explanation of non-GAAP financial measures is also included under the heading "Non-GAAP Financial Measures" below. Additional non-GAAP financial measures are included in MicroStrategy's "Q2 2023 Earnings Presentation," which will be available under the "Events and Presentations" section of MicroStrategy's investor relations website at https://www.microstrategy.com/en/investor-relations.

Non-GAAP Financial Measures

MicroStrategy is providing supplemental financial measures for (i) non-GAAP loss from operations that excludes the impact of share-based compensation expense, (ii) non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share that exclude the impacts of share-based compensation expense, interest expense arising from the amortization of debt issuance costs related to MicroStrategy's long-term debt, gain on debt extinguishment, and related income tax effects, and (iii) non-GAAP constant currency revenues that exclude foreign currency exchange rate fluctuations. These supplemental financial measures are not measurements of financial performance under GAAP and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate business performance and to help make operating decisions.

MicroStrategy believes that these non-GAAP financial measures are also useful to investors and analysts in comparing its performance across reporting periods on a consistent basis. The first supplemental financial measure excludes a significant non-cash expense that MicroStrategy believes is not reflective of its general business performance, and for which the accounting requires management judgment and the resulting share-based compensation expense could vary significantly in comparison to other companies. The second set of supplemental financial measures excludes the impacts of (i) share-based compensation expense, (ii) non-cash interest expense arising from the amortization of debt issuance costs related to MicroStrategy's long-term debt, (iii) a gain on debt extinguishment, and (iv) related income tax effects. The third set of supplemental financial measures excludes changes resulting from fluctuations in foreign currency exchange rates so that results may be compared to the same period in the prior year on a non-GAAP constant currency basis. MicroStrategy believes the use of these non-GAAP financial measures can also facilitate comparison of MicroStrategy's operating results to those of its competitors.

Conference Call

MicroStrategy will be discussing its second quarter 2023 financial results on a live Video Webinar today beginning at approximately 5:00 p.m. ET. The live Video Webinar and accompanying presentation materials will be available under the "Events and Presentations" section of MicroStrategy's investor relations website at https://www.microstrategy.com/en/investor-relations. Log-in instructions will be available after registering for the event. An archived replay of the event will be available beginning approximately two hours after the call concludes.

About MicroStrategy Incorporated

MicroStrategy (NASDAQ:MSTR) is the largest independent publicly-traded analytics and business intelligence company. The MicroStrategy analytics platform is consistently rated as the best in enterprise analytics and is used by many of the world's most admired brands in the Fortune Global 500. We pursue two corporate strategies: (1) acquire and hold bitcoin, which we view as a dependable store of value supported by a robust, public, open-source architecture untethered to sovereign monetary policy and (2) grow our enterprise analytics software business to promote our vision of Intelligence Everywhere. For more information about MicroStrategy, visit www.microstrategy.com.

MicroStrategy, Intelligent Enterprise, and MicroStrategy Library are either trademarks or registered trademarks of MicroStrategy Incorporated in the United States and certain other countries. Other product and company names mentioned herein may be the trademarks of their respective owners.

This press release may include statements that may constitute "forward-looking statements," including estimates of future business prospects or financial results and statements containing the words "believe," "estimate," "project," "expect," "will," or similar expressions. Forward-looking statements inherently involve risks and uncertainties that could cause actual results of MicroStrategy Incorporated and its subsidiaries (collectively, the "Company") to differ materially from the forward-looking statements. Factors that could contribute to such differences include: fluctuations in the market price of bitcoin and any associated impairment charges that the Company may incur as a result of a decrease in the market price of bitcoin below the value at which the Company's bitcoins are carried on its balance sheet; gains or losses on any sales of bitcoins; changes in the accounting treatment relating to the Company's bitcoin holdings; changes in securities laws or other laws or regulations, or the adoption of new laws or regulations, relating to bitcoin that adversely affect the price of bitcoin or the Company's ability to transact in or own bitcoin; a decrease in liquidity in the markets in which bitcoin is traded; security breaches, cyberattacks, unauthorized access, loss of private keys, fraud or other circumstances or events that result in the loss of the Company's bitcoins; impacts to the price and rate of adoption of bitcoin associated with financial difficulties and bankruptcies of various participants in the digital asset industry; the level and terms of the Company's substantial indebtedness and its ability to service such debt; the extent and timing of market acceptance of the Company's new product offerings; continued acceptance of the Company's other products in the marketplace; the Company's ability to recognize revenue or deferred revenue through delivery of products or satisfactory performance of services; the timing of significant orders; delays in or the inability of the Company to develop or ship new products; customers shifting from a product license model to a cloud subscription model, which may delay the Company's ability to recognize revenue; fluctuations in tax benefits or provisions; changes in the market price of bitcoin as of period-end and their effect on our deferred tax assets and related valuation allowance; competitive factors; general economic conditions, including levels of inflation and interest rates; currency fluctuations; and other risks detailed in MicroStrategy's registration statements and periodic reports filed with the Securities and Exchange Commission ("SEC"). The Company undertakes no obligation to update these forward-looking statements for revisions or changes after the date of this release.

Excess Cash refers to cash in excess of the minimum Cash Assets that MicroStrategy is required to hold under its Treasury Reserve Policy, which may include cash generated by operating activities and cash from the proceeds of financing activities. Cash Assets refers to cash and cash equivalents and short-term investments.

The amounts reported as "Market Value" in the above table represent only a mathematical calculation consisting of the price for one bitcoin reported on the Coinbase exchange (MicroStrategy's principal market for bitcoin) in each scenario defined above multiplied by the number of bitcoins held by MicroStrategy at the end of the applicable period. The SEC has previously stated that there has not been a demonstration that (i) bitcoin and bitcoin markets are inherently resistant to manipulation or that the spot price of bitcoin may not be subject to fraud and manipulation; and (ii) adequate surveillance-sharing agreements with bitcoin-related markets are in place, as bitcoin-related markets are either not significant, not regulated, or both. Accordingly, the Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of MicroStrategy's bitcoin may be different from such amounts and such deviation may be material. Moreover, (i) the bitcoin market historically has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks that are, or may be, inherent in its entirely electronic, virtual form and decentralized network and (ii) MicroStrategy may not be able to sell its bitcoins at the Market Value amounts indicated above, at the market price as reported on the Coinbase exchange (its principal market) on the date of sale, or at all.