01—Abstract
Summary
Summary of the 10-K filed February 16, 2023. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated's 10-K for fiscal 2022 describes two interdependent strategies: acquiring and holding bitcoin, and growing its enterprise analytics software business.
At December 31, 2022 the company carried $1.840 billiona of digital assets, consisting of approximately 132,500 bitcoins, after $2.153 billion in cumulative impairment losses. Digital asset impairment losses, net of gains on sale, were $1.286 billion, representing 76.9% of operating expenses, and drove a net loss of $1.470 billion for 2022, compared with a net loss of $535.5 million in 2021. Total revenues declined to $499.3 million from $510.8 million, with product licenses down 15.0% and product support down 5.2%, while subscription services rose 41.0%.
The company reported $2.4 billionb of aggregate indebtedness at year-end, including convertible notes, 6.125% senior secured notes due 2028, and a $205.0 million secured term loan secured by bitcoin. The filing highlights concentrated risk: the majority of assets are bitcoin, bitcoin is less liquid than cash, and a significant bitcoin price decline could affect debt service. Michael J.
Saylor controls about 67.1%c of total voting power through class B common stock. The company also discloses an unresolved District of Columbia False Claims Act complaint naming the company and Mr. Saylor, and a patent infringement suit by Daedalus Blue, LLC, with outcomes described as not presently determinable.
02—Key points
Key Highlights
- Net loss of $1.470 billion in 2022 versus $535.5 million in 2021, primarily due to digital asset impairment losses of $1.286 billion net of gains on sale.
- Held approximately 132,500 bitcoins at December 31, 2022, carried at $1.840 billion with $2.153 billion in cumulative impairment losses; acquired at an aggregate purchase price of $3.993 billion.
- Total revenues were $499.3 million in 2022 versus $510.8 million in 2021; subscription services revenues grew 41.0% to $60.7 million while product licenses fell 15.0%.
- Total indebtedness of $2.4 billion at December 31, 2022, including $1.7 billion of convertible notes, $500.0 million of 6.125% senior secured notes due 2028, and a $205.0 million secured term loan.
- Deferred tax assets of $188.2 million net of a $511.4 million valuation allowance, largely tied to bitcoin impairment losses.
- Michael J. Saylor controls approximately 67.1% of total voting power through class B common stock as of February 2, 2023.
- Pending legal matters include a District of Columbia False Claims Act complaint against the company and Mr. Saylor, and a patent suit by Daedalus Blue, LLC; the filing states outcomes are not presently determinable.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 16, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $499.26M$510.76M | −2.3% |
| Cost of Revenue | $102.99M$91.91M | +12.1% |
| Gross Profit | $396.27M$418.85M | −5.4% |
| R&D Expenses | $127.43M$117.12M | +8.8% |
| Operating Expenses | $1.67B$1.20B | +38.9% |
| Operating Income | -$1.28B-$784.53M | −62.6% |
| Net Income | -$1.47B-$535.48M | −174.5% |
| EPS (Basic) | $-12.98$-53.44 | +75.7% |
| EPS (Diluted) | $-12.98$-53.44 | +75.7% |
| Shares Outstanding (Basic) | 113.21M10.02M | +1029.8% |
| Shares Outstanding (Diluted) | 113.21M10.02M | +1029.8% |
05—Questions
Frequently Asked Questions
Why did MicroStrategy report such a large net loss in 2022?
The filing attributes the $1.470 billion net loss primarily to digital asset impairment losses, net of gains on sale, of $1.286 billion. Under the company's accounting, bitcoin is written down when its market price falls below carrying value, and impairments cannot be reversed when prices recover.
How much bitcoin does the company hold and what is it worth on the balance sheet?
As of December 31, 2022 the company held approximately 132,500 bitcoins with a carrying value of $1.840 billion. As of February 15, 2023 the filing reports a market price of $24,163.86 per bitcoin on the Coinbase exchange.
What debt does the company carry and how is it secured?
At December 31, 2022 the company had $2.4 billion of aggregate indebtedness: $650.0 million of 0.750% convertible notes due 2025, $1.05 billion of 0% convertible notes due 2027, $500.0 million of 6.125% senior secured notes due 2028, a $205.0 million secured term loan at MacroStrategy secured by bitcoin, and $10.9 million of other secured debt. The 2028 notes are secured by substantially all company assets, excluding bitcoin held by MacroStrategy.
Who controls the company and what are the implications for shareholders?
Michael J. Saylor, Chairman and Executive Chairman, beneficially owned 1,961,668 class B shares representing 67.1% of total voting power as of February 2, 2023. The filing notes he could transfer control to a third party without board or other stockholder approval, and that the company is a 'controlled company' under Nasdaq rules.
Is the company's software business still growing?
Partly. Total product licenses and subscription services revenues rose 1.6% to $147.2 million, but product support revenues fell 5.2% to $266.5 million and total revenues declined to $499.3 million from $510.8 million. The filing attributes some of the decline to unfavorable foreign currency effects and conversions from perpetual licenses to subscriptions.
06—Continue