Q2 2021 Microstrategy Inc Earnings Call
Performance in 6 years, our cloud offerings continue to gain traction with both new and existing customers.
While we once again got some benefit from a favorable comparison against the COVID-19 impacts during Q2.2020, our performance shows clear momentum across our entire business.
License revenue grew 50.
50% year over year, but more impressively grew 10% versus the second quarter of 2019.
Subscription revenue in the quarter was up 29% compared to Q2.2020 current.
Current subscription billings grew 13%, our fifth straight quarter of double digit growth.
Our Q2 subscription billings were impacted by a decrease in.
Term deferred subscription revenue as we no longer include contract values that are invoiced in the future without this decrease Q2 subscription billings would have grown 42%.
We had another strong quarter profitability with a non-GAAP operating margin of 17% up 10% year over year.
Our performance is being driven by broadening adoption on the Microstrategy platform existing customers have long recognized the value of Microstrategy looking for more areas to deploy our best in class by platform New customers. They are also attracted to our solutions recognizing the need for more robust capabilities than those offered by late lightweight.
Short boarding tools from unproven competitors' customers are well aware that legacy vendors like IBM and SAP have de prioritize in.
In favor of their respective cloud transitions and thus as enterprises look to rebuild applications for the modern world Micro strategies modern open enterprise grade.
Platform better meets their needs. We are pleased with the market reception on Piper intelligence on hyper Dot now we signed several dozen hyper intelligence customers in the quarter as its modern intuitive design, what's actionable insights into workers' hands instantaneously.
Let's look at a few key wins in more detail we signed on net.
<unk> win with a German freight company, where we'd be tableau and power bi to displace the legacy solution, we signed a new win with a leading cloud communications vendor for a 7 figure OEM transaction, where we'd be tableau and Microsoft power Bi and finally, we signed a new license deal with 1 of the leading crypto currency exchanges.
Net new we also saw an increase in migrations of existing on premise customers to our cloud solution, which also included an explants expanded deployment of Microstrategy as part of the migration process. We had several wins in the quarter were a R. R from that customer more than doubled from its prior run rate providing value both to the customer and Microsoft.
Our strategy some exciting Congress conversions during the quarter included.
1 a leading clothing retailer in the U S who nearly doubled the size of their annual commitment to us and is now approaching $1 million.
Our 2 sizable expansion on when the world's largest beverage producers extending its micro strategy deployment to now.
Collaboration and Federated analytics features as part of its migration to the cloud.
And 3.1 of Europe's largest grocers signed a multimillion dollar expansion of further extend micro strategy as this enterprise standard by platform.
Another exciting area of strength for us as our embedded OEM business, where we are.
I'll include number 1 in the market, we have seen increased interest from new and existing customers that want to leverage our best in class analytics platforms as a core part of their solution with.
We experienced notable growth in both the number and size of OEM opportunities.
We believe our extensive investment in an open architecture driven.
Nope It API as an SDK is provides Oems with the best solution in the market.
Our success in the market has been driven in large part by the investments we have made and continue to make in our solutions.
Even as we significantly enhanced the overall profitability of the company in 2021, and we expect our R&D investment.
By Ohio on an absolute dollar basis since 2014.
And as we look into the future, we expect R&D spend in 2022 and beyond to be even higher our investments in cloud Oems security and modernizing our UI through workstation dossier library, and hyper intelligence, a reflection of our commitment to offer our customers.
To be the most complete business analytics platform in the world.
A key part of our strategy is to leverage the virtual ways to drive greater efficiency in our go to market efforts, which enhances our overall profitability and provides additional resources to invest in R&D for example product license revenue grew.
10% since Q2, 2019 and subscription revenue has grown 46% over that time, while we reduced sales and marketing expense by $8 million or 16% over that same time.
Our performance over the last year has validated our decision to move to a fully virtualized go to market.
Customer at the beginning of Covid.
We believe we can continue to generate additional leverage from our sales and marketing spend overtime, while continue to generate consistent topline growth.
Turning now to our digital asset strategy with several exciting developments in the second quarter first we surpassed the 100000 bitcoin Mark.
Model ending the quarter with approximately 105085 bitcoins purchased at an average price of approximately $26080. During the second quarter, we acquired an additional 13759 bitcoins for $529 million.
Our approximately 38460.
Evan dollars per bitcoin.
The capital used for our latest bitcoin purchase included proceeds from our successful $500 million Upsized senior secured note offering that we price during the quarter. This is our third successful capital raise with total gross proceeds of $2.2 billion.
It is important to note.
<unk> quarter, we create new subsidiary macro strategy LLC that was formed to hold the approximately 92079 bitcoins, we owned prior to the senior notes offering.
Additionally, we recently put in place on aftermarket shelf registration to sell up to $1 billion of class a common shares we've not executed on the shelf.
During the day tend to be opportunistic going forward.
We will continue to evaluate opportunities to raise additional funds across the capital structure to execute our bitcoin acquisition strategy.
Net corn prices were volatile on the quarter, resulting in a GAAP noncash impairment charge of $484.8 million.
Our.
Calculation of the non-GAAP market value of our Bitcoin holdings as of June 30th was approximately $3.7 billion.
<unk> to a cost basis of $2.7 billion.
And book value of $2.1 billion.
As of July 28, 2021 at 4 P M Eastern time the market.
Shell for day, 1 bitcoin on our principal market was approximately $40416, which equates to a non-GAAP market value roughly $4.2 billion for 105085 bitcoins at 56% depreciation over our cost basis.
We intend to continue to deploy additional.
Price of oil into our digital asset strategy as 1 of the leading advocate for digital assets, we've been working with peer companies and various policies setting agencies in the U S trying to determine a more appropriate accounting framework for digital assets.
As the largest corporate holder of digital assets of the World. We believe we have a responsibility to share.
<unk> learned since embarking on our strategy to make it easier for other companies to diversify their balance sheet with this new asset class.
Before going into a more detailed review of our financial performance. Let me just finish by saying how pleased we are with our performance in the second quarter. The first half of 2021, and our last 4 quarters since the primary impacts.
Share what with the pandemic, we are delivering on both of our strategic priorities operationally, we're realizing the benefits of the investments in the enterprise analytics software business, which is leading to both improved revenue growth.
And increased profitability.
Our operational success leaves us well positioned to deliver.
<unk> long term financial targets laid out in our Investor Day last November.
At the same time, our digital asset strategy has generated substantial value for shareholders and elevated micro strategy to a global leader in the bitcoin market.
The increased visibility of the company due to our digital asset strategies also helping to initiate sales cycles.
On the low would have been unlikely to participate and otherwise.
We believe we are in the early stages of each of these trends and that there continues to be meaningful opportunities for further improvement in both of our strategic focus areas.
Turning to our second quarter 2021 financial results in more.
GAAP revenues for the quarter were $125.4 million.
Up 13% year over year and up 6% from the second quarter of 2019.
Product license revenues were $22.2 million from the second quarter of 2021 up 50% year over year and up 10% from the second quarter of 2019.
Subscription services revenues in the second quarter 2021.
Were $10.3 million.
An increase of 29% year over year and up 46% from the second quarter of 2019.
The growth in subscription services revenue reflects the growing portion of our product bookings that are related to our managed cloud platform.
Our current subscription billings were $10.6 million, an increase of 13% from the second quarter of 2020, we were pleased with the performance of our cloud business in the quarter.
Product support revenues were $71.0 million from second quarter of 2021, 1% increase year over year the year over year increase.
Purely driven by favorable impact of foreign currency translations, partially offset by certain existing customers converting from perpetual licenses to our subscription services to term license offerings.
<unk> support revenues were down 2% year over year on a constant currency basis as you see more on premise conversions to our cloud.
Cloud offering we'd anticipate product support revenue will experience a modest decline over time.
Finally, other services revenue, which largely largely reflects our consulting services were $21.8 million in the second quarter of 2021 and increased 23% year over year improvements.
And consulting revenues as an indication of continued engagement from our customers to modernize and expand deployment of their microstrategy platform.
Total deferred revenue on June 32021 was $190.1 million.
This was up 10% year over year, primarily due to a 48% increase in deferred subscription.
Services revenues and a 6% increase in deferred product support revenues as we see more existing customers converge to our managed cloud platform. There is a shift from deferred product support revenues to deferred subscription services revenues.
Total GAAP expenses were $539.6 million in the second.
Quarter of 2021, which includes the digital asset impairment charge of $424.8 million. A bitcoin holdings are considered indefinite lived intangible assets under applicable accounting rules, meaning that any decrease in their failure fair value below our book value for such assets.
At any time subsequent to their acquisition requires us to recognize impairment charges.
Non-GAAP expenses were $103.7 million from the second quarter of 2021, a 2% increase year over year the year over year cost increase is mainly driven by better sales performance, which resulted in higher variable compensation.
Our sales and marketing.
Total operating total GAAP operating loss was $414.2 million from the second quarter of 2021 inclusive of impairment related to bitcoin, a $424.8 million and stock based compensation expense of $11.1 million.
Total non.
GAAP operating income was $21.6 million in the second quarter of 2021 at $13.1 million increase year over year.
Turning to the balance sheet, we ended the quarter with $56.4 million on cash we issued $500 million in aggregate principal amount of senior secured notes bearing an interest.
6.1% to 5%.
The net proceeds from the sale of the notes were approximately $487 million. After deducting the initial purchasers' discounts and commissions from customary offering expenses in accordance with the company's corporate strategy of acquiring bitcoin. We used the net proceeds from the sales of the notes to.
To purchase bitcoin.
Carrying value of our Bitcoin holdings as of June 32021 was $2.1 billion, which reflects a 689 point.
$6 million cumulative impairment charge. There is also reflected as a loss on our GAAP income statement and in the period incurred.
We exclude.
Right totally impact to bitcoin impairment charges from our non-GAAP operating income and non-GAAP diluted earnings per share calculations.
We estimate the non-GAAP market value of our Bitcoin holdings was $3.7 billion at June 32021, reflecting $1.6 billion of unrealized gains from comparatively.
The KOL sharing value of our bitcoin.
At June 30 of 2021.
We're pleased with the execution of our 2 corporate strategies over the last 4 quarters on a trailing 12 month basis, we generated revenue of approximately $507 million, which represents 7% growth year over year, our software business is generating.
<unk> non-GAAP operating income of $90 million on a trailing 12 month basis, which equates to a non-GAAP operating margin of 13%.
As a result of our strong financial performance. The company is raising our estimate of 2021, non-GAAP operating income to $80 million to $100 million. Additionally.
Italy over the last 4 quarters. The company has acquired over 105000 bitcoins with estimated depreciation of approximately 33% over the acquisition cost.
Going forward you should expect that we may purchase additional bitcoin when our cash cash equivalents and short term investments exceed current working capital requirements.
We may from time to time subject to market conditions issued debt or equity securities and raised and capital raising transactions with the objective of using the proceeds to purchase bitcoin.
Finally, we plan to engage in a search for the company's next CFO with the management team focused on 2 corporate.
Strategies growing our enterprise analytics software business and acquiring a holding bitcoin and with the increase in our public profile and operational complexity, we plan to engage in a search for a CFO to complement the management team and allow me to focus on my role as President running the day to day business and micro strategy.
I.
During the call over to Michael for comments on our Bitcoin acquisition strategy as well as market trends for business intelligence software and our executive team.
Thanks Rong.
Well I'd just like to start by reiterating the company has 2 strategies. The micro strategy software mission is to make every enterprise.
I'll now turn more intelligent enterprise via our business intelligence software platform.
And and our strategy with regard to on plan with regard to that is make all of our functionality available on demand via the cloud.
Make it easier for all of our customers to upgrade to the cloud.
Price and then make our business intelligence software faster better.
Smart or stronger.
We are well positioned to do that because that's our singular operational focus with the exception of just a few people on legal and finance the entire company is focused upon <unk>.
Enterprise business intelligence.
That is our micro strategy.
We have a second strategy as you know a macro strategy and our macro strategy is to acquire and to hold bitcoin.
Our plan with regard to that of course is to continue to acquire bed.
<unk> mine.
<unk> continue to hold bitcoin.
It's a very straightforward strategy, along the way will be educating the world.
With regard to the benefits of digital property.
We'll advocate bitcoin and the benefits of the technology to Corporation.
<unk> cost like ourselves to institutional investors.
It will help explain bitcoin to regulators to the public to the media.
And.
And that will keep us busy I believe so microstrategy macro strategy.
<unk>.
<unk> pursuant to our macro strategy this quarter and we did complete that $500 million senior secured debt offering that was a big deal we're.
We're very excited about it because it was a 7 year senior notes.
It's bearing interest at 6 and 1.8.
8% interest we thought that was a very favorable interest rates for a very very favorable timeframe.
We were able to purchase 13005, bitcoin using the proceeds of that debt offering and we did that around 37617.
Or is a bitcoin.
We thought that was a good price and and the reason we did that deal was we thought that that was a deal that would be accretive to the other classes of our security holders.
And it presented itself at the at that particular time.
On.
Dr. Fong noted in the entire quarter, we were able to acquire more than that more than 13005 debt coin. We acquired 13759 bitcoin at slightly higher average price 38467, but.
We're very comfortable with that acquisition I was.
I'm pleased to see us, making such good progress.
On ending the quarter with 105085 bitcoin.
At this point, we've now invested $2.741 billion.
And bitcoin.
For those of you who have followed.
Barry.
I believe the coin as digital property.
And it's the equivalent of digital gold on a big Tech network.
But I'm, calling a digital goal really understates it digital properties a bit better.
On the ability to convey billions of dollars of value.
At the speed of light and to program at <unk>.
And the fact that that digital property has on open protocol that any company can write 2 makes it a very special thing a very disruptive technology for this decade.
We think that.
With me that acquiring bitcoin at this time is going to be a wise strategic move there will never be more than 21 million bitcoin.
And we feel like there's a land grab right now to acquire as much as you can because.
Bitcoin represents a macroeconomic.
Bank solution.
To those that 1 a M on non sovereign store of value.
But it also represents a technology solution.
It's a technical solution to on mobile mobile companies like an apple or Google or Facebook.
Book, because they could implement digital property right into their mobile apps.
Paypal on square had been extraordinarily successful by doing this.
On.
It's also a technical solution to energy companies because of you have stranded geothermal or stranded renewable.
Ball or if you have a <unk>.
Nuclear power or if you have any kind of generator of stranded natural gas or any kind of energy capability, that's running at less than 100% utilization you can monetize that stranded energy or you can recycle that.
Wasted energy using bitcoin mining, so bitcoin as a compelling technical solutions for the energy industry, It's a compelling technical solution for Big Tech.
It's a compelling macroeconomic solution.
And because it's so decentralized you have.
Millions and millions of people thinking about how they can add value to bitcoin and how they can use bitcoin to add value to their own businesses.
A few general views on the bitcoin industry right now.
The China Exodus dominated the news.
You too.
I think the China accidents was a really good thing for debt claim.
The result was a decentralization of bitcoin mining throughout the world.
Coin mining is really the bitcoin security network. So the decentralization of the Bitcoin security network everywhere in the World made.
News and find more secure and made bitcoin more decentralized.
The China access was always also a good thing because it decentralized bitcoin holdings and and you saw on general shift of of the Nexus of Bitcoin holdings in bitcoin mining from the east.
The occlude, the west and diffused throughout the entire rest of the world.
I think that debt long term.
The western realizations on bitcoin is going to be good for bitcoin I think it's good for the U S. Dollar I think it's good for U S technology, it's good for Western technology.
And generally what we're saying is the bitcoin is now aligning with the Big Tech networks from Amazon from Apple from Google from Facebook.
These are these are very very powerful dominant digital networks and.
Whereas.
Grown to dominant.
By offering digital music and digital retail and digital books and digital communications now we have something new digital property.
That is aligning on a bitcoin network with all of these other western networks.
And.
They have thing.
Capital is flowing into that client in the second quarter. We saw this in the form of bitcoin miners coming public there are lots of lots of bitcoin miners that are either public or coming public and that's going to be a continual trend in the coming 6 months.
And it's.
It's an exciting trend because our network of a dozen to 2 dozen publicly traded companies that are securing the bitcoin network are going to be beneficial to the asset class they are bringing financial capital to bitcoin.
They are bringing political capital on the bitcoin.
Bitcoin, they're bringing technical capital to bitcoin.
They are bringing human capital to bitcoin and they're bringing a lot of credibility to the entire digital property network that is bitcoin.
We saw we saw many constructive developments with bitcoin investors in the second.
But more and more large banks in the western World are supporting Bitcoin large exchanges are supporting bitcoin, we see an expansion in the on ramps we see.
More institutional investors supporting bitcoin bitcoin funds bitcoin Etfs being applied for.
More adoption of and and more acceptance of bitcoin throughout mainstream finance and also on mainstream media.
I think.
If we look at our if we look at bitcoin adoption at the individual level, probably 1 of the most exciting pieces of news that.
Current Queen.
Is the result of the crypto Dot Com survey that just came out today and that showed there to be 114 million individual holders of bitcoin as of I think the end of <unk>.
June maybe the end of May may or June in that range.
<unk> seen and were adding about $2 million.
More bitcoin holders per week.
So if you think about adding $2 million a week and on breaking through 114 million on these are just incredible numbers.
I pointed out that makes bitcoin the most.
Widely held financial asset in the world and the history of the world growing at the fastest rate.
And that's just an extraordinary thing right you can't point to 114 million holders of any stock any bond.
Any particular type of instrument.
And.
Way that you see this with bitcoin.
I think that we're going to see this trend continue and so all of these things are are good for bitcoin. If we add the last observation wishes I think it's becoming clear that bitcoin is here to stay based upon mainstream media coverage.
And and and more and more regulators are taking an interest in bitcoin I interpret it as low as a positive I think I think there isn't an enthusiasm.
And an awareness that we need to support a crypto and bitcoin and the regulatory framework throughout the western World.
And I think that that's going to drive a lot of constructive activity and constructive dialogue, which is going to institutionalize. This asset class, even further and as we make more progress with regard to on all of these developments I think that our institutional investors get more comfortable.
Holding bitcoin and as they get more comfortable holding bitcoin I think it's only good for the asset.
So with that I'd like to switch a switching my conversation to software industry trends.
The big software industry, the big players and software.
Okay.
We have traditionally competed against.
They're starting to shift their focus to creating cloud platforms that they can use to offer an open cloud services that might compete with AWS and Azure I think that has reduced their focus upon their.
Business intelligence divisions.
In general they're under pressure to grow due to the macroeconomic environment and because the big full stack software vendors are under that kind of pressure to grow they'd have to look at making huge investments in new areas that are risky or their.
Naphtha look of dilutive acquisitions or expensive acquisitions in order to grow their top line.
They don't have the strategy, we have of holding bitcoin 2 to cure that on their balance sheet.
Because we are a bit coin, we don't we don't need to.
To.
China and a series of acquisitions to keep the top line growing more than 20 or 25% a year and we can focus upon our core business and.
And I think that that's really good that's very important.
I think you see that our results and our growth this quarter is because we are.
Gauge based upon our core business intelligence business.
And we're able to become a best of breed business Intelligence company.
I'm really excited by our results in Q2 topline growth 13%.
Bottomline growth.
<unk> hundred 53% for our non-GAAP operating income year over year.
17% non-GAAP operating margin is very healthy.
Our subscription revenue is up 29%.
This is a really strong number.
Our non.
Non-GAAP EPS.
On $1.72 cents a share.
Vs Analyst estimates there were about 98 cents a share so substantial beat on the bottom line and that's $1.72 a share versus 60 cents a share last year.
So needless to say, we're pleased with what the non-GAAP EPS results.
As a fan pointed out is our best second quarter in 6 years.
During that quarter. The CSO team worked like a well oiled machine I don't really think that the senior management.
Our team's ever worked better.
On the gears are all humming.
We have decided to pursue a CFO search and we're doing on to allow farm to fork focus more on the presidential role. Obviously, we've got a lot of ambition on our plate we're excited.
Excited about continuing to grow the enterprise software business aggressively. We're also very excited about our bitcoin strategy and by adding this 1 more roll to the management team and allow us to maximize that opportunity.
And so with that.
I guess I'll go ahead and open.
<unk> the floor to questions from the analyst and the investors Jeremy.
Thank you, Michael we're going to jump right into questions and so the first question is for fall first congratulations on the on the great quarter have you seen any changes in the competitive landscape and what impact do you expect that.
Pin up foundation of <unk> and visualization tools will have on your business in the coming years.
Yeah.
You're on sequel.
Sorry, Ricky move I was on mute there thanks, Jeremy its a good question so.
Thanks.
We did have a really good quarter. We are excited about it and I do think the changes in the competitive landscape.
Our part of what's impacting the quarter I mentioned, a few of them Mike mentioned, a few others are some of the really large legacy bi vendors.
PS business objects Ibm's Cognos oracles.
<unk> Obi I E. We all know those companies are really focused on transitioning their own businesses to the cloud.
Impeding with Google and competing with AWS and Azure and <unk> invested in nearby platforms. So we're seeing an increasing pace of the inquiry and execution in migration.
<unk> offer those legacy CBI platforms.
And in the case of companies are looking to do that especially large enterprises, where the logical answer because theyre looking for a full scale enterprise platform, that's what those cognos business.
Business objects are.
So that bodes well for us the other thing that we're seeing on on the lower end is.
As some of the newer entrants into in the last 5 years debt.
Have very niche solutions and were not well capitalized started get weaker in the last 3 years, and especially with Covid and pressures on capital structure, we saw them get even weaker and either get bought or.
Start to winter and in that case, we weren't competing with them directly but we were.
Competing with their mind share right, so with fewer players and with more consolidation it tends to be a good thing for US. We saw this cycle in 2008, and we came out of that very strong and growing and I think we're.
Something similar now so as long as we stay focused on on a customer focused on our product I think we can continue to grow based on some of those trends that we're seeing and over the next few years, if the trends continue and that's good for Microstrategy.
Thanks, Paul.
Couple of questions, we'll turn to Michael.
We're seeing signs that digital asset environment continues to evolve rapidly. So a couple of questions first.
Wondering if you have a thought about diversifying across other digital assets. This is a theory on instead of staying focused on bitcoin.
Our strategy is to focus upon debt coin and we think the bed.
Coin as digital property and and <unk>.
Digital property in our opinion is the most compelling technical opportunity of the decade.
On.
Digital property means that 8 billion people with a mobile phone.
Can carry their property around on a mobile.
On digital property as you know is a trillion dollar opportunity for Apple for Google for Facebook.
For Amazon.
Digital property is the solution to the cyber security problem and the trust problem across billions and billions of.
People.
Digital property is going to allow 100 million companies to trade with each other on an open protocol at the speed of light and so a bitcoin is there is a compelling solution of not the compelling solution.
There the other crypto.
Assets and digital assets have their own places.
You know after after digital property, you've got digital currency.
But digital currencies aren't really on investment strategy, there really just a medium of exchange and the crypto universe, So holding digital currency.
It's just like holding U S dollars, it's not a it's not a strategy for investment then you have digital platforms like a theory I mean, you have digital applications like the decentralized exchange units swap or something on top of a theorem those are different businesses, but that but they are in essence.
Businesses that have to compete in a market and you have to consider.
The digital currencies are competing here against against our existing currencies the platforms. The decentralized platforms, we're competing against centralized platforms.
The decentralized applications, we're competing.
Currency centralized applications when I look at all of those I think theres competitive risk there's technical risk.
There is regulatory risk.
There's a lot of uncertainty there's a lot of moving parts.
And they're completely different businesses.
So.
Against just because 1 is involved in bitcoin doesn't mean that it makes sense to consider the other crypto assets on.
So we don't have any intention.
To get involved with other digital assets or other crypto assets.
We're going to stay focused on.
I guess I'll make 1 more point here there.
Blaise to see the world.
If you look at the evolution of the crypto economy on if you ask what's the crypto opportunity 1 way to see the world as.
I take bitcoin I create digital property and I plugging into Apple Amazon Facebook, Google I plug in into every.
Our 2 <unk> offering I plug it into every mutual fund into fidelity into Blackrock into PEMCO I plug it into every product every device every service.
Every operating system I plug it into Iowa, and I plug into to Android and I plug it into windows.
Plug it into the.
Cloud I plug it into AWS I plug it into Azure.
I can I can plug the bitcoin digital property into the entire traditional economy all of it and it makes everything better now in theory, if you're if you're a big Tech company and you're probably going to bitcoin you could generate a trillion dollars.
On a value just by plugging into bitcoin, so that that vision of the world is bitcoin fixes everything bid.
Bitcoin as a benefit.
Every governor every mayor every CEO every product every service everything can be improved by building bitcoin.
Going into it.
Right. That's 1 view of the world that happens to be our view of the world by Plugging. This open protocol digital property and to every corporation every product every service and every government and every agency in the World you are going to make them better.
If you believe that.
And you don't on a country or you don't own.
Now on government you don't own on a product you don't own App or you don't know on Google you don't own Facebook you down on and everything but you, but you have some assets you buy bitcoin you buy bitcoin so that when Apple.
<unk> on Facebook and Google Bill Bitcoin into their product on your the beneficiary because you can't afford to buy Apple Amazon Facebook and Google all of them.
That's 1 view of the world the other view of the World is.
Is the innovation is going to come by creating other crypto asset networks all.
Simple in our Cryptos and by innovating and decentralized area.
We don't happen to believe that our.
Our belief is that the extraordinary value creation activity or opportunity comes.
Simply by plugging bitcoin into your balance sheet.
If the city of New York raises $1 billion and buys bitcoin and fixes the balance sheet of the city of New York and it happens overnight and it happens not with any more technical innovation and happens through financial integral.
All of these audition.
So that's why we pursue this strategy we pursue it's a property strategy.
If there are if there are compelling platforms and applications and the crypto universe that managed to build on top of bitcoin and they will benefit and bitcoin will benefit.
And if there are compelling applications in the traditional <unk>.
<unk> Fi world traditional banks traditional.
Governments, and then big Tech companies than Bitcoin will still benefit we.
We don't wish to express.
A general opinion or taken <unk>.
Risk with regard to which.
Which platform, which application and which use case of bitcoin will be most successful we think that this debt the least risky most diversified investment strategy.
It is the <unk>.
Simply hold bitcoin and I know that sounds complicated people think you should you should diversify to decrease risk well. We believe we are diversified because as long as we hold the bitcoin any of 100000 other corporate corporations are 100000 other.
Their technologies that use the bitcoin will benefit our investment strategy and so that's why we do what we do.
Thanks, Mike 1 quick follow up on that 1.
Clearly with the financing in Q2 were exploring the inherent value of bitcoin on the balance sheet.
But this person was wondering if you have any updates on how further to use the balance sheet to drive either core business.
The core business or helped drive the strategy to build our digital asset balance.
Yeah, well on our view with regard to to a future balance sheet decisions is.
We will take into account market considerations.
And then we will look for accretive opportunities that are in the range and the interest of our shareholders.
And from time to time, we'll find those opportunities.
Yeah.
Michael and Phong next question's for you why didn't the company issue the $1 billion in equity and buy more bitcoin.
Yes, so as you as you.
I think we're referring to here we issued.
<unk> put out a shelf to be able to issue $1 billion on equity.
And we've put that out on September 14th which is right the day before a quiet period.
Begins which is September 15th.
And during that period until our next open period, we're not able to issue shares in the market.
[laughter].
And then 1 more for you.
Subscription revenue growth seems rather modest, especially with continued higher mix of SaaS solutions. How do you feel this is trending against your expectations around the dozen or so new hyper customers that are net new or expansion from current customers.
Yes, so our subscription revenues grew.
On <unk>.
29% year over year, which we're pretty pleased with.
I think maybe what you are referring to here is subscription billings, which grew 13%.
As 5 straight quarters of double digit growth, but it is a declining versus previous quarters.
<unk> reason for that is in Q2.
We no longer include contract values that are invoiced in the future, where we had done that in the past.
If we had done the same thing we had in previous quarters, we would've seen subscription billings growth of 42% and it's a bit of a toss up there different ways to do that we thought this would be more conservative on a go forward basis. So if you if you sort of a.
True lies at the 42% subscription billings growth was quite strong and going forward I think we will see that level of subscription billings growth, we still see quite a bit of growth from the cloud business overall.
Okay.
Thank you pump Michael back to you can you.
You walk through some of the factors you consider when determining future debt or equity raises to purchase bitcoin and how much room does the business have to raise additional debt or equity to fund bitcoin purchases.
And we'll we'll microstrategy evaluate lending bitcoin per year.
Yeah, we look on a lot of different factors, we look at our we look at the market and bitcoin and we looked at the price of Bitcoin. When you look at the trading patterns. We look at the history, we look at day outlook.
We look at our we look at the debt markets, we consider fixed income debt markets and and both.
Both the.
Liquidity available on those markets and also on the outlook for those markets and general interest rates and spreads.
If we look at the convert markets and.
On the trading on the convert markets now look on those markets.
We look at our own equity markets and the general software equity.
On the markets and the way that our own stock is traded and we look at the futures on the options market for our stock we looked at the futures markets in the derivatives markets for bitcoin.
We consider all of the history.
We try to compile all of the information on our disposed.
So we think about the you know the outlook.
For our core business, we think about the way we look at the technology trends with regard to bitcoin and how it's being integrated.
We look at the macroeconomic trends what's going on.
Bose macro economy, what's going on in the in the general market, we look at institutional adoption.
The coin and institutional.
Institutional views.
We look at the status of the Bitcoin mining industry and also the degree of maturity of Bitcoin mining in.
And.
As bitcoin miners come public, they're getting more better capitalized and as as billions of dollars flow into the bitcoin mining network.
On that capital is going to change the stock the flow ratio of Bitcoin. It's also every single dollar that.
With him and minor raises may in fact be a dollar debt flows into hotaling bitcoin.
So we try to assess that.
And the overall regulatory environment and and then the 5 that's on our rearview mirror and the fund that we may think will be on our 4.
Forward Marin.
After we consider all of those things. We asked the question is there an accretive activity that we can take.
And sometimes the accretive activity.
Would be to buy stock.
And August of last year, we announced that we.
Back on buy our stock back to buy bitcoin that was a Dutch auction and sometimes the accretive activity is to convert existing treasury cash and sometimes the accretive activity is to sell our convertible debt.
Done that twice.
Sometimes they accretive activity is to sell senior secured debt.
And from time to time, the accretive activity may be to sell equity.
And that really just depends and so those are all that that's a subset of the factors. We consider so you can be sure that where we're thinking about it on all the time in order to make sure that.
That we act.
Act appropriately.
Yeah.
Thank you Michael from next question for you can you explain the rationale behind creating a separate entity to hobble your bitcoin.
Yes, so we created Mike macro strategy LLC.
And other than it being a cool.
Name and we wanted to make sure we had ownership of that.
<unk> reason was when we issued our secured notes it was secured against RBI business.
So we did not need to use our 90079 bitcoin that we had at that point in time to secure the debt and so we've created a separate.
Entity for those 92079 bitcoin.
As separate to RBI business. So that was the primary reason we set it up.
Mike looking out over the next 1 to 2 years do you expect institutional adoption to be largely led by founder led tech savvy companies.
Or do you expect companies in other industries with a more diverse set of owners to begin adopting crypto currency and what do you think on are the next catalysts to drive that broader adoption.
I see institutional adoption coming from.
Macro hedge funds.
That actually.
I would have bought gold or would've invested in hard assets or commodities now that bitcoin is getting on their radar as digital property and the apex digital commodity and.
Now they've got like on a multiyear track record of bitcoin.
Outperforming gold.
There's a lot of money, that's going to flow from gold funds and investment funds into digital goal that is bitcoin.
I think that Youre seeing a lot of family offices high net worth individuals that are private having private money theyre starting to see bitcoin.
As an interesting investment because it's a generational wealth preservation strategy, if I'm, if I'm investing to give money to my grandchildren that I need a very long duration asset there are operating out of the public out of the public eye, but I hear through my back channels a lot.
Lot of that activity going on.
Thank Goldman Sachs did a survey that was published about a week ago, where they indicated there was a lot of interest and debt Cohen from family offices.
I think that in terms of public companies.
Public companies that you will see embracing bitcoin most enthusiastically will certainly be.
On the founder led technology companies.
You know because they have.
Charismatic founders that are risk takers that understand technical nuance.
On the companies that disrupted digital music digital video digital movies digital books.
Digital maps digital retail they had to think differently and if you think different.
And then once you start thinking differently about property and clicks on your mind that bitcoin is digital property.
Then then you go from not understanding it to understanding it.
Immersion Oh.
Oh, crap moment, where you realize that.
Not only do you understand it but if.
If you don't embrace it and your competitor embraces. It then you are going to be at a massive disadvantage.
You wouldn't want to be the last big.
Tech network to integrate digital property into the protocol because.
Because in a bitcoin turns your 1 billion user digital communications company and to a billion cash.
Customer bank and cyber space.
And.
So I.
I do think that you will see found.
Founder led tech companies start to embrace bitcoin they will do it.
Sooner than other publicly traded companies because they get it and because they need to figure it out for competitive reasons.
The example.
Example, right. The Big example, right now you can see in front of all of US as square cash squares had extraordinary success implementing that coin into their mobile application.
And that is that is forced to response from Paypal and I think you know in time anybody with.
The mobile application is going to want to use bitcoin.
Either either to turn themselves into a bank and cyber space or there's another aspect of bitcoin, which is it is an international digital value network that allows you to establish trust.
In cyber space.
So if you are a google or Facebook or Amazon or Apple in Europe people posting.
On line, you've got a cyber security issue the way that you actually can deploy cyber security is plug them into.
On a network like bitcoin that allow.
Allowance for the <unk>.
Rapid interchange a value on an open protocol.
If you can implement on open protocol monetary network like Bitcoin then you can use that to fight denial of service attacks Ddos attacks you can use it to fight.
And to ameliorate or attenuate spam, you can use it to shut down hostility and create new degrees of cyber security.
So I think bitcoin bitcoin is really the it's the secret to cyber security going forward and this is really important issue for all.
All of these technology companies and it's also a bank in cyber space and so it's the future.
The future of our financial security and the future of cyber security.
And.
Those companies can't really afford to ignore that they would ignore that at their own peril.
8.
I think.
I think you all are you'll see more.
With regard to that as time goes on and then I think the last area of of adoption with regard to public companies that will be visible in I think give it 6 months, you'll see a lot of it is.
You're just going to see an avalanche.
Our publicly traded bitcoin miners.
Every month or every few weeks theres, a new bitcoin minor that's announcing that theyre coming public.
They're either merging with a spike or they're going to do an IPO or they are public or they're a public company. That's moving from a foreign exchange like the Toronto exchange to the NASDAQ.
Back of the New York Stock Exchange.
If you roll the clock back 12 months.
It's hard to find any company any publicly traded company with more with $1 million of bitcoin on their balance sheet.
Right now.
There is on.
A dozen or more with billions and billions.
Our landlords a decline on our balance sheet, but what happens when there's 2 dozen or 3 dozen companies and they've all got material bitcoin exposure.
Because they have to.
I think that that's going to catalyze.
A lot of maturity of the asset class.
On a dollar its Michael.
So I'm going to turn it back to you for closing remarks.
So my sizing remarks from me.
Okay.
I want to thank everybody for being with us for our Q2.2021financial results Webinar. We appreciate your support to all of our shareholders. We couldn't do it without you.
And I will look forward to speaking with all of you again in 3 months. So until then take care.