Q3 2020 MicroStrategy Inc Earnings Call

There's a lot to cover on today's call.

I'll start by providing some color on a third-quarter performance and then I'll update you on some of our strategic priorities.

Microstrategy have one of our strongest growth and profitability quarters and the last decade our strategic focus on growth and Hyper intelligence cloud and OEM all contributed to our strong business results. We continue to engage our existing customers, which is a result in excellent renewal rates and are seeing customers continue to migrate from our on-premise platform to our Cloud platform embracing the virtual wave and our go-to-market areas and our overall business is led to reduce costs and improve profitability and our Capital allocation strategy focused on buying back microstrategy stock and utilizing bitcoiners or primary treasury Reserve asset has been well received by current and prospective shareholders and the general technology community.

In the third quarter of 2020 we had exceptionally strong product licenses revenues. Would year-over-year growth exceeding 50% are licensed business benefited from a large transaction with the major financial institution a strong federal government demand as well as an increase in overall deal activity compared to recent quarters the strength of our new business activity is particularly encouraging giving the uncertain macroeconomic environment due to COVID-19.

We are pleased with the adoption of hyper intelligence during the quarter which saw a number of important wins including the federal government and a large big box retailer for intelligence continues to be the most rapidly adopted solution in our history. It's Unique ability to provide actionable knowledge to workers with zero clicks inside their existing productivity tools is empowering them and driving Better Business results for our customer our Cloud offering also showed solid option which led to a year-over-year increase in short-term defers description Services revenues, a 6.7 million dollars or 52% We saw record number of new Cloud customers during the quarter including a new agreement with one of the largest retailers in the US. We also began migrating multiple large financial services customer to our cloud in each case our ability to provide a host. The cloud offering has reinvigorated our engagement with these customers and driven new strategic conversations One customer standardizing on the wage.

Rodger Cloud platform and replacing their legacy bi on-premise standard this represents a significant expansion our relationship with this customer who continued to be excited about the growth opportunity for a cloud offering wage is clear that Covetous been a catalyst for Enterprises to re-evaluate their it stacks and plot a more aggressive course for moving to the cloud the rapid adoption of cloud data warehouse offerings, like snowflakes also providing for a natural conversation regarding the future of Enterprises BI Solutions. We're also seeing positive results with our OEM or embedded analytics business where technology provides microstrategy into their offerings. We had a large OEM win with a global on online retailer during the quarter and went live with an embedded solution for a large cyber security company with our technology partners are choosing microstrategy because our platform is modern open independent and enterprise-grade. These are some of the most sophisticated technologists in the world and they are choosing my dog

Strategy because they know our platform works at scale and can support their Technical and business needs overall. Our performance in the third quarter is a positive indication of demand Trends in the Bi-Mart.

Okay have been moving in like the strategies favor and are Thirty Year history. We have seen the bi Market go through cycles that alternate between a focus on robust enterprise-grade Solutions and departmental level charting a visualization tools. What we've seen historically is that during incoming out of recessions the pendulum swings towards enterprise-grade Solutions, which is microstrategy strength in a times. There's been a clearer focus on return investment security and data governance. We're hearing these topics more and more in our discussions with customers and Industry analysts, which is a positive indicator for my first choice.

Our performance in the quarter was also an important validation of the lower-cost go-to-market strategy that we implemented earlier. This year are fully virtualized marketing program is ramping up in generating meaningful website visits and high-quality action will leads for our sales team who are virtual model. We're also directly connecting a far great number of prospects and customers with our direct sales team. Then we would have been able to if we were engaged in each Prospect in person and then that result has been a notable increase in the velocity of our Pipeline and amateur amateur really lower cost box in a sales and marketing productivity was one of the main drivers in the continued improvement in our cost structure sales and marketing costs decreased 20% year-over-year adjusting for the incremental compensation expense related to our Revenue performance in the quarter operating expenses declined sequentially.

We believe that we can fully fund our growth initiatives Drive improve Top Line performance and generate increased profitability as a result. We continue to be confident in our ability to deliver on our 2021 non-gaap operating income Target of sixty to ninety million dollars.

During the quarter. We also made significant progress executing at our Capital allocation strategy. We successfully repurchased 432313 shares at $100,000 per share with you are modified Dutch auction tender offer returning sixty point five million dollars and microstrategy shareholders subject to market conditions. We are evaluating opportunities to forget execute on the plan. We outlined last quarter to return up to a total of $250 million dollars of excess Capital to shareholders.

We also Institute arnitra treasury Reserve policy which states that Bitcoin will be the primary treasury Reserve asset for the company for Capital that exceeds our working capital needs as part of this policy during the quarter. We purchased approximately 38250 Bitcoins for an aggregate price of $425 million dollars this equates to an average price of approximately $11,111 per Bitcoin. We've been gratified by the Market's reaction to our non-traditional treasury strategy and Bolivar Bitcoin holding can provide our investors with a more stable treasury asset and one that holds a greater return potential and cash held in US dollars.

Investment in Bitcoin is also allowed microstrategy to tap into the passion of the broader crypto market and the smart sophisticated Technologies to advocate for the independent and open markets weather for financial assets or didja once we've seen a notable and unexpected benefit from our investment in Bitcoin in elevating the profile that company in the broader Market. This is benefiting our company reputation overall and raising our minds most prospective customers.

Before I review our results in more detail. I want to finish by saying that we're excited by how the business perform in the third quarter. We are mindful of the uncertain economic environment globally and its potential continued impact an IT budgets bi market growth and deal close rates in the fourth quarter and beyond that said, we are pleased at the underlying Trends we have seen in our business or positive are focussing on executing against our strategy to drive adoption of hyper intelligence and our Cloud offering through our virtualized go-to-market model. We believe it's a position as well to achieve our 2021 non-gaap operating income Target combined with our ProActive Management of a balance sheet and the upside potential of our Bitcoin Holdings. We believe there are a number of opportunities for us to generate shareholder value going forward.

Turning to our third quarter 2020 Financial results in more detail revenues for the quarter were 127 point four million dollars up 6% year-over-year off and up 6% on a constant currency basis.

Product license revenues are twenty nine point six million dollars in the third quarter of 2020 at any point, six million dollar or 56% increase year-over-year and up 58% off on a constant currency basis. The strengthen product license revenues, which was one of our best quarterly performances in years was due to large expansion deal with an existing financial services customer as well as good overall deal activity.

Subscription Services Revenue in the third quarter of 2020 with 8.3 million dollars an increase of 5% year-over-year on 4% on a constant currency basis the growth in submission Services revenues reflects, the growing portion of our product bookings that are related to our manage Cloud platform. We are pleased with the performance of our Cloud business in the quarter.

Product support revenues were seventy one point four million dollars in the third quarter of 2020 a 2% decrease year-over-year and decreased 3% on a constant currency basis. The phone number here decrease was primarily the result of conversions to subscription or on-premise term licenses trailing-twelve-month product support revenues were flat year-over-year on a constant currency basis of renewal rates remain strong in the third quarter our strategy which includes actively working to migrate customers to annual term licenses is impacting our product support revenues. This proactive strategies allows us to increase engagement with our customers and it's expected to result in product support revenues either moving to subscription Services revenues, if customers transition to the cloud off product license revenues of customers convert from a Perpetual to a non creme term license.

finally

Services which largely reflects our Consulting Services decreased 9% year-over-year and 10% on a constant currency base remote delivery of our services is leading to lower bill rates and lower bill with AT&T. Both of which affect our Consulting Revenue. We expect our Consulting business has strengthened as product license has strengthened to begin to offset the ongoing impact of remote Consulting delivery.

Total deferred revenue at September 30th 2020 was 172 point five million dollars. This is up 5% year-over-year primarily due to an increase in long-term deferred wage in Services revenue and a favorable FX impact at 1% The increase in long-term deferred subscription Services revenues is due to multi year subscription contracts is also I noticed that more existing customers convert to our manage Cloud platform. They will continue to be a shift from deferred product support revenues to deferred subscription Services revenues.

Total non-gaap expenses were 109 million dollars in the third quarter or Twenty $20 and 11% decrease year-over-year and down 1% quarter-over-quarter off. The year-over-year decrease is driven by efficiency and Staffing reductions in corporate travel and a reduction in the number of in-person events. Mostly related to marketing during the quarter. We had a couple of non-runners a great expense items including higher sales commissions related to our strong product license performance and one-time expenses related to the implementation of our treasury management a capital allocation strategies faith in the Bitcoin acquisitions.

Non-gaap operating income was twenty six point five million dollars or a 21% non-gaap operating margin in the third quarter of 2020 this represents a year-over-year Improvement and non-gaap operating income just over twenty million dollars turning to the balance sheet. We ended the third quarter with fifty two point seven million dollars in cash and no debt as discussed earlier. We've implemented their new treasury Reserve policy, whereby we will hold excess Capital beyond what we need to run the business and for working capital purposes primarily in Bitcoin to that end. We purchased approximately 38250 Bitcoins for 425 million dollars during the quarter going forward will continue to actively manage our balance sheet including potential share repurchases month per our treasury Reserve policy. You should expect that. We will purchase additional Bitcoin as we generate cash beyond what we need to run the business on a day-to-day basis or to deploy for other corporate purposes dead.

I'd like to take a moment to discuss. How are Bitcoin Holdings are and will be reflected on our financial statements. We account for Bitcoin is indefinite lived intangible assets, which are subject to impairment losses at the fair value of a Bitcoin decreases below the carrying value at any time since since their acquisition the carrying value of a Bitcoin as a September 30th, 2020 was 380.8 million dollars which reflects a 44.2 million dollar cumulative impairment loss which is reflected as a loss of income statement in determining if an impairment is occurred, we consider the lowest price of one Bitcoin quoted on the active exchange at any time since acquiring this specific coin impairment losses cannot be recovered for any subsequent subsequent increase in Fair Value, their four- swings in the market price of Bitcoin could have a material impact on our Gap birth.

and on the

Bring value of our digital assets positive swings in the market price of Bitcoin are not reflected in a curing value of our digital assets and would impact gaap earnings only when the Bitcoin is sold for a game compared to an average purchase price of $11,111. The recent price per Bitcoin has been over $13,500. I believe changes in the carrying value of our Bitcoin or relevant to understanding the underlying earning potential of RBI business as a result our non-gaap operating income net income and EPS calculations a glued quarterly impact Bitcoin impairment charges.

Before I turn it over to Michael for his comments. I'll finish by saying there are a lot of positive things happening at microstrategy. We've introduced Innovation through hyper intelligence in our Cloud platform that resonated in the market and provide additional opportunities for top-line growth are embraced at a virtual wave is dramatically simplified and streamlined our operations driving substantial improvements in productivity. Finally our approach to our balance sheet has been transformative as we actively deployed our excess Capital to seek to deliver value to shareholders. We think this is a great time to learn more about everything we were doing here at microstrategy to that end will be hosting a virtual investor day on Monday, November 16th at 1:30 p.m. Eastern time will we will be providing a deep dive into our strategy product roadmap Cloud migration and views on our Bitcoin investment among other topics. We hope you will be able to attend.

With that, let me turn the call over to Michael.

Thank you for calling I just want to start with a few views on company performance. Then I'll talk about our product strategy. Then. I'll talk about our truck to reserve policy and then wrap it up with a few thoughts about the virtual wipe. So first of all company performance, I'm extremely pleased with our Revenue Office operating margin and cost structure results Revenue year-over-year growth is great and and a challenging time. It's great to see that off the operating results were tremendous and getting to a non-gaap operating margin north of 20% I think is extremely strong what's nice is to see revenues a growing what the cost structure compressing and I think it's symptomatic of the fact that the companies becoming a leaner much more efficient operation Thursday.

Higher thrust-to-weight ratio. We've we thought long and hard about what we need to do in order to grow the business and what we need to do in order to provide value to our customers and and I think that our our structure for the business today is very very different and and dramatically more efficient way than where we were at the beginning of the year. There's no way we could have done this without Superior performance from the management team was really what's really compelling is that we saw extraordinary Innovative performance and and commitment from our marketing department to completely restructure the way we Market off from our Consulting organization to figure out how to deliver Services remotely from our it organization, which is now sitting at the core birth.

all of our all

Of our sales and marketing and service operations Much More Much More strategic than they were even a year ago and they've all risen to the occasion our support organization that has has has dramatically improved the productivity and the and the effectiveness with which we provide support. Our education was overhauled completely and scaled up by an order of magnitude as we went through this crisis from our Finance in our legal teams are both have both been catapulted into strategic arms of microstrategy and you can see it with our treasury Reserve strategy and our Bitcoin investment and all of the work we had to do in order to arrive at that result. And I think everybody recognizes that the company in general has been strengthened and we couldn't have done it without extraordinary leadership from both finance and from Thursday.

Goal, and I'm very proud of what we've done and and I think that we're providing leadership to other people in the industry by by our transformational world are our engineers and Technology have thought long and hard about how we streamline accelerate and Virtua life is our product offering and I'm just incredibly excited about where we're headed with that. And so if you put it in a nutshell all of these things and I guess I left out HR, but I really shouldn't managing two thousand people through the last three months is just been extraordinary and Thursday. We're managing. Our process is everywhere in the world more effectively and more efficiently today than we were a year ago, even though we've had to rethink how we wage.

So the management teams firing on all cylinders, every department is strategic to the company. They all just pulled off extraordinary extraordinary transformations to get us where we are and I couldn't be happier about that. I couldn't be happier about the performance of all of our employees too because we started the year and we had we had one set of circumstances one go-to-market model. And today we have we have transformed dramatically and and every year every consultant every corporate.

Every corporate employee every executive has restructured what they're doing and they've they've come together and an impressive harmonious organized fashion. So I think that the results speak for themselves, but I would just say to everybody on the call that there's not a single employer in the company that was an integral to getting to those results and there's not a single Department that didn't have to rethink the way that they operate and a dramatic fashion and make changes that normally come along once every twenty or thirty years and we did all that in the past six months and in the past three months we accelerated that so humor was was I thought just awesome performance by the management team my thoughts on the on the product.

Well, we went.

To the pandemic crisis with one advantage, which is that our primary value proposition is delivering software to large Enterprises. And that's often it's intelligence and everybody needs as much intelligence as they can get and we're just very fortunate that we're providing business intelligence to to suck some of the most sophisticated and and important organizations on Earth.

Are our products organization built on that strength?

And and we dramatically enhanced what we're doing and and doubled-down following alluded to a number of these things are hyper intelligence offering gives people Insight at a glance within their existing Enterprise applications and and it can make you and we've said many times it does make you smarter faster and stronger May two hundred times smarter a hundred times faster a hundred times stronger and and it's it's a real big lynchpin of what we're doing. I think our Cloud offering is improved dramatically this year and and it's a another critical engine of growth for us and customers Enterprise Suzy azzam for the cloud has has leaked since it in and so are are Cloud teens rising to that occasion making lots of

Lots of improvements to that cloud platform and then our OEM business really has been a source of brightness for us. We've always we've always prided ourselves having to open intelligence architecture with apis and oems push us to keep improving that architecture. Now, I'm more so than ever people want to embed intelligence into their own custom applications and we're seeing more and more companies viewing information as strategic to their value proposition. So a modern open analytics platform that they can plug into their applications is pretty compelling. So I'm happy to see us making strides there. We've got some really exciting Innovations this year. One of them is our hyper SDK what that means is you can create a hyper intelligence application with Hyper cards and birth

You can deploy it to all of your users by simply inventing the hyper intelligence code and your own web app. So that means that someone might be able to build a hyper intelligence application and by the code in their web app in a matter of minutes to hours turn it on and then thousands tens of thousands hundreds of thousands or millions of people would go hit their website and they'll see our own intelligence embedded in the other website. No need to download an extension or install an app you simply go to the website and it's there that of course has long has real great great potential for both selling hyper intelligence to the Enterprise and also selling hyper intelligence to oems.

We've been hard at work on faster.

Migration tools to migrate our Enterprise customers to our Cloud offering and we're excited about that. We continue to improve our apis and make them more open and um, we've got a very exciting multi-tenant offering of our hyper intelligence application functionality coming up we call it hyper now dead and I'm really excited about hyper now it's built on on a world-class framework and it's going to allow us to deploy hyper intelligence to a dramatic a larger number of entities in a faster more accessible way. So that's that's something that which will be coming soon off the market we expect that'll be a Cornerstone of growth in 2021. Um, we made some other really exciting changes to the business or upgrade phone number.

This is one of them is rolling out our new modular website. And if you go to microstrategy, what you'll see is that we'd model microstrategy on YouTube. You suck. You can set up your own account and we're very we're video first and the way we communicate so if you want to know anything about our products, we have a set of videos with the Relay Team web content and if you want to learn anything, all of our education is available by a videos right on our same website and it's a customer you need support. We have the answer to any questions you have on our product via these these videos on the website. We've even converted our recruiting in our HR to video. Yeah, if you consider it being a software engineer working for us now, we've got videos that describe the role and you can run them on demand.

And the exciting thing about a video first module or website is we can very rapidly put deep specific content log on to our web deliver it to to the prospect of the customer that needs it quickly and easily and maintain it and it containerize fashion that has helped Josh to virtualize a large portion of our marketing and a decent portion of our sales and another decent portion of our services operations team make those those Marketing sales and service value propositions and then much more accessible to a large group of people. We see that as a as a Cornerstone of becoming a more scalable virtual wave or virtual age company.

That hyper now offering that I'm excited about built on the multi-tenant cloud that's going to be followed by an Intel now offering and off and when we put our hyper now will provide hyper intelligence to anybody off of our website and a matter of an hour and they'll be able to build and deploy an application with the with one hour of effort. And when when Intel comes out or until now comes up, I think we'll be able to provide prospects and customers and partners the ability to build a full business intelligence application in a matter of an afternoon and deployed that day to their Enterprise with enterprise-grade world-class security and scalability. So we're just really thrilled at that because we're we're delivering Piper intelligence and business intelligence by birth.

a virtual wave

Framework and architecture. It should allow us to become dramatically more scalable and dramatically easier to do business with we expect that will that will allow us to reach new constituencies. We expect that it will speed up sales Cycles. We expect it will Delight our customers and we expect that it will cut down on a service and maintenance liabilities and and the challenges of upgrades over time or or support expenses and that will allow all of our customers to move forward with their strategic intelligence initiatives faster.

Cheaper more efficient the general theme of all of this is make our customers smarter faster stronger and be easy to do business with and do it, you know using tools that are disposed on your 2020 as you can imagine this takes this takes a lot a set of inspired capable talented engineers and I think we've bought some of the best in the world and I'm very proud to have them excited to see how this entire story involves and I hope you will be too so moving on to the third subject off our treasury Reserve policy.

We're pleased with the market reaction and our investors reaction to our strategy. We were aware that we were Pioneers in this in this particular process and there's a lot of uncertainty going into this initiative. But nonetheless, we thought it's the right thing to do and it's the best thing long-term for our shareholders and a month and for all the rest of our constituents. We are starting to see marketing benefits to the overall company. We've activated Life as a communication Channel and we've activated YouTube as Communication channel, we built our Twitter and YouTube presence and I believe that that are brand and our channels cross station via cyberspace are going to continue to strengthen overtime. This should act as a benefit to to micro strategies Brand, New Jersey.

The microstrategy corporation it should help us draw new people to be interested in our value proposition are offering. I think it helps us with recruiting. It helps us with our marketing. It helps us with our partners our employees our customers and and with our investor relations just it's easier to reach larger constituencies. I think it's it's clearly took a folded Bitcoin is becoming more mainstream in the year 2020.

When since we began the year we've seen support for Bitcoin coming from 5:30 from hedge funds like Paul Tudor Jones we've seen now we're seeing comments and coverage from Bloomberg and from JPMorgan the support that's come from Square to build Bitcoin and to promote them actually took to to take Bitcoin on the balance sheet was a big deal. I think squares selling a Bitcoin is supporting the square cash application is a big deal. Now that PayPal has an office they're going to do it in the PayPal app. I think that's legitimate using when PayPal delivers that in venmo next year. I think that'll be a big plus.

What I have said.

On a number of occasions is Bitcoin is digital gold. I still I don't think people really understand completely what they mean by that and and I think it Bears mention right now that if you virtualize Goldberg if you take if you take the theoretical Safe Haven asset of gold and if you virtualize it and you take the mass out of it and then you put it on an open protocol and you make it possible to program. Then the fact that it's programmable gold or a programmable asset means that it is going to be smarter. It is going to be faster than it is going to be stronger off.

It is going to be harder.

Then the physical version of itself.

In the same way that Google Maps is a smarter faster stronger map than a Rand McNally printed Atlas And in the same way that a camera on an iPhone is smarter faster stronger than the camera that you had to carry around in your hand. I think in that way virtual gold or Bitcoin is wage earner faster stronger than a bar of actual gold and what it means is banks are going to be able to program it into their banking offerings and consumer mobile apps like PayPal and square are going to be able to program it in the handset and it means that that over time as software life better.

And as Hardware gets better and as human beings get more innovative.

It's going to get better and that's the fundamental principle. I personally believe Bitcoin is it represents the first example of a digital monetary Network? It's a software Network that is capable of storing and channeling mod battery energy.

And if you compare that to what Facebook was which is a digital social network software Network to to store and channel social energy usage. It's a profoundly new idea. Nobody understood Facebook. They they couldn't conceive of the idea of channeling the social energy of a billion people until after it was off today. I think we all understand the power of collecting the social energy of a billion people on a single software Network and channeling it. I think in time people will start to understand the power of collecting the monetary energy.

A billion individuals or thousands of Corporations or Banks or billionaires or high-net-worth individuals or governments month and we can collect that monetary energy onto a software Network and store it and channel it. It becomes something altogether more exciting than just the bar of gold or or a virtual bar of gold or or a a digital-only bar gold. It becomes a monetary network box and it's a monetary Network a digital monitor a network that doesn't bleed monetary energy.

Monetary energy is the super set of all energies kinetic energy electrical energy nuclear energy chemical energy of sorts. All of these energies eventual role in some monetary energy. I can I can use money to buy any of them and I can trade any of them for money. So as we actually pull monetary energy the number one problem it is it bleeds if it's stored in in other types of assets. If I put my monetary energy in gold and gold miners produce more gold than as Thursday base and increase the gold Supply you lose some of that energy if I put the energy in a battery you lose 2% a month and a battery if I put that energy into cash or fiat currency and the Central Bank prints expands the monetary Supply the energy content per unit of cash decreases.

So the significance of Bitcoin is it's a fixed Supply. The energy is not depleting overtime and the idea of being able to store monetary energy for long periods of time without having a depleted is the big idea and as as more entities start to understand that idea.

Which is pretty compelling one. I think that the adoption of Bitcoin will increase and as the adoption of Bitcoin increases, I think it would be beneficial to all those that chose to adopt Bitcoin as an energy Network in order to preserve their monetary energy over time. And that's in essence what the company is thinking about, you know, as we adopted a coin for our treasury Reserve.

Now moving my last subject which is the virtual wave. We are seeing the benefits of the virtual wave. What is the virtual way that the dematerialization of products Services processes programs? It's it's the explosion of Zoom. It's the explosion of YouTube It's the explosion of on-demand streaming video. It's it's the tendency to want to do things from a distance to automate things.

We've gone through a virtual way of transformation this year. We virtualized our sales and marketing and services on our website. We've we virtualized the way that we provide support to our customer. This will continue I say to all my Executives at microstrategy in the virtual age. You can now Zoom anywhere off at the speed of light and you can bend time and space What are you going to do with it?

It's a profound statement takes a lot of time to wrap your head around it. What it means is 200 Sales people can have twenty five meetings a week in 25 different cities. That's the zooming at the speed of light.

They can punch record when they have that meeting and save the $200 * 20, right 4,000 meetings. They can save all 4,000 meetings upload them to a server and the head is sales could duck into any of the 4000 hours of meetings that were relevant that's bending time and space.

You could be everywhere.

It's profound idea and on the other hand, if you have one person in the company that can solve the problem that one person can record the solution upload to our website where it can stream ninety thousand times. So that one person can solve the problem 19000 times. So this idea of bending time and space and reaching hyper productivity by doing things with thousand times or ten thousand times instead of once and by moving at the speed of light forces you to rethink how you consider marketing and services and support product development. And one conclusion is you can get more done with less effort. If you have talented talented people working as a team with the right tools and the right architecture and the right framework. So I I

As we continued on our path of virtual wave transformation. We can find a way to lower or to control our cost structure compress our cost structure while increasing our value proposition driving more productivity and providing a better result for all of our customers in the marketplace. So often that that virtual wave commitment.

It gives us confidence that we can generate cash flow and we can continue to generate operating income.

That gives us confidence that we can continue with our strategy of deploying Capital either to buy back our stock or to purchase more Bitcoin and and we're going to push through the strategy with a laser-like focus on delivering the best modern open Enterprise business intelligence functionality to the world.

It's that I want to thank everybody for your time today and for your support of shareholders, and we'll go ahead and take questions.

Certainly, as a reminder to ask a question. You will need to press star one on your telephone to withdraw your question. Press the pound key.

We have a question from the line of comedy with bws financial.

Hi, just a couple of questions one about the product license activity that you saw could you just try to decipher how much of that was related to just closed deals that were delayed because of covet and how much of it was, you know brand new engagements that you had the sales force because you know, the virtual activities improved productivity if you could just quantify that

Hi how many it's Fang? It's a bit hard to quantify. That way. We certainly did have some deals that slip from q1 and Q2 in Q2 to Q3 that resulted in some better product license Revenue, but I think uh the experience we saw in q1 and Q2 where we had good pipeline going into the quarter but slowed close rates or delayed deals et cetera did not really occur in Q3. We had good activity at the end of the quarter for the most part. So it was a return to what I would consider more normal activity better close rates and then I just generally a strong pipeline which we've had really since the end of last year.

Do you think your pipeline for Q4 was higher than where you start Q3 from?

I think generally speaking Q4 is a very seasonally strong quarter for us. You know Keith. I think everything we saw there, you know, we did a lot of things right. We also had several very large deals and significant deals that were unusual for the quarter. So if you're asking the question whether we should see a Repeat Performance in Q4, I would say things are looking generally a good overall for the business the piece that we're uncertain about and and there's just a lot of volatility going on right now is you know, what what we saw as an opening up of budgets in Q3 may end up tightening again in Q4 depending on macroeconomic political environment et cetera. So although we're optimistic heading into Q4. I think there's just still a lot of unknown going out Thursday is external to microstrategy. Okay, and then can you just talk about the increase in customer activity since the bitcoin news is that led to actual new customer win?

Is it just the new conversations with customers that never existed or is it just been empty traffic? I think it's it's somewhere in the middle. Right? We haven't seen material do as a result of the increased activity. We've seen more traffic to our website. We've seen more engagement with certain customers and conversations with customers. We haven't had before, you know, our pipelines process usually takes six to nine months before we close a deal but we're seeing increased activity up front and and we're also taking on some incremental tactics to try to capture that activity as you see we have a whole section on our website and Mike talked about using our website overall as as a lead generation tool. So, uh, we're early on in the process of realizing that in terms of pipeline in a Serial conversations.

Okay, great. Thank you.

Thank you. And our next question comes from the line of Tyler Radtke with Citibank.

Hey, thanks and good evening. Definitely one of the more exciting earnings calls in in a while. So congratulations on the on the nice performance. I wanted to ask you about the large deal you referenced probably, you know, one of the largest deals I I can recall, you know, with with financial services customer and maybe if you could just not going to a little bit more detail on on that use case with this kind of associated with a you know, a uh, a large upgrade, you know, what it involved that contributed, you know, almost ten million In Perpetual licenses. And um, you know, do you feel like there's anything that can be learned from the steel that maybe you can you know apply to to to Future deals.

Yeah, I would say Tyler. First of all, I don't think we indicated the size of the deal just to give you a sense. Even if we had not done it. We still would have seen growth in our product license Revenue year over year basis all that said, you know, it's it's sort of using a lot of the tools that that we've laid out in the last year and half since we introduced my cup 2019 right upgrading the customer to our latest version of microstrategy selling hyper-intelligent selling mobile selling all the things that we have sort of in our tool set off and that's sort of a product side and then from a customer engagement side, right? You know, I think they like many of our customers ugh look to microstrategy a month modern open enterprise-grade solution and you know again like many customers fully embedded in the operations. And so, you know when they're dead

Teach use cases a lot of times our customers will turn to microstrategy. So and then obviously we have a very engaged sales team and some of the things that we do like free upgrades free education for a period of time all the things we do to keep our retention rates high lead longer-term to happy customers who want to buy more software. So although it was a it was a great deal for us. I would say that there was anything singular that was caused it to occur that wasn't consistent with our overall strategy as a company.

Okay. Yeah. I was just I was just looking through the 10th and it looked like there was a reference, you know to deal with that contributed 9.8 million and in fact is revenues. I I just wanted to clarify if that was the the financial services deal that that you talked about in the in the call or or if that was a separate deal.

Yeah, I think that was okay. Okay, great. And then, you know, you talked a little bit about seeing kind of strong renewal rates wage, you know look like maintenance revenue or product support Revenue did decline on a constant currency basis year-over-year. Obviously, you have had a number of years of product home remedies declining but I guess what what's kind of the thinking on the trajectory of product support revenue from here, you know given the the improved license per month lease on the corner.

Yeah.

I think so. There are two main drivers right one is uh it conversion from existing on-premise product support paying customers to the cloud and so long you see there is it moves from product support Revenue over to subscription revenue and if some cases deferred subscription revenues that's driver number one and as we are moving customer of the cloud and having that conversation, sometimes they opted not to move to the cloud, but they want to move into a term license model when we move into a term license as opposed to a Perpetual license with home with support Revenue. What ends up happening is that shows up and product license Revenue. So there's two drivers there that's converting that sort of product support Revenue over two different Revenue line items. And I think you will see more of that overtime. I think that's a reasonable sort of shift that you'll see especially to the subscription size. We actively move our customers.

Got it, and then just says you think about Q4 and and maybe even next year. I mean, how how are you? How do you feel about the pipeline? I mean, it seems like the this is a very strong execution quarter from you know, getting deals across the finish line, but or their deals that close this quarter that that maybe came out of queue for that that makes you a little bit off, you know less less foolish on the pipe lighting having into the urine and maybe just help us understand, you know, kind of kind of in a moving pieces there Beyond wage, obviously the stuff that you can't control around, you know, the economy and and budgets tightening up.

Yeah, I would say generally speaking. We feel positive about the growth trajectory of the company, right? Like, you know, I this was a very strong quarter. I think it would probably be unreasonable to expect 50% north of 50% product license growth on a you know, go-forward basis, uh as much as we would like that I think what you'll end up seeing is is dead. Generally, I should directory a product license and subscription growth and hopefully Revenue growth that follows that you know subject to quarterly volatility and macroeconomic factors.

Got it. And then just one last clarification question on the the the Bitcoin accounting. So is it is it right that you know, say for instance Bitcoin cash only go higher from here the way you would report it in terms of, you know, the impairment charge you essentially wouldn't get any of that benefit as reported on the financial statements long as you kind of have to take the the lowest value since you've owned the assets. Um, I just wanted to clarify that that's the methodology and wage, you know, just how how you're thinking about that if that's the case.

yeah, that's

Correct. Tyler, given there's there's not a lot of precedent for public companies owning Bitcoin. What happens is the result is is we treat it as an intangible assets. And once you go down that sort of Route there's a series of Gap accounting for a long-lived and uh for intangible assets on a go-forward basis. One of which is we assess it for impairment every single quarter and it's uh, we take a look at the price of any particular Bitcoin that we own at any point in that quarter and take the low Point price. So not the not the price at the end of the issue with the low price in the quarter and we basically take that uh, as a basis for our impairment charge. So that was South the $10,000 per bitcoin price on an average basis and that's what resulted in in our impairment. You're correct on a go-forward basis if the Bitcoin price doesn't go below that Mark we wouldn't have to further impair dead.

And we don't actually recognize a benefit on the Bitcoin unless we were to sell it. It's a very conservative way to account is the correct way based on current Gap precedent off and uh, you know, that's why we adjusted out for non-gaap purposes as you know, the curing value of Bitcoin right now versus what we bought it for, uh has seen a significant appreciation.

Okay. Thanks so much.

Thank you as a reminder ladies and gentlemen to ask a question. I will need to press star one on your telephone.

Okay, this concludes today's Q&A session. So with that I will now turn the call back over to Chairman and CEO Michael Saylor for any closing remarks. I want to thank everybody and all the shareholders on the call and everyone else he spent the time with us today. If you're interested in delving deeper into these matters is falling pointed out. We will host an investors and investors Thursday coming up in mid November. So I'd encourage you to join us for that and we'll do a deep dive into this and and other related matters and until then. Thanks for your support and we'll look forward to doing this again in three months.

Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.

Thursday

Dead dead dead.