# Strategy Inc (MSTR) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from Strategy Inc's 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1050446/000095017025021814/mstr-20241231.htm Accession: 0000950170-25-021814 Filing date: 2025-02-18 Report date: 2024-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/MSTR/ All MD&A years: /company/MSTR/mda/ Previous year: /company/MSTR/mda/fy2023/ (FY 2023) Next year: /company/MSTR/mda/fy2025/ (FY 2025) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Information The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion and analysis should be read together with our consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, this discussion and analysis contains forward-looking statements that are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. See the section of this Annual Report on Form 10-K entitled “Forward Looking Information and Risk Factor Summary.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Part I. Item 1A. Risk Factors” or elsewhere in this Annual Report on Form 10-K. 10-for-1 stock split On August 7, 2024, we completed a 10-for-1 stock split of our class A and class B common stock. See Note 2(a), Summary of Significant Accounting Policies – Basis of Presentation, to the Consolidated Financial Statements, for further information. As a result of the stock split, all applicable share and per share information presented within this “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been retroactively adjusted to reflect the stock split for all periods presented. Management’s Discussion and Analysis for the Year Ended December 31, 2022 Management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2022, including comparison of our results for the years ended December 31, 2023 and 2022, is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Business Overview Strategy is the world's first and largest Bitcoin Treasury Company. We are a publicly traded company that has adopted Bitcoin as our primary treasury reserve asset. By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate Bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to Bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI-powered enterprise analytics software, advancing our vision of Intelligence Everywhere. We leverage our development capabilities to explore innovation in Bitcoin applications, integrating analytics expertise with our commitment to digital asset growth. We believe our combination of operational excellence, strategic Bitcoin reserve, and focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation. Our Bitcoin Strategy Our bitcoin strategy generally involves from time to time, subject to market conditions, (i) issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin and (ii) acquiring bitcoin with our liquid assets that exceed working capital requirements. We intend to fund further bitcoin acquisitions primarily through issuances of common stock and a variety of fixed-income instruments, including debt, convertible notes and preferred stock. We view our bitcoin holdings as long-term holdings and expect to continue to accumulate bitcoin. We have not set any specific target for the amount of bitcoin we seek to hold, and we will continue to monitor market conditions in determining whether to engage in additional financings to purchase additional bitcoin. This overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings. Additionally, we periodically engage in advocacy and educational activities regarding the continued acceptance and value of Bitcoin as an open, secure protocol for an internet-native digital capital asset, and we leverage our software development capabilities to explore innovation in Bitcoin applications. Under our Treasury Reserve Policy, our treasury reserve assets consist of: • cash and cash equivalents and short-term investments (“Cash Assets”) held by us that exceed working capital requirements; and 47 • bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets. During 2023 and 2024, we used proceeds from various capital raising transactions to purchase bitcoin. As of December 31, 2024, we held an aggregate of approximately 447,470 bitcoins. The following table presents a roll-forward of our bitcoin holdings, including additional information related to our bitcoin purchases, sales, and digital asset impairment losses within the respective periods: [[GREPCENT_TABLE]] [["","","Source of Capital Used to Purchase Bitcoin","","Digital Asset Original Cost Basis (in thousands)","","","Digital Asset Impairment Losses (in thousands)","","","Digital Asset Carrying Value (in thousands)","","","Approximate Number of Bitcoins Held","","","Approximate Average Purchase Price Per Bitcoin"],["Balance at December 31, 2022","","","","$","3,993,190","","","$","(2,153,162",")","","$","1,840,028","","","","132,500","","","$","30,137"],["Digital asset purchases","","(a)","","","1,902,299","","","","","","","1,902,299","","","","56,650","","","","33,580"],["Digital asset impairment losses","","","","","","","","(115,851",")","","","(115,851",")"],["Balance at December 31, 2023","","","","$","5,895,489","","","$","(2,269,013",")","","$","3,626,476","","","","189,150","","","$","31,168"],["Digital asset purchases","","(b)","","","22,072,759","","","","","","","22,072,759","","","","258,320","","","","85,447"],["Digital asset impairment losses","","","","","","","","(1,789,862",")","","","(1,789,862",")"],["Balance at December 31, 2024","","","","$","27,968,248","","","$","(4,058,875",")","","$","23,909,373","","","","447,470","","","$","62,503"]] [[/GREPCENT_TABLE]] (a) During 2023, we purchased bitcoin using $1.864 billion of the net proceeds from our sale of class A common stock under our at-the-market equity offering programs, and $37.9 million of Excess Cash. (b) During 2024, we purchased bitcoin using $16.330 billion of the net proceeds from our sale of class A common stock under our at-the-market equity offering program, $2.974 billion of the net proceeds from our issuance of the 2029 Convertible Notes, $782.0 million of the net proceeds from our issuance of the 2030 Convertible Notes, $756.0 million of the net proceeds from our issuance of the 2032 Convertible Notes, $592.3 million of the net proceeds from our issuance of the 2031 Convertible Notes, $458.2 million of the net proceeds from our issuance of the 2028 Convertible Notes, and $179.7 million of Excess Cash. Excess Cash refers to cash in excess of the minimum Cash Assets that we are required to hold under our Treasury Reserve Policy, which may include cash generated by operating activities and cash from the proceeds of financing activities. The following table shows the approximate number of bitcoins held at the end of each respective period, as well as market value calculations of our bitcoin holdings based on the lowest, highest, and ending market prices of one bitcoin on the Coinbase exchange (our principal market) for each respective year, as further defined below: [[GREPCENT_TABLE]] [["","","Approximate Number of Bitcoins Held at End of Year","","","Lowest Market Price Per Bitcoin During Year (a)","","","Market Value of Bitcoin Held at End of Year Using Lowest Market Price (in thousands) (b)","","","Highest Market Price Per Bitcoin During Year (c)","","","Market Value of Bitcoin Held at End of Year Using Highest Market Price (in thousands) (d)","","","Market Price Per Bitcoin at End of Year (e)","","","Market Value of Bitcoin Held at End of Year Using Ending Market Price (in thousands) (f)"],["December 31, 2022","","","132,500","","","$","15,460.00","","","$","2,048,450","","","$","48,240.00","","","$","6,391,800","","","$","16,556.32","","","$","2,193,712"],["December 31, 2023","","","189,150","","","$","16,490.00","","","$","3,119,084","","","$","45,000.00","","","$","8,511,750","","","$","42,531.41","","","$","8,044,816"],["December 31, 2024","","","447,470","","","$","38,501.00","","","$","17,228,042","","","$","108,388.88","","","$","48,500,772","","","$","93,390.21","","","$","41,789,317"]] [[/GREPCENT_TABLE]] (a) The “Lowest Market Price Per Bitcoin During Year” represents the lowest market price for one bitcoin reported on the Coinbase exchange during the respective year, without regard to when we purchased any of our bitcoin. (b) The “Market Value of Bitcoin Held at End of Year Using Lowest Market Price” represents a mathematical calculation consisting of the lowest market price for one bitcoin reported on the Coinbase exchange during the respective year multiplied by the number of bitcoins held by us at the end of the applicable year. (c) The “Highest Market Price Per Bitcoin During Year” represents the highest market price for one bitcoin reported on the Coinbase exchange during the respective year, without regard to when we purchased any of our bitcoin. (d) The “Market Value of Bitcoin Held at End of Year Using Highest Market Price” represents a mathematical calculation consisting of the highest market price for one bitcoin reported on the Coinbase exchange during the respective year multiplied by the number of bitcoins held by us at the end of the applicable year. (e) The “Market Price Per Bitcoin at End of Year” represents the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective year. 48 (f) The “Market Value of Bitcoin Held at End of Year Using Ending Market Price” represents a mathematical calculation consisting of the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective year multiplied by the number of bitcoins held by us at the end of the applicable year. The amounts reported as “Market Value” in the above table represent only a mathematical calculation consisting of the price for one bitcoin reported on the Coinbase exchange (our principal market) in each scenario defined above multiplied by the number of bitcoins held by us at the end of the applicable year. Bitcoin and bitcoin markets may be subject to manipulation and the spot price of bitcoin may be subject to fraud and manipulation. Accordingly, the Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of our bitcoin may be different from such amounts and such deviation may be material. Moreover, (i) the bitcoin market historically has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks that are, or may be, inherent in its entirely electronic, virtual form and decentralized network and (ii) we may not be able to sell our bitcoins at the Market Value amounts indicated above, at the market price as reported on the Coinbase exchange (our principal market) on the date of sale, or at all. Our digital asset impairment losses have significantly contributed to our operating expenses. During 2024, digital asset impairment losses of $1.790 billion represented 81.8% of our operating expenses, compared to digital asset impairment losses of $115.9 million during 2023, representing 23.1% of our operating expenses. Upon our adoption of ASU 2023-08 on January 1, 2025, we will no longer recognize impairment losses under the current cost-less-impairment accounting model described in Note 2(g), Summary of Significant Accounting Policies - Digital Assets, to the Consolidated Financial Statements. In future periods, both realized and unrealized gains and losses from changes in fair value of our bitcoin holdings will be recognized as incurred in our Consolidated Statements of Operations. See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information. As of February 14, 2025, we held approximately 478,740 bitcoins that were acquired at an aggregate purchase price of $31.134 billion and an average purchase price of approximately $65,033 per bitcoin, inclusive of fees and expenses. As of February 14, 2025, at 4:00 p.m. Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $97,236.98. Enterprise Analytics Software Strategy Strategy is a pioneer in AI-powered business intelligence (BI), and a global leader in enterprise analytics solutions. We provide software and services designed to turn complex, chaotic data environments into rich, reliable, and convenient information feeds for our customers. Our vision is to drive growth and competitive advantage for our customers by delivering Intelligence Everywhere™. Our cloud-native flagship, Strategy One™, powers some of the largest analytics deployments in the world for customers spanning a wide range of industries, including retail, banking, technology, manufacturing, insurance, consulting, healthcare, telecommunications, and the public sector. Integral to the Strategy One platform are Generative AI capabilities that are designed to automate and accelerate the deployment of AI-enabled applications across the enterprise. By making advanced analytics accessible through conversational AI, Strategy One provides non-technical users with timely, actionable insights for decision-making. The analytics market is highly competitive and subject to rapidly changing technology and market conditions. Our ability to compete successfully depends on a number of factors within and outside of our control. Some of these factors include software quality, performance and reliability; the quality of our service and support teams; marketing and prospecting effectiveness, the ability to incorporate artificial intelligence and other technically advanced features; and our ability to differentiate our products. As we transition our business strategy and product offerings to a cloud-native model, we are continuously enhancing our go-to-market and sales strategies with the goal of focusing on acquiring new customers, driving revenue growth, increasing margins, and streamlining 49 our operations. As part of this strategic transformation, we have taken and will continue to take certain measures to optimize operational and organizational efficiency across all of our corporate functions. Operating Highlights The following table sets forth certain operating highlights (in thousands) for the years ended December 31, 2024 and 2023: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023"],["Revenues"],["Product licenses","","$","48,567","","","$","75,351"],["Subscription services","","","106,776","","","","81,179"],["Total product licenses and subscription services","","","155,343","","","","156,530"],["Product support","","","243,805","","","","263,888"],["Other services","","","64,308","","","","75,843"],["Total revenues","","","463,456","","","","496,261"],["Cost of revenues"],["Product licenses","","","3,060","","","","1,929"],["Subscription services","","","42,440","","","","31,776"],["Total product licenses and subscription services","","","45,500","","","","33,705"],["Product support","","","33,289","","","","22,434"],["Other services","","","50,679","","","","53,805"],["Total cost of revenues","","","129,468","","","","109,944"],["Gross profit","","","333,988","","","","386,317"],["Operating expenses"],["Sales and marketing","","","138,081","","","","149,671"],["Research and development","","","118,486","","","","120,530"],["General and administrative","","","140,537","","","","115,312"],["Digital asset impairment losses","","","1,789,862","","","","115,851"],["Total operating expenses","","","2,186,966","","","","501,364"],["Loss from operations","","$","(1,852,978",")","","$","(115,047",")"]] [[/GREPCENT_TABLE]] We have incurred significant impairment losses on our digital assets, and we have recognized gains upon sale of our digital assets, which have been presented net of any impairment losses within operating expenses. However, the accounting for our digital assets will change upon our adoption of ASU 2023-08 on January 1, 2025. See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information. As a result, fluctuations in the price of bitcoin and fair value changes associated therewith will have a significant impact on our future operating results. In addition, we base our operating expense budgets on expected revenue trends and strategic objectives. Many of our expenses, such as interest expense on debt, declared dividends on our preferred stock, tax liabilities, office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected shortfall in our cash flow. Accordingly, we may be required to take actions to pay expenses, such as selling bitcoin or using proceeds from equity or debt financings, some of which could significantly impact our operating results in any period. We therefore believe that period-to-period comparisons of our operating results may not be a good indication of our future performance. 50 Share-based Compensation Expense As discussed in Note 11, Share-based Compensation, to the Consolidated Financial Statements, under our 2013 Stock Incentive Plan (as amended, the “2013 Equity Plan”) and 2023 Equity Incentive Plan (as amended, the “2023 Equity Plan”, and together with the 2013 Equity Plan, the “Stock Incentive Plans”), we have awarded stock options to purchase shares of our class A common stock, restricted stock units, performance stock units, and certain other stock-based awards. Each restricted stock unit and performance stock unit represents a contingent right to receive a share of our class A common stock upon the satisfaction of applicable vesting requirements. We also provide opportunities for eligible employees to purchase shares of our class A common stock under our 2021 Employee Stock Purchase Plan (the “2021 ESPP”). Share-based compensation expense (in thousands) from these awards was recognized in the following cost of revenues and operating expense line items for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023"],["Cost of subscription services revenues","","$","392","","","$","361"],["Cost of product support revenues","","","3,929","","","","2,156"],["Cost of consulting revenues","","","1,780","","","","1,940"],["Cost of education revenues","","","136","","","","99"],["Sales and marketing","","","14,846","","","","18,022"],["Research and development","","","14,357","","","","13,549"],["General and administrative","","","41,684","","","","33,444"],["Total share-based compensation expense","","$","77,124","","","$","69,571"]] [[/GREPCENT_TABLE]] The $7.6 million increase in share-based compensation expense during 2024, as compared to the prior year, is primarily due to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain awards and certain awards that became fully vested. As of December 31, 2024, we estimated that an aggregate of approximately $114.3 million of additional share-based compensation expense associated with the Stock Incentive Plans and the 2021 ESPP will be recognized over a remaining weighted average period of 2.3 years. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP. See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements for a description of our significant accounting policies. As described in Note 2, the preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and equity, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes could differ from these estimates and assumptions. Critical accounting estimates involve a significant level of estimation uncertainty and are estimates that have had or are reasonably likely to have a material impact on our financial condition or results of operations. We consider certain estimates and judgments related to revenue recognition to be critical accounting estimates for us, as discussed further below. Revenue Recognition See Note 2(n), Summary of Significant Accounting Policies – Revenue Recognition, to the Consolidated Financial Statements for information regarding our significant accounting policies over revenue recognition. Many of our contracts with customers include multiple performance obligations, and we make estimates and judgments to allocate the transaction price to each performance obligation based on an observable or estimated standalone selling price (“SSP”). The SSP is the price, or estimated price, of the software or service when sold on a standalone basis at contract inception. We consider our evaluation of SSP to be a critical accounting estimate. An observable price of a good or service sold separately provides the best evidence of SSP. However, in many situations, SSP will not be readily observable, but must still be estimated using reasonably available information. We have observable standalone selling prices of our product support, consulting services, and education services, and therefore use historical transaction data on a standalone basis, along with our judgment, to establish SSP ranges for each of these services, as described in Note 2(n). However, SSP is not directly observable for product licenses (product licenses are not sold on a standalone basis and pricing is highly variable) and subscription services (the selling price of subscription services is highly variable), and we use a residual approach to establish SSP for these revenue streams. As such, the establishment of SSP of our product support, consulting services, and education services directly impacts the amount of product licenses and subscription services revenues recognized, and therefore also impacts the overall timing of revenue recognition. We review and analyze the SSP ranges we have established for product support, consulting services, and education services semi-annually, and these SSP ranges do not change significantly year to year. We also perform analyses on at least an annual basis using historical pricing data for both product license and subscription services transactions to assess whether the selling price is highly variable 51 in order to support our conclusion that the residual method to estimate SSP of our product licenses and subscription services continues to be a fair allocation of the transaction price. In the future, SSP for our software and services could be impacted by various factors, including potential changes in our pricing practices, customer demand for our products and services, and various market or economic conditions. However, we consider the risk of significant volatility in our established SSP to be small given our historical transaction experience and internal processes to monitor SSP ranges on an ongoing basis and work with management in the event a trend that could impact the future ranges is detected. Results of Operations Comparison of the Years Ended December 31, 2024 and 2023 Revenues Except as otherwise indicated herein, the term “domestic” refers to operations in the United States and Canada and the term “international” refers to operations outside of the United States and Canada. Product licenses and subscription services revenues. The following table sets forth product licenses and subscription services revenues (in thousands) and related percentage changes for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Product Licenses and Subscription Services Revenues:"],["Product Licenses"],["Domestic","","$","19,803","","","$","39,193","","","","-49.5","%"],["International","","","28,764","","","","36,158","","","","-20.4","%"],["Total product licenses revenues","","","48,567","","","","75,351","","","","-35.5","%"],["Subscription Services"],["Domestic","","","66,820","","","","52,528","","","","27.2","%"],["International","","","39,956","","","","28,651","","","","39.5","%"],["Total subscription services revenues","","","106,776","","","","81,179","","","","31.5","%"],["Total product licenses and subscription services revenues","","$","155,343","","","$","156,530","","","","-0.8","%"]] [[/GREPCENT_TABLE]] Product licenses revenues. Product licenses revenues decreased $26.8 million during 2024, as compared to the prior year, primarily due to an overall decrease in the volume of deals. Our product licenses revenues may continue to experience declines in future periods as we continue to promote our cloud offering to new and existing customers. Subscription services revenues. Subscription services revenues are derived from our cloud subscription service for commercial and government use and are recognized ratably over the service period in the contract. Subscription services revenues increased $25.6 million during 2024, as compared to the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, a net increase in the use of subscription services by existing customers, and sales contracts with new customers. We expect our subscription services revenues to continue to grow in future periods as we continue to promote our cloud offering to new and existing customers. Product support revenues. The following table sets forth product support revenues (in thousands) and related percentage changes for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Product Support Revenues:"],["Domestic","","$","144,869","","","$","158,308","","","","-8.5","%"],["International","","","98,936","","","","105,580","","","","-6.3","%"],["Total product support revenues","","$","243,805","","","$","263,888","","","","-7.6","%"]] [[/GREPCENT_TABLE]] Product support revenues are derived from providing technical software support and software updates and upgrades to customers. Product support revenues are recognized ratably over the term of the contract, which is generally one year. Product support revenues decreased $20.1 million during 2024, as compared to the prior year, primarily due to certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services offerings. Our product support revenues may experience declines in future periods as we continue to promote our cloud offering to new and existing customers. 52 Other services revenues. The following table sets forth other services revenues (in thousands) and related percentage changes for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Other Services Revenues:"],["Consulting"],["Domestic","","$","27,646","","","$","35,261","","","","-21.6","%"],["International","","","33,855","","","","36,814","","","","-8.0","%"],["Total consulting revenues","","","61,501","","","","72,075","","","","-14.7","%"],["Education","","","2,807","","","","3,768","","","","-25.5","%"],["Total other services revenues","","$","64,308","","","$","75,843","","","","-15.2","%"]] [[/GREPCENT_TABLE]] Consulting revenues. Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues decreased $10.6 million during 2024, as compared to the prior year, primarily due to a decrease in demand for domestic consulting services. Education revenues. Education revenues are derived from the education and training that we provide to our customers to enhance their ability to fully utilize the features and functionality of our software. These offerings include self-tutorials, custom course development, joint training with customers’ internal staff, and standard course offerings, with pricing dependent on the specific offering delivered. Education revenues decreased $1.0 million during 2024, as compared to the prior year, primarily due to a decrease in demand for education services. Costs and Expenses Cost of revenues. The following table sets forth cost of revenues (in thousands) and related percentage changes for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Cost of Revenues:"],["Product licenses and subscription services:"],["Product licenses","","$","3,060","","","$","1,929","","","","58.6","%"],["Subscription services","","","42,440","","","","31,776","","","","33.6","%"],["Total product licenses and subscription services","","","45,500","","","","33,705","","","","35.0","%"],["Product support","","","33,289","","","","22,434","","","","48.4","%"],["Other services:"],["Consulting","","","48,374","","","","51,311","","","","-5.7","%"],["Education","","","2,305","","","","2,494","","","","-7.6","%"],["Total other services","","","50,679","","","","53,805","","","","-5.8","%"],["Total cost of revenues","","$","129,468","","","$","109,944","","","","17.8","%"]] [[/GREPCENT_TABLE]] Cost of product licenses revenues. Cost of product licenses revenues consists of referral fees paid to channel partners, the costs of product manuals and media, and royalties paid to third-party software vendors. Cost of product licenses revenues did not materially change during 2024, as compared to the prior year. Cost of subscription services revenues. Cost of subscription services revenues consists of equipment, facility and other related support costs (including cloud hosting infrastructure costs), and personnel and related overhead costs. Cost of subscription services revenues increased $10.7 million during 2024, as compared to the prior year, primarily due to a $10.0 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers. 53 Cost of product support revenues. Cost of product support revenues consists of personnel and related overhead costs. Cost of product support revenues increased $10.9 million during 2024, as compared to the prior year, primarily due (i) a $3.7 million increase in salaries and personnel costs, (ii) a $2.8 million increase in variable compensation, (iii) a $1.8 million net increase in share-based compensation expense, (iv) a $1.0 million increase in severance costs due to headcount reductions, and (v) a $0.7 million increase in facility and other related support costs. Other than the increase in severance costs, these changes were primarily attributable to an increase in average staffing levels from the internal transfer of certain employees to product support functions, partially offset by the discontinuance of our Enterprise Support program during 2024, which previously resulted in compensation costs for certain consulting personnel being allocated to cost of product support revenues. Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs. Cost of consulting revenues decreased $2.9 million during 2024, as compared to the prior year, primarily due to (i) a $2.2 million decrease in variable compensation and (ii) a $1.9 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, partially offset by the discontinuance of our Enterprise Support program (pursuant to which costs associated with certain consulting personnel had been recognized in cost of product support revenues) during 2024, partially offset by (iii) a $1.9 million increase in subcontractor costs. Cost of education revenues. Cost of education revenues consists of personnel and related overhead costs. Cost of education revenues did not materially change during 2024, as compared to the prior year. Sales and marketing expenses. Sales and marketing expenses consist of personnel costs, commissions, office facilities, travel, advertising, public relations programs, and promotional events, such as trade shows, seminars, and technical conferences. The following table sets forth sales and marketing expenses (in thousands) and related percentage change for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Sales and marketing expenses","","$","138,081","","","$","149,671","","","","-7.7","%"]] [[/GREPCENT_TABLE]] Sales and marketing expenses decreased $11.6 million during 2024, as compared to the prior year, primarily due to (i) an $8.3 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions driven by changes to our 2024 compensation plans that further incentivized cloud deals compared to the prior year, (ii) a $6.4 million decrease in employee salaries primarily attributable to a decrease in average staffing levels (including from the internal transfer of certain employees to product support functions), partially offset by wage increases, (iii) a $3.2 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards and the internal transfer of certain employees to product support functions, partially offset by the grant of additional awards under the Stock Incentive Plans and the fair value remeasurement of certain liability-classified awards upon exercise or at the end of the reporting period, and (iv) a $1.7 million decrease in facility and other related support costs, partially offset by (v) a $4.1 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, (vi) a $3.0 million increase in marketing costs, and (vii) a $1.5 million increase in severance costs due to headcount reductions. Research and development expenses. Research and development expenses consist of the personnel costs for our software engineering personnel and related overhead costs. The following table summarizes research and development expenses (in thousands) and related percentage change for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Research and development expenses","","$","118,486","","","$","120,530","","","","-1.7","%"]] [[/GREPCENT_TABLE]] Research and development expenses decreased $2.0 million during 2024, as compared to the prior year, primarily due to (i) a $6.1 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (ii) a $0.8 million decrease in variable compensation, and (iii) a $0.8 million decrease in facility and other related support costs, partially offset by (iv) a $3.8 million increase in severance costs due to headcount reductions, (v) a $1.5 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans and (vi) a $0.9 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain awards. 54 General and administrative expenses. General and administrative expenses consist of personnel and related overhead costs, and other costs of our executive, finance, human resources, information systems, and administrative departments, as well as third-party consulting, legal, and other professional fees, and third-party costs associated with our digital asset holdings. The following table sets forth general and administrative expenses (in thousands) and related percentage change for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["General and administrative expenses","","$","140,537","","","$","115,312","","","","21.9","%"]] [[/GREPCENT_TABLE]] General and administrative expenses increased $25.2 million during 2024, as compared to the prior year, primarily due to (i) an $8.6 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, (ii) an $8.2 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested and the forfeiture of certain awards, (iii) a $6.1 million increase in legal, consulting, and other advisory costs, and (iv) a $4.4 million increase in custodial fees incurred on our bitcoin holdings, partially offset by (v) a $2.7 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases. We expect general and administrative expenses to increase in future periods due in part to an increase in bitcoin custodial fees as a result of our significant bitcoin holdings, the recent increase in the market price of bitcoin, and our continued strategy to accumulate additional bitcoin for the foreseeable future. Digital asset impairment losses. Digital asset impairment losses are recognized when the carrying value of our digital assets exceeds their lowest fair value at any time since their acquisition. Impaired digital assets are written down to fair value at the time of impairment, and such impairment loss cannot be recovered for any subsequent increases in fair value. Gains (if any) are not recorded until realized upon sale. The following table sets forth digital asset impairment losses (in thousands) and related percentage change for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Digital asset impairment losses","","$","1,789,862","","","$","115,851","","","","1,445.0","%"]] [[/GREPCENT_TABLE]] We did not sell any of our digital assets during 2024 or 2023. As mentioned above, the accounting for our digital assets will change upon our adoption of ASU 2023-08 on January 1, 2025 and we will no longer record digital asset impairment losses. Upon adoption of ASU 2023-08, we are required to report our digital assets at fair value, with resulting gains and losses from changes in fair value recognized in net income each reporting period. As a result, we expect fluctuations in the price of bitcoin to have a significant impact on our future operating results. See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information. Interest Expense, Net Interest expense, net, primarily relates to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements. The following table sets forth interest expense, net (in thousands) for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023"],["Interest expense, net:"],["2025 Convertible Notes","","$","3,865","","","$","7,918"],["2027 Convertible Notes","","","4,046","","","","4,029"],["2028 Convertible Notes","","","2,939","","","","0"],["2029 Convertible Notes","","","787","","","","0"],["2030 Convertible Notes","","","7,241","","","","0"],["2031 Convertible Notes","","","6,063","","","","0"],["2032 Convertible Notes","","","11,067","","","","0"],["2028 Secured Notes","","","23,915","","","","32,271"],["2025 Secured Term Loan","","","0","","","","3,812"],["Other interest expense, net","","","2,018","","","","930"],["Total interest expense, net","","$","61,941","","","$","48,960"]] [[/GREPCENT_TABLE]] Interest expense, net, increased $13.0 million during 2024, as compared to the prior year, primarily as a result of (i) interest incurred related to the 2032 Convertible Notes (which were issued in June 2024), (ii) interest incurred related to the 2030 Convertible Notes and 2031 Convertible Notes (which were each issued in March 2024), (iii) interest incurred related to the 2028 Convertible Notes (which were issued in September 2024), and (iv) interest incurred related to trade credits with our bitcoin execution partners (which are included 55 within “Other interest (income) expense, net” in the table above), partially offset by (iv) the 2028 Secured Notes having been redeemed in their entirety on September 26, 2024, (v) the 2025 Convertible Notes having been converted or redeemed in their entirety by July 15, 2024, and (vi) the repayment of the 2025 Secured Term Loan in March 2023. Refer to Note 8, Long-term Debt, to the Consolidated Financial Statements for further information. Our future interest expense may be significantly impacted by any new debt issuances, as well as redemptions or conversions of existing debt instruments. (Loss) Gain on Debt Extinguishment In 2024, the $22.9 million loss on debt extinguishment resulted from the redemption of the 2028 Secured Notes. In 2023, the $44.7 million gain on debt extinguishment resulted from the repayment of the 2025 Secured Term Loan. Refer to Note 8, Long-term Debt, to the Consolidated Financial Statements for further information. Other Income (Expense), Net Other income, net, of $3.5 million in 2024 was comprised primarily of foreign currency transaction net gains. Other expense, net, of $5.2 million in 2023 was comprised primarily of foreign currency transaction net losses. Benefit from Income Taxes During 2024, we recorded a benefit from income taxes of $767.7 million on a pre-tax loss of $1.934 billion that resulted in an effective tax rate of 39.7%, as compared to a benefit from income taxes of $553.6 million on a pre-tax loss of $124.5 million that resulted in an effective tax rate of 444.6% during 2023. During 2024, our benefit from income taxes primarily related to (i) a tax benefit from an increase in our deferred tax asset related to the impairment on our bitcoin holdings and (ii) a tax benefit related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units). During 2023, our benefit from income taxes primarily related to the release of a valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the increase in market value of bitcoin as of December 31, 2023 compared to December 31, 2022. The U.S. Tax Cuts and Jobs Act imposed a mandatory deemed repatriation transition tax (“Transition Tax”) on previously untaxed accumulated and current earnings and profits of certain of our foreign subsidiaries. As of December 31, 2024, $9.2 million of the Transition Tax was unpaid, all of which is included in “Accounts payable, accrued expenses, and operating lease liabilities” in our Consolidated Balance Sheet. As of December 31, 2024, we had $775.9 million of U.S. federal net operating loss (“NOL”) carryforwards and $5.9 million of foreign NOL carryforwards. As of December 31, 2024, we also had gross state NOLs of $1.207 billion of which $381.1 million will expire between 2034 and 2044 and the remainder can be carried forward indefinitely. As of December 31, 2024, digital asset impairment losses, other temporary differences and carryforwards resulted in deferred tax assets, net of valuation allowances and deferred tax liabilities, of $1.525 billion. As of December 31, 2024, we had a valuation allowance of $0.5 million primarily related to foreign tax credits in certain jurisdictions. Our largest deferred tax asset relates to the impairment on our bitcoin holdings which will reverse upon our adoption of ASU 2023-08 on January 1, 2025. If the market value of bitcoin at a future date is less than the average cost of our bitcoin holdings at such reporting date, we may be required to establish a valuation allowance against our U.S. deferred tax assets. We routinely consider actions necessary to preserve or utilize tax attributes. We will continue to regularly assess the realizability of deferred tax assets. As of December 31, 2024, we have not indefinitely reinvested any of our undistributed foreign earnings and have recorded a deferred tax liability of $4.0 million on undistributed foreign earnings related to foreign withholding tax and U.S. state income taxes. The U.S. enacted the IRA in August 2022. Among other things, unless an exemption by statute or regulation applies, a provision of the IRA imposes a 15% CAMT on a corporation with respect to an initial tax year and subsequent tax years, if the average annual adjusted financial statement income for any consecutive three-tax-year period preceding the initial tax year exceeds $1 billion. On September 12, 2024, the Department of Treasury and the Internal Revenue Service issued proposed regulations with respect to the application of the CAMT. Due to our adoption of ASU 2023-08, we were required to recognize a cumulative-effect adjustment of $12.745 billion to the opening balance of our retained earnings as of January 1, 2025. We will additionally be required to recognize unrealized gains or losses from changes in the fair value of digital assets in future reporting periods as income or losses. For purposes of calculating the adjusted financial statement income, we will be required to ratably allocate from 2025 through 2028 the increase to our retained earnings. When determining whether we are subject to CAMT and when calculating any related tax liability for an applicable tax year, the proposed regulations provide that, among other adjustments, our adjusted financial statement income must include this ratable amount in addition to any unrealized gains or losses reported in the applicable tax year. Accordingly, as a result of the enactment of the IRA and our adoption of ASU 2023-08 on January 1, 2025, unless the IRA is amended or the proposed regulations, when finalized, are revised to provide relief (or other interim relief is granted), we could become subject to CAMT in the tax years 2026 and beyond. As the taxes to which we are subject will depend in significant part on the future price of bitcoin and the size of our bitcoin holdings, we are not able to estimate the impact of CAMT on our future income tax expense. See “Risk Factors—Risks Related to Our Business in 56 General—Unrealized fair value gains on our bitcoin holdings could cause us to become subject to the corporate alternative minimum tax under the Inflation Reduction Act of 2022.” Deferred Revenue and Advance Payments Deferred revenue and advance payments represent amounts received or due from our customers in advance of our transferring our software or services to the customer. In the case of multi-year service contract arrangements, we generally do not invoice more than one year in advance of services and do not record deferred revenue for amounts that have not been invoiced. Revenue is subsequently recognized in the period(s) in which control of the software or services is transferred to the customer. The following table summarizes deferred revenue and advance payments (in thousands), as of: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2024","","","2023"],["Current:"],["Deferred product licenses revenue","","$","1,777","","","$","3,579"],["Deferred subscription services revenue","","","107,119","","","","65,512"],["Deferred product support revenue","","","124,684","","","","152,012"],["Deferred other services revenue","","","4,394","","","","7,059"],["Total current deferred revenue and advance payments","","$","237,974","","","$","228,162"],["Non-current:"],["Deferred product licenses revenue","","$","174","","","$","0"],["Deferred subscription services revenue","","","2,263","","","","3,097"],["Deferred product support revenue","","","2,111","","","","4,984"],["Deferred other services revenue","","","422","","","","443"],["Total non-current deferred revenue and advance payments","","$","4,970","","","$","8,524"],["Total current and non-current:"],["Deferred product licenses revenue","","$","1,951","","","$","3,579"],["Deferred subscription services revenue","","","109,382","","","","68,609"],["Deferred product support revenue","","","126,795","","","","156,996"],["Deferred other services revenue","","","4,816","","","","7,502"],["Total current and non-current deferred revenue and advance payments","","$","242,944","","","$","236,686"]] [[/GREPCENT_TABLE]] The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet in “Accounts receivable, net” and “Deferred revenue and advance payments” and instead are included in the remaining performance obligation disclosure below. Total deferred revenue and advance payments increased $6.3 million in 2024, as compared to the prior year, primarily due to (i) an increase in deferred revenue from subscription services contracts, partially offset by (ii) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts. Our remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancellable amounts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation excludes contracts that are billed in arrears, such as certain time and materials contracts. As of December 31, 2024, we had an aggregate transaction price of $454.9 million allocated to the remaining performance obligation related to subscription services, product support, product licenses, and other services contracts. We expect to recognize approximately $278.4 million of the remaining performance obligation over the next 12 months and the remainder thereafter. However, the timing and ultimate recognition of our deferred revenue and advance payments and other remaining performance obligations depend on our satisfaction of various performance obligations, and the amount of deferred revenue and advance payments and remaining performance obligations at any date should not be considered indicative of revenues for any succeeding period. Liquidity and Capital Resources Liquidity. Principal and Potential Sources of Liquidity Our principal sources of liquidity are cash and cash equivalents and on-going collection of our accounts receivable. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments, certificates of deposit, and U.S. Treasury securities. As of December 31, 2024 and 2023, we held cash and cash equivalents of (i) $8.8 million and $10.5 million, respectively, through our U.S. entities and (ii) $29.3 million and $36.3 million, respectively, through our non-U.S. entities. We earn a significant amount of our revenues outside the United States and we repatriated foreign earnings and profits of $6.5 million during 2024 and $20.3 million during 2023. 57 Under our Treasury Reserve Policy and bitcoin strategy, we use a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoins, which are classified as indefinite-lived intangible assets. As of December 31, 2024, we held approximately 447,470 bitcoins, all of which are unencumbered. As of February 14, 2025, we held approximately 478,740 bitcoins, all of which are unencumbered, and which had an aggregate market value of $46.551 billion, based on the market price of one bitcoin as reported on the Coinbase exchange as of 4:00 p.m. Eastern Time. As discussed further below, although we do not anticipate needing to use our bitcoin to meet our obligations in the next twelve months, we believe our substantial bitcoin holdings can serve as a source of liquidity, if necessary. See “—Availability of Bitcoin for Liquidity” below. On October 30, 2024, we filed a prospectus for a new at-the-market equity offering program pursuant to which we may sell class A common stock having an aggregate offering price of up to $21 billion from time to time. As of December 31, 2024 and February 14, 2025, approximately $6.775 billion and $4.168 billion, respectively, of our class A common stock remained available for issuance and sale pursuant to the October 2024 Sales Agreement. To the extent we make sales under the October 2024 Sales agreement, we can use the net proceeds from such sales for general corporate purposes, including the acquisition of bitcoin and for working capital. See “—At-the-Market Equity Offerings” below. Contractual and Other Obligations Our material contractual obligations (explained in further detail in the Notes to the Consolidated Financial Statements, as referenced below) and cash requirements consist of: • principal and interest payments related to our long-term debt (Note 8, Long-term Debt), which includes: o principal due upon maturity of our long-term debt instruments in the aggregate of $7.272 billion; o $3.2 million in coupon interest due each semi-annual period for the 2028 Convertible Notes; o $2.5 million in coupon interest due each semi-annual period for the 2030 Convertible Notes; o $2.6 million in coupon interest due each semi-annual period for the 2031 Convertible Notes; o $9.0 million in coupon interest due each semi-annual period for the 2032 Convertible Notes; and o $0.1 million due monthly in principal and interest related to our other long-term secured debt; • payments under various purchase agreements, primarily related to third-party cloud hosting services, third-party software supporting our products, marketing, and operations, and a new corporate aircraft (Note 9, Commitments and Contingencies); • rent payments under noncancellable operating leases (Note 7, Leases); • payments related to the Transition Tax (Note 9, Commitments and Contingencies); and • ongoing personnel-related expenditures and vendor payments. In addition, on February 5, 2025 we issued and sold 7,300,000 shares of our 8.00% Series A Perpetual Strike Preferred Stock (“Series A Strike Preferred”), at a price to the public of $80.00 per share, for net proceeds of approximately $563.4 million, after deducting the underwriting discounts and commissions and our estimated offering expenses. We listed the Series A Strike Preferred for trading on the Nasdaq Global Select Market under the symbol “STRK” and trading commenced on February 6, 2025. The outstanding shares of Series A Strike Preferred have an aggregate liquidation preference of $730.0 million and accumulate cumulative dividends, which we refer to as “regular dividends,” at a rate per annum equal to 8.00% on the liquidation preference thereof, regardless of whether or not declared or funds are legally available for their payment. Subject to the other terms of the Series A Strike Preferred, which are set forth in the Certificate of Designations of the Series A Strike Preferred (the “Certificate of Designations”), which is filed as Exhibit 3.4 to this Annual Report on Form 10-K, regular dividends are payable when, as and if declared by our board of directors, out of funds legally available for their payment to the extent paid in cash, quarterly in arrears on each regular dividend payment date to the holders of record of the Series A Strike Preferred as of the close of business on the regular record date immediately preceding the applicable regular dividend payment date. Declared regular dividends on the Series A Strike Preferred are payable, at our election, in cash, shares of our class A common stock or a combination of cash and shares of our class A common stock, in the manner, and subject to the terms, set forth in the Certificate of Designations. If we elect to pay any portion of a declared regular dividend in shares of our class A common stock, then those shares will be valued at 95% of the “daily VWAP” (as defined in the Certificate of Designations) per share of class A common stock on the third “VWAP trading day” (as defined in the Certificate of Designations) preceding the regular dividend payment date for such regular dividend. However, notwithstanding anything to the contrary, in no event will the total number of shares of class A common stock issuable per share of Series A Strike Preferred as payment for a declared regular dividend exceed an amount equal to (x) the total dollar amount of such declared regular dividend per share of Series A Strike Preferred divided by (y) the “floor price”, which is initially equal to $119.03 per share of class A common stock and is subject to adjustment in the manner specified in the Certificate of Designations. If the number of shares that we deliver is limited as a result of this provision, then we will, to the extent we are legally able to do so and not prohibited by the terms of any “dividend senior stock” (as defined in the Certificate of Designations), declare and pay the related deficiency in cash. If any accumulated regular dividend (or any portion thereof) on the Series A Strike Preferred is not paid on the applicable regular dividend payment date (or, if such regular dividend payment date is not a business day, the next business day), then additional regular dividends, which we refer to as “compounded dividends,” will accumulate on the amount of such unpaid regular 58 dividend, compounded quarterly at the regular dividend rate, from, and including, such regular dividend payment date to, but excluding, the date the same, including all compounded dividends thereon, is paid in full. We expect to fund any dividends paid in cash on the Series A Strike Preferred primarily through additional capital raising activities, including, but not limited to, at-the-market offerings of our class A common stock. Short-term and Long-term Liquidity Short-term Liquidity. Our short-term liquidity needs include working capital requirements, anticipated capital expenditures, dividend obligations on the Series A Strike Preferred to the extent that we do not pay such dividends in the form of shares of our class A common stock, and contractual obligations due within the next twelve months. We expect our cash and cash equivalents, as of December 31, 2024, together with cash and cash equivalents generated by our operations, will not be sufficient to satisfy these obligations over the next twelve months. However, we anticipate being able to use proceeds from equity or debt financings to meet these obligations. Our ability to obtain equity and debt financing is subject to market conditions and other factors outside of our control, and we may not be able to obtain equity or debt financing in a timely manner, on favorable terms, or at all. Although we do not anticipate needing to use our bitcoin to meet our short-term obligations, to the extent necessary, we would seek to use proceeds from the sale of our bitcoin to meet such obligations. See “—Availability of Bitcoin for Liquidity” below and “Item 1A. Risk Factors— Risks Related to Our Business in General— A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to satisfy our financial obligations” for additional information. Long-Term Liquidity. Beyond the next 12 months, our long-term cash requirements are primarily for obligations related to our long-term debt and for payment of dividends on the Series A Strike Preferred to the extent that we do not pay such dividends in the form of shares of our class A common stock. We also have long-term cash requirements for obligations related to our operating leases, delivery of our new corporate aircraft, our various purchase agreements, and potentially CAMT. We expect our cash and cash equivalents as of December 31, 2024, together with cash and cash equivalents generated by our operations, will not be sufficient to satisfy these obligations. As a result, we would seek to satisfy these obligations through various options that we expect to be available to us, such as refinancing our debt or generating cash from other sources, which may include proceeds from equity or debt financings, or the sale of our bitcoin. See “—Availability of Bitcoin for Liquidity” below and “Item 1A. Risk Factors—Risks Related to Our Business in General—A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to satisfy our financial obligations” for additional information. Furthermore, if the conditional conversion features of the Convertible Notes are triggered, we may elect to settle the conversions of Convertible Notes in shares of our class A common stock, or a combination of cash and shares of class A common stock, rather than in all cash, which may enable us to reduce the amount of our cash obligations under the Convertible Notes. On January 24, 2025, we delivered a notice of full redemption (the “Notice”) to the trustee of our 2027 Convertible Notes. See “—Long-term Debt” below for additional information. In addition, while the 2028 Convertible Notes, the 2029 Convertible Notes, the 2030 Convertible Notes, the 2031 Convertible Notes, and the 2032 Convertible Notes have maturity dates of September 15, 2028, December 1, 2029, March 15, 2030, March 15, 2031, and June 15, 2032, respectively, the holders of these Convertible Notes each have the right to require us to repurchase for cash all or any portion of these Convertible Notes on September 15, 2027, in the case of the 2028 Convertible Notes, June 1, 2028, in the case of the 2029 Convertible Notes, September 15, 2028, in the case of the 2030 Convertible Notes and the 2031 Convertible Notes, or June 15, 2029, in the case of the 2032 Convertible Notes, at a repurchase price in each case equal to 100% of the principal amount of the applicable Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding the repurchase date. Availability of Bitcoin for Liquidity We do not believe we will need to sell or engage in other transactions with respect to any of our bitcoins within the next twelve months to meet our liquidity needs, although we may from time to time sell or engage in other transactions with respect to our bitcoins as part of treasury management operations, as noted above. The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of instability in the bitcoin market, we may not be able to sell our bitcoins at reasonable prices or at all. As a result, our bitcoins are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. In addition, upon sale of our bitcoin, we may incur additional taxes related to any realized gains or we may incur capital losses as to which the tax deduction may be limited. See “Item 1A. Risk Factors— Risks Related to Our Bitcoin Strategy and Holdings—Our bitcoin holdings are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.” Cash flows 59 The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023","","","% Change"],["Net cash (used in) provided by operating activities","","$","(53,032",")","","$","12,712","","","","517.2","%"],["Net cash used in investing activities","","$","(22,086,237",")","","$","(1,905,237",")","","","1059.2","%"],["Net cash provided by financing activities","","$","22,132,641","","","$","1,889,886","","","","1071.1","%"]] [[/GREPCENT_TABLE]] Net cash (used in) provided by operating activities. The primary source of our cash provided by operating activities is cash collections of our accounts receivable from customers following the sales and renewals of our product licenses, subscription services and product support, as well as consulting and education services. Our primary uses of cash in operating activities are for personnel-related expenditures for software development, personnel-related expenditures for providing consulting, education, and subscription services, and for sales and marketing costs, general and administrative costs, interest expense related to our long-term debt arrangements, and income taxes. In 2024 and 2023, non-cash items to further reconcile net (loss) income to net cash (used in) provided by operating activities consist primarily of depreciation and amortization, reduction in the carrying amount of operating lease right-of-use assets, credit losses and sales allowances, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, digital asset impairment losses, amortization of the issuance costs on our long-term debt, and gains and losses on extinguishment of debt. Net cash used in operating activities was $53.0 million in 2024, compared to net cash provided by operating activities of $12.7 million in 2023. The change in operating cash flows was due to a $1.596 billion decrease in net income and a $21.7 million decrease from changes in operating assets and liabilities, which was partially offset by a $1.552 billion net increase in non-cash items (principally related to digital asset impairment losses and losses on the extinguishment of certain debt instruments, partially offset by deferred taxes). In particular, our cash from operations has been negatively impacted by our continued transition of customers to subscription services offerings, which have resulted in (i) reduced cash collections due to lower revenues and invoicing over multiple years, (ii) increased costs of our cloud infrastructure to support increased usage, and (iii) increased commissions paid to our sales team to incentivize cloud migrations. We have also incurred additional employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, legal and consulting fees, rent expense payments, marketing costs, and bitcoin custodial fees. Our interest payments in 2024 increased compared to the prior year primarily due to interest and fees incurred on trade credits or delayed settlements related to our bitcoin purchases. Cash paid for interest on our debt obligations did not materially change from the prior year due to the extinguishment of the 2028 Secured Notes and 2025 Convertible Notes in 2024 and the Secured Term Loan in 2023, for which the reduction in cash interest was substantially offset by increases in interest paid on the 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes issued in 2024. Our cash from operations was favorably impacted in the current year by a significant reduction in income tax payments (net of refunds) and decreases in headcount, which resulted in reduced salary expenses, partially offset by increases in severance costs. Net cash used in investing activities. In 2024 and 2023, the changes in net cash used in investing activities primarily relate to purchases of digital assets, advance deposits on a new corporate aircraft, and expenditures on property and equipment. Net cash used in investing activities increased $20.181 billion during 2024, as compared to the prior year, primarily due to a $20.170 billion increase in purchases of bitcoins and a $10.5 million deposit on a new corporate aircraft. During 2024, we purchased $22.073 billion of bitcoin using net proceeds from the sale of class A common stock under our at-the-market equity offering programs, net proceeds from the issuances of our 2030 Convertible Notes, 2031 Convertible Notes, 2032 Convertible Notes, 2028 Convertible Notes, and 2029 Convertible Notes, and Excess Cash. During 2023, we purchased $1.902 billion of bitcoin using net proceeds from the sale of class A common stock under our at-the-market offering programs, and Excess Cash. Net cash provided by financing activities. In 2024 and 2023, the changes in cash provided by and used in financing activities primarily relate to the issuance and subsequent repayment of our long-term debt, the sale of class A common stock under our at-the-market equity offering programs, the exercise or vesting of certain awards under the Stock Incentive Plans, and the sales of class A common stock under the 2021 ESPP. Net cash provided by financing activities increased $20.243 billion during 2024, as compared to the prior year, primarily due to (i) a $14.310 billion increase in net proceeds from the sale of class A common stock under our at-the-market equity offering programs during 2024 as compared to 2023, (ii) a $6.133 billion increase in long-term debt proceeds, net of issuance costs during 2024 as compared to 2023, (iii) the $160.0 million repayment of the 2025 Secured Term Loan and related third-party extinguishment costs during 2023, which was repaid using proceeds from our sale of class A common stock offered under our at-the-market equity offering programs, and (iv) a $153.8 million increase in proceeds from the exercise of stock options under the Stock Incentive Plans during 2024 as compared to 2023, partially offset by (v) the $515.4 million repayment of the 2028 Secured Notes and related third-party extinguishment costs during 2024, which was repaid using proceeds from the issuance of the 2028 Convertible Notes. 60 Long-term Debt The terms of each of the long-term debt instruments described below are discussed more fully in Note 8, Long-term Debt, to the Consolidated Financial Statements. In December 2020, we issued $650.0 million aggregate principal amount of the 2025 Convertible Notes; in February 2021, we issued $1.050 billion aggregate principal amount of the 2027 Convertible Notes; in March 2024, we issued $800.0 million aggregate principal amount of the 2030 Convertible Notes and $603.8 million aggregate principal amount of the 2031 Convertible Notes; in June 2024, we issued $800.0 million aggregate principal amount of the 2032 Convertible Notes; in September 2024 we issued $1.010 billion aggregate principal amount of the 2028 Convertible Notes; and in November 2024 we issued $3.000 billion aggregate principal amount of the 2029 Convertible Notes. We principally used the net proceeds from the issuances of the Convertible Notes to acquire bitcoin, and we used a portion of the net proceeds from the 2028 Convertible Notes to redeem the 2028 Secured Notes, as discussed further below. During 2024 and 2023, we paid $16.5 million and $4.9 million, respectively, in interest to holders of the Convertible Notes. During 2024, we issued 16,323,050 shares of class A common stock and paid a nominal amount of cash in lieu of fractional shares in connection with conversions of $649.7 million aggregate principal amount of 2025 Convertible Notes and on July 15, 2024 redeemed $0.3 million aggregate principal amount of 2025 Convertible Notes, constituting all of the 2025 Convertible Notes then outstanding, at an aggregate redemption price of $0.3 million, equal to 100% of the principal amount of the 2025 Convertible Notes redeemed, plus accrued and unpaid interest, to but excluding such date. In June 2021, we issued $500.0 million aggregate principal amount of the 2028 Secured Notes. We used the net proceeds from the issuance of the 2028 Secured Notes to acquire bitcoin. During 2024 and 2023, we paid $23.9 million and $30.6 million, respectively, in interest to holders of the 2028 Secured Notes. On September 26, 2024, we redeemed all of the outstanding 2028 Secured Notes at an aggregate redemption price of approximately $523.9 million and all collateral securing the 2028 Secured Notes was released. In March 2022, MacroStrategy, our wholly-owned subsidiary, entered into a Credit and Security Agreement with Silvergate Bank, pursuant to which Silvergate Bank issued the $205.0 million 2025 Secured Term Loan to MacroStrategy. We principally used net proceeds from the 2025 Secured Term Loan to acquire bitcoin. On March 24, 2023, MacroStrategy voluntarily prepaid Silvergate approximately $161.0 million (the “Payoff Amount”), in full repayment, satisfaction, and discharge of the 2025 Secured Term Loan, and all collateral securing the 2025 Secured Term Loan, including the bitcoin that was serving as collateral, was released. During the first quarter of 2023, we made a final $5.1 million interest payment to Silvergate, $1.1 million of which was included in the Payoff Amount. In June 2022, we, through one of our wholly-owned subsidiaries, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027. During 2024 and 2023, we paid $1.1 million and $1.1 million, respectively, in principal and interest to the lender. Other than as discussed above, during 2024 and 2023, we did not repurchase or prepay any of our outstanding debt. We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We may also seek to prepay our outstanding indebtedness. The amounts involved in any such repurchase or prepayment may be material. We could seek to fund any such debt repurchases or prepayments using proceeds from equity offerings that we may choose to undertake from time-to-time. On January 24, 2025, we delivered the Notice to the trustee for full redemption of our 2027 Convertible Notes. The Notice calls for the redemption of all of the outstanding 2027 Convertible Notes (the “Redemption”) on February 24, 2025 (the “Redemption Date”), at a redemption price equal to 100% of the principal amount of the 2027 Convertible Notes to be redeemed, plus accrued and unpaid special interest, if any, to but excluding the Redemption Date, unless earlier converted. As a result of the delivery of the Notice, at any time prior to 5:00 p.m., New York City time, on February 20, 2025, the 2027 Convertible Notes are convertible, at the option of the holders of the 2027 Convertible Notes, at the applicable conversion rate of 7.0234 shares of our class A common stock per $1,000 principal amount (reflecting a conversion price of $142.38 per share (the “Adjusted Conversion Price”). We have elected to settle our conversion obligation with respect to the 2027 Convertible Notes by delivering solely shares of our class A common stock, together with cash in lieu of any fractional shares. Prior to our delivery of the Notice, we received conversion requests at the original conversion price of $143.25 per share for approximately $1.8 million in principal amount of 2027 Convertible Notes. Subsequent to our delivery of the Notice, we have received conversion requests at the Adjusted Conversion Price. As of February 14, 2025, we have received from holders of the 2027 Convertible Notes conversion requests with respect to $857.4 million in aggregate principal amount of the 2027 Convertible Notes, which equates to the issuance upon settlement of 6,022,026 shares of our class A common stock in the aggregate. 61 At-the-Market Equity Offerings From time to time, we have entered into sales agreements with agents pursuant to which we could issue and sell shares of our class A common stock through at-the-market equity offering programs. See Note 13, At-the-Market Equity Offerings, to the Consolidated Financial Statements for additional information regarding sales of our class A common stock pursuant to each of the sales agreements that were active during 2024 and 2023. The following table sets forth total shares sold and total net proceeds received (net of sales commissions and expenses) from shares sold under our at-the-market equity offering programs during the years ended December 31, 2024 and 2023 (in thousands, except number of shares): [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023"],["Total shares sold pursuant to at-the-market equity offering programs","","","52,308,512","","","","50,978,900"],["Total net proceeds received from shares sold pursuant to at-the-market equity offering programs","","$","16,329,857","","","$","2,020,089"]] [[/GREPCENT_TABLE]] As of December 31, 2024, approximately $6.775 billion of our class A common stock remained available for issuance and sale pursuant to the October 2024 Sales Agreement. As of February 14, 2025, approximately $4.168 billion of our class A common stock remained available for issuance and sale pursuant to the October 2024 Sales Agreement. The remaining sales agreements have been terminated or substantially depleted prior to December 31, 2024. Unrecognized tax benefits As of December 31, 2024, we had $10.2 million of total gross unrecognized tax benefits, including accrued interest, $2.9 million of which was recorded in “Other long-term liabilities” and $7.3 million of which was recorded in “Deferred tax assets, net.” The timing of any payments that could result from these unrecognized tax benefits will depend on a number of factors, and accordingly the amount and period of any future payments cannot be estimated. We do not expect any significant tax payments related to unrecognized tax benefits during 2025. Recent Accounting Standards See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information. Non-GAAP Financial Measures We are providing supplemental non-GAAP financial measures below which management uses internally to help understand, manage, and evaluate our business performance and to help make operating decisions. We believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. We also believe the use of these non-GAAP financial measures can facilitate comparison of our operating results to those of our competitors. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures are subject to material limitations as they are not measurements prepared in accordance with GAAP, and are not a substitute for such measurements. For example, we expect that share-based compensation expense, which is excluded from certain of the non-GAAP financial measures below, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors. Similarly, we expect that interest expense arising from the amortization of debt issuance costs on our long-term debt, which is excluded from certain of the non-GAAP financial measures below, will continue to be a recurring expense over the terms of our long-term debt arrangements. Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP. We rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP financial measures only supplementally. Non-GAAP loss from operations Non-GAAP loss from operations excludes share-based compensation expense, which is a significant non-cash expense that we believe is not reflective of our general business performance, and for which the accounting requires management judgment. Consequently, our accounting for share-based compensation expense could vary significantly in comparison to other companies. The following is a 62 reconciliation of our non-GAAP loss from operations to loss from operations, its most directly comparable GAAP measure, (in thousands) for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023"],["Reconciliation of non-GAAP loss from operations:"],["Loss from operations","","$","(1,852,978",")","","$","(115,047",")"],["Share-based compensation expense","","","77,124","","","","69,571"],["Non-GAAP loss from operations","","$","(1,775,854",")","","$","(45,476",")"]] [[/GREPCENT_TABLE]] Non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share Non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share each exclude the impact of (i) share-based compensation expense, (ii) interest expense arising from the amortization of debt issuance costs on our long-term debt, (iii) gains and losses on extinguishment of debt, and (iv) related income taxes. We believe non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share offer management and investors insight as they exclude significant non-cash expenses, gains and losses on debt extinguishment, and their related income tax effects. The following are reconciliations of our non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share to net (loss) income and diluted (loss) earnings per share, respectively, their most directly comparable GAAP measures (in thousands, except per share data), for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["","","2024","","","2023"],["Reconciliation of non-GAAP net (loss) income:"],["Net (loss) income","","$","(1,166,661",")","","$","429,121"],["Share-based compensation expense","","","77,124","","","","69,571"],["Interest expense arising from amortization of debt issuance costs","","","15,336","","","","8,808"],["Loss (gain) on debt extinguishment","","","22,933","","","","(44,686",")"],["Income tax effects (1)","","","(243,102",")","","","(6,062",")"],["Non-GAAP net (loss) income","","$","(1,294,370",")","","$","456,752"],["Reconciliation of non-GAAP diluted (loss) earnings per share (2):"],["Diluted (loss) earnings per share","","$","(6.06",")","","$","2.64"],["Share-based compensation expense (per diluted share)","","","0.40","","","","0.42"],["Interest expense arising from amortization of debt issuance costs (per diluted share) (3)","","","0.08","","","","0.01"],["Loss (gain) on debt extinguishment (per diluted share)","","","0.12","","","","(0.27",")"],["Income tax effects (per diluted share) (3)","","","(1.26",")","","","(0.02",")"],["Non-GAAP diluted (loss) earnings per share","","$","(6.72",")","","$","2.78"]] [[/GREPCENT_TABLE]] (1) Income tax effects reflect the net tax effects of share-based compensation, which includes tax benefits and expenses on exercises of stock options and vesting of share-settled restricted stock units, interest expense for amortization of debt issuance costs, and gains and losses on debt extinguishment. (2) For reconciliation purposes, the non-GAAP diluted earnings (loss) per share calculations use the same weighted average shares outstanding as that used in the GAAP diluted earnings (loss) per share calculations for the same period. For example, in periods of GAAP net loss, otherwise dilutive potential shares of common stock from our share-based compensation arrangements and Convertible Notes are excluded from the GAAP diluted loss per share calculation as they would be antidilutive, and therefore are also excluded from the non-GAAP diluted earnings or loss per share calculation. (3) For the year ended December 31, 2023, interest expense from the amortization of issuance costs of the Convertible Notes has been added back to the numerator in the GAAP diluted earnings per share calculation (as disclosed in Note 12, Basic and Diluted (Loss) Earnings per Share, to the Consolidated Financial Statements), and therefore the per diluted share effects of the amortization of issuance costs of the Convertible Notes have been excluded from the “Interest expense arising from amortization of debt issuance costs (per diluted share)” and “Income tax effects (per diluted share)” lines in the above reconciliation for the year ending December 31, 2023. 63 Non-GAAP Constant Currency Revenues, Cost of Revenues, and Operating Expenses We present certain of our revenues, cost of revenues, and operating expenses on a non-GAAP constant currency basis, which excludes certain changes resulting from fluctuations in foreign currency exchange rates. These non-GAAP constant currency metrics allow our management and investors to compare operating results to prior years without the effects of certain changes in foreign currency exchange rates, which are not reflective of our general business performance and may vary significantly between periods. The following are reconciliations of our non-GAAP constant currency revenues, cost of revenues, and operating expenses to their most directly comparable GAAP measures (in thousands) for the periods indicated: [[GREPCENT_TABLE]] [["","","Years Ended"],["","","December 31,"],["","","GAAP","","","Foreign Currency Exchange Rate Impact (1)","","","Non-GAAP Constant Currency (2)","","","GAAP","","","GAAP % Change","","","Non-GAAP Constant Currency % Change (3)"],["","","2024","","","2024","","","2024","","","2023","","","2024","","","2024"],["Product licenses revenues","","$","48,567","","","$","(504",")","","$","49,071","","","$","75,351","","","","-35.5","%","","","-34.9","%"],["Subscription services revenues","","","106,776","","","","65","","","","106,711","","","","81,179","","","","31.5","%","","","31.5","%"],["Product support revenues","","","243,805","","","","(214",")","","","244,019","","","","263,888","","","","-7.6","%","","","-7.5","%"],["Other services revenues","","","64,308","","","","(43",")","","","64,351","","","","75,843","","","","-15.2","%","","","-15.2","%"],["Cost of product support revenues","","","33,289","","","","34","","","","33,255","","","","22,434","","","","48.4","%","","","48.2","%"],["Cost of other services revenues","","","50,679","","","","284","","","","50,395","","","","53,805","","","","-5.8","%","","","-6.3","%"],["Sales and marketing expenses","","","138,081","","","","(273",")","","","138,354","","","","149,671","","","","-7.7","%","","","-7.6","%"],["Research and development expenses","","","118,486","","","","(190",")","","","118,676","","","","120,530","","","","-1.7","%","","","-1.5","%"],["General and administrative expenses","","","140,537","","","","56","","","","140,481","","","","115,312","","","","21.9","%","","","21.8","%"],["","","GAAP","","","Foreign Currency Exchange Rate Impact (1)","","","Non-GAAP Constant Currency (2)","","","GAAP","","","GAAP % Change","","","Non-GAAP Constant Currency % Change (3)"],["","","2023","","","2023","","","2023","","","2022","","","2023","","","2023"],["Product licenses revenues","","$","75,351","","","$","300","","","$","75,051","","","$","86,498","","","","-12.9","%","","","-13.2","%"],["Subscription services revenues","","","81,179","","","","296","","","","80,883","","","","60,746","","","","33.6","%","","","33.1","%"],["Product support revenues","","","263,888","","","","1,514","","","","262,374","","","","266,521","","","","-1.0","%","","","-1.6","%"],["Other services revenues","","","75,843","","","","186","","","","75,657","","","","85,499","","","","-11.3","%","","","-11.5","%"],["Cost of product support revenues","","","22,434","","","","46","","","","22,388","","","","21,264","","","","5.5","%","","","5.3","%"],["Cost of other services revenues","","","53,805","","","","666","","","","53,139","","","","55,283","","","","-2.7","%","","","-3.9","%"],["Sales and marketing expenses","","","149,671","","","","694","","","","148,977","","","","146,882","","","","1.9","%","","","1.4","%"],["Research and development expenses","","","120,530","","","","(1,163",")","","","121,693","","","","127,428","","","","-5.4","%","","","-4.5","%"],["General and administrative expenses","","","115,312","","","","235","","","","115,077","","","","111,421","","","","3.5","%","","","3.3","%"]] [[/GREPCENT_TABLE]] (1) The “Foreign Currency Exchange Rate Impact” reflects the estimated impact of fluctuations in foreign currency exchange rates on international components of our Consolidated Statements of Operations. It shows the increase (decrease) in material international revenues or expenses, as applicable, from the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates. The term “international” refers to operations outside of the United States and Canada only where the functional currency is the local currency (i.e., excluding any location whose economy is considered highly inflationary). (2) The “Non-GAAP Constant Currency” reflects the current period GAAP amount, less the Foreign Currency Exchange Rate Impact. (3) The “Non-GAAP Constant Currency % Change” reflects the percentage change between the current period Non-GAAP Constant Currency amount and the GAAP amount for the same period in the prior year. 64