Strategy Inc (MSTR) 2022 Q4 法說會逐字稿

Hello, everyone, and good evening. I'm Shirish Jajodia, Vice President of Investor Relations and Treasury at MicroStrategy. I'll be your moderator for MicroStrategy's 2022 Fourth Quarter Earnings Webinar.

Before we proceed, I will read the safe harbor statement. Some of the information we provide during today's call regarding our future expectations, plans and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-Q filed with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today.

Also, during today's call, we will refer to certain non-GAAP financial measures. Reconciliations showing GAAP versus non-GAAP results are available in our earnings release and presentation, which were issued today and are available on our website at microstrategy.com.

I would like to welcome you all to today's webinar and let you know that we will be taking questions through the Q&A feature at the bottom of your screen. You can submit questions throughout the webinar, and Michael, Phong or Andrew will answer questions at the end of the session. Please be sure to provide your name and your company's name when submitting your questions.

Now I'll walk you through the agenda for today's call. First, formally, we'll cover the business results for the full year 2022. Second, Andrew Kang will cover the financial results for the fourth quarter of 2022. Then, Michael Saylor will provide a strategic review and discuss recent Bitcoin and Lightning Network market updates. And lastly, we will open up to Q&A.

With that, I'll turn the call over to Phong Le, President and CEO of MicroStrategy.

Thank you, Shirish. I'd like to welcome all of you to today's webinar regarding our 2022 fourth quarter and full year financial results. I want to start by recapping our strategy and underscoring our key highlights for the full year 2022. We have 2 corporate strategies: first, an operating strategy; and second, a balance sheet strategy. The business intelligence operating strategy is how we generate revenues and where most of our operating costs are incurred and generates our cash flows.

MicroStrategy at this point is the largest independent publicly traded business intelligence company in the world. Our goal is to remain a leader in this space by being modern, open and enterprise-oriented. Substantially, all our employees in the company, over 2,100 people, are focused on our software business.

Our Bitcoin acquisition strategy is a balance sheet strategy. As of today, we're the largest publicly traded corporate holder of Bitcoin in the world. We were the first public company to adopt Bitcoin as a primary treasury reserve asset. Our strategy is to acquire and hold Bitcoin for the long term. We purchase Bitcoin using our excess cash and with the net proceeds of capital raising transactions.

I'll address our Bitcoin acquisition strategy first. In the fourth quarter, we purchased 3,204 Bitcoins at an average purchase price of $17,616 per Bitcoin, and we sold 704 Bitcoins for the first time at an average sale price of approximately $16,786 per Bitcoin, resulting in a net increase in our Bitcoin holdings of approximately 2,500 for a net aggregate purchase amount of $45 million or approximately $17,850 per Bitcoin, inclusive of fees and expenses. Andrew will discuss our Bitcoin transactions in the fourth quarter later on this call.

As of December 31, 2022, we held a total of 132,500 Bitcoins, acquired an aggregate cost of $4 billion or average cost of approximately $30,100 per Bitcoin. We remain committed to our Bitcoin acquisition strategy for the long term.

In the fourth quarter, the broader crypto and digital assets markets witnessed significant financial distress. In addition, various prominent participants in the digital assets industry filed for bankruptcy, such as FTX, Voyager, Celsius and Genesis, and we do not have direct exposure to any of those companies. In addition, we conducted further diligence of our custodians and execution partners to assess their exposure to these companies and understand that their exposure was minimal.

Since the adoption of our Bitcoin acquisition strategy, we've taken a simple approach from day 1, which is to buy and hold Bitcoin. We've taken steps along the way to minimize risk, particularly with counterparties. We buy only Bitcoin in U.S.-based markets. We custody Bitcoin with institutional-grade U.S.-based regulated custodians and cold storage, and we have not lended our Bitcoin to third parties for yield or any other purposes. As a result, we've been able to avoid transacting with bad actors in the space.

To summarize our view on Bitcoin, first, we continue to have a high level of conviction in the value proposition of Bitcoin. We're very supportive of the Bitcoin network on a go-forward basis. Second, we continue to follow a risk-managed approach to executing our Bitcoin acquisition strategy. And third, we are long term focused, and we plan to continue to accumulate Bitcoin over time. Our core business is not impacted by near-term Bitcoin price fluctuations.

With that, I will now turn to our software strategy highlights from 2022. We achieved constant currency total revenue growth for 2022 on the strength of our cloud business, despite a challenging macroeconomic environment last year with high inflation, weakening foreign currencies and the ongoing war in Ukraine.

Total revenue for 2022 was $499.3 million, which increased 2% year-over-year on a constant currency basis. Total software licenses, which consists of total product licenses and subscription services revenues in our consolidated statement of operations were $147.2 million, which increased 6% year-over-year on a constant currency basis.

We also made important progress in our shift towards our cloud offering, resulting in annual subscription revenues of $60.7 million, an increase of 46% year-over-year on a constant currency basis. Annual subscription billings were $77 million, growing 39% year-over-year. The strong growth in our subscription revenue and billings was driven by both existing customer migrations to the cloud and new customer wins. Our customer revenue renewal rates continue to be among the highest we've ever experienced. Overall, we continue to see further global adoption of our cloud platform among our international customers.

We're also seeing the benefits of being a single analytics platform in the industry. It is both enterprise grade and easy to use. As an enterprise grade platform, we're benefiting from the trend of BI modernization and consolidation from enterprise tools like SAP business objects and IBM Cognos. As an easy-to-use platform for governed ad hoc data discovery, we are the tool of choice for corporations that have outgrown Microsoft Power BI and Salesforce Tableau, or no longer want to be locked into a single vendor ecosystem.

On the cost side, we believe in a thoughtful approach to cost management on an ongoing quarterly basis rather than annual surges in hiring followed by mass layoffs. We continue to invest in R&D to innovate our product, while being thoughtful about sales and marketing and general and administrative cost. As a result, we saw relatively flat operating cost from 2021 to 2022.

Next, I would like to discuss our key focus areas for 2023. First, we aim to launch something called MicroStrategy 1, which will serve as our core analytics platform designed to meet all of an organization's analytics needs. It will be easy to use, powerful, comprehensive and cutting edge. It's intended to be a one-stop-shop for all of our business intelligence customers and prospects. You should expect hear -- to hear more about this from us throughout the first half of 2023, culminating in our MicroStrategy World event on May 1 through 4 in Orlando, Florida.

Core differentiators for MicroStrategy continue to be our enterprise analytics, embedded analytics and cloud offerings. Our focus on these 3 areas has resulted in more customers choosing to decommissioning, consolidate legacy platforms in favor of an enterprise-wide adoption of MicroStrategy. This has led to increasing revenue renewal rates every year in the last 3 years. Our customers depend on these differentiating capabilities to build mission-critical applications to run their field forces, store operations, bank branches, risk analysis groups, corporate operations and much more.

As such, it's worthwhile to highlight the resiliency of our business even in the tough macro conditions that existed in 2022. We're the only remaining publicly traded independent enterprise BI company, and the stickiness of our products and the long-standing tenure of our top customers are a testament to our resiliency.

Our continued investment in research and development has enabled us to modernize our platform and enable our customers to transform how they do business through innovative analytics, tools and techniques. These include personalized applications, immersive, interactive visualizations, simple no-code and low-code application development with open APIs, flexibility of consumption for mobile interfaces and innovative capabilities like HyperIntelligence. We continue to see growth with customers who build MicroStrategy into the software solutions that they sell to end users, leveraging our open embedded analytics capabilities.

Second, not new, but even more in our focus is growth. We're going to focus on simplifying our processes, growing our pipeline and growing our revenues. We plan to get back in the market and in front of our prospects through in-person field events, field marketing, aggressive account-based marketing and a revitalized partner program.

Third, cloud is at front and center when we talk about focus on growth. As MicroStrategy Cloud continues to be a growing part of our business mix, we're seeking to accelerate growth through increased cloud adoption by both new and existing customers. New customers are increasingly cloud-first and immediately reap the benefits of our managed service offering. That includes business agility, enterprise security, regular updates and upgrades and cost savings. At the same time, more and more existing on-premises customers who are migrating to the cloud and expanding their MicroStrategy usage to new departments and user groups.

Intentional in our approach to cloud is our belief in cloud agility and independence. The power of multi-cloud, hybrid and the portability between private and public clouds resonates with our customers who do not want to be locked into a single technology stack. We seek to take advantage of the best that each major cloud provider has to offer, optimizing our platform to run on and across each. We'll continue to invest in this area to support our customers' need for flexibility, scalability and security.

In Q4, MicroStrategy Cloud for Government, or MCG, is our new cloud offering received authorization to operate under FedRAMP guidelines. MCG is a managed Software-as-a-Service solution and our first generally available release of our cloud platform that is built on a modern, high-performance cloud-native architecture that also utilizes containers and microservices. It delivers on sophisticated security and data privacy requirements across the public and private sectors. It opens up the possibility of migrating a large part of our business, federal government customers to the cloud.

Our fourth area of focus is on our employees. Our employees are our key assets, and we will continue to develop and promote people internally and seek to improve employee engagement. Our employee engagement survey results indicate that we have made great improvements to employees' mental well-being, loyalty and belief in the company's 2 corporate strategies. We're also continuing to develop technical training and certifications to keep our employees up-to-date on the latest MicroStrategy software enhancements and soft skills training to keep our managers engaged and employees motivated.

And the last thing is that we'll focus more on innovation, both on business intelligence as well as in our Bitcoin acquisition strategy. On the BI innovation side, MicroStrategy Insights is our first set of products released in the area of artificial intelligence and machine learning to augment more traditional reporting capabilities, to provide contextual and immediate insights.

The Insights feature accelerates decision-making and uncovers data patterns with automated alerting and library applications. The alerts are based on machine learning models, working behind the scenes to proactively detect data trends, outliers and anomalies, equipping users with the timely insights to drive action. This is the basis on which we're combining MicroStrategy's semantic layer, HyperIntelligence and open architecture to provide the data tracking alerts, forecasting, recommendations and ultimately, artificial intelligence that will be key for the future of analytics and intelligence. We believe this is something MicroStrategy is uniquely positioned to provide, and we expect to release more functionality in this area every quarter.

And the Bitcoin innovation side -- as indicated in our last earnings call, today, I'm delighted to share a preview of MicroStrategy Lightning, our new product that we are developing, which utilizes the Lightning Network, a second layer network that sits at top the bitcoin network. We envision MicroStrategy Lightning as an enterprise platform designed to leverage the power of the Bitcoin Lightning Network to enable new e-commerce use cases and tackle modern cybersecurity challenges.

The first component of MicroStrategy Lightning platform is Lightning Rewards. Lightning Rewards is intended to allow any enterprise to reward their employees, customers, partners and prospects for their engagement. Companies spend vast amounts of time and money in digital marketing, driving engagement with their brand and their customers, and for some, monetizing online content. We believe a platform like MicroStrategy Lightning can enable them to drive that engagement, rewarding their customers for that engagement directly rather than lining the pockets of online ad giants. We expect future capabilities that Lightning Platform will provide opportunities for new business models to monetize online content or minimize threats in the nuisance of bots and other malicious actors.

While we envision MicroStrategy Lightning as an independent product offering, it builds on our core strengths and deep experience building highly available, easy to use enterprise software delivered in the cloud. We're taking a very disciplined investment approach such that our Lightning development efforts currently occupy less than 1% of our R&D capacity. We're currently in the initial pilot stage of the product with our early pre-release version rolled out internally to MicroStrategy employees. While our core focus remains on BI innovation, we believe, we're uniquely positioned to bring value here. Mike will elaborate further on this topic.

Last but not least, I'm thrilled to share again that our next MicroStrategy world will be in-person from May 1 to 4 in Orlando, Florida. Our customers have expressed willingness and desire to -- for meaningful, rich in-person connections alongside virtual meetings. So we are bringing back World '23 as a bigger scale event with multiple tracks.

The business intelligence track on May 1 through 4 will be a working event designed to help modernize analytics for innovative organizations looking to transform with data. We're excited to showcase how some of the world's best brands use modern experiences to breakthrough and achieve extraordinary results.

The Bitcoin track on May 3 through 4 will include our third annual Bitcoin for corporations on May 3 and a dedicated Lightning for Corporations Day on May 4. It will be a first of its kind gathering of corporations looking to integrate Bitcoin and Lightning as a part of their corporate treasury or product offerings. The conference will also include dedicated networking opportunities, workshops and training.

And finally, MicroStrategy World will be incomplete without an epic party. We're hosting a Theme Park conference party at Universal Studios, Florida, featuring roller coasters and an evening of unforgettable fun and excitement. We look forward to your participation at the conference. Registrations are open and additional details can be found on our event website at microstrategy.com/world23.

Now, I'll turn the call over to Andrew to discuss our financials for the quarter in further detail.

Thank you, Phong. Before jumping into the quarterly results, I'd like to quickly reemphasize MicroStrategy's revenue priorities. Our 3-decade long history of providing data analytics solutions to large and small corporations has established a long tenured and diverse customer base where our platform has proven to be a critical component in running our customers' businesses day-to-day. Our platform has demonstrated durability through tough economic cycles, and has been strategic during times of growth.

An important foundation to our revenue is through supporting our existing customers as their businesses evolve. We continue to deliver for our customers as seen in our consistently high renewal rates, over 90% for the last 5 consecutive quarters and as high as 95% in Q4 of last year.

Second, growing cloud revenue, which for us means migrating existing customers into a fully hosted and managed cloud subscription model, which Phong talked about earlier. Winning new logos into the cloud is important and uplifting services for existing cloud customers is also critical. We are very pleased with our performance in all of these areas this past year. But keep in mind, as we migrate to the cloud, we inherently experienced some offsets in areas like product license and support revenues.

However, the transition to a subscription model will establish high-quality annual recurring revenues that will allow us to scale even stronger growth in the future. In Q4 of last year, approximately 64% of our total revenue was recurring compared to approximately 60% in the same quarter of the prior year, a trend that we expect will continue in 2023.

Lastly, our consulting business, which has been and continues to be essential in providing expert support and solutions to our customers. They not only champion solutions, but they also drive modernization and also impact growth through partner opportunities.

Okay. Turning to the results. Total revenues for the fourth quarter were $132.6 million, down $2 million or approximately 1% year-over-year. However, at constant currency, Q4 total revenues were up 4% year-over-year, similar to the trend we saw in Q3. Total software license revenues were $45 million, up 1% year-over-year and up 8% at constant currency. When we look at product license revenues and subscription service revenues together, year-over-year growth on both a GAAP basis and at constant currency, continue to show the overall growth momentum of our cloud transition.

Subscription service revenues were $17.5 million, an increase of 47% year-over-year and up 54% at constant currency. While product license revenues were $27.6 million for the quarter, down 15% year-over-year and product support revenues were $66.8 million, down $2.3 million year-over-year, but up 1% at contestant currency. These trends are consistent with the revenue theme that I mentioned earlier.

Finally, other services revenues were $20.7 million, a slight 1% decrease year-over-year, but an increase of 5% at constant currency. Our worldwide consulting business, which makes up the majority of our other services revenues, saw higher bill rates globally in Q4, with particularly strong performance among our European and Argentina consultants. To add to that, we are also seeing early success and momentum in the build-out of our India workforce where we plan to grow strategically in future quarters.

Turning to Slide 14. We continue to see growth in our software license and subscription buildings driven by the continued strong momentum in cloud. Total current software license billings increased to $61 million in the fourth quarter, which was an increase of 10% year-over-year. Current subscription billings were $31 million, an increase of 28% year-over-year, our 11th straight quarter of double-digit growth, and full year '22 annual subscription billings were 39% compared to the prior 12 months with both subscription service revenue and current deferred subscription revenue growing over 40% each year for the full year 2022 compared to 2021.

We are extremely pleased with cloud growth in 2022, which has exceeded expectations in the time line for transforming and modernizing our BI platform. 2023 will provide to be a pivotal year as well, as we began to see the benefits of the scaling up of our cloud business and the adoption from our customers in the past 2 years.

Turning to costs. Total non-GAAP expenses, which exclude share-based compensation costs, were $309 million in the fourth quarter, or $50 million higher year-over-year. $51 million of the year-over-year increase was attributed to Bitcoin impairment charges in the quarter as a result of the price volatility we saw in Q4. This was driven largely by the [close] of FTX and its impact to the broader digital asset market. The price of Bitcoin fell to a low of approximately $15,460 during the quarter, which drove the additional impairment to our Bitcoin holdings under the current accounting rules.

Non-GAAP cost of revenues were $26 million in the fourth quarter, an increase of $2.5 million or 11% year-over-year. As a percentage of total revenues, non-GAAP cost of revenues increased 2% year-over-year related in part to the growth of our cloud business, similar to what we've seen in recent quarters. Non-GAAP sales and marketing expense decreased $3 million or 8% year-over-year to $37 million or as a percentage of total revenues lower by 2% year-over-year. This was due in part to a combination of higher net capitalized commissions this quarter plus some favorable FX impacts compared to the same quarter in the prior year.

Non-GAAP R&D expenses were $28 million in Q4, a slight increase of $300,000 compared to the prior year. In this area, we continue to prioritize spend, as Phong mentioned, and increased our talent and resources on average for the year, but we did so intentionally and in a way that kept expenses flat by leveraging a more cost-efficient global delivery source. Our non-GAAP G&A costs were $21 million, pretty much flat, a decrease of about $400,000 or 2% year-over-year.

As Phong mentioned earlier, our focus on lowering costs has been ongoing and frequent with a strict discipline in managing efficient personnel and non-personnel costs. It's not something that we just started thinking about in the second half of last year. In fact, we were fortunate to have had this focus even prior to this past year when we did see higher wages and expenses, revenue headwinds due to weaker foreign currencies, and we also saw the negative impacts from the war in Ukraine.

Aside from our Bitcoin impairment related expenses, we kept our costs flat year-over-year. Looking forward, we plan to remain cost conscious, while continuing to invest in higher -- in growth areas like cloud, optimizing our talent and resources across our growing global footprint, focusing on lower cost markets.

On Slide 16, total non-GAAP operating loss in the fourth quarter was $177 million, while the digital asset impairment charge for the quarter was $198 million. As I have said in past quarters, since the adoption of our Bitcoin strategy in Q3 of 2020, the digital asset impairment charges we have incurred each quarter have always been greater than our non-GAAP operating losses, showing the significant impact it has had on our reported income.

On Slide 17, as of December 31, 2022, the carrying value of our Bitcoin holdings was approximately $1.8 billion compared to approximately $2 billion based on the price of $16,556 as of the last day of the year. So far this year, Bitcoin prices have rallied significantly along with the market value of our Bitcoins increasing to approximately $3.1 billion at the close of markets yesterday, and trending even higher since then.

To touch on the regulatory perspective, we continue to be optimistic with the progress that the Financial Accounting Standards Board has made in its steps, update how companies measure certain digital assets, including Bitcoin on balance sheets. Since announcing this as an agenda item last year, the FASB has moved expeditiously and voted and agreed on how crypto assets should be presented in the financial statements and what disclosures should be required under expected fair value accounting standards.

We recognize that what has been completed thus far are just the initial steps in the standard setting process, but we are encouraged that the progress up until now has been aligned with standard fair value practices. We continue to remain committed and supportive of FASB's decisions and to focus on improved investor transparency for digital assets.

On Slide 18, as of December 31, 2022, we held a total 132,500 Bitcoins, of which 14,890 Bitcoins were held directly by MicroStrategy, the parent, with the remaining 117,610 Bitcoins held at the MacroStrategy subsidiary. Of the Bitcoins held at the sub, approximately 34,600 Bitcoins are pledged as collateral to the Silvergate loan, and just over 82,900 Bitcoins or 63% of our total Bitcoin holdings equivalent to approximately $2 billion at the current approximate market value of $23,800 remain unpledged and unencumbered.

Regarding the Silvergate model, we remain fully in compliance with the loan value requirements as we -- and as we have detailed in the past, we continue to have sufficient unencumbered collateral to address any foreseeable volatility in Bitcoin prices in the near term.

It is worth highlighting again, too, that, if the Bitcoin prices increase and the loan-to-value ratio is less than 25%, we are able to release any excess [clutter] from being pledged to the [room]. Our current LTV on this loan is now very close, if not at [bell].

As Phong mentioned earlier, for the first time in the fourth quarter, we sold approximately 704 Bitcoins that carried a higher tax cost basis compared to the market price of the Bitcoin at the time of the sale. The transactions generated capital losses of approximately $34 million, which we expect to carry back against previous capital gains. And to the extent such carrybacks are available, we expect to generate a tax benefit.

Even with the aforementioned sale, we increased our net holdings by 2,500 Bitcoins during the quarter, and we continually explore opportunities to use our Bitcoin to generate shareholder value, and we may consider pursuing additional transactions that may take advantage of the volatility in Bitcoin prices or other market dislocations that are consistent with their long-term Bitcoin strategy. We will thoughtfully consider any other opportunities in the future, and if we choose to pursue anything, we will carefully assess any potential risks, and do so in a prudent manner, as we have done in the past.

Turning to Slide 19. Our debt capital structure remains unchanged with a total of $2.4 billion of its outstanding debt and convertible instruments, which curate blended interest rate of approximately 2.1%. The convertible senior notes carry an extremely low cost of funds, with the earliest debt maturity not until March 2025. These convertible notes are very attractive in terms of cost, and with over 2 years remaining until the earlier of the maturities, not outstanding long term capital remains very valuable.

In Q4, we activated a $500 million at-the-market, or ATM equity offering and issued an aggregate 218,575,000 shares of Class A common stock at an average gross price per share of approximately $213.16. We raised approximately $46.6 million in gross proceeds, which leaves us with approximately $453 million of outstanding ATM capacity available under our program.

We will continue to evaluate and sell equity under this existing program when we believe there is an embedded valuation premium in our stock compared to the market value of our Bitcoin holdings and our estimated value of our software business. Use of those proceeds will be for general corporate purposes, including for the purchase of Bitcoin or for other general corporate liquidity needs.

As we execute under the program, we will do so with a disciplined focus on growing shareholder value, optimizing our capital structure and maintaining adequate liquidity to run and grow our business. The overall liquidity from both our operating and financing activities remains more than sufficient to manage our ongoing working capital needs, grow our business as well as manage our debt expense.

Our outlook for 2023 remains conscious, but optimistic. We are planning for the recent trends in macro and market volatility to likely persist in the near term. However, we are encouraged that, even in this environment of constant change, businesses need actionable data and analytics to succeed, and open architecture to be agile, and cloud capabilities to be cost efficient and effective. MicroStrategy delivers all of this.

In 2023, we will target modest constant currency total revenue growth. We will continue to grow cloud subscription billings as a percentage of total revenue, and we will continue to strengthen the quality of our recurring revenue, as we continue to transform our platform to the cloud. We will remain disciplined and scrutinize costs while investing in growth areas, and we will continue to execute on our dual strategy of growing our business intelligence and acquiring and holding Bitcoin.

Thank you for your time today and for your continued support of MicroStrategy. I'll now turn the call over to Michael for his remarks.

Thank you, Andrew. I'm Michael Saylor, the Executive Chairman of MicroStrategy. First, I'd like to provide our performance review. When we think about the corporate strategy and its effectiveness, we go back to the summer of 2020 when we made our major strategic decision. And it was on August 11 of 2020 that we announced to the world that we had acquired $250 million worth of Bitcoin along with a tender offer. At that -- on the day before, our stock was about $121 -- $122 a share. Today, the stock closed to $292 a share.

So of course, we measure our success based upon the creation of shareholder value. And if we look at the performance of the company stock since August 10, 2020, to close a business 4:00 p.m. Eastern Time, February 1st, you can see the MicroStrategy stock is up 117%.

We pick a number of different benchmarks. I think the most important benchmark is Bitcoin's performance, and you can see from this chart that Bitcoin, notwithstanding the fact that it is known by all to be volatile. Everyone that talks about Bitcoin talks about it being volatile. Nobody that talks about Bitcoin actually points out that, despite its volatility, it is the #1 performing asset over the past 2.5 years. So we can see Bitcoin is up 98% versus August 10, 2020, and that's just a really critical day.

So MicroStrategy stock is levered against the Bitcoin. And so, through our execution, we've been able to outperform Bitcoin as an index. So we're pretty pleased with that. We contrast the performance of Bitcoin to other major asset classes and indexes. And you can see that, while Bitcoin's up 98%, a diversified portfolio of high-quality companies, such as the S&P 500, is up 23% in that same time period.

The NASDAQ is up 8% over the course of the 2.5 years. Gold is a loser. Gold has lost 5% since the summer -- since August 10, 2020. And bonds have been even worse performers. So if you had invested your treasury in long-dated bonds like the BOND index, you would be down 16% in your capital. And, although people love to talk about gold and silver as money, you can see that silver is even a weaker monetary asset than gold. It's down 19% over that time period.

So benchmarking a digital commodity, or in this case a digital scarcity like Bitcoin, versus all of these other asset classes, you can see that Bitcoin has been the strongest performer, not by even a small amount, by a factor of 5 to 10x over other options.

We also benchmark ourselves against big tech stocks. And so, if we look at big tech, you can see that Google, Apple and Microsoft, which are 3 effective digital monopolies and 3 of the strongest companies in the world, without dispute, they're up respectively, 36%, 29% and 21%. They've underperformed Bitcoin by a factor of [3.24%] or [3.25%]. And MicroStrategy, of course, has outperformed them all substantially.

Now, Netflix, Amazon and Meta Group, all down minus 25%, minus 33%, minus 42%. So this is a sobering observation because most of those names are actually monopolies and they have overwhelming crushing domination. But what this illustrates is that ,in the summer of 2020, investors were faced with a very, very difficult challenge, because it's just not easy to figure out what to invest in when interest rates went to 0 and when we'd already had a substantial bounce in risk assets. And you can see of all these choices, Bitcoin clearly would have outperformed them all.

We also benchmark ourselves against enterprise software stocks. So Oracle is very well known, and it's huge. It's up 64%. It's actually done quite well. It's done better than all the big tech stocks. It's a very conservatively managed industrial software company, but still, dramatically underperformed Bitcoin and MicroStrategy as an asset. And of course, IBM up 11%. Salesforce down 13%, SAP down 24%.

People often ask us, so why did we do this and are we pleased with the result. And of course, there are lots of headlines about accounting charges and quarterly losses or GAAP losses. But as you can see, if you're a shareholder and your choice was to choose from any of the bars on the screen, MicroStrategy is still the #1 choice, and Bitcoin is the #2 choice in what you want to invest in as a commodity. Bitcoin is the winner as a commodity and asset class. And if you want to invest in a security, MicroStrategy has worked very hard to provide shareholder value to our investors.

We have lots of decisions to make as quarters go by, and we always try to evaluate what is the best path forward for our shareholders, what is most accretive for the equity holders of MSTR. And I think that the scorecard illustrates that, to date, so far, we have been effective in that, and we'll continue to focus.

This chart really illustrates why we are so committed to our Bitcoin strategy. And, as you can imagine, it also illustrates the benefits to the corporate brand, the MicroStrategy, all of our employees, all of our partners, all of our customers and all of our shareholders of this strategy.

I would like to say a few words about a couple of other areas. Let's start with the macroeconomic situation. 2022 was a brutally difficult year on a macroeconomic basis as short-term interest rates went from effectively nothing to 4.5%, and that resulted in a drawdown in all financial assets. That was quite painful.

I expect, as we go forward, there'll be some normalization in 2023 and 2024. And I think the general macroeconomic environment is rotating to a more beneficial place for us, and generally for the Bitcoin community.

We have always focused on Bitcoin rather than crypto. And so, if you look at the microeconomic situation in the past 12 months, most of the crypto enterprises and the crypto assets and the crypto use cases have melted down in that time period. Of course, we know the stories of the bankruptcies of Block5 and Celsius and FTX and Genesis and Voyager and Alameda. And we also know about the meltdowns of all the crypto tokens, the Luna token, the Terra token, the FTT token, et cetera.

In our opinion, these were all very weak use cases, and they are very fragile structures, and it was a matter of time before they do melt down. The meltdown of that has created short-term negative headwinds for Bitcoin because Bitcoin is cross-collateralized with all these other cryptos. But long term, the rationalization of the crypto market will be beneficial for Bitcoin. It has educated an entire generation of investors on the benefits of Bitcoin as a decentralized digital commodity and the benefits of not having counterparty risk.

It's made, I think, pretty clear what -- the difference between an asset with an issuer -- first, as an asset without an issuer, and it's also illustrated the benefits of being able to solve custody and the risks of being dependent upon another custodian.

The reason that MicroStrategy was able to get through this entire crypto winner is because we weren't exposed directly to any cryptos, nor did we do business with any of the crypto exchanges. And we didn't do it for very clear reasons because we don't believe in the value proposition of unregistered securities. And we felt that at some point, eventually, the combination of risky behavior in the crypto industry and the ethical and the legal overhang of the unregistered securities would eventually create a liability.

I think, as we go forward, you're going to see a much stronger institutions that will be entering the space, and they're going to be entering because the industry has rationalized. So the future is fewer assets, fewer -- better institutions, less of the crypto risk taking. And if there is any other result of the crypto winner, it's -- we can see that everywhere in the world, regulators and the general public are enthusiastic about the promise of digital assets. They're hungry for a clear digital asset framework. I think that they'll be more focused on creating a constructive framework. And I think people understand better why you can't create a digital asset framework based upon unregistered securities without proper disclosure.

We've said before, the only real safe haven for an institutional investor is Bitcoin. Bitcoin is the only universally acknowledged digital commodity. And so, if you are an investor, Bitcoin is your safe haven in this regard. The others are all question marks. They're all generally unregistered securities and they operate in a regulatory gray zone.

I expect that we will make progress with regard to regulatory developments. It will be constructive for the industry. It's not going as fast as we would like. The consistent denial of Bitcoin spot ETFs has been a disappointment. The lack of a clear digital assets framework from -- coming from regulators or legislators is a disappointment.

But having said that, it's pretty clear that, that will arrive in time. And we do see signs of optimism here, auspicious developments. All the FASB initiatives to introduce fair value accounting for Bitcoin is a very auspicious development. The bipartisan support for Bitcoin and for digital assets in general in Congress, is an auspicious development. The acknowledgment by all major public figures that Bitcoin is a digital commodity worthy of attention, is an auspicious development. And the fact that Bitcoin has managed to survive the meltdown of most of the crypto banks and crypto lenders and most of the crypto exchanges and most of the other crypto assets, is a very auspicious development.

So I think, 2022 proved the resilience of Bitcoin and it also proved the resilience of MicroStrategy's business model. And now we look excitedly forward to 2023 and 2024, where we think most of the poor behaviors or the irresponsible behaviors have been squeezed out of the system and most of the inappropriate leverage has been squeezed out of the system.

And I don't think that people in the crypto market will -- I don't think they'll engage with the same behaviors that they got away with, in the previous few years, because I think the public has been educated. And I think, generally, we have a much more sophisticated set of investors and actors in the space, all of which I think is good for Bitcoin.

The last point I'll make on Lightning. Lightning is really spreading rapidly, and it's being adopted by many, many, many businesses. We see dozens and dozens of Lightning startups being launched. Lots of Lightning wallets. We see some exciting applications of Lightning. And I think that's only going to continue. Lightning liquidity continues to increase. We, as a company, have been very pleased with the early results of our Lightning R&D effort and MicroStrategy Lightning product development. It's quite impressive what you can do with Lightning.

I think traditionally, the primary criticism of Bitcoin was, the slow transaction rate on the base chain made it difficult for people to see how billions of individuals would onboard to the network and how billions of transactions could take place. But now I think, as Lightening as spread, it's becoming fairly straightforward and quite easy to see how that's going to happen.

We're going to see first dozens and then hundreds and then thousands of Layer 3 applications that move Bitcoin within a custodial network like Cash App or like a Coinbase or a Binance. And then we're going to see all of those applications start to knit together with the Layer 2 protocol, which we call Lightning. And as they adopt Lightning as their Layer 2 protocol, we'll see, there'll be massive transaction throughput on the Layer 3, and then we will see people depositing and withdrawing Satoshis on Layer 2. And then, we'll see the Layer 1 will evolve to become the settlement network of the entire global digital monetary system.

And that's why we decided to host a Lightning for Corporations track at MicroStrategy World coming up in May. This will be a first. To my knowledge, no one's actually hosted a Lightning for Corporation's conference. But we think that 2023 is the right time. It's become increasingly clear that you can build light -- you can build Bitcoin and Satoshis and micro transactions into your products and into your services using the Lightning protocol. And I think that there'll be a whole set of breakthrough applications and breakthrough products using Lightning.

So, 2023 is an exciting year, and I think we're moving into the most exciting phase of Bitcoin development ever. Bitcoin is emerging as the grown-up institutional asset in the digital ecosystem, and Lightning is emerging as the universal language for moving money over IP.

And so, with that, I'd like to go and pass the floor back to Shirish to open us up to questions and answers.

Great. Thank you, Michael. So we are going to jump right into the questions. And the first question is for Phong. Phong, could you update us on the progress of your cloud product and capabilities? And how customer migrations are fairing today? And what are your expectations for cloud business growth given the tougher macro?

Cloud growth is going very well. In 2022, we grew on a revenue basis, 46% constant currency and on a billings basis, about 39%, which both represent a bit of an acceleration in 2022. I think we'll be able to see that same pace of growth, or something a little faster would be our goal in 2023. I don't think the macroeconomic headwinds will slow our cloud growth. If anything, we might see a slowness of cloud growth because we're getting into bigger and bigger customers now. We've moved -- at this point about 20% of our recurring revenue is in the cloud. So we moved a good amount of sort of the medium-sized customers.

But that's where MCG, MicroStrategy Cloud for Government or FedRAMP offering is going to help us. There is quite a bit of federal customers, large banks that require some sort of a FedRAMP certification. Those will take longer to migrate, but I think that's really the sort of next fashion that we'll go after. But I'm pretty excited about where cloud growth is going, and obviously, is getting to be more and more the standard sort of way we sell our software.

Next question is for Andrew. Can you please provide more detail about your sale of Bitcoin in December? And do you intend to make any further sales?

As I mentioned in prepared remarks, we sold 704 Bitcoin in December, which generated a capital loss, which we expect to carry back against the capital gain from 2019, which was through an old domain sale. Apart from that sale, we have not sold any other Bitcoin. In fact, I think the main takeaway should be that we have continued to increase our total Bitcoin holdings each quarter since inception, including Q4.

And I mentioned this before as well, but, we don't really stop exploring opportunities and thinking of ways to increase shareholder value related to our decline. And in the future, we may consider doing other things that may take advantage of market volatility or be opportunistic in the market. I guess either way, anything we do, we'll do it consistently within the construct of our long term Bitcoin strategy, which is to buy, hold and grow.

Next question is for Michael. In light of the recent crypto market events, what do you think are the key catalysts for more adoption of bitcoin by corporations?

I think fair value accounting is going to be a big plus for corporate adoption, since clearly, the GAAP volatility created by indefinite intangible accounting is a negative for CFOs. I think the rollout of Lightning for corporations is going to be another big catalyst because the ability to build Bitcoin and play to earn or a Bitcoin Rewards or Bitcoin into marketing programs and to do microtransactions, is going to be viewed as a really exciting benefit. It could be a great solution for Chief Marketing Officers or CHROs or CEOs or Heads of Sales.

I think that over time, one big driver is, payment networks are inefficient and slow and expensive. So as companies figure out how to monetize their applications and move small micro transactions around friction-free at 0 cost, I think that there's going to be an interesting use case for Heads of Sales and CEOs.

So in short, maybe the last thing is, any regulatory clarity that comes from Washington, D.C. with regard to the digital asset ecosystem, will be a big driver. And so, I think we're all eagerly awaiting some sort of digital assets framework. Bitcoin is right now, as I said, the only universal acknowledged digital commodity. And so, in a way, it's the one thing you can deal with in the absence of an asset framework. But I also think Bitcoin will probably be the biggest winner if there is a digital assets framework because it will just accelerate institutional adoption, both on the investor side and the corporate side. So I would look to those 3 drivers.

Next question is for Phong. With respect to the competition and demand -- So there are 2 parts. Have you seen any changes in the competitive environment as customers look to bring down the cash burn? And what is the impact of macro on demand with respect to sales cycles and cloud migration?

Yes. On the first item, I think the biggest trend we're seeing is customers try to bring down their software costs as consolidation of vendors. And in the BI world, there's really 2 credible choices for consolidation right now. It's MicroStrategy if you want a full enterprise solution, and it's Power BI if you want a point solution that integrates well with the rest of the Microsoft ecosystem.

I think what we've seen in the last 6 to 12 months is that, as more companies are trying to use Microsoft, whether it be Azure, Power BI or otherwise, you're realizing the limitations, right? There's not a common semantic model. There aren't reusable objects. It's not scalable. It's not as secure. And I think customers are also realizing that free Power BI with your Office 365 enterprise license just means you're going to pay more [natural] cost. And it's a well-worn model where you give certain things away for free to drive more usage costs. And so, we see a lot of customers consolidating on MicroStrategy. And so, even though there may be a reduction in overall spend, we get more of the pie, and I'm excited about that.

As far as the macro environment, Q4 was more difficult, especially internationally, as customers are trying to spend a little bit less. With that said, we still had a reasonable outcome in terms of our Q4 financials driven by our move to cloud. And I do think 2023 is looking a little bit brighter in terms of companies needing to spend to improve their data and analytics environment. So I'm optimistic about the growth potential in 2023.

Next question is for Andrew. Can you please provide your thought process on how do you plan to address the 2025 loan maturities coming up?

So there has been some volatility on prices recently. And just looking back to Q4, we've seen that pretty clearly. But we've also seen that same volatility pretty dramatically rebound prices here in January in a very short period of time. I think with that kind of backdrop and changes in the market, we are comfortable with our outstanding debt levels, and we're confident then that when it does come due, we'll be able to either refinance it, equitize it or pay it off. And we have a lot of different options available to us to manage those maturities, and the fact is we still have a lot of time left to do so in the next 2-plus years.

We'll take this one last question for Phong. What is your margin outlook for 2023? And how are you thinking about balancing revenue growth versus margin preservation?

I'd like to have both, right? Like, we're going to focus on driving revenue growth and profitability or margin growth in 2023. I think a big driver of that is our acceleration of conversions to cloud, which allows us to see an uplift in cloud revenue and overall revenue from hosting term licenses and support fees.

On the cost side, Andrew mentioned it, but we've kept our costs relatively flat -- our operating costs relatively flat from 2021 to 2022. The goal would be to do something similar, or even reduce our costs a little bit if you exclude the impact of Bitcoin holdings. I'm talking about non-GAAP cost here. So if we can grow revenues and keep flat or reduce our cost in 2023, then we should be able to grow margins. And I think if the macroeconomic environment improves faster, we can do that even faster in 2023.

Great. Thanks, Phong. So I think that brings us to the end of the time for today's webinar. Thank you, everyone, for the questions. This concludes the Q&A portion of the webinar. And I will now hand over the call to Phong for closing remarks.

Thanks, Shirish. I want to thank everyone for being with us today, and we appreciate all of your support. We're enthusiastic as ever on both of our strategies, our enterprise software strategy and our Bitcoin strategy. I wish you all a good quarter, and a happy spring and looking forward to seeing you again in 12 weeks. Thanks.