01—Abstract
Summary
Summary of the 10-Q filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated (now Strategy Inc) reported a first-quarter 2024 net loss of $53.1 milliona, or $(3.09) per share, compared with net income of $461.2 million in the first quarter of 2023.
The swing was driven mainly by digital asset impairment losses of $191.6 millionb, which made up 66.3% of operating expenses. Total revenues were $115.2 million, down from $121.9 million, with product licenses down 25.7% and subscription services up 22.1%. The company held approximately 214,278 bitcoins at March 31, 2024, with a carrying value of $5.074 billion after cumulative impairments of $2.461 billion.
Debt rose sharply during the quarter. The company issued $800.0 millionc of 0.625% convertible notes due 2030 and $603.8 million of 0.875% convertible notes due 2031, and it reported total long-term debt of $3.558 billion on the balance sheet. Total principal outstanding across debt instruments was $3.614 billion.
The proceeds were used to buy bitcoin, and the 2028 Secured Notes remain collateralized by about 38,557 bitcoins. The filing also notes that the company expects to adopt ASU 2023-08 for fair-value accounting of crypto assets effective January 1, 2025, which would result in volatility in future earnings.
It estimates that adopting early in 2024 would increase its beginning retained earnings by approximately $3.1 billiond. Subsequent to quarter end, the company disclosed at least $24.9 million of additional impairment losses in the second quarter of 2024.
02—Key points
Key Highlights
- Net loss of $53.1 million ($3.09 per share) for Q1 2024, versus net income of $461.2 million in Q1 2023, primarily due to $191.6 million in digital asset impairment losses.
- Total revenues of $115.2 million, down from $121.9 million, with product licenses revenue down 25.7% and subscription services revenue up 22.1% year over year.
- Bitcoin holdings of approximately 214,278 bitcoins with a carrying value of $5.074 billion and cumulative impairment losses of $2.461 billion as of March 31, 2024.
- Issued $800.0 million of 2030 Convertible Notes and $603.8 million of 2031 Convertible Notes in March 2024, with net proceeds used to purchase bitcoin.
- Total indebtedness of $3.614 billion aggregate principal as of March 31, 2024, including $500.0 million of 6.125% Senior Secured Notes due 2028 collateralized by about 38,557 bitcoins.
- Cash and cash equivalents of $81.3 million at March 31, 2024, with $1.64 billion used in investing activities for bitcoin purchases during the quarter.
- Expected adoption of ASU 2023-08 (fair-value accounting for crypto assets) from January 1, 2025, which the company says will materially affect its financial statements and increase earnings volatility.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 1, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $115.25M$121.92M | −5.5% |
| Cost of Revenue | $30.02M$27.94M | +7.4% |
| Gross Profit | $85.23M$93.97M | −9.3% |
| R&D Expenses | $29.18M$31.36M | −6.9% |
| Operating Expenses | $288.93M$114.28M | +152.8% |
| Operating Income | -$203.70M-$20.31M | −903.1% |
| Net Income | -$53.12M$461.19M | −111.5% |
| EPS (Basic) | $-0.31$38.97 | −100.8% |
| EPS (Diluted) | $-0.31$31.79 | −101.0% |
| Shares Outstanding (Basic) | 171.94M11.83M | +1352.9% |
| Shares Outstanding (Diluted) | 171.94M14.57M | +1079.7% |
05—Questions
Frequently Asked Questions
Why did the company report a net loss this quarter after a large profit a year earlier?
The company recorded $191.6 million in digital asset impairment losses in Q1 2024, compared with $18.9 million in Q1 2023. Q1 2023 also included a $453.2 million income tax benefit and a $44.7 million gain on debt extinguishment. Impairments are recognized when bitcoin's carrying value exceeds its lowest market price since acquisition, and recoveries are not recorded until bitcoin is sold.
How much debt does the company have and what are the key maturities?
Total aggregate principal indebtedness was $3.614 billion at March 31, 2024. This includes the 2025 Convertible Notes ($650.0 million), 2027 Convertible Notes ($1.05 billion), 2030 Convertible Notes ($800.0 million), 2031 Convertible Notes ($603.8 million), 2028 Secured Notes ($500.0 million), and other secured debt. The 2028 Secured Notes have a springing maturity feature that could accelerate repayment, and holders of the 2030 and 2031 notes may require repurchase on September 15, 2028.
What is the company's bitcoin strategy according to the filing?
The company views its bitcoin holdings as long-term and intends to keep accumulating bitcoin, using cash flows and proceeds from equity and debt financings. It has not set a specific target for holdings. The filing states that it may periodically sell bitcoin for general corporate purposes and that it does not expect to need to sell bitcoin to meet working capital requirements over the next twelve months.
What is the outlook for software revenue?
The company said it expects subscription services revenue to continue growing as it promotes its cloud offering, while product licenses and product support revenues may continue to decline as customers convert to cloud subscriptions. Consulting revenue fell 18.2% in the quarter due to fewer billable hours.
What accounting change could affect future results?
The company expects to adopt ASU 2023-08 effective January 1, 2025, which will require bitcoin to be measured at fair value with gains and losses recognized in net income each period. The filing says this will have a material impact on its balance sheet, statements of operations, and cash flows, and that future results will not be comparable to prior periods because prior periods will not be restated.
06—Continue