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MicroStrategy Announces Third Quarter 2022 Financial Results

MSTR

MicroStrategy® Incorporated (Nasdaq: MSTR) (“MicroStrategy”or the “Company”), the largest independent publicly-traded business intelligence company, today announced financial results for the three-month period ended September 30, 2022 (the third quarter of its 2022 fiscal year).

“For the third quarter, MicroStrategy achieved strong 51% growth year-over-year in subscription services revenues, record growth year-over-year in current subscription billings, and total revenue growth year-over-year on a constant currency basis. We are continuing to see the global adoption of our cloud platform by both domestic and international customers, and to benefit from the longstanding durability of our enterprise analytics business, with a third quarter renewal rate of 95%, despite the ongoing macroeconomic headwinds,” said Phong Le, President and Chief Executive Officer, MicroStrategy.

“Furthering the commitment to our bitcoin strategy, MicroStrategy acquired approximately 301 additional bitcoins this quarter and remains the world’s largest publicly traded corporate owner of bitcoin, with total holdings of 130,000 bitcoins. We incurred a minimal bitcoin impairment charge as bitcoin prices were stable during the third quarter, and were encouraged by FASB’s recent announcement of its support for fair value accounting for bitcoin. If finally adopted and implemented, we believe fair value accounting will improve upon the current, unfavorable intangible accounting treatment applicable to bitcoin holdings and will promote additional institutional adoption of bitcoin as an asset class,” said Andrew Kang, Chief Financial Officer, MicroStrategy.

Third Quarter 2022 Financial Highlights

  • Revenues: Total revenues for the third quarter of 2022 were $125.4 million, a 2.1% decrease, or a 3.9% increase on a non-GAAP constant currency basis, compared to the third quarter of 2021. Product licenses and subscription services revenues for the third quarter of 2022 were $38.7 million, a 5.5% increase, or an 11.1% increase on a non-GAAP constant currency basis, compared to the third quarter of 2021. Product support revenues for the third quarter of 2022 were $66.0 million, a 6.2% decrease, or a 0.8% decrease on a non-GAAP constant currency basis, compared to the third quarter of 2021. Other services revenues for the third quarter of 2022 were $20.7 million, a 1.3% decrease, or a 7.0% increase on a non-GAAP constant currency basis, compared to the third quarter of 2021.

  • Gross Profit: Gross profit for the third quarter of 2022 was $100.0 million, representing a 79.8% gross margin, compared to a gross profit of $105.7 million, representing a gross margin of 82.6%, for the third quarter of 2021.

  • Operating Expenses: Operating expenses for the third quarter of 2022 were $93.9 million, a 39.5% decrease compared to the third quarter of 2021. Operating expenses include impairment losses on MicroStrategy’s digital assets, which were $0.7 million during the third quarter of 2022, compared to $65.2 million in the third quarter of 2021.

  • Income (Loss) from Operations and Net Loss: Income from operations for the third quarter of 2022 was $6.1 million, compared to loss from operations of $49.7 million for the third quarter of 2021. Net loss for the third quarter of 2022 was $27.1 million, or $2.39 per share on a diluted basis, as compared to $36.1 million, or $3.61 per share on a diluted basis, for the third quarter of 2021. Digital asset impairment charges of $0.7 million and $65.2 million for the third quarter of 2022 and 2021, respectively, were reflected in these amounts.

  • Cash and Cash Equivalents: As of September 30, 2022, MicroStrategy had cash and cash equivalents of $60.4 million, as compared to $63.4 million as of December 31, 2021, a decrease of $3.0 million.

  • Digital Assets: As of September 30, 2022, the carrying value of MicroStrategy’s digital assets (comprised of approximately 130,000 bitcoins) was $1.993 billion, which reflects cumulative impairment losses of $1.990 billion since acquisition and an average carrying amount per bitcoin of approximately $15,331. As of September 30, 2022, the original cost basis and market value of MicroStrategy’s bitcoin were $3.983 billion and $2.532 billion, respectively, which reflects an average cost per bitcoin of approximately $30,639 and a market price per bitcoin of $19,480.51, respectively. Additional information on MicroStrategy’s digital asset holdings is included in the “Digital Assets – Additional Information” tables at the end of this press release.

The tables provided at the end of this press release include a reconciliation of the most directly comparable financial measures prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) to non-GAAP financial measures for the three and nine months ended September 30, 2022 and 2021. An explanation of non-GAAP financial measures is also included under the heading “Non-GAAP Financial Measures” below. Additional non-GAAP financial measures are included in MicroStrategy’s “Q3 2022 Earnings Presentation,” which will be available under the “Events and Presentations” section of MicroStrategy’s investor relations website at https://www.microstrategy.com/en/investor-relations.

Non-GAAP Financial Measures

MicroStrategy is providing supplemental financial measures for (i) non-GAAP income (loss) from operations that excludes the impact of share-based compensation expense, (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impacts of share-based compensation expense, interest expense arising from the amortization of debt issuance costs related to MicroStrategy’s long-term debt, and related income tax effects, and (iii) non-GAAP constant currency revenues that exclude foreign currency exchange rate fluctuations. These supplemental financial measures are not measurements of financial performance under GAAP and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate business performance and to help make operating decisions.

MicroStrategy believes that these non-GAAP financial measures are also useful to investors and analysts in comparing its performance across reporting periods on a consistent basis. The first supplemental financial measure excludes a significant non-cash expense that MicroStrategy believes is not reflective of its general business performance, and for which the accounting requires management judgment and the resulting share-based compensation expense could vary significantly in comparison to other companies. The second set of supplemental financial measures excludes the impacts of (i) share-based compensation expense, (ii) non-cash interest expense arising from the amortization of debt issuance costs related to MicroStrategy’s long-term debt, and (iii) related income tax effects. The third set of supplemental financial measures excludes changes resulting from fluctuations in foreign currency exchange rates so that results may be compared to the same period in the prior year on a non-GAAP constant currency basis. MicroStrategy believes the use of these non-GAAP financial measures can also facilitate comparison of MicroStrategy’s operating results to those of its competitors.

Conference Call

MicroStrategy will be discussing its third quarter 2022 financial results on a live Video Webinar today beginning at approximately 5:00 p.m. ET. The live Video Webinar and accompanying presentation materials will be available under the “Events and Presentations” section of MicroStrategy’s investor relations website at https://www.microstrategy.com/en/investor-relations. Log-in instructions will be available after registering for the event. An archived replay of the event will be available beginning approximately two hours after the call concludes.

About MicroStrategy Incorporated

MicroStrategy (Nasdaq: MSTR) is the largest independent publicly-traded analytics and business intelligence company. The MicroStrategy analytics platform is consistently rated as the best in enterprise analytics and is used by many of the world’s most admired brands in the Fortune Global 500. We pursue two corporate strategies: (1) grow our enterprise analytics software business to promote our vision of Intelligence Everywhere and (2) acquire and hold bitcoin, which we view as a dependable store of value supported by a robust, public, open-source architecture untethered to sovereign monetary policy. For more information about MicroStrategy, visit www.microstrategy.com.

MicroStrategy, Intelligent Enterprise, and MicroStrategy Library are either trademarks or registered trademarks of MicroStrategy Incorporated in the United States and certain other countries. Other product and company names mentioned herein may be the trademarks of their respective owners.

This press release may include statements that may constitute “forward-looking statements,” including estimates of future business prospects or financial results and statements containing the words “believe,” “estimate,” “project,” “expect,” “will,” or similar expressions. Forward-looking statements inherently involve risks and uncertainties that could cause actual results of MicroStrategy Incorporated and its subsidiaries (collectively, the “Company”) to differ materially from the forward-looking statements. Factors that could contribute to such differences include: fluctuations in the market price of bitcoin and any associated impairment charges that the Company may incur as a result of a decrease in the market price of bitcoin below the value at which the Company’s bitcoins are carried on its balance sheet; gains or losses on any sales of bitcoins; changes in the accounting treatment relating to the Company’s bitcoin holdings; changes in securities laws or other laws or regulations, or the adoption of new laws or regulations, relating to bitcoin that adversely affect the price of bitcoin or the Company’s ability to transact in or own bitcoin; a decrease in liquidity in the markets in which bitcoin is traded; security breaches, cyberattacks, unauthorized access, loss of private keys, fraud or other circumstances or events that result in the loss of the Company’s bitcoins; the level and terms of the Company’s substantial indebtedness and its ability to service such debt; the extent and timing of market acceptance of the Company’s new product offerings; continued acceptance of the Company’s other products in the marketplace; the Company’s ability to recognize revenue or deferred revenue through delivery of products or satisfactory performance of services; the timing of significant orders; delays in or the inability of the Company to develop or ship new products; customers shifting from a product license model to a cloud subscription model, which may delay the Company’s ability to recognize revenue; fluctuations in tax benefits or provisions; impacts of the COVID-19 pandemic; competitive factors; general economic conditions, including high levels of inflation and increased interest rates; currency fluctuations; and other risks detailed in MicroStrategy’s registration statements and periodic reports filed with the Securities and Exchange Commission (“SEC”). The Company undertakes no obligation to update these forward-looking statements for revisions or changes after the date of this release.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2022

2021

2022

2021

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenues

Product licenses

$

22,286

$

25,830

$

58,928

$

69,261

Subscription services

16,414

10,853

43,276

31,221

Total product licenses and subscription services

38,700

36,683

102,204

100,482

Product support

66,010

70,387

199,682

212,063

Other services

20,650

20,924

64,824

63,702

Total revenues

125,360

127,994

366,710

376,247

Cost of revenues

Product licenses

406

383

1,314

1,290

Subscription services

6,395

4,282

17,303

11,720

Total product licenses and subscription services

6,801

4,665

18,617

13,010

Product support

5,224

4,679

15,542

14,353

Other services

13,360

12,975

42,107

40,543

Total cost of revenues

25,385

22,319

76,266

67,906

Gross profit

99,975

105,675

290,444

308,341

Operating expenses

Sales and marketing

35,409

38,209

105,511

116,728

Research and development

30,498

28,211

95,811

86,242

General and administrative

27,283

23,751

82,491

68,397

Digital asset impairment losses

727

65,165

1,088,656

684,034

Total operating expenses

93,917

155,336

1,372,469

955,401

Income (loss) from operations

6,058

(49,661

)

(1,082,025

)

(647,060

)

Interest expense, net

(14,073

)

(10,723

)

(38,299

)

(17,520

)

Other income, net

4,897

1,264

12,242

1,631

Loss before income taxes

(3,118

)

(59,120

)

(1,108,082

)

(662,949

)

Provision for (benefit from) income taxes

23,961

(22,984

)

112,046

(217,446

)

Net loss

$

(27,079

)

$

(36,136

)

$

(1,220,128

)

$

(445,503

)

Basic loss per share (1):

$

(2.39

)

$

(3.61

)

$

(107.99

)

$

(45.47

)

Weighted average shares outstanding used in computing basic loss per share

11,308

9,999

11,299

9,798

Diluted loss per share (1):

$

(2.39

)

$

(3.61

)

$

(107.99

)

$

(45.47

)

Weighted average shares outstanding used in computing diluted loss per share

11,308

9,999

11,299

9,798

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

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

September 30,

December 31,

2022

2021*

(unaudited)

Assets

Current assets

Cash and cash equivalents

$

60,390

$

63,356

Restricted cash

6,578

1,078

Accounts receivable, net

109,926

189,280

Prepaid expenses and other current assets

25,399

14,251

Total current assets

202,293

267,965

Digital assets

1,993,032

2,850,210

Property and equipment, net

33,033

36,587

Right-of-use assets

62,902

66,760

Deposits and other assets

20,992

15,820

Deferred tax assets, net

233,034

319,782

Total Assets

$

2,545,286

$

3,557,124

Liabilities and Stockholders’ (Deficit) Equity

Current liabilities

Accounts payable, accrued expenses, and operating lease liabilities

$

36,846

$

46,084

Accrued compensation and employee benefits

46,346

54,548

Accrued interest

11,394

1,493

Deferred revenue and advance payments

165,934

209,860

Total current liabilities

260,520

311,985

Long-term debt, net

2,376,935

2,155,151

Deferred revenue and advance payments

8,754

8,089

Operating lease liabilities

69,278

76,608

Other long-term liabilities

30,088

26,224

Deferred tax liabilities

0

109

Total liabilities

2,745,575

2,578,166

Stockholders’ (Deficit) Equity

Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding

0

0

Class A common stock, $0.001 par value; 330,000 shares authorized; 18,038 shares issued and 9,354 shares outstanding, and 18,006 shares issued and 9,322 shares outstanding, respectively

18

18

Class B convertible common stock, $0.001 par value; 165,000 shares authorized; 1,964 shares issued and outstanding, and 1,964 shares issued and outstanding, respectively

2

2

Additional paid-in capital

1,778,660

1,727,143

Treasury stock, at cost; 8,684 shares

(782,104

)

(782,104

)

Accumulated other comprehensive loss

(18,179

)

(7,543

)

(Accumulated deficit) retained earnings

(1,178,686

)

41,442

Total Stockholders’ (Deficit) Equity

(200,289

)

978,958

Total Liabilities and Stockholders’ (Deficit) Equity

$

2,545,286

$

3,557,124

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended

September 30,

2022

2021

(unaudited)

(unaudited)

Operating activities:

Net loss

$

(1,220,128

)

$

(445,503

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

6,917

8,639

Reduction in carrying amount of right-of-use assets

6,020

6,190

Credit losses and sales allowances

1,189

748

Deferred taxes

90,166

(221,328

)

Release of liabilities for unrecognized tax benefits

0

(152

)

Share-based compensation expense

46,587

30,973

Digital asset impairment losses

1,088,656

684,034

Amortization of issuance costs on long-term debt

6,490

5,084

Changes in operating assets and liabilities:

Accounts receivable

5,586

10,634

Prepaid expenses and other current assets

(7,837

)

(1,693

)

Deposits and other assets

(8,314

)

(594

)

Accounts payable and accrued expenses

(8,880

)

(10,788

)

Accrued compensation and employee benefits

(13,105

)

(1,698

)

Accrued interest

9,901

10,182

Deferred revenue and advance payments

25,401

24,385

Operating lease liabilities

(7,390

)

(7,714

)

Other long-term liabilities

150

(813

)

Net cash provided by operating activities

21,409

90,586

Investing activities:

Purchases of digital assets

(231,478

)

(2,035,471

)

Purchases of property and equipment

(1,851

)

(1,882

)

Net cash used in investing activities

(233,329

)

(2,037,353

)

Financing activities:

Proceeds from convertible senior notes

0

1,050,000

Issuance costs paid for convertible senior notes

0

(24,742

)

Proceeds from senior secured notes

0

500,000

Issuance costs paid for senior secured notes

0

(12,792

)

Proceeds from secured term loan, net of lender fees

204,693

0

Issuance costs paid for secured term loan, excluding lender fees

(107

)

0

Proceeds from other long-term secured debt

11,100

0

Issuance costs paid for other long-term secured debt

(214

)

0

Repayments of other long-term secured debt

(121

)

0

Proceeds from sale of common stock under public offerings

0

403,970

Issuance costs paid related to sale of common stock under public offerings

0

(4,501

)

Proceeds from exercise of stock options

1,332

31,380

Proceeds from sales under employee stock purchase plan

4,473

2,854

Payment of withholding tax on vesting of restricted stock units

(1,105

)

0

Net cash provided by financing activities

220,051

1,946,169

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash

(5,597

)

(2,037

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

2,534

(2,635

)

Cash, cash equivalents, and restricted cash, beginning of period

64,434

60,759

Cash, cash equivalents, and restricted cash, end of period

$

66,968

$

58,124

MICROSTRATEGY INCORPORATED

REVENUE AND COST OF REVENUE DETAIL

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2022

2021

2022

2021

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenues

Product licenses and subscription services:

Product licenses

$

22,286

$

25,830

$

58,928

$

69,261

Subscription services

16,414

10,853

43,276

31,221

Total product licenses and subscription services

38,700

36,683

102,204

100,482

Product support

66,010

70,387

199,682

212,063

Other services:

Consulting

19,545

19,738

61,253

60,071

Education

1,105

1,186

3,571

3,631

Total other services

20,650

20,924

64,824

63,702

Total revenues

125,360

127,994

366,710

376,247

Cost of revenues

Product licenses and subscription services:

Product licenses

406

383

1,314

1,290

Subscription services

6,395

4,282

17,303

11,720

Total product licenses and subscription services

6,801

4,665

18,617

13,010

Product support

5,224

4,679

15,542

14,353

Other services:

Consulting

12,267

11,745

38,404

36,515

Education

1,093

1,230

3,703

4,028

Total other services

13,360

12,975

42,107

40,543

Total cost of revenues

25,385

22,319

76,266

67,906

Gross profit

$

99,975

$

105,675

$

290,444

$

308,341

MICROSTRATEGY INCORPORATED

DIGITAL ASSETS – ADDITIONAL INFORMATION

ROLLFORWARD OF BITCOIN HOLDINGS

(unaudited)

Source of

Capital Used to

Purchase

Bitcoin

Digital Asset

Original Cost

Basis

(in thousands)

Digital Asset

Impairment

Losses

(in thousands)

Digital Asset

Carrying Value

(in thousands)

Approximate

Number of

Bitcoins Held *

Approximate

Average

Purchase Price

Per Bitcoin

Balance at December 31, 2020

$

1,125,000

$

(70,698

)

$

1,054,302

70,469

$

15,964

Digital asset purchases

(a)

1,086,375

1,086,375

20,857

52,087

Digital asset impairment losses

(194,095

)

(194,095

)

Balance at March 31, 2021

$

2,211,375

$

(264,793

)

$

1,946,582

91,326

$

24,214

Digital asset purchases

(b)

529,231

529,231

13,759

38,464

Digital asset impairment losses

(424,774

)

(424,774

)

Balance at June 30, 2021

$

2,740,606

$

(689,567

)

$

2,051,039

105,085

$

26,080

Digital asset purchases

(c)

419,865

419,865

8,957

46,876

Digital asset impairment losses

(65,165

)

(65,165

)

Balance at September 30, 2021

$

3,160,471

$

(754,732

)

$

2,405,739

114,042

$

27,713

Digital asset purchases

(d)

591,058

591,058

10,349

57,113

Digital asset impairment losses

(146,587

)

(146,587

)

Balance at December 31, 2021

$

3,751,529

$

(901,319

)

$

2,850,210

124,391

$

30,159

Digital asset purchases

(e)

215,500

215,500

4,827

44,645

Digital asset impairment losses

(170,091

)

(170,091

)

Balance at March 31, 2022

$

3,967,029

$

(1,071,410

)

$

2,895,619

129,218

$

30,700

Digital asset purchases

(f)

10,000

10,000

481

20,790

Digital asset impairment losses

(917,838

)

(917,838

)

Balance at June 30, 2022

$

3,977,029

$

(1,989,248

)

$

1,987,781

129,699

$

30,664

Digital asset purchases

(g)

5,978

5,978

301

19,860

Digital asset impairment losses

(727

)

(727

)

Balance at September 30, 2022

$

3,983,007

$

(1,989,975

)

$

1,993,032

130,000

$

30,639

*MicroStrategy owns and has purchased bitcoins both directly and indirectly through its wholly-owned subsidiary, MacroStrategy. References to MicroStrategy below refer to MicroStrategy and its subsidiaries on a consolidated basis.

(a)

In the first quarter of 2021, MicroStrategy purchased bitcoin using $1.026 billion in net proceeds from its issuance of its 0% Convertible Senior Notes due 2027 (together with the 0.750% Convertible Senior Notes due 2025, the “Convertible Notes”) and Excess Cash.

(b)

In the second quarter of 2021, MicroStrategy purchased bitcoin using $487.2 million in net proceeds from its issuance of its 6.125% Senior Secured Notes due 2028 and Excess Cash.

(c)

In the third quarter of 2021, MicroStrategy purchased bitcoin using $399.5 million in net proceeds from its sale of 555,179 shares of class A common stock offered under an Open Market Sale Agreement (the “Open Market Sale Agreement”) with Jefferies LLC, as agent, and Excess Cash.

(d)

In the fourth quarter of 2021, MicroStrategy purchased bitcoin using $591.0 million in net proceeds from its sale of 858,588 shares of class A common stock offered under the Open Market Sale Agreement and Excess Cash.

(e)

In the first quarter of 2022, MicroStrategy purchased bitcoin using $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan and Excess Cash.

(f)

In the second quarter of 2022, MicroStrategy purchased bitcoin using Excess Cash.

(g)

In the third quarter of 2022, MicroStrategy purchased bitcoin using Excess Cash.

Excess Cash refers to cash in excess of the minimum Cash Assets that MicroStrategy is required to hold under its Treasury Reserve Policy, which may include cash generated by operating activities and cash from the proceeds of financing activities. Cash Assets refers to cash and cash equivalents and short-term investments.

MICROSTRATEGY INCORPORATED

DIGITAL ASSETS – ADDITIONAL INFORMATION

MARKET VALUE OF BITCOIN HOLDINGS

(unaudited)

Approximate

Number of

Bitcoins Held

at End of

Quarter *

Lowest

Market Price

Per Bitcoin

During

Quarter

(a)

Market Value

of Bitcoin

Held at End of

Quarter Using

Lowest

Market Price

(in thousands)

(b)

Highest

Market Price

Per Bitcoin

During

Quarter

(c)

Market Value

of Bitcoin

Held at End of

Quarter Using

Highest

Market Price

(in thousands)

(d)

Market Price

Per Bitcoin at

End of

Quarter

(e)

Market Value

of Bitcoin

Held at End of

Quarter Using

Ending

Market Price

(in thousands)

(f)

December 31, 2020

70,469

$

10,363.76

$

730,324

$

29,321.90

$

2,066,285

$

29,181.00

$

2,056,356

March 31, 2021

91,326

$

27,678.00

$

2,527,721

$

61,788.45

$

5,642,892

$

58,601.28

$

5,351,820

June 30, 2021

105,085

$

28,800.00

$

3,026,448

$

64,899.00

$

6,819,911

$

34,763.47

$

3,653,119

September 30, 2021

114,042

$

29,301.56

$

3,341,609

$

52,944.96

$

6,037,949

$

43,534.56

$

4,964,768

December 31, 2021

124,391

$

42,333.00

$

5,265,844

$

69,000.00

$

8,582,979

$

45,879.97

$

5,707,055

March 31, 2022

129,218

$

32,933.33

$

4,255,579

$

48,240.00

$

6,233,476

$

45,602.79

$

5,892,701

June 30, 2022

129,699

$

17,567.45

$

2,278,481

$

47,469.40

$

6,156,734

$

18,895.02

$

2,450,665

September 30, 2022

130,000

$

18,153.13

$

2,359,907

$

25,214.57

$

3,277,894

$

19,480.51

$

2,532,466

*MicroStrategy owns and has purchased bitcoins both directly and indirectly through its wholly-owned subsidiary, MacroStrategy. References to MicroStrategy below refer to MicroStrategy and its subsidiaries on a consolidated basis.

(a)

The "Lowest Market Price Per Bitcoin During Quarter" represents the lowest market price for one bitcoin reported on the Coinbase exchange during the respective quarter, without regard to when MicroStrategy purchased any of its bitcoin.

(b)

The "Market Value of Bitcoin Held at End of Quarter Using Lowest Market Price" represents a mathematical calculation consisting of the lowest market price for one bitcoin reported on the Coinbase exchange during the respective quarter multiplied by the number of bitcoins held by MicroStrategy at the end of the applicable period.

(c)

The "Highest Market Price Per Bitcoin During Quarter" represents the highest market price for one bitcoin reported on the Coinbase exchange during the respective quarter, without regard to when MicroStrategy purchased any of its bitcoin.

(d)

The "Market Value of Bitcoin Held at End of Quarter Using Highest Market Price" represents a mathematical calculation consisting of the highest market price for one bitcoin reported on the Coinbase exchange during the respective quarter multiplied by the number of bitcoins held by MicroStrategy at the end of the applicable period.

(e)

The "Market Price Per Bitcoin at End of Quarter" represents the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective quarter.

(f)

The "Market Value of Bitcoin Held at End of Quarter Using Ending Market Price" represents a mathematical calculation consisting of the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective quarter multiplied by the number of bitcoins held by MicroStrategy at the end of the applicable period.

The amounts reported as “Market Value” in the above table represent only a mathematical calculation consisting of the price for one bitcoin reported on the Coinbase exchange (MicroStrategy’s principal market for bitcoin) in each scenario defined above multiplied by the number of bitcoins held by MicroStrategy at the end of the applicable period. The SEC has previously stated that there has not been a demonstration that (i) bitcoin and bitcoin markets are inherently resistant to manipulation or that the spot price of bitcoin may not be subject to fraud and manipulation; and (ii) adequate surveillance-sharing agreements with bitcoin-related markets are in place, as bitcoin-related markets are either not significant, not regulated, or both. Accordingly, the Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of MicroStrategy’s bitcoin may be different from such amounts and such deviation may be material. Moreover, (i) the bitcoin market historically has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, and various other risks that are, or may be, inherent in its entirely electronic, virtual form and decentralized network and (ii) MicroStrategy may not be able to sell its bitcoins at the Market Value amounts indicated above, at the market price as reported on the Coinbase exchange (its principal market) on the date of sale, or at all.

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

INCOME (LOSS) FROM OPERATIONS

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2022

2021

2022

2021

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reconciliation of non-GAAP income (loss) from operations:

Income (loss) from operations

$

6,058

$

(49,661

)

$

(1,082,025

)

$

(647,060

)

Share-based compensation expense

16,899

12,166

46,587

30,973

Non-GAAP income (loss) from operations

$

22,957

$

(37,495

)

$

(1,035,438

)

$

(616,087

)

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

NET LOSS AND DILUTED LOSS PER SHARE

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2022

2021

2022

2021

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reconciliation of non-GAAP net loss:

Net loss

$

(27,079

)

$

(36,136

)

$

(1,220,128

)

$

(445,503

)

Share-based compensation expense

16,899

12,166

46,587

30,973

Interest expense arising from amortization of debt issuance costs

2,193

2,107

6,490

5,084

Income tax effects (1)

(2,844

)

(6,489

)

(10,186

)

(32,877

)

Non-GAAP net loss

$

(10,831

)

$

(28,352

)

$

(1,177,237

)

$

(442,323

)

Reconciliation of non-GAAP diluted loss per share (2):

Diluted loss per share

$

(2.39

)

$

(3.61

)

$

(107.99

)

$

(45.47

)

Share-based compensation expense (per diluted share)

1.49

1.21

4.12

3.16

Interest expense arising from amortization of debt issuance costs (per diluted share)

0.19

0.21

0.57

0.52

Income tax effects (per diluted share)

(0.25

)

(0.65

)

(0.89

)

(3.35

)

Non-GAAP diluted loss per share

$

(0.96

)

$

(2.84

)

$

(104.19

)

$

(45.14

)

(1)

Income tax effects reflect the net tax effects of share-based compensation expense, which includes tax benefits and expenses on exercises of stock options and vesting of share-settled restricted stock units, and interest expense for amortization of debt issuance costs.

(2)

For reconciliation purposes, the non-GAAP diluted earnings (loss) per share calculations use the same weighted average shares outstanding as that used in the GAAP diluted earnings (loss) per share calculations for the same period. For example, in periods of GAAP net loss, otherwise dilutive potential shares of common stock from MicroStrategy’s share-based compensation arrangements and Convertible Notes are excluded from the GAAP diluted loss per share calculation as they would be antidilutive, and therefore are also excluded from the non-GAAP diluted earnings or loss per share calculation.

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

CONSTANT CURRENCY

(in thousands)

Three Months Ended

September 30,

(unaudited)

GAAP

Foreign

Currency

Exchange

Rate Impact (1)

Non-GAAP

Constant

Currency (2)

GAAP

GAAP %

Change

Non-GAAP

Constant

Currency

% Change (3)

2022

2022

2022

2021

2022

2022

Revenues

Product licenses

$

22,286

$

(1,219

)

$

23,505

$

25,830

-13.7

%

-9.0

%

Subscription services

16,414

(828

)

17,242

10,853

51.2

%

58.9

%

Total product licenses and subscription services

38,700

(2,047

)

40,747

36,683

5.5

%

11.1

%

Product support

66,010

(3,848

)

69,858

70,387

-6.2

%

-0.8

%

Other services

20,650

(1,747

)

22,397

20,924

-1.3

%

7.0

%

Total revenues

125,360

(7,642

)

133,002

127,994

-2.1

%

3.9

%

Nine Months Ended

September 30,

(unaudited)

GAAP

Foreign

Currency

Exchange

Rate Impact (1)

Non-GAAP

Constant

Currency (2)

GAAP

GAAP %

Change

Non-GAAP

Constant

Currency

% Change (3)

2022

2022

2022

2021

2022

2022

Revenues

Product licenses

$

58,928

$

(2,315

)

$

61,243

$

69,261

-14.9

%

-11.6

%

Subscription services

43,276

(1,516

)

44,792

31,221

38.6

%

43.5

%

Total product licenses and subscription services

102,204

(3,831

)

106,035

100,482

1.7

%

5.5

%

Product support

199,682

(8,547

)

208,229

212,063

-5.8

%

-1.8

%

Other services

64,824

(3,914

)

68,738

63,702

1.8

%

7.9

%

Total revenues

366,710

(16,292

)

383,002

376,247

-2.5

%

1.8

%

(1)

The “Foreign Currency Exchange Rate Impact” reflects the estimated impact of fluctuations in foreign currency exchange rates on international revenues. It shows the increase (decrease) in international revenues from the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates. The term “international” refers to operations outside of the United States and Canada.

(2)

The “Non-GAAP Constant Currency” reflects the current period GAAP amount, less the Foreign Currency Exchange Rate Impact.

(3)

The “Non-GAAP Constant Currency % Change” reflects the percentage change between the current period Non-GAAP Constant Currency amount and the GAAP amount for the same period in the prior year.

MICROSTRATEGY INCORPORATED

DEFERRED REVENUE DETAIL

(in thousands)

September 30,

December 31,

September 30,

2022

2021*

2021

(unaudited)

(unaudited)

Current:

Deferred product licenses revenue

$

442

$

993

$

2,315

Deferred subscription services revenue

38,272

35,589

23,089

Deferred product support revenue

123,203

166,477

130,339

Deferred other services revenue

4,017

6,801

4,954

Total current deferred revenue and advance payments

$

165,934

$

209,860

$

160,697

Non-current:

Deferred product licenses revenue

$

70

$

68

$

74

Deferred subscription services revenue

2,943

1,064

590

Deferred product support revenue

5,172

6,203

6,973

Deferred other services revenue

569

754

665

Total non-current deferred revenue and advance payments

$

8,754

$

8,089

$

8,302

Total current and non-current:

Deferred product licenses revenue

$

512

$

1,061

$

2,389

Deferred subscription services revenue

41,215

36,653

23,679

Deferred product support revenue

128,375

172,680

137,312

Deferred other services revenue

4,586

7,555

5,619

Total current and non-current deferred revenue and advance payments

$

174,688

$

217,949

$

168,999

* Derived from audited financial statements.

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