Strategy Inc (MSTR) 2024 Q1 法說會逐字稿

Hello, everyone, and good afternoon. I'm Shirish Jajodia, Vice President of Investor Relations and Treasury at MicroStrategy. I'll be your moderator for MicroStrategy's 2024 first 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-K 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 using 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, Phong Le will cover the business results and the key pillars of our strategy. Second, Andrew Kang will cover the financial results for the first quarter of 2020. For then, Michael Saylor will provide a strategic review and discuss our recent bitcoin market updates. And lastly, we will open up to Q&A.

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

Thanks, Shirish.

Hello, everyone.I'd like to welcome all of you to today's webinar. We're excited to be reporting live from MicroStrategy World 2024 in Las Vegas, Nevada with a packed agenda lined up for the next three days. And we're excited to see our customers, partners, analysts, shareholders and employees all in person to share a passion for BIAI. Bitcoins and Innovation Business Intelligence track tomorrow will feature my keynote presentation titled lead the data life blood flow, and we'll explore how to create more innovative, competitive, high-performing organizations by using AINBI. to make smart data more accessible to the frontline employees.

Our Chief Product Officer, Saurabh Abhyankar, will share the latest MicroStrategy technologies for delivering convenient, flexible and reliable data within operational workflows, not just in dashboards to everyone who needs it. The keynote presentation will feature guest speakers from Microsoft, Amazon Web Services, Bayer Pharmaceuticals, the US Department of State & Glory throughout MicroStrategy World. More than top30 brands, including MassMutual, Pfizer, Fannie Mae, Victoria's Secret and NBC Universal will present how they use the MicroStrategy platform JNI and the cloud to become truly data-driven businesses.

Bitcoin for Corporations track on Wednesday and Thursday will feature notable institutions and industry luminaries, highlighting the advantages of integrating Bitcoin as a part of their corporate treasury and product offerings. It will be a unique gathering of corporations that are already adopting or looking to adopt bitcoin strategies. And we are very excited to host this event. Also, for the first time, we will livestream our world Keynote as well as all the Bitcoin for Corporations session. For those of you attending the conference here in Las Vegas, we look forward to seeing you in person.

Turning to the business highlights for Q1 2024. Microstrategy remains the largest corporate holder bitcoin in the world, now holding 214,400 bitcoin with a total bitcoin market value of $14 billion as of yesterday. Since December 31, 2023, we acquired an additional 25,250 Bitcoin for a total purchase cost of $1.6 billion, an average price of $65,232.

This past quarter, the price of bitcoin appreciated significantly spurred notably by the approval of the spot bitcoin exchange traded products or ETPs, which has drawn considerable institutional attention. We believe the introduction of SPOT bitcoin ETPs further evidences the maturation of Bitcoin as an institutional grade asset class with broader regulatory recognition and institutional adoption. We remain highly committed to our Bitcoin strategy with a long-term focus. Andrew will provide further details on our Bitcoin purchase activity for this quarter.

Microstrategy is also positioned as the world's largest independent publicly traded business intelligence company. Our objective to grow in a I Our objective is to grow in AI. and cloud powered by iSOFT. We have over 1,800 employees focused on our software business devoted to achieving our vision of intelligence. In the first quarter of 2024, we continued to shift towards We continued our shift towards our cloud offering, resulting in subscription services revenues of $23 million, an increase of 22% year over year. Strong growth in our subscription services revenue was driven by both existing customers, migrations to the cloud and new customer wins.

Our customer renewal rate continues to remain high, and our subscription billings remain strong. Overall, we continue to see further global adoption of our cloud platform as a result of transitioning our business strategy and product offerings from an on-prem perpetual license software company to a cloud native organization.

Our key strategic goals in 2024 are to grow cloud, innovate with AI and increase profitability, customers can benefit from a range of innovative first to market, a high-powered functionality powered by the Azure Openet ILL. capabilities include auto sequel, which allows users to generate sequel using natural language on a dashboard which allows natural language generation and new visualizations auto answers, which allows customers to ask questions of their data sets and dashboards, auto expert, which allows users to ask questions of our MicroStrategy knowledge base and log support tickets on our website and our custom auto part, which enables the end users to access BA insights from within a customer bought standalone or embedded in any application.

We also just launched Auto Express, which offers a simple way to trial our AI capabilities in minutes in April, MicroStrategy first became available on Google Cloud Marketplace in addition to prior deployments on Azure and AWS, allowing enterprises to easily find and deploy this cloud-native platform. Additionally, we expect to provide the ability to deploy MicroStrategy in a private cloud later this year. This will distinguish us from other BI platforms with the flexibility and automation that enterprise customers desire. We believe such investment and capability will encourage current on-premise customers to embrace the benefits of MicroStrategy. It's cloud, such as containerized architecture, proactive cloud management from experts, seamless backups and single click updates. Transitioning our customer base to the technology of the future remains a key focus and our resource deployment underscores our commitment to the cloud-first approach as customers and prospects move to the cloud to empower their AI driven digital transformations. We expect to see a continued decrease in product license revenues, which will in part be offset by increases in subscription services revenue this will be most pronounced in the balance of 2024. This may result in a decrease in total recognized revenue in the short term. But in the long run, we expect it to be more than offset by increases in subscription services revenue. Additional benefits include more engaged customers using our very latest software, higher retention rates and ultimately more recurring reps as we discussed last quarter, MicroStrategy considers itself to be the world's first bitcoin development company. We are a publicly-traded operating company committed to the continued development of the bitcoin network direct our activities in the financial markets, advocacy and technology innovation.

As an operating business, we are able to use cash flows as well as proceeds from equity and debt financing has to accumulate Bitcoin, which serves as our primary treasury reserve asset. We also bring our enterprise analytics software development capabilities to develop bitcoin applications. We believe that the combination of our operating structure between strategy and focus on technology innovation provides a unique opportunity for value creation being an operating company.

Our software technology business remains our core revenue and cash flow generator. In addition, it also enables us to acquire bitcoin through the use of excess cash or proceeds from equity capital raises or corporate debt capital raise. These capital market levers allow us to deploy intelligent leverage to increase our Bitcoin holdings in a manner which we believe has created shareholder value. Since our adoption of our Bitcoin strategy, we've used three primary mechanisms to acquire more Bitcoin: Cash flows from software operations.

Since 2020, we've invested $825 million of total cash on our balance sheet. Equity issuances, we have issued $3.2 billion in equity in a manner that we believe to be accretive to existing shareholders. And debt financing, we've issued $3.6 billion in debt through the issuance of both senior secured notes and convertible notes. We've used the proceeds from these issuances principally to purchase Bitcoin.

The blended cost of our outstanding debt is fixed at 1.3% annually. In the first quarter of 2024, we generated approximately $7.2 billion of incremental value from the effect of increases in the price of bitcoin on our existing bitcoin holdings as well as our strategic use of equity and debt capital market activities. We began the year with 189,150 bitcoin holdings, with a market value of approximately $8 billion. As bitcoin in prices increased from $42,500 to $71,000 by the end of the first quarter, we experienced an increase of $5.4 billion in value based on our Bitcoin holdings at the start of the year.

In addition to the incremental value from the price appreciation of the bitcoin we held as of the beginning of the year, we purchased an additional $1.6 billion of bitcoin in the first quarter using proceeds from the issuance of additional equity and two convertible senior note offerings as well as excess cash from operations. As a result, we added an additional 25,128 bitcoin to our holdings an average price of roughly $65,200, which generate an incremental approximately $145 million of value from an increase in the price of bitcoin after those purchases were made through the end of the first quarter.

Overall, 2024 started off as a tremendously successful year, taking into account our Bitcoin purchases and appreciation of our Bitcoin holdings year to date. While the overall market benefited from the increase in Bitcoin prices as well, we believe our opportunistic use of leverage and excess cash to acquire Bitcoin as well as our capital market strategy journey. We've generated $1.8 billion of incremental shareholder value, demonstrating our track record of generating value for our shareholders.

This slide shows an illustrative example of how intelligent leverage can be used to boost returns when Bitcoin prices are increasing, the baseline returns of any long bitcoin strategy for spot bitcoin price appreciation, Bitcoin ETPs also benefit from this offset by the management fees that are charged for those products.

Leverage provides the opportunity to generate higher returns if the price increases. In this illustration, assuming bitcoin price reaches $250,000, keeping bitcoin count constant spot bitcoin without leverage would return approximately 290%. In this example, adding leverage to acquire more Bitcoin, we return to be between approximately 395% to 425%, depending on the amount of leverage, further boosting returns compared to simply holding spot Bitcoins.

If the market value of our Bitcoin increases, we believe this would create more opportunities to manage our leverage targets. We have the opportunity to take on more leverage in a prudent risk manage fashion. The value generated from our increasing bitcoin holdings would be expected to outperform even further if Bitcoin prices continue to rise, we believe our unique value proposition as the world's first bitcoin development company has enabled us to generate tremendous value for our shareholders.

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

Thank you, Phong. I'll start with first a recap of our software financial results. For the first quarter, total revenues were $115.2 million, which was down about 5% year over year, consistent with prior recent quarters. The slight decline remains in part due to our ongoing shift of revenue from on-prem to cloud Q1 on prem product license revenues, which make up about 11% of total revenue were about $12.9 million, which was down 26% year over year as I mentioned in prior calls, we continue to transition our business to the cloud, and we fully anticipate lower product license revenues to continue as we migrate existing customers of on-prem licenses and bring them on to the cloud. More importantly, as Phong mentioned earlier, we continue to grow subscription services revenues, which reflect stronger, more durable recurring software revenue in Q1. Subscription services revenues, which now make up about 20% of total revenues, $23 million, which reflects an increase of 22% year over year.

Non-GAAP subscription billings, which represent new cloud bookings in the quarter also grew by 30% in the first quarter to $17.7 million, which is our fourth straight year of quarterly double-digit growth in cloud bookings. Q4 last year was an important milestone for us and the progress toward cloud transition, where for the first time, our subscription services revenues higher than our product license revenue this successful trend continued in the first quarter of 2024, which reflects the ongoing progress towards converting our revenue to recurring subscription services.

The mix of revenue will continue to shift from on-premise product license to subscription services throughout 2024 as we focus on delivering meaningful AI based products to our customers, which is only available in the cloud, we are pleased with the progress we have made from the adoption from our customers to our cloud platform worldwide, and we still have more to do and we'll continue to focus on new products and innovation to drive more demand in that.

Yes, beginning with the first quarter of 2024, we modified our reported financials to break out our Q2 quarterly results into two categories. First, the software business category reflects income or loss from operations related distinctly to our enterprise BI software business. And the corporate and other category reflects the other non-software related components associated with our Digital Asset Holdings, which include impairment charges and other related third-party costs.

While we continue to operate under one reportable operating segment, which is engaged in design development and sales of our software platform or platform through licensing arrangements, cloud subscriptions and related services. We believe this breakout of our operating results into these two categories provides better transparency with respect to the performance of our software business, while isolating the impacts related to changes in Bitcoin prices. In Q1, the software business revenues were $115 million as mentioned a moment ago, while the cost of revenues were $30 million, up seven four 7.4% compared to Q1 of last year.

The increase in costs were in part due to higher cloud hosting a result of higher usage by new and existing cloud subscription services. Customers was also attributed to costs associated with standing up an enhanced customer success function with an added focus on transitioning customers to our cloud platform. In addition to servicing and managing our strong existing customer base. Software business, operating expenses were $96.1 million, up 1.7% compared to $94.5 million in Q1 of last year.

The increase was primarily due to higher G&A expenses this quarter, which was specifically related to an increase in employer paid payroll taxes and content in connection with employee stock option exercises in the first quarter. However, overall operating expenses were also offset by lower costs in sales, marketing and R&D, also consistent with recent quarters as we maintained strong discipline and expenses, and we continue to optimize overall headcount.

Non-cash stock-based compensation expense was mostly flat year-over-year at $17.8 million for the quarter. And overall non-GAAP adjusted operating income or profit from the software business category was $6.9 million. If you take into account the employer-paid payroll taxes related to stock option exercises in Q1, which were not material in prior periods, non-GAAP adjusted operating income from the core software business would have reflected $14.3 million for the first quarter, more appropriately reflecting the quarter's profitable profitability from our software business.

Lastly, the corporate and other operating expense category for the quarter is almost entirely attributable to Bitcoin impairment charges, which were $192 million compared to $20 million in Q1 of last year. The result of bitcoin price fluctuations throughout this past Okay. Turning to our Bitcoin strategy, more specifically, we had one of the most successful quarters of adding more bitcoin to our balance sheet as we acquired 25,128 Bitcoins in the first quarter, our second largest single quarter increase in bitcoin holdings since Q4 2020.

Additionally, after the end of the first quarter, we purchased an additional 122 Bitcoins using $8 million of excess cash. And as of as of April 26, 2024, company held a total of 214,400 Bitcoins acquired for an aggregate cost of $7.54 billion, we're at $35,180.

To break down the big point acquisition activity year to date by entity, Bitcoin acquired the proceeds from equity capital markets activities that occurred after the issuance of our senior secured notes are held at MicroStrategy, a wholly owned subsidiary of MicroStrategy. Year to date, we have added 2,652 Bitcoins to macro strategies holdings at an aggregate purchase price of $137 million using net proceeds from our at-the-market or ATM equity issuance programs in February. Currently, we hold 175,721 unencumbered Bitcoins representing 82% of our total holdings for $11.2 billion in current market value, which are held at macro strategies. These are all unrestricted and provide the option to potentially leverage this strategic asset in the future.

Bitcoins acquired through proceeds from debt activities that occurred after the issuance of our senior secured notes, namely the two recent convertible note issuances in Q1 or held at MicroStrategy, the parent and also serve as collateral securing our 2028 senior secured notes. Year to date, we have added 20,180 Bitcoins to MicroStrategy's Holdings had an aggregate purchase price of $1.4 billion using net proceeds from our two convertible note issuances in March.

Lastly, Bitcoins purchased through excess cash from the software business. It also held at MicroStrategy, the parent entity and also collateralize our 2028 senior secured notes. Year to date, we have added 2,418 Bitcoins to MicroStrategy's holdings at an aggregate purchase price of $136 million using proceeds from excess cash as of April 26. There are in total 38,679 Bitcoins held at MicroStrategy or $2.4 billion in current market value.

Commitment to our Bitcoin strategy remains unchanged and steadfast and we plan to strategically and opportunistically buy more Bitcoin as we have in every quarter since August of 2020, using excess cash from operations and proceeds from any capital markets activities MicroStrategy remains the largest corporate holder of bitcoin in the world, and we remain committed to our Bitcoin acquisition strategy with the utmost conviction, long-term focus and with a strong risk-managed approach as a Bitcoin development company and the unique ability to access the capital markets and the positive impact from using intelligent leverage are illustrated on this slide.

During the first quarter of 2024. Our total bitcoin holdings increased by 13.3% during the same period. Our total basic share count comprised of total basic Class A. shares outstanding and total basic Class B shares outstanding increased by only 4.6%. This is in part due to the deferred dilution impact of leveraging convertible debt and our opportunistic execution of these financings, which has resulted in tremendous value creation for our shareholders.

The difference between our Bitcoin accretion and the share dilution is representative of the yield we were able to generate for our shareholders as it bitcoin development company. Hypothetically, assuming all outstanding convertible notes are fully converted at their respective conversion prices, all outstanding options are fully exercised and all restricted stock units performance stock units fully vest, the fully-diluted share count would have increased by only 4.8% during the first quarter, plus the increase in our Bitcoin holdings has outpaced the increase in our total share counts in Q1.

Turning to slide 15, Bitcoin has significantly outperformed most other asset classes year to date. As of March 31, 2024, the aggregate cost of our Bitcoin purchases were $ 7.5 billion versus the carrying value of our Bitcoin holdings of $5.1 billion. This is compared to the market value of our holdings of $15.2 billion based on the bitcoin price as of the last day of the quarter.

Currently in the market, value of our Bitcoin holdings is significantly above our average cost basis, which is equal to an average purchase price of approximately $35,200. The new accounting rule that was approved by the FASB last December requires companies holding digital assets, including bitcoin to adopt fair value accounting treatment by Q1 of 2025. We fully plan to plan to adopt the change by when the rule takes effect and we are determining when the most appropriate time to do so.

Now turning to our capital markets activities. Since the inception of our Bitcoin strategy, we have issued $3.6 billion of corporate debt through senior secured notes and convertible notes with a very attractive blended interest rate of approximately 1.3% with staggered maturities over several years through March 2031. Leverage remains a key component of our active capital allocation strategy, which when opportunistically deployed, enables us to add more bitcoin holdings at an attractive cost. Our two recent convertible note financings were both upsized and well received by the market.

We issued $800 million of convertible notes due March 2030 at an annual interest rate of 0.625% and a conversion premium of 42.5%. The closing price of our Class A. common stock on the pricing day reflecting a conversion price of approximately $1,498 per share. The following week, given the strong rally in MSTR stock price, we were able to access the market again in a follow-on offering and issued an additional $603.75 million of convertible notes due March 2031 at an annual interest rate of 0.875%, a conversion premium of 40% to the volume weighted average price of our Class A. common stock on the pricing day any conversion price of approximately $2,327 per share.

Net proceeds from both convertible note issuances were used expeditiously to acquire additional Bitcoin. In addition to raising debt. We continue to demonstrate a solid track record of issuing permanent equity in a manner that we believe is accretive to shareholders. Since the third quarter of 2021, we have raised a total of $3.2 billion in proceeds through our ATM offerings with an average price of approximately $464 per share across total equity raise.

As we have done in the past, we will continue to actively monitor the capital markets. We carefully evaluate the most accretive use of the capital markets to drive incremental value for our shares. Debt financing helps us maintain healthy leverage relative to the market value of our Bitcoin holdings and raising equity helps us to deleverage our balance sheet and when needed. The primary use of proceeds from our debt and equity capital activities to date have been to acquire additional business, which we have done in a manner we believe to be extremely accretive. Our overall capital allocation strategy continues to be focused on increasing our total bitcoin holdings while managing our debt very closely and prudent.

Lastly, as of the end of the first quarter, we grew unrestricted cash and cash equivalents on our balance sheet to $81.3 million, and we continue to maintain more than sufficient overall liquidity to manage our ongoing operating needs.

The next slide illustrates our debt maturity profile. And as you can see, the nearest maturity is more than six quarters away and not until late 2025, while the 2025 convertible notes have been trading well in the market. As we have said previously, we continue to monitor the markets and evaluate liability management opportunity opportunities in order to manage our debt as well as opportunities to raise additional financing in the future.

The management team has demonstrated a strong track record of disciplined approach to navigate through volatile times in the bitcoin market, and we believe we have established significant credibility to execute on our strategic goal of generating value for our shareholders. As sponsored earlier, we believe that the combination of our operating structure, Bitcoin strategy and focus on technology innovation provides a unique value proposition for shareholder value creation when compared to other forms of exposure at 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.

Thank you, Andrew, and thank you for everybody for being with us here today. I'd just like to add a few comments on our strategy and Bitcoin in general following up on awards of Phong. Andrew, I'll start with our performance scorecard we we like to keep score every quarter and evaluate ourselves against all the relevant benchmarks.

So I think this slide is very instructive. What you can see here in a nutshell, is all of the enterprise software companies that we compete against in the Business Intelligence business and their performance. Since we embarked on our Bitcoin strategy in the summer of 2020 and you can see we're approximately 10x to 30x more and performance than any of those companies. You can see all the big tech stocks over the last three and three quarters of years and the strongest one is Google, and we've outperformed them anywhere by a factor of eight to two 80, and we're very pleased with that.

But of course, our primary strategy is a Bitcoin strategy. And so I think to understand why is MicroStrategy able to return 937% in a period when the S&P returned 52%. And then I think we just have to start with the idea of what's the right treasury strategy or how do you capitalize the company. And you can see if you capitalize the company on bonds. Bonds have a negative 21% return over this timeframe. Bonds have a negative real yield and not returning the cost of capital. The best surrogate for the cost to capital, I think is the S & P index, the 52%.

And so if you are able to capitalize your company on the S&P index, you could maybe keep up with the cost of capital where you can see here is that that gold and silver don't really work as the money supply expands the S&P index tracks it and gold silver and bonds underperform NASDAQ is is pretty close. Statistical Pei Wei is bitcoin better because MicroStrategy's performance is really based on Bitcoin performance to start and I think decline illustrates a couple of principles.

One is digital is better than analog. Bitcoin is digital property and it's digital. So so Bitcoin is outperforming because it's digital in a world of digital transformation. I think the second thing it illustrates is a commodity is better than a security and Bitcoin as an asset without an insurer, which makes it a global asset and security will never be a global asset because it because security has an issue or an issuer as a company and a company has an access and a country and has an operation. So their clients perform well because it's digital because it's a commodity.

And the third thing this illustrates is that scarcity is better than our commodity. So the fact is yes, Bitcoin is commodity, but its hard cap at $21 million and the gold is not hard capped, and silver is not hard caps or commodities generally make very very poor investments. The world has learned to invest in market baskets of securities like the S&P index, but but it would be the wrong lesson to say that therefore, securities rather than commodities securities have their own risk factors.

The right lesson to take away is that, Tom, is that something digital is better than something analog, something scarce is better than something abundant and something global is better than something. Local and decline represents all of those things in the last four years and has emerged and the Western world as that global digital scares commodity, i.e., digital property. Now at MicroStrategy, if it'd just simply adopted Bitcoin, purely perhaps it would have had the same performance as Bitcoin, but how do we actually outperformed decline I think the key here is volatility is a benefit to us.

And so we have harnessed volatility, and we've also harnessed our unique ability to issue securities such as convertible bonds and the fact that we embrace the securitization of Bitcoin and we embrace the volatility of the asset class has given us the ability to raise capital, right as you as you recall on, we've raised billions of dollars of equity capital and billions of dollars of debt capital. We wouldn't have been able to raise as much capital without volatility fund.

And you could see with our convertible bonds, we managed to raise $3 billion in convertible bonds at substantially less than 1%. Interest, really about 50 basis points at 5% interest. So MicroStrategy's performance is being driven by two things. First, we're raising $3 billion at 0.5%. And instead of paying a non-volatile interest rate, non-volatile could be 8% to 10%. So instead of paying a 10% interest, we're paying 5%. So clearly, that's a big performance boost us. And the second is if we were nonvolatile and we didn't have an asset rich strategy, we couldn't raise the $3 billion at all because of a lot of times senior debt would be capped at some EBITDA, multiple of some sort so it would be we would have access to a small amount of capital at a high cost of capital.

So MicroStrategy's got a very low cost of capital and access to a lot of capital because of our particular strategy. But we're capitalizing on what clearly is the best capital asset decline in the world over this period. And the combination of those two things is what catapulted us to that 937% performance.

And we'll go the next slide now. And I would say this quarter, the first quarter of 2024. It's the end of the crypto childhood or the crypto cowboy era where you had it had 15 years of lots of confusion, chaos and jockeying of thousands and thousands of crypto assets?

Well, Bitcoin is the winner and it is the one iMergent institutional asset that has come out of that 15 years decline. Spot ETFs were approved in January of this quarter, and that was a very big milestone. And as we as we go into this next quarter, it's pretty clear that Bitcoin is the only crypto asset that's going to be approved for for sale on the form of a spot ETF in the United States. And so Bitcoin is very unique. It is the one crypto asset that has been embraced as an institutional asset. It's the one. It's the one crypto asset that a publicly traded company can hold on its balance sheet can capitalize upon.

It's the one crypto asset, the Wall Street firms are going to be able to sell on a spot ETF basis, the entire the entire modern institutional asset economy, the options market, the securities market, the money manager system, the the institutional mutual funds, the institutional ETFs, they're all going to be centered around that client as the digital property going forward. And so while or at the end of the beginning. You know, we're now, I would say at the beginning of the middle or at the beginning of the stage of rapid institutional adoption of digital property and form a big point. This chart shows then at the end of the first stage and Bitcoin is a bit more than a trillion dollar asset.

And from this stage forward, it won't really compete against other crypto assets and will compete against gold, Art equities, real estate bonds and on other other types of store of value money and in wealth creation, wealth preservation and the capital markets. And as you can see, if you look at this chart, probably some number between 10% and 50% of all this wealth is really just pure capital. The use cases, store of value on many people buy equities, real estate bonds and arts and other monetary instruments as a store of value just like they buy gold as a store of value. Bitcoin is digital.

Property is a store of value, but it's the emerging high performance, high volatility, high functionality, high utility store of value, and it's global. So we actually think that it's going to continue to grow from here and it and this is kind of the second quarter have about a 40 quarter Bitcoin Gold Rush where we are going to see big clients embraced by more and more banks more and more money managers more and more nations. You'll see more bitcoin ETFs in Hong Kong and Australia. You'll see more derivative products and other types of related products built on top of that or you'll see it built into more things. And so then the next decade we think is auspicious.

We'll go to the next slide and the having just took place a week ago and a couple of weeks ago and on April 19th, I guess specifically. And when you consider the impact of the having it's pretty profound. First of all, it reminds us that Bitcoin is scarcity and not a digital commodity online because bitcoin supply is asymptotically approaching 21 million. As of now, Bitcoin has the highest stock flow ratio in the world. So it is the hardest investment asset in the world and the most scarce or or certain are in the first quarter, about 26 hundred bitcoin a day were acquired by the spot ETFs that were launched.

And during that timeframe, we had about 900 Bitcoins per day sold by miners. But then following that, having on the 19th of April, we moved to 450 bitcoin a day from available from natural sellers. The miners on this is pretty critical. And you can see there is there is an imbalance between organic demand and organic supply. I don't think that having us priced and I don't think that the market fully appreciates just how profound this is.

But this the chart on the right gives you a way to think of it, which is if a large investor, a sovereign wealth fund or a mega institutional investor decided that they wanted to buy 450 bitcoin per day and they were going to buy it at the market price of decline every day for the next four years. Assuming the price of bitcoin stayed constant at $60,000, they would have to invest $39.4 billion of capital but have Bitcoins price moved up at $100,000, it's a $65 billion commitment at $150,000 is a $98 billion dollars commitment.

And if the average price of bitcoin in that timeframe is $250,000. That's the same as $164 billion of capital being put into this network. So the network was chopping along at 900 BTC. a day before the halving. But after that, having you just have a very reflexive protocol change, that then is is going to remove 450 Bitcoins per day for sale at any price for the next four years. And of course, not another having four years from now that will remove another 225 bitcoin a day from the supply. And there will be another having four years after that to move another 112 bitcoin per day.

Out of the supply. This is unique to Bitcoin. You won't see it any other commodity in the world. You're not going to see it in a analog commodity because it's impossible but you won't see it in any other digital commodity in the world because Bitcoin is the winner, but Bitcoin is going to be in all likelihood, the only digital commodity that is made institutional-grade via spot ETFs and the American Capital Markets. So this is a profound insight and we view this as being very bullish for the asset class we go the next slide, MicroStrategy's approach and is the same as it has been, but I think we're getting a little bit better at it. And I think we're starting to understand our unique advantages as time goes on.

We are a Bitcoin development company in the same way that you might have a real estate development company, AeroFONE, if you are able to create or create a company and then take it public and then issue securities and capital markets. In order to buy and develop commercial real estate, you would have an advantage over private companies doing the same thing because public companies always have an advantage and financing, you would have the option to raise financing, not just from banks, but also from on the public capital markets. So we are we are a public company and operating company, and that gives us a flexible in our control or active control over our capital structure.

And then the second thing we have is the ability to innovate with with software development, and we'll be showing some innovations at our conference this week, and we're very excited about. And we're also unique because we can generate cash from operations. And and as a follow on and Andrew pointed out, we've able to been able to invest $825 million in cash to date in order to acquire that client and we're able to leverage the capital markets. And I think we take a very balanced view toward capital markets when we think it's appropriate for us to issue equity or raise permanent equity capital via shelf registration.

And we do that and we've done that to raise $3.2 billion in equity capital and we think the markets are more supportive of us are issuing debt or especially convertible debt than we do that. And at AS, as Andrew pointed out, this strategy was very accretive in Q. one and and the effective difference between the accretion of Bitcoin and the dilution of our share count was more than 8%. So we were able to generate an 8% yield in a single quarter. Then we believe that's going to support a premium to our underlying net asset value going forward and is going to allow us to find more accretive capital markets opportunities in the future that we will avail ourselves of to the benefit of our shareholders.

And so in summary, Bitcoins crossed the chasm to institutional adoption of Bitcoin is unique and is being uniquely recognized as the one institutional crypto asset. And MicroStrategy is now developed a very balanced strategy of acquiring back home and cash flows with equity with debt and ARM, and we're providing our use for our set of public securities, both equity as well as options as well as debt instruments that institutional investors can use in order to tailor their portfolio as they invest, whether it's long or short or hedge and the macro economy and the crypto economy doing it on on exchanges and in a way that's compliant with all of their operating charters. And that, in a nutshell, I think explains the MicroStrategy value proposition and our opportunity going forward.

And with that, I'll go ahead pass the floor back to Shirish.

Thank you, Michael. Now we will begin our Q&A session.

And the first question is per phone. And can you elaborate on the Company's new positioning as the bitcoin development company? And are there any new developments you would like to highlight?

Thanks, Shirish. So we talked quite extensively during our prepared remarks about the bitcoin development company. I think perhaps the question is more specific about the development portion and whether we're doing any software development and the decline area for those who are attending Bitcoin for Corporations on Wednesday, we'll have about a half day talking about the technology ecosystem associated with Bitcoin.

It will also share some new developments in an area of bitcoin security and that we're working on. And I think people will be excited to see some of the things we're doing in that space. We continue to experiment and continue to advocate for Bitcoin development and so there's more work around that area that we'll share in a couple of days.

We Thanks, phone. Next question is for Mike. MicroStrategy's equity premium to Bitcoin holdings has expanded materially over the past few months and despite the recent bitcoin pullback, the premium remains healthy.

How do think about the premium and what do you attribute this to shrink further from if we had no leverage and we generated no accretion. Then we would start to look like a spot Bitcoin ETF, but the fact is we have leverage, then the leverage will justify a premium. If the leverage was if we just had $1 billion of leverage and we were paying 10% interest, it would be a small premium. We would be basically levering $1 billion, a 10% interest. That's yielding of where Bitcoin is appreciating at 40% or or more.

So there would be definitely a premium, but it would be the difference between the leverage and the yield a bit cleaner and depreciate it based on a small amount of money on $1 billion. But if we have more leverage and if the cost of the capital is lower than that justifies a higher premium. So when you get to $3 billion of converts and when that converts or 50 basis points that you've got more leverage and you've got a lower cost of capital. So I think that justifies a higher premium when you're able to issue a billions of dollars of equity at a price at a premium than that justifies and turn an even higher premium and also strengthen the capital structure, providing us with unpledged assets that we can use for future financing are used to leverage future corporate opportunities.

And then, of course, when we're able to do convertible issuances and then convert that coin and capture and not just the premium upfront, but but the benefits over the next six years of our Bitcoin appreciation that justifies another premium. So as you can imagine, if you could, if you thought you could generate an 8% accretion per year. There's no reason why you couldn't justify 100% or more premium in that asset value. If you could generate an 8% accretion more often than once a year, if you could do it, you know, from quarter to quarter or every other quarter or do anything consistently over time, then it's quite possible to come to to any number of different premium calculations.

And ultimately, the company's premium is a function of our ability to execute over a long period of time. And also, you know, the market's view as to whether or not they appreciate that. And of course, that's a that's a shifting sentiment and there's uncertainty into the future. So there will continue to be uncertainty about what the right premium ought to be, and I think that's what makes the market.

Thank you, Michael. Next question is regarding Michael's 10b5-1 plan. Has the Micrel has the plan to exercise MicroStrategy stock options completed already? And can you please provide further color on the executed plan and the thought process behind the stock sales?

Yes, Suresh, let me take that one. So I guess first off on Michael's option exercises and more than planned and actually fully disclosed, I believe it was in our RQ. three filing of last year. And as most know as officers and directors of the company, we have to put in place a 10 B five one plan, which discloses that upfront and the plan was related to 400,000 options, which Michael received back in 2014 and which were set to expire this April.

So the sales were problematic, Michael, so 5,000 shares on each trading day between Jan to and April 25 at market prices. And again, the sales were executed under the plan and it was completed on the 25th as disclosed. And it does not have any additional 10b5 one plan in place at the time. So it's worth noting also that obviously, Michael, so holds a significant ownership stake in the company. And I know there's been a lot of some questions and chatter around that on the sales. But it's really as simple as they were they were put in place disclosed and programmatic to do so before as options exercised are expired.

Thanks, Andrew. You're coming to the end of time. We'll take one last question here. This one is for Phong. Can you please elaborate on the progress of converting software clients to cloud from license? Anna, the EA related partnerships.

Yes.

So on the one and the same, a lot of our AI and cloud partnerships are with the large hyperscalers, especially Microsoft, AWS and Google Cloud. And we're being pretty aggressive working with our hyperscalers and our partners this year to get as many customers to cloud as possible. And we have some pretty ambitious plans. You'll note and Andrew noted that that does have a short-term impact of product license revenue because the product rights license revenue represents the incremental revenue on-prem customers. And we're trying to as we move customers to cloud, you'll see that offset over time. So moving fast using our partners, AI is only available in the cloud. So it's another impetus for customers to move to cloud, but it will have some short term disruption in product license revenue or total revenue. Many companies have gone through this transition and we are well equipped to do the same, and I'm excited about the prospects of what that means for us in the long term.

Thank you, Paul, and thank you, everyone, for your questions received a lot of great questions, and we tried to address in the prepared remarks and the Q&A afterwards.

So this concludes the Q&A portion of the webinar today. I will now turn the call over to Phong for the final closing remarks.

Thanks, everyone.

I really want to thank everyone for being with us today. We appreciate your support.

We're also excited to host MicroStrategy World in Las Vegas over the next three days and looking forward to seeing customers, prospects, partners, analysts and shareholders alike at this one of a one-of-a-kind event for those who aren't able to be here in person.

We're also live streaming.

Our keynotes from MicroStrategy World starts at 9.30 A.M. Pacific Time tomorrow and the entirety of the coin for corporations. So you'll be able to watch both of those on the line. If you're not able to be here in person, you're invited to join get details at our website, www.microstrategy.com. We're as enthusiastic as ever with both our enterprise software strategy as well as our Bitcoin strategy.

And we wish you a good quarter and look forward to seeing you all again in 12 weeks. Thank you all.