Q3 2021 Microstrategy Inc Earnings Call
<unk> solutions, which require partnering with an open enterprise scale technology vendor.
Microstrategy is well positioned to benefit from this growing trend and the embedded analytics and OEM marketplace. We're number one in the market and our embedded OEM business, you will see an increased interest from new and existing customers. They want to leverage our innovative business analytics platform is a core part of their technology solution. We built.
Leave our extensive investment in an open architecture driven by open API SDK provides Oems with the best solution in the market.
We experienced notable growth in both the number and size of OEM opportunities, including a deal with a multinational consumer credit reporting company and a deal with a video analytics company.
Continuing in market market sentiment I'm also pleased to share that micro strategy was recognized with the customer's choice distinction and Gartner latest voice to the customer report, which summarizes customer feedback on their bi platform.
We're now more than a year into our virtual wave strategy and we are seeing this approach can drive faster growth and greater productivity on a sustained basis.
We're particularly pleased with our profitability performance with non-GAAP operating margin above 20%.
This is the eighth straight quarter with an improvement in our year over year non-GAAP operating margin.
To provide some context around our increase in sales productivity or sales and marketing and G&A expenses on a trailing 12 month basis are down $34 million or.
Our 12% from fiscal year 2019 levels, while our product license revenue has grown 36% since Q3 of 2019 and subscription services revenue has grown 37% over that time. This translates to an increase in our sales productivity of 31% in the last year and 72.
<unk> in the last three years as a result, we've repurposed some of those savings into an R&D investments in areas like cloud security OEM.
New innovations to enhance our value proposition and lay the foundation for long term durable growth.
This is a virtuous cycle that we believe we can continue delivering ongoing forward.
It is important to note that our pace of innovation is as impressive.
As it has been in many years with the company now producing quarterly and monthly software updates. Our team is working on a robust set of product features and enhancements that we believe will expand the value we provide customers and represent future incremental growth opportunities to summarize our priorities our focus going forward remains on moving to cloud.
Expanding our OEM market share modernizing our customer base and using our innovative offerings like hyper intelligence to expand to new prospects.
Overall I am very pleased with the way our analytics business is performing we are on the path of consistent growth and we're confident in our ability to achieve our long term growth and profitability targets.
Turning now to our bitcoin strategy, we had another active and successful quarter.
We raised approximately $400 million in capital through the sale of class a common shares as part of our aftermarket offerings during the quarter.
We used the proceeds of this offering and excess cash purchase in our pocket and additional approximately 8957 bitcoins at an average price of $46876 per bitcoin net of fees and expenses.
This is the fourth successful capital raise we've done in the past year, having raised $2 $6 billion of new debt and equity capital that we deployed in support of our Bitcoin acquisition strategy we are in.
Approximately $600 million remaining on our existing ATM facility, and we will continue to be opportunistic in executing against it.
Today Microstrategy owns approximately 114042 big coins that we acquired for a total cost of $3 2 billion.
$27713 per bitcoin.
The market value of our Bitcoin holdings was approximately $5 billion at September 30.
2021, reflecting $1 $8 billion of unrealized gains of approximately 57% depreciation.
When compared to the cost bases of our bitcoin at September 32021.
The book value of our Bitcoin Holdings was $2 4 billion as of yesterday October 27, 2021 at four P. M. Eastern time, the market price of one bitcoin in our principal market was approximately $59111, which equates to a market value of roughly $6 7 billion.
Representing more than 110% depreciation.
Microstrategy has pioneered the use of digital assets is a core component of enterprises treasury policies created billions of dollars of incremental value for our shareholders and in doing so established itself as one of the world's largest owners of bitcoin.
We will continue to evaluate opportunities to raise additional capital to execute on our bitcoin acquisition strategy, which has the potential to offer asymmetric upside to our shareholders.
Before I turn to a more detailed review of this quarter's financial results I want to reiterate how pleased we are with the execution of both of our strategic priorities.
As a result of our strong financial performance year to date. The company is reaffirming our 2021 estimate of non-GAAP operating income of $80 million to $100 million.
We also expect further acceleration of our cloud billings in Q4, 2021 and going into 2022.
We're excited to provide an update on our strategy later this quarter when we hold our 2021 Investor day on December <unk> 2021.
We're looking forward to providing a deep dive the future path of our enterprise analytics business and digital asset holdings, and how it will benefit shareholders over time.
Turning to our third quarter 2021 financial results in more detail GAAP revenues for the quarter were 128.0 million.
Slightly year over year and up 7% from the third quarter of 2019.
Product license revenues were $25 8 million in the third quarter of 2021 down 13% year over year and up 36% from the third quarter of 2019.
As mentioned earlier on the call comparison with third quarter of 2019 is a good proxy for the underlying growth of the business due to the effects of COVID-19, and a large expansion of transaction, we signed with a major financial institution in third quarter of 2020.
Subscription services revenue in the third quarter of 2019 were $10 9 million, an increase of 31% year over year.
The growth in subscription services revenue reflects the growing portion of our product bookings that are related to our cloud managed cloud platform.
Our current subscription billings in the third quarter of 2021 were eight zero million.
An increase of 23% year over year, we're pleased with the performance of our cloud business in the third quarter and we will look for growth to continue to accelerate.
Product support revenues were $70 4 million in the third quarter of 2021, a decrease of 1% year over year, primarily driven by certain existing customers converting from perpetual product licenses to our subscription services or term license offerings.
As we see more on premise conversions to our cloud offering we would anticipate product support revenue will experience a modest decline overtime.
Finally, other services revenue, which largely reflects our consulting services were $29 million in the third quarter of 2021, an increase of 15% year over year.
Improvements in consulting revenues as an indication of continued engagement from our customers to modernize and expand deployment of their micro strategy platform.
Total GAAP expenses were $177 7 million in the third quarter of 2021, which includes the digital asset impairment charge of $65 2 million or.
Bitcoin holdings are considered indefinite lived intangible assets under applicable accounting rules, meaning that any decrease in their fair value below our book value for such assets at anytime subsequent to their acquisition requires us to recognize impairment charges total non-GAAP expenses were $100 $3 million.
Third quarter of 2021, a 1% decrease year over year.
Total GAAP operating loss was $49 $7 million in the third quarter of 2021 inclusive of an impairment charge related to bitcoin of $65 2 million in stock based compensation expense of $12 2 million.
Total non-GAAP operating income was $27 $7 million in the third quarter of 2021 of $1 $1 million increase year over year.
Turning to the balance sheet, we ended the quarter with $57 million in cash and the carrying value of our Bitcoin holdings as of September 32021 was $2 4 billion, which reflects an approximately $755 million in cumulative impairment charges.
<unk> also been reflected as a loss on our GAAP income statement in the period incurred.
We exclude the quarterly impact of bitcoin impairment charges from our non-GAAP operating income non-GAAP net income and non-GAAP diluted earnings per share calculation.
Bitcoin prices experienced relatively less downward volatility in this quarter compared to the purchase prices, resulting in a lower GAAP noncash impairment charge of approximately $65 million versus $425 million last quarter.
As one of the leading advocate for digital assets, we've been working with peer companies in various policy setting agencies in the U S to try to determine a more appropriate accounting framework for digital assets.
We recently wrote to the financial accounting standards Board FASB that the disconnect between entities financial statements and the economic reality of its financial condition and results of operations sales to provide investors analysts and the general public with the information they need to make an informed assessment.
Of an entity as current and future prospects.
Currently companies that aren't investment companies that report bitcoin as intangible assets. This means bitcoin gets initially recorded on balance sheets at its historic cost and then as deemed impaired at the market value every day.
However, the carrying value to never can bursley be revised upwards, if the price of bitcoin increases.
As the largest publicly traded corporate holder of bitcoin. The world. We believe we have a responsibility to share what we've learned since embarking on this strategy to make it easier for other companies to diversify their balance sheet with this new asset class going forward you should continue to expect that we may purchase additional bitcoin when our cash cash equivalents and short term.
This exceed current working capital requirements and we may from time to time subject to market conditions continue to issue debt or equity securities and capital raising transactions with the objective of using the proceeds to purchase bitcoin.
Finally, we continue to be actively engaged in a search for the company's next CFO.
Strong and stable executive team in place with an average tenure of micro strategy of greater than 13 years and believe adding a dedicated CFO will help us in the pursuit of both of our strategies.
I look forward to having more time to focus on my role as president running the day to day business and micro strategy as well as strategically planning for our long term health and growth.
I'll now turn 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.
Thank you Paul.
Make a few comments on micro strategy in its business intelligence business.
Our macro strategy and our bitcoin.
Acquisition plans.
And then on the outlook for Bitcoin in general.
So why don't we start with micro strategy.
As far as <unk> pointed out the business is running very very well operationally.
Every quarter for the last eight quarters, we've got operationally more efficient.
We're profitable we're generating very healthy operating margin.
And and.
I am very pleased with the stability and the maturity of that business.
I mean, the three key themes that we would focus on would be the shift to modern analytics from the legacy bi vendors.
And were benefiting by having made large investments to modernize our platform and.
And we offer we offer an upgrade patch that has a future to large enterprises that made thereby decisions back in 2000 to 2010 timeframe.
Many of them are running on architectures that have languished for the past five to 10 years and they're looking for something which is which is fresh and vital and.
Modern.
So we are.
We do win a lot of business, there and I think that that trend will continue and probably will.
We'll be even more of an important trend in the next few years.
The shift to enterprise cloud continues.
As following a pointed out in some cases companies can't but.
But we think that there'll be a steady progression of <unk>.
Ocean from on premises installations to cloud installations, and as that happens, we're able to add value and improve the overall value proposition of micro strategy and.
And also that just improves the operational efficiency of our company and it improves the operational efficiency of our customers. So everyone. In the world is looking for more operational efficiencies, how do I get newer technology that runs more efficiently within my enterprise.
Certainly the shift to enterprise cloud is consistent with that.
The third theme that we continue to see.
The increased prevalence of embedded analytics.
Are customers looking to OEM, our analytics, our embed, our our analytics and to there.
Applications that are facing their customers and their constituencies and micro strategies made huge investments in a broad based set of investments and initiatives in order to provide powerful SDK is an API and embedding capability and so that's helped us as well.
Think that the business will continue to be driven by those three dynamics and we're very optimistic about where that will take us.
Shifting subjects to our macro strategy.
To acquire and to hold bitcoin.
<unk>.
Most of you have followed that journey.
Following our Dutch auction, which ended in September of last year, we acquired more bitcoin.
Then following our first convert we were able to acquire more bitcoin then a second convert to acquire more Bitcoin then is senior secured debt offering to acquire more bitcoin.
And then at the market equity offering to acquire more bitcoin and along the way we used operating cash flows and other free cash flows from the business to acquire more bitcoin.
There is no one answer to how we go about acquiring that coin we are committed to continue to acquire bitcoin.
We don't have a plan.
Hi.
To sell that client and we're going to keep the bitcoin for those of you who follow me on Twitter I've pointed out that you should not so bitcoin.
We believe that.
That bitcoin represents a great long term investment for the shareholders. So we're constantly evaluating the bitcoin market.
And the market for our equity and the debt markets, both the convertible debt markets and the senior debt markets and and other options just to consider whether there is an opportunity for a capital raise that makes sense.
We had a $1 billion ATM, but.
Many of you will notice we didn't execute the entire $1 billion in the quarter.
We we thought that the $400 million that we did execute was accretive to the shareholders and and the timing of it was opportunistic.
We felt that it was a wise management decision to sell the equity into buyback point at the time, we did.
There'll be other other windows, where we'll think something different.
At times, we thought the most accretive action was a convertible debt issuance.
But.
Back in the second quarter, we decided that.
Senior secured note was more accretive.
It's impossible for us to know exactly what the right.
Activity is going to be going forward because the markets are continually changing.
We keep our options open.
And and we work to make sure that.
We can move with alacrity, if we need to in order to seize an opportunity.
Looking forward we're.
We are open to partnerships that allow us to acquire more bitcoin.
We are open to credit lines that might allow us to acquire more bitcoin we're <unk>.
<unk> to asset backed financing that might allow us to acquire more bitcoin.
And we will just continually evaluate these things.
With regard to bitcoin.
Well bitcoin is.
<unk>.
Pretty hot topic, right now across the political media across the financial media across cyber space.
I think that the things that are worth focusing on are.
The institutional maturity of the asset class has taken place over the past three months.
We came into the year with two axis potential risk called the Chinese be able to control bitcoin or wallet government banned bitcoin and it turns out that that the China exodus resulted in.
The United States, North American Bitcoin miners, becoming leaders in a bitcoin mining business and so a big question about whether China could control or wanted to control bitcoin was taken off the table.
The second question is would it be banned.
As I've as I've met with institutional investors and and.
All interested figures.
The most common question as well.
Well, if it's it seems to be so good in every respect its so perfect that surely there is a catch I guess, the government may want unregulated or abandoned.
And we got beyond design, well why does it technically and what does that do and why would you want to own and it all came down it while it just seems to be too good to be true if someone's going to ban it and.
I think the last 12 weeks have been very instrumental in putting that fear to rest.
First of all when the Chinese crackdown on bitcoin mining they didnt ban the ownership of bitcoin and not with.
An interesting new launch second we had.
We had.
Hi.
Senatorial hearings and congressional hearings, where we saw.
A broad array of senators expressed support for bitcoin and we saw broad array of bipartisan array of Congress men and Congress people expressed support for bitcoin.
And so we can see Congress and Senate are very supportive we've seen.
We've seen people ask point blank.
At Treasury at the SEC at the FTC.
Do you have any intention to band crypto currencies and the answer is no.
And specifically with regard to bitcoin I think it's quite clear that.
That within Treasury, when the CFT see within the SEC and with the EU Central Bank. There is no intention.
To block institutions from owning this asset.
It's been referred to as <unk>.
As a scarce.
Speculative digital asset or store of value asset.
And I think that the clarity that's come into the marketplace is that it's not a currency it is an asset.
It's going to be taxed as an asset which means.
On sale, you would pay a capital gain short or long term capital gain of Schwartz.
It's not going to be treated as a medium an exchange or a currency in the western world. Most of the world with just a few exceptions I think that that's provided clarity for institutional investors.
So the commentary from the SEC the Treasury the Senate Congress I think was probably one of the most important things that happened in the quarter.
That we just saw the chair of the FDIC Express.
Interest and.
Working through the necessary guidance to allow banks to hold bitcoin onto our balance sheets.
And I thought that was very auspicious.
The fact that FASB is willing to take up this matter or at least asking for comments from the community on bitcoin accounting is very auspicious and hundreds and hundreds of responses from institutional investors from publicly traded companies from from audit firms from professional.
Firms from individual investors that were that were returned to faster we're very auspicious.
And there is a general sentiment in the marketplace that.
This is a very important issue for regulators to take up.
So we've moved beyond the.
Will it be band to the it's clearly an innovation.
And it's a basis for the 20, <unk> century economy, and incentives very important to financial innovation and technology leadership of the Western World.
Think.
That being the case.
That removed a big hurdle.
For many institutional investors to own bitcoin.
I think another.
Another big hurdle.
<unk> has been the lack of an ETF.
All of the financial advisers of which 220000 I guess.
In the U S holding our controlling 100 trillion dollars of assets those financial advisors couldn't.
Buy bitcoin with their existing prime brokerage accounts with their existing accounting systems or be compensated for that that coin.
That's a big deal that's the difference between being able to take 60 seconds and by $20 million and have it part of your collateral package.
And and borrow against it or.
It takes six months to go through a whole set of due diligence to try to set up a new set of account and rebuild all your accounting systems and rebuild your vendor relationships and then carve $20 million out of your capital where you could not margin it and you couldnt borrow against it.
And as you can imagine it's not 10 times harder, it's probably 100 times or a thousand times harder.
For a financial adviser.
To acquire bitcoin without that simple Etfs.
So I think Etfs are really important.
Institutional adoption and we got our first two etfs in the past week.
There is another 40.
That are in the application process I think the writing is on the wall there will be more etfs coming.
At a certain rate.
That it's another chair.
Check box that institutional Investor would go through.
I think that.
Yes.
The the <unk>.
Lack of FDIC guidance.
Would hold back the development of the asset class, but as I've said on Twitter.
When the when that guidance is clear.
There's a lot more demand to own this asset and there'll be almost no much less demand to sell the asset because of the banks can hold the asset collateralized the asset and extend alone against the asset.
Alright, then what youre going to see is is dramatic lessening of the supply available for sale. So so what we see right now is a difficulty with regard to the accounting that's its challenge of Euro CFO and and you're maintaining a pristine.
<unk> P&L and a pristine balance sheet, taking on billions of dollars of bitcoin and during the volatility of that wood would result in.
Operating losses that are just due to the bitcoin volatility or a markdown of your assets due to bitcoin volatility.
And that would that would cause you to slow down your acquisition. So I think the.
The FDIC issue the FASB issue.
The ETF issue there, they're all things that slow down the institutional adoption of bitcoin, but they're also.
They're also items that it's pretty clear the writing is on the wall. Some time in the coming few years they will be resolved.
There seems to be there seems to be a sentiment.
<unk> be at the FDIC.
And at the SEC.
These issues should be addressed.
No.
Knowing that the case.
Alright, and then looking at Bitcoin in general we see the Bitcoin is up 300 plus percent in 12 months.
What I've said joking with you almost wouldnt want the problems to be solved much faster than they have been solved.
If we went much faster I mean, you can imagine a bitcoin went up 1000% in a year, we might very well rip the wings off the airplane. It just it would be too fast.
And so I.
I think that.
There's pretty clear sentiment.
Amongst regulators and amongst.
Congress and and throughout the world the digital assets are here to stay.
The crypto economy needs to be addressed.
It needs to be brought into <unk>.
Standard public policy frameworks and the bitcoin itself is property Satoshis innovation is real.
And this is good for the western World.
And.
So I see those as auspicious.
I also think we can see signs of the development of the bitcoin banking sector.
Today I published a press release from Knight, and where <unk> is actually offering credit lines against bitcoin in order to buy cars and so that's very interesting. If you can actually buy things by pledging bitcoin as collateral we're going to see.
I think a change in sentiment that more and more people are going to see bitcoin as the pristine collateral.
And at that point, you flip from being a seller.
So that you can buy your Lamborghini.
To being a borrower or a buyer.
So that you can wait for it to appreciate so you can borrow against it to buy your Lamborghini that's very.
Subtle change and I know I'm using a retail example, but I think the same is true.
With institutions.
I think that.
That if you are an institution and you bought a $1 billion worth of Apple stock.
And it was with your prime brokerage and you could borrow against it at LIBOR par or sofa, plus 50 basis points up to 50% loan to value.
I think you can borrow against Apple stock at more like 80% loan to value. So you could borrow $800 million at less than 1% interest against Apple stock with your prime brokerage, making that decision and minutes now if you had to take the entire $1 billion pull it out of your prime brokerage and go set up a different account.
Ill go through the K Y C AML and go through the due diligence and then if I told you was not going to be collateralize a bowl.
Now instead of having $1 billion in being able to draw down another $800 million you have a six month exercise and your 800 million went to zero you can see that that youre discouraged from from supporting the asset class or moving into it.
As we solve this problem as as.
The big institutional bitcoin exchanges like coinbase and fidelity build their institutional accounts.
One way we solved the problem. The second way. The problem is solved is is the FDIC starts to give guidance or clarity and if that happens right. Then you would see major banks moving into the custody and and other services and the third way, we see the problem getting solved is.
As many of the larger bank start to handle trading trading of digital assets through their trading desks and we're starting to see that.
Taking price more often and then the fourth way is the.
The etf's mature and as the Etf's mature they don't give access to the bitcoin property, but they give access to the security.
And the security itself is.
As collateral against the Prime brokerage account and so at the securities.
Available dramatically decrease the barriers to entry.
And we're seeing a dramatic increase and bitcoin securities in the past three months.
For a couple of reasons one is the spread of the Etfs and ETF like instruments and the second is the number of bitcoin miners that are coming public and I think it is a consistent theme, we see we see more miners, we see hut eight that has been listed.
On the on the NASDAQ stock exchange, we see Argo getting listed on the on the NASDAQ or the the American stock exchanges, we see other companies that are coming public or our plans to come public either through sparks or through direct ipos.
I think that that youre going to continue to see more and more companies that are either bit coin miners were bitcoin linked or bitcoin etfs or the like those are on ramps for institutional investors to get exposure via their prime brokerage arrangements through there.
Conventional accounting systems, where their conventional business models and in some cases.
Some cases to funds have have charter requirements to hold securities rather than property or theyre looking for different types of securities.
Mike They want equity age are they are they need to be a certain capitalization size or theyre looking for debt instruments in order to get exposure.
So if I were to roll the clock back.
Nine months.
Very little of what I've just said.
Was was in the public domain. So the last nine months have been pretty dramatic the past three months extremely dramatic maturing of the asset class because of the successful redeployment of the Bitcoin mining network to North America, following the China crack down and.
Because of many many constructive developments that have taken place in the regulatory front.
I think you could dump.
Okay.
You can put your finger on on one more thing, which is interesting which is the bitcoin integration with technology firms like square Twitter Robinhood.
Square has continued to improve their bitcoin functionality.
Allowing allowing.
People that are interested in acquiring bitcoin property to quickly buy it on a square cash App and also move it quickly and easily via square cash tags, and that's pretty important and there are millions and millions of people that are being touched that way.
And being served that way I think that that when Twitter integrated bitcoin tipping and to Twitter I think that was a big development of the ecosystem.
It's possible.
Two actually dramatically improved the cyber security.
Of Twitter, or Facebook, or Youtube, or Google or office 365.
Or any social media or our communications network, using bitcoin enlightening and I think the tip of the iceberg.
<unk> Twitter and tips, but we really are just the tip of the iceberg I think that theres, a profound game changing dynamic here with big Tech and Bitcoin and you can see it in the demand for functionality with square you can see it with the integration of bitcoin into Twitter.
<unk> you can see in the comments of many of many executives I think the CFO of Twitter referred.
Two to the possibilities that are in open monetary network like bitcoin offer.
I think we saw an extraordinary thing take place this quarter and El Salvador were more than I think 3 million people downloaded Ashish <unk> wallet, which is a bitcoin lightning wallet.
More people now have a bitcoin bank account.
Via that Lightning wallet and Chievo, then got a bank account in 100 years via the conventional banking system. So.
So I think there's there's a gradual growing awareness that the 20th century banking system is a thousand times as expensive.
As the 21st century banking system, the future of banking as I downloaded mobile app in 60 seconds I turn it on and I have a bank.
And my variable cost is zero.
I'd answer by the fallen I already on the phone I don't pay for the network already on our network right.
If your vision is let's give banks to 2 billion people by building bricks and mortar institutions and running everything through the fed wire and negotiating central bank protocols and going through 20th century.
Methods and regimens.
No I think you realize thats just not going to work.
Your idea is let's just upload a mobile app and let 22 billion people downloaded from the Android store or the iPhone store for zero.
That will probably work we know about what work we can see that's how we spread music and free books, and Google and what's up and alike.
We saw that we saw that example at a nation state level this quarter with El Salvador and not only did they successfully deployed 3 million people.
They also began to put back coin on on their balance sheet and they started buying bitcoin for on behalf of their people and and that's an extraordinary example, and I think it has a lot of people thinking right now.
I think.
The other the other example, we can see is with Robin Hood, where Robin Hood.
It's their users trade crypto currency and there was a massive demand to integrate bitcoin all withdraw capability and of the Robin Hood App and I think they have more than 1 million people on the waiting list for that functionality now so I think that the writing is on the wall in the writing is.
If you want to be a competitive.
Big Tech provider of payments or Big Tech Tech provider of financial services or banking services or investment services are trading services, you're going to have to support that coin, you're probably going to need to support lightning wallets, So bitcoin wallets lightning wall.
And then open up the network.
And you can see extraordinary enthusiasm for those companies that are doing it.
And extraordinary pressure on those that either don't do it or do it.
And and complete fashion.
So what's the summary of all of this.
I think the summary as well.
What we see is the emergence of the digital gold asset class when we first bought bitcoin and our first press release, we said we bought back one because we view it as digital gold, it's harder smarter faster and stronger than gold.
And a lot of people scratch their head and they weren't sure about it.
But if we fast forward a year.
The coins up more than 300%.
<unk> is down three or 4%.
Coal and in a year of political unrest and monetary inflation gold is neither a hedge against political unrest nor is it a hedge against inflation Bitcoin is is doing the job 10 times better.
Then the S&P index or the NASDAQ index is doing the job.
And at this point.
You have all all of the <unk>.
That you would need in order to conclude Bitcoiners digital gold the regulators are trading at as an asset.
It's not going to be banned it is being brought into the regulatory and public policy framework and recognized as as an institutional grade assets. There are institutional Etfs for that asset we see examples of why it's better than gold. The fact that we can move it faster we saw three.
3 million people able to access bitcoin via lightening in a matter of weeks. So we see the speed, we see that as faster we see that it is smarter I can deliver it via the vie the iOS and Android apps, we see that it is stronger we can do that you know there's no way you could have actually given <unk>.
$3 worth of gold to everybody in El Salvador in three weeks.
You can't you probably couldn't do it at all if you gave it $30 of gold the.
Transaction cost would have been like a markup of like 37%.
And so you just can't do it.
And so what we see here is bitcoin is meeting that requirement, how do we give a store of value asset to millions of millions of people on a mobile phone.
And how do we make it harder than goal.
I think 130% a year improvement for a decade is one indicator but.
350% improvement in year is even a better indicator so what we see.
<unk> is a new asset class forming.
And a year ago, I think it would be reasonable to say I'm not sure of institutions will embrace this.
But I think.
Right now.
If you look at the public results that have been published by Coinbase in the eight or 9000 institutional accounts they have.
And if you look at the actions of of the FCC and improving Etfs and if you look at the words of our regulators in front of Congress and congressional testimony and if you look at the words of our of our Senators and if you listen to the words and read the testimony of our central bankers.
I think it's very very clear. This is this is a.
It's a a scarce.
Digital store of value asset.
Yes, it may be viewed as speculative.
And that's okay.
And it is volatile.
And that's okay.
But my view here is it's volatile because it's integrated into the entire crypto economy in and there's a lot of ambiguity and.
And a lot of leverage in the crypto economy that is yet to be worked out.
And as as regulatory clarity comes to the crypto economy and as we normalize.
Many of these assets and we resolve the question of the handling of stable coins in the handling of other tokens as these things get worked out and as we as we resolve the question of how much leverage can you use to trade this and we're.
All of those things are going to lessen the volatility.
And until that time.
You know the volatility is probably an asset it's probably helping with the adoption. The volatility is attracting the best and the brightest minds of the entire generation to bitcoin, if you're a 20 something with a little bit of capital trading in Singapore, right Youre, not going to trade gold versus silver.
Youre not going to you're not going to trade commodities youre not going to trade equities youre going to trade in the crypto market, because because theres opportunity there.
And the volatility itself as an opportunity to arbitrage and and as this complexity gets worked out.
The entire asset class strengthens so.
Yes.
I guess, you could summarize that as we feel like everything's evolving.
According to plan as well as it could evolve.
And and everything that's happened is pretty much as expected you have an emerging asset class at the world needs.
And and the world is struggling to figure out how to bring it into its into its public policy frameworks. So that.
We can all use it in order to build the 21st century, cyber economy, where it's pretty clear we need.
Digital asset like bitcoin because it is smarter. It is faster it is stronger it is harder I can program it into any computer I can deliver it to billions of phones.
I can move it at the speed of light.
Sure.
So with that I.
I think we're ready for questions.
Alright, Thank you Michael.
We do have a lot of good questions. So we're going to try and get through as many as we can.
And with no further Ado here, we go for phone non-GAAP operating margin in Q3 and came in above expectations for.
2018% to 19% could you walk us through the main drivers of the margin outperformance.
Thank you and congratulations.
Thank you Jeremy.
I would say.
One major outperformance driver, we had a tough compare going into this quarter. So I think folks thought that our revenues were going to be down a little bit and in fact, our total revenues were up our software revenues were up substantially versus 2019, we had good consulting results. So if I was them netted out.
Revenue growth is good software business is going well there is incremental customer demand for the micro strategy platform and that all creates a.
Good momentum for us as a business and of course, we've been able to keep our costs.
Order as much as we tend to so that's what's driving the margin outperformance right now.
Alright, Thanks, Michael.
Michael some bitcoin miners are getting interest from asset managers, who are evaluating financing their own mining operation inside larger miners with capacity. They believe that the returns on self mining over five years might be greater than banks button hardly what are your views here.
So ask the question again I want to like my views of what versus what.
Bitcoin miners are getting interest from asset managers, who are evaluating financing their own mining operations inside of larger miners with capacity. They think that the returns on self mining over five years might be greater than buying spot.
So the question is is it better to buy bitcoin or buyback quite minor.
Yeah.
I think that it's.
It's a good idea to buy bitcoin and it's a good idea to buy bitcoin minor if you buy the right minor at the right price right and so I can't really give you a.
I can't say that buying any minor at any price is always better than buying back coin.
But I wouldn't say a.
What I would say is.
I think the big coin miners are in a great industry, it's going to it's a good business.
There is there is a natural limit on how much hash power can be delivered because one constrain is is the supply of Shaw typically six miners.
And the second constraint.
Is the is the time it takes to build out an engineered mining facility and so if you were lucky if you wanted to go and create a bitcoin minor today you might have to wait 12 to 24 months to get the mining rigs and then you might have to.
Struggled for 12 months to 24 months to build out your facility and so it's going to take time for that horsepower to come online and and in that time that means if you have a mining operation with good hash power right you're in a great position and of course their their businesses was made better by the China accidents as well.
Which which limited the hash power.
I think that the mining is a good business, but you know I can't tell you how to allocate your investment capital I pointed out before I think there are some investors that couldn't buy the property if they wanted to.
I think there are other investors that have an agenda to buy companies in China. So they they need to buy miners I think there are some investors that have an agenda to buy securities in general and or they need to.
So I think that.
There's demand for all of these things I think there is the demand for minor equity I think theres a demand for minor debt.
I think the miners can issue debt and Theres a market for that and I think there's a market for for.
For bitcoin and.
And I think that all of those markets will grow in those options are going to increase in the coming few quarters.
Thanks, Michael So can you provide nice to see the sustained strong R&D spend can you provide more detail on where youre focusing these investments and how should we expect length strategies platform to evolve in the coming years is there any of your R&D spend being invested in bitcoin and blockchain related research.
Yes, so first of all we're going to continue to grow R&D spend it's the right place to invest will find synergies and be able to reduce costs in other areas like sales and marketing and G&A invest in R&D and grow our margins.
If you look at Oh.
Last year versus this year, we've tripled the amount of money, we spend on R&D and cloud so building out a full multi tenant containerized cloud platform.
We've done that now extend that to multi cloud and.
And extending that to all of our customers is a big focus of ours.
And we're seeing good momentum there.
Proving or investing more in security, where the most secure enterprise grade <unk> platform in the world.
A lot is changing in that area and so we're going to continue to invest there, which tripled our investment in security and in last year.
<unk> to build out OEM capabilities. So that you can embed our software than any other piece of software in any clients application and making sure that our software is open.
That's a big area of investment we doubled our investment in that area in the last year.
Of course that probably the biggest area of investment we continue to work on is making our software intuitive improving the client user experience.
So innovations like hyper intelligence and more extensions beyond that augmented capabilities. So we're the number one enterprise grade platform in the world and we expect to continue to do so through R&D investments.
Thanks, Tom.
Let's do one more we've had quite a few questions about this so let's start with Mike and I'm sure you have something to say how should we think about the underlying value of bitcoin versus the market cap of the company and what appears to be a shrinking premium over the quarter.
I think that.
No.
The stock price will fluctuate and.
The market determines that.
Our view is we're going to grow the enterprise software business.
Using using intelligent investments in making making intelligent investments in and the product line and we're going to grow the bitcoin business by acquiring more bitcoin.
Via via accretive method, so via intelligent financings from time to time.
And and the marketplace will react to those things and it will react to other things in the market that are out of our control.
And the only thing I might add to that is.
You know the stock price I agree is what it is but we offer something that's differentiated and unique we have a business intelligence company. That's growing that's the best enterprise platform in the world and produces material and growing cash flow, we can invest that in bitcoin.
We can take our bitcoin strategy and invest additional capital through raising debt raising equity and our bitcoin strategy makes us more known in the marketplace increase as our pipeline grows our popularity.
In turn makes our enterprise software company stronger so it's a virtuous cycle and I think that's something that's quite unique compared to just buying spot bitcoin or investing in.
A standalone software company.
Thank you so thank.
Thank everyone for their questions and ill turn it back over to Michael.
For closing remarks.
Okay.
Well.
Thank you.
I want to thank everybody for being with US today and we appreciate your support for for our shareholders in the audience. We couldn't do this without you.
We're really as enthusiastic as ever about both both our enterprise software strategy and our client strategy will continue to execute on both of those in the coming quarter and we will look forward to seeing you again in 12 weeks when we report back how things went.
Well then have a good year and a good holiday season.