MICROSTRATEGY Inc [MSTR] Filings

10-Q 1 mstr-10q_20220930.htm 10-Q mstr-10q_20220930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-24435

MICROSTRATEGY INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

51-0323571

(I.R.S. Employer

Identification Number)

1850 Towers Crescent Plaza, Tysons Corner, VA

(Address of Principal Executive Offices)

22182

(Zip Code)

(703) 848-8600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol		Name of Each Exchange on which Registered
Class A common stock, par value $0.001 per share		MSTR		The Nasdaq Global Select Market

Indicate by check mark whether the registrant,: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 25, 2022, the registrant had 9,353,694 and 1,964,025 shares of class A common stock and class B common stock outstanding, respectively.

MICROSTRATEGY INCORPORATED

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (unaudited)	1

	Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	1

	Consolidated Statements of Operations for the Three Months Ended September 30, 2022 and 2021	2

	Consolidated Statements of Operations for the Nine Months Ended September 30, 2022 and 2021	3

	Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	4

	Consolidated Statements of Stockholders’ (Deficit) Equity as of September 30, 2022	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION	43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 5.	Other Information	67

Item 6.	Exhibits	67

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	September 30,			December 31,
	2022			2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	60,390		$	63,356
Restricted cash		6,578			1,078
Accounts receivable, net		109,926			189,280
Prepaid expenses and other current assets		25,399			14,251
Total current assets		202,293			267,965
Digital assets		1,993,032			2,850,210
Property and equipment, net		33,033			36,587
Right-of-use assets		62,902			66,760
Deposits and other assets		20,992			15,820
Deferred tax assets, net		233,034			319,782
Total assets	$	2,545,286		$	3,557,124
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable, accrued expenses, and operating lease liabilities	$	36,846		$	46,084
Accrued compensation and employee benefits		46,346			54,548
Accrued interest		11,394			1,493
Deferred revenue and advance payments		165,934			209,860
Total current liabilities		260,520			311,985
Long-term debt, net		2,376,935			2,155,151
Deferred revenue and advance payments		8,754			8,089
Operating lease liabilities		69,278			76,608
Other long-term liabilities		30,088			26,224
Deferred tax liabilities		0			109
Total liabilities		2,745,575			2,578,166
Commitments and Contingencies
Stockholders’ (Deficit) Equity
Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding		0			0
Class A common stock, $0.001 par value; 330,000 shares authorized; 18,038 shares issued and 9,354 shares outstanding, and 18,006 shares issued and 9,322 shares outstanding, respectively		18			18
Class B convertible common stock, $0.001 par value; 165,000 shares authorized; 1,964 shares issued and outstanding, and 1,964 shares issued and outstanding, respectively		2			2
Additional paid-in capital		1,778,660			1,727,143
Treasury stock, at cost; 8,684 shares		(782,104	)		(782,104	)
Accumulated other comprehensive loss		(18,179	)		(7,543	)
(Accumulated deficit) retained earnings		(1,178,686	)		41,442
Total stockholders’ (deficit) equity		(200,289	)		978,958
Total liabilities and stockholders’ (deficit) equity	$	2,545,286		$	3,557,124

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended
	September 30,
	2022			2021
	(unaudited)			(unaudited)
Revenues:
Product licenses	$	22,286		$	25,830
Subscription services		16,414			10,853
Total product licenses and subscription services		38,700			36,683
Product support		66,010			70,387
Other services		20,650			20,924
Total revenues		125,360			127,994
Cost of revenues:
Product licenses		406			383
Subscription services		6,395			4,282
Total product licenses and subscription services		6,801			4,665
Product support		5,224			4,679
Other services		13,360			12,975
Total cost of revenues		25,385			22,319
Gross profit		99,975			105,675
Operating expenses:
Sales and marketing		35,409			38,209
Research and development		30,498			28,211
General and administrative		27,283			23,751
Digital asset impairment losses		727			65,165
Total operating expenses		93,917			155,336
Income (loss) from operations		6,058			(49,661	)
Interest expense, net		(14,073	)		(10,723	)
Other income, net		4,897			1,264
Loss before income taxes		(3,118	)		(59,120	)
Provision for (benefit from) income taxes		23,961			(22,984	)
Net loss	$	(27,079	)	$	(36,136	)
Basic loss per share (1)	$	(2.39	)	$	(3.61	)
Weighted average shares outstanding used in computing basic loss per share		11,308			9,999
Diluted loss per share (1)	$	(2.39	)	$	(3.61	)
Weighted average shares outstanding used in computing diluted loss per share		11,308			9,999

(1)	Basic and fully diluted loss per share for class A and class B common stock are the same.

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Nine Months Ended
	September 30,
	2022			2021
	(unaudited)			(unaudited)
Revenues:
Product licenses	$	58,928		$	69,261
Subscription services		43,276			31,221
Total product licenses and subscription services		102,204			100,482
Product support		199,682			212,063
Other services		64,824			63,702
Total revenues		366,710			376,247
Cost of revenues:
Product licenses		1,314			1,290
Subscription services		17,303			11,720
Total product licenses and subscription services		18,617			13,010
Product support		15,542			14,353
Other services		42,107			40,543
Total cost of revenues		76,266			67,906
Gross profit		290,444			308,341
Operating expenses:
Sales and marketing		105,511			116,728
Research and development		95,811			86,242
General and administrative		82,491			68,397
Digital asset impairment losses		1,088,656			684,034
Total operating expenses		1,372,469			955,401
Loss from operations		(1,082,025	)		(647,060	)
Interest expense, net		(38,299	)		(17,520	)
Other income, net		12,242			1,631
Loss before income taxes		(1,108,082	)		(662,949	)
Provision for (benefit from) income taxes		112,046			(217,446	)
Net loss	$	(1,220,128	)	$	(445,503	)
Basic loss per share (1)	$	(107.99	)	$	(45.47	)
Weighted average shares outstanding used in computing basic loss per share		11,299			9,798
Diluted loss per share (1)	$	(107.99	)	$	(45.47	)
Weighted average shares outstanding used in computing diluted loss per share		11,299			9,798

(1)	Basic and fully diluted loss per share for class A and class B common stock are the same.

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	Three Months Ended
	September 30,
	2022			2021
	(unaudited)			(unaudited)
Net loss	$	(27,079	)	$	(36,136	)
Other comprehensive loss, net of applicable taxes:
Foreign currency translation adjustment		(4,514	)		(1,457	)
Total other comprehensive loss		(4,514	)		(1,457	)
Comprehensive loss	$	(31,593	)	$	(37,593	)

	Nine Months Ended
	September 30,
	2022			2021
	(unaudited)			(unaudited)
Net loss	$	(1,220,128	)	$	(445,503	)
Other comprehensive loss, net of applicable taxes:
Foreign currency translation adjustment		(10,636	)		(2,896	)
Total other comprehensive loss		(10,636	)		(2,896	)
Comprehensive loss	$	(1,230,764	)	$	(448,399	)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(in thousands, unaudited)

				Class A				Class B Convertible				Additional								Accumulated Other			(Accumulated Deficit)
				Common Stock				Common Stock				Paid-in		Treasury Stock						Comprehensive			Retained
	Total			Shares		Amount		Shares		Amount		Capital		Shares			Amount			Loss			Earnings
Balance at January 1, 2021	$	446,192			16,307	$	16		1,964	$	2	$	655,241		(8,684	)	$	(782,104	)	$	(3,885	)	$	576,922
Net loss		(110,020	)		0		0		0		0		0		0			0			0			(110,020	)
Other comprehensive loss		(1,836	)		0		0		0		0		0		0			0			(1,836	)		0
Issuance of class A common stock upon exercise of stock options		23,854			159		0		0		0		23,854		0			0			0			0
Share-based compensation expense		6,848			0		0		0		0		6,848		0			0			0			0
Balance at March 31, 2021	$	365,038			16,466	$	16		1,964	$	2	$	685,943		(8,684	)	$	(782,104	)	$	(5,721	)	$	466,902
Net loss		(299,347	)		0		0		0		0		0		0			0			0			(299,347	)
Other comprehensive income		397			0		0		0		0		0		0			0			397			0
Issuance of class A common stock upon exercise of stock options		244			2		0		0		0		244		0			0			0			0
Share-based compensation expense		11,087			0		0		0		0		11,087		0			0			0			0
Balance at June 30, 2021	$	77,419			16,468	$	16		1,964	$	2	$	697,2

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