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What changed in Strategy Inc's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Strategy Inc's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+538 added−534 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-16)

Top changes in Strategy Inc's 2024 10-K

538 paragraphs added · 534 removed · 364 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

61 edited+53 added−56 removed68 unchanged
Biggest changeThis overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes, including to generate cash for treasury management or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing additional strategies to create income streams or otherwise generate funds using our bitcoin holdings. 6 Our Bitcoin Holdings During 2022, we purchased a total of approximately 8,813 bitcoins at an aggregate purchase price of approximately $287.9 million for an average purchase price of approximately $32,670 per bitcoin, inclusive of fees and expenses, and sold a total of approximately 704 bitcoins for cash proceeds of approximately $11.8 million at an average sale price of approximately $16,786 per bitcoin, net of fees and expenses.
Biggest changeThis overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes, including to generate cash for treasury management (which may include debt repayment), or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.
Risk Factors – Risks Related to Our Bitcoin Acquisition Strategy and Holdings —The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of Bitcoin and adversely affect our business.” 8 Custody of our Bitcoin We hold substantially all of our bitcoin in custody accounts at U.S.-based, institutional-grade custodians that have demonstrated records of regulatory compliance and information security.
Risk Factors – Risks Related to Our Bitcoin Acquisition Strategy and Holdings—The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of bitcoin and adversely affect our business.” Custody of our Bitcoin We hold substantially all of our bitcoin in custody accounts at U.S.-based, institutional-grade custodians that have demonstrated records of regulatory compliance and information security.
Risk Factors—Risks Related to Our Bitcoin Acquisition Strategy and Holdings— Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, bitcoin trading venues may experience greater fraud, security failures or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in bitcoin trading venues and adversely affect the value of our bitcoin.” Service providers .
Risk Factors—Risks Related to Our Bitcoin Acquisition Strategy and Holdings—Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, bitcoin trading venues may experience greater fraud, security failures or regulatory or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in bitcoin trading venues and adversely affect the value of our bitcoin.” Service providers .
In summary, if “problematic legislation” or practices are identified in the destination country which impinge on the effectiveness of the appropriate safeguards of the transfer tool(s), the EDPB now recommends the data exporter to consider whether the laws/practices will be applied in practice to the relevant data, taking into account the importer’s experience and sector.
In summary, if “problematic legislation” or practices are identified in the destination country which impinge on 14 the effectiveness of the appropriate safeguards of the transfer tool(s), the EDPB now recommends the data exporter to consider whether the laws/practices will be applied in practice to the relevant data, taking into account the importer’s experience and sector.
Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s central bank digital currency (“CBDC”) project was made available to consumers in January 2022, and governments including the United States and the European Union have been discussing the potential creation of new CBDCs.
Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s central bank digital currency (“CBDC”) project was made available to consumers in January 2022, and governments including the United States and 9 the European Union have been discussing the potential creation of new CBDCs.
These risks, in turn, make bitcoin substantially 9 more susceptible to theft, destruction, or loss of value from hackers, corruption, viruses and other technology-specific factors as compared to conventional fiat currency or other conventional financial assets . See “Item 1A.
These risks, in turn, make bitcoin substantially more susceptible to theft, destruction, or loss of value from hackers, corruption, viruses and other technology-specific factors as compared to conventional fiat currency or other conventional financial assets. See “Item 1A.
We also believe that, due to its limited supply, bitcoin offers the opportunity for appreciation in value if its adoption increases and has the potential to serve as a hedge against inflation in the long-term.
We also believe that, due to its limited supply, bitcoin offers the potential to serve as a hedge against inflation in the long-term and, if its adoption increases, the opportunity for appreciation in value.
Bitcoin Acquisition Strategy In September 2020, our Board of Directors adopted a Treasury Reserve Policy (as amended to date, the “Treasury Reserve Policy”) that updated our treasury management and capital allocation strategies, under which our treasury reserve assets will consist of: • cash and cash equivalents and short-term investments (“Cash Assets”) held by us that exceed working capital requirements; and • bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets.
In September 2020, our Board of Directors adopted a Treasury Reserve Policy (as amended to date, the “Treasury Reserve Policy”) that updated our treasury management and capital allocation strategies, under which our treasury reserve assets will consist of: • cash and cash equivalents and short-term investments (“Cash Assets”) held by us that exceed working capital requirements; and • bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets.
We also believe that, due to its limited supply, bitcoin offers the opportunity for appreciation in value if its adoption increases and has the potential to serve as a hedge against inflation in the long-term.
We also believe that, due to its limited supply, bitcoin offers the potential to serve as a hedge against inflation in the long-term and, if its adoption increases, the opportunity for appreciation in value.
We have been and will continue to be required to devote substantial resources to implement and maintain compliance with the CCPA, and noncompliance could result in regulatory investigations and fines or private litigation.
We have been and will continue to be required to devote substantial resources to implement and maintain 15 compliance with the CCPA, and noncompliance could result in regulatory investigations and fines or private litigation.
Risk Factors – Risks Related to Our Bitcoin Acquisition Strategy and Holdings - Our bitcoin acquisition strategy exposes us to various risks associated with bitcoin ,” and “—Our bitcoin acquisition strategy exposes us to risk of non-performance by counterparties.” Potential Advantages and Disadvantages of Holding Bitcoin We believe that bitcoin is attractive because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy.
Risk Factors—Risks Related to Our Bitcoin Acquisition Strategy and Holdings—Our bitcoin acquisition strategy exposes us to various risks associated with bitcoin,” and “—Our bitcoin acquisition strategy exposes us to risk of non-performance by counterparties.” Potential Advantages and Disadvantages of Holding Bitcoin We believe that bitcoin is an attractive asset because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy.
For example, in her January 2021 nomination hearing before the Senate Finance Committee, Treasury Secretary Janet Yellen noted that cryptocurrencies have the potential to improve the efficiency of the financial system but that they can be used to finance terrorism, facilitate money laundering, and support malign activities that threaten U.S. national security interests and the integrity of the U.S. and international financial systems.
For example, in her January 2021 nomination hearing before the Senate Finance Committee, Treasury Secretary Janet Yellen noted that cryptocurrencies have the potential to improve the efficiency of the financial system but that they can be used to finance terrorism, facilitate money 11 laundering, and support activities that threaten U.S. national security interests and the integrity of the U.S. and international financial systems.
As part of this process, we regularly benchmark the benefits we offer our employees against those offered within our industry generally and the local markets in which we operate. During 2022, we continued to expand our equity compensation programs worldwide to provide our employees with greater opportunities to share in any appreciation of our class A common stock.
As part of this process, we regularly benchmark the benefits we offer our employees against those offered within our industry generally and the local markets in which we operate. During 2023, we continued to expand our equity compensation programs worldwide to provide our employees with greater opportunities to share in any appreciation of our class A common stock.
Private keys used to access bitcoin balances are not widely distributed and are typically held on hardware 7 (which can be physically controlled by the holder or by a third party such as a custodian) or via software programs on third-party servers.
Private keys used to access bitcoin balances are not widely distributed and are typically held on hardware 8 (which can be physically controlled by the holder or by a third party such as a custodian) or via software programs on third-party servers.
This decrease in mining reward is referred to as a bitcoin halving, and it occurs after every 210,000 blocks are mined, which currently occurs approximately every four years. Modifications to the Bitcoin Protocol Bitcoin is an open-source network that has no central authority, so no one person can unilaterally make changes to the software that runs the network.
This decrease in mining reward is referred to as a bitcoin halving, and it occurs after every 210,000 blocks are mined, which has historically occurred approximately every four years. Modifications to the Bitcoin Protocol Bitcoin is an open-source network that has no central authority, so no one person can unilaterally make changes to the software that runs the network.
We make available free of charge, on or through the Investor Relations section of our website ( http://ir.microstrategy.com ), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing or furnishing such reports with the Securities and Exchange Commission (“SEC”).
We make available free of charge, on or through the Investor Relations section of our website ( http://ir.microstrategy.com ), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing or furnishing such reports with the SEC.
The Bitcoin network has been, and can be in the future, subject to denial-of-service attacks, which can result in temporary delays in block creation and in the transfer of bitcoin. “See “Item 1A.
The Bitcoin network has been, and can be in the future, subject to denial-of-service attacks, which can result in temporary delays in block creation and in the transfer of bitcoin. See “Item 1A.
We believe that in the context of the economic uncertainty precipitated by the persistence of COVID-19 infections, escalating geopolitical tensions and central banks having adopted inflationary measures at various times in recent history, as well as the breakdown of trust in and between political institutions and political parties in the United States and globally, bitcoin represents an attractive store of value, and that opportunity for appreciation in the value of bitcoin exists in the event that such factors lead to more widespread adoption of the use and acceptance of bitcoin and the adoption of bitcoin as a treasury reserve alternative by businesses.
We believe that in the context of the economic uncertainty precipitated by escalating geopolitical tensions and central banks having adopted inflationary measures at various times in recent history, as well as the breakdown of trust in and between political institutions and political parties in the United States and globally, bitcoin represents an attractive store of value, and that opportunity for appreciation in the value of bitcoin exists in the event that such factors lead to more widespread adoption of the use and acceptance of bitcoin and the adoption of bitcoin as a treasury reserve alternative by institutions.
Brazil also enacted the Lei Geral de Proteção de Dados (the Brazilian General Data Protection Law), which became effective in August 2020 and imposes requirements largely similar to GDPR on products and services offered to users in Brazil.
Brazil also enacted the Lei Geral de Proteção de Dados (the “Brazilian General Data Protection Law”), which became effective in August 2020 and imposes requirements largely similar to GDPR on products and services offered to users in Brazil.
We believe that bitcoin is attractive because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy.
Bitcoin Acquisition Strategy We believe that bitcoin is an attractive asset because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy.
Eastern Time, the market price of one bitcoin reported on the Coinbase exchange (our principal market) was $24,163.86. Overview of the Bitcoin Industry and Market Bitcoin is a digital asset that is issued by and transmitted through an open-source protocol, known as the Bitcoin protocol, collectively maintained by a peer-to-peer network of decentralized user nodes.
Eastern Time, the market price of one bitcoin reported on the Coinbase exchange (our principal market) was $51,744.68. Overview of the Bitcoin Industry and Market Bitcoin is a digital asset that is issued by and transmitted through an open-source protocol, known as the Bitcoin protocol, collectively maintained by a peer-to-peer network of decentralized user nodes.
Additional states will be considering these laws in the future which may impact our business activities and our relationships with business partners, customers and service providers. Furthermore, the U.S. Congress is considering comprehensive privacy legislation. At this time, it is unclear whether Congress will pass such a law and if so, when and what it will require and prohibit.
All of these privacy laws may impact our business activities and our relationships with business partners, customers and service providers. Furthermore, the U.S. Congress is considering comprehensive privacy legislation. At this time, it is unclear whether Congress will pass such a law and if so, when and what it will require and prohibit.
For a discussion of risks relating to the custody of our bitcoin, s ee “Item 1A.
For a discussion of risks relating to the custody of our bitcoin, see “Item 1A.
Failure to compete successfully in any one of these or other areas may reduce the demand for our offerings and materially adversely affect our revenue from both existing and prospective customers.
Failure to perform in these or other areas may reduce the demand for our offerings and materially adversely affect our revenue from both existing and prospective customers.
Employees As of December 31, 2022, we had a total of 2,152 employees, of whom 719 were based in the United States and 1,433 were based internationally. None of our employees in the United States is represented by a labor union; however, employees of certain of our foreign subsidiaries are members of trade or local unions.
Employees As of December 31, 2023, we had a total of 1,934 employees, of whom 642 were based in the United States and 1,292 were based internationally. None of our employees in the United States is represented by a labor union; however, employees of certain of our foreign subsidiaries are members of trade or local unions.
The following table summarizes employee headcount as of the dates indicated: December 31, December 31, December 31, 2022 2021 2020 Subscription services 110 72 49 Product support 183 174 154 Consulting 447 413 393 Education 16 36 37 Sales and marketing 434 470 479 Research and development 688 699 642 General and administrative 274 257 243 Total headcount 2,152 2,121 1,997 We recognize and value the contribution of all our employees.
The following table summarizes employee headcount as of the dates indicated: December 31, December 31, December 31, 2023 2022 2021 Subscription services 100 110 72 Product support 154 183 174 Consulting 399 447 413 Education 13 16 36 Sales and marketing 390 434 470 Research and development 642 688 699 General and administrative 236 274 257 Total headcount 1,934 2,152 2,121 We recognize and value the contribution of all our employees.
Stablecoins have grown rapidly as an alternative to bitcoin and other digital assets as a medium of exchange and store of value, particularly on cryptocurrency trading platforms. As of the date of this Annual Report, three of the seven largest digital assets by market capitalization are U.S. dollar-backed stablecoins.
Stablecoins have grown rapidly as an alternative to bitcoin and other digital assets as a medium of exchange and store of value, particularly on digital asset trading platforms. As of December 31, 2023, two of the seven largest digital assets by market capitalization are U.S. dollar-backed stablecoins.
These firms utilize the MicroStrategy platform for a variety of commercial purposes, and our agreements with them generally provide non-exclusive rights to market our offerings and allow access to our marketing materials, product training, and direct sales force for field-level assistance. We make significant commitments to our channel partners, including technical training, certifications, pre-sales and sales enablement, and marketing programs.
These firms resell, support, or extend the MicroStrategy platform for a variety of commercial purposes, and our agreements with them generally provide non-exclusive rights to our software, marketing materials, product training, and direct sales force for field-level assistance. We make significant financial investments with our channel partners, including technical training, certifications, pre-sales and sales enablement, and co-marketing programs.
We believe that existing law and the terms and conditions of our contractual arrangements with our custodians would not result in the bitcoin held by our custodians on our behalf being considered part of a custodian’s bankruptcy estate were one or more of our custodians to file for bankruptcy.
Based on existing law and the terms and conditions of our contractual arrangements with our custodians, we believe that the bitcoin held on our behalf by our custodians would not be considered part of a custodian’s bankruptcy estate were one or more of our custodians to enter bankruptcy, receivership or similar insolvency proceedings.
At December 31, 2021, we carried $2.850 billion of digital assets on our balance sheet, consisting of approximately 124,391 bitcoins and reflecting $901.3 million in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $63.4 million in cash and cash equivalents.
At December 31, 2023, we carried $3.626 billion of digital assets on our balance sheet, consisting of approximately 189,150 bitcoins and reflecting $2.269 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $46.8 million in cash and cash equivalents.
Creation of New Bitcoin and Limits on Supply New bitcoin is created and allocated by the Bitcoin protocol through a “mining” process that rewards users that validate transactions in the Bitcoin blockchain. Validated transactions are added in “blocks” approximately every 10 minutes. The mining process serves to validate transactions and secure the Bitcoin network.
The Bitcoin blockchain can be updated without any single entity owning or operating the network. Creation of New Bitcoin and Limits on Supply New bitcoin is created and allocated by the Bitcoin protocol through a “mining” process that rewards users that validate transactions in the Bitcoin blockchain. Validated transactions are added in “blocks” approximately every 10 minutes.
As of December 31, 2022, approximately half of our bitcoin was held with a single custodian; however, our custodial services contracts do not restrict our ability to reallocate our bitcoin among our custodians and, in light of the significant amount of bitcoin we hold, we continually seek to engage additional digital asset custodians to further diversify the custody of our bitcoin.
Our custodial services contracts do not restrict our ability to reallocate our bitcoin among our custodians, and our bitcoin holdings may be concentrated with a single custodian from time to time. In light of the significant amount of bitcoin we hold, we continually seek to engage additional digital asset custodians to further diversify the custody of our bitcoin.
We did not purchase or sell any bitcoins during the period between January 1, 2023 and February 15, 2023. Refer to the “Our Bitcoin Acquisition Strategy” section under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information regarding our bitcoin purchases, including the source of capital used to purchase bitcoin.
Refer to the “Our Bitcoin Acquisition Strategy” section under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information regarding our bitcoin purchases, including the source of capital used to purchase bitcoin.
We also negotiate liability provisions in our custodial contracts, pursuant to which our custodians are held liable for their failure to safekeep our bitcoin. In addition to our custodial arrangements, we also utilize some of the entities that provide custodial services to us to process trade transactions on our behalf.
We also negotiate liability provisions in our custodial contracts, pursuant to which our custodians are held liable for their failure to safekeep our bitcoin. In addition to our custodial arrangements, we also utilize affiliates of our bitcoin custodians to execute bitcoin acquisition and disposition transactions on our behalf.
To help organizations maximize the utility, adoption, and performance of their MicroStrategy deployments, MicroStrategy Education offers free and paid learning options. MicroStrategy Education is available worldwide in multiple languages and a variety of formats—both live and on-demand. 12 Sales and Marketing Sales and Services MicroStrategy sells its platform in two ways.
MicroStrategy Education To help organizations maximize the adoption and performance of their MicroStrategy solutions, MicroStrategy Education offers free and paid learning options, available worldwide in multiple languages and a variety of formats—both in person and online, live and on-demand.
Through our joint efforts, we believe customers are able to minimize their risk and maximize the return on their business intelligence projects. Our channel partners allow us to leverage sales and service resources and marketing and industry-specific expertise to expand our user base and increase our market coverage.
Through our joint efforts, we believe customers can minimize their risk and maximize the return on their business intelligence projects. Our channel partners allow us to extend sales and service coverage and industry-specific expertise across regions, languages, and business types.
Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business. 14 In the European Union, the General Data Protection Regulation (“GDPR”) imposes requirements regarding the handling and security of personal data, requires disclosure of data breaches to individuals, customers, and data protection authorities in certain circumstances, requires companies to honor data subjects’ requests relating to their personal data, permits regulators to impose fines of up to €20,000,000 or 4% of global annual revenue, whichever is higher, and establishes a private right of action.
In the European Union, the General Data Protection Regulation (“GDPR”) imposes requirements regarding the handling and security of personal data, requires disclosure of data breaches to individuals, customers, and data protection authorities in certain circumstances, requires companies to honor data subjects’ requests relating to their personal data, permits regulators to impose fines of up to €20,000,000 or 4% of global annual revenue, whichever is higher, and establishes a private right of action.
Moreover, in November 2020, California voters approved a privacy law, the California Privacy Rights Act (“CPRA”), which amends the CCPA to 15 create privacy rights and obligations in California. In addition, other states, including Virginia , Colorado, Connecticut and Utah, already have passed similar state privacy laws.
Moreover, in November 2020, California voters approved a privacy law, the California Privacy Rights Act (“CPRA”), which amends the CCPA to create privacy rights and obligations in California. More than 12 other states already have passed similar state privacy laws, which already have gone into effect or will go into effect in the future.
As of February 15, 2023, we held approximately 132,500 bitcoins that were acquired at an aggregate purchase price of $3.993 billion and an average purchase price of approximately $30,137 per bitcoin, inclusive of fees and expenses. As of February 15, 2023, at 4:00 p.m.
As of February 14, 2024, we held approximately 190,000 bitcoins that were acquired at an aggregate purchase price of $5.933 billion and an average purchase price of approximately $31,224 per bitcoin, inclusive of fees and expenses. As of February 14, 2024, at 4:00 p.m.
Service providers offer a multitude of services to other participants in the Bitcoin industry, including custodial and trade execution services, commercial and retail payment processing, loans secured by bitcoin collateral, and financial advisory services. While certain of these services are provided by recently formed entities that do not have significant operational experience, others are provided by traditional financial institutions.
Service providers offer a multitude of services to other participants in the Bitcoin industry, including custodial and trade execution services, commercial and retail payment processing, loans secured by bitcoin collateral, and financial advisory services.
Marketing Our marketing programs target the following principal constituencies: • our historical base of enterprise-wide operational and technology executives and departmental buyers across large global enterprises; • corporate and departmental technology buyers in mid-sized enterprises; • government technology buyers and the vendors to the government community; • independent software vendors that want to embed our technology tools in their solutions; and • system integrators that have technology relationships with large enterprises, governments, and information-intensive businesses.
Marketing 13 Our marketing programs target the following principal audiences: • technology and line-of-business executives across large, global enterprises and mid-size organizations; • government technology buyers and vendors to the government community; • ISVs that want to embed analytics technology in their applications; and • system integrators that have technology relationships with large enterprises, governments, and information-intensive businesses.
Bitcoin can be converted to fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on bitcoin trading platforms, which operate 24 hours a day, 7 days a week and are not regulated in as comprehensive a manner as traditional securities exchanges.
Bitcoin can be exchanged for fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on bitcoin trading platforms, which are not regulated in the same manner as traditional securities exchanges. In addition to these platforms, over-the-counter markets and derivatives markets for bitcoin also exist.
If we are unable to access our private keys or if we experience a cyberattack or other data loss relating to our bitcoin, our financial condition and results of operations could be materially adversely affected .” A “51% attack” may occur when a group of miners attain more than 50% of the Bitcoin network’s mining power, thereby enabling them to control the Bitcoin network and protocol and manipulate the blockchain.
Risk Factors – Risks Related to Our Bitcoin Acquisition Strategy and Holdings – We face risks relating to the custody of our bitcoin, including the loss or destruction of private keys required to access our bitcoin and cyberattacks or other data loss relating to our bitcoin.” A “51% attack” may occur when a group of miners attain more than 50% of the Bitcoin network’s mining power, thereby enabling them to control the Bitcoin network and protocol and manipulate the blockchain.
Mining is a competitive and costly operation that requires a large amount of computational power to solve complex mathematical algorithms. This expenditure of computing power is known as “proof of work.” To incentivize miners to incur the costs of mining bitcoin, the Bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated bitcoin.
This expenditure of computing power is known as “proof of work.” To incentivize miners to incur the costs of mining bitcoin, the Bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated bitcoin. The Bitcoin protocol limits the total number of bitcoin that can be generated over time to 21 million.
Risk Factors – Risks Related to Our Bitcoin Acquisition Strategy and Holdings – The price of bitcoin may be influenced by legal, commercial, technical and industry factors that are highly uncertain, and fluctuations in the price of bitcoin are likely to influence our financial results and the market price of our class A common stock.” Bitcoin Industry Participants The primary Bitcoin industry participants are miners, investors and traders, digital asset exchanges and service providers, including custodians, brokers, payment processors, wallet providers and financial institutions.
Risk Factors – Risks Related to Our Bitcoin Acquisition Strategy and Holdings – Bitcoin and other digital assets are novel assets, and are subject to significant legal, commercial, regulatory and technical uncertainty.” Bitcoin Industry Participants The primary Bitcoin industry participants are miners, investors and traders, digital asset exchanges and service providers, including custodians, brokers, payment processors, wallet providers and financial institutions.
We have in the past conducted, and may conduct in the future, additional due diligence when we believe it is warranted by market circumstances or otherwise. For example, we have obtained supporting documentation to verify certain factual information, including documentation and analysis regarding financial solvency, exposure to troubled exchanges, regulatory compliance, security protocols and our ownership of our bitcoin.
For example, we obtained supporting documentation to verify certain factual information, including documentation and analysis regarding financial solvency, exposure to troubled exchanges, regulatory compliance, security protocols and our ownership of our bitcoin.
During 2021, we purchased a total of approximately 53,922 bitcoins at an aggregate purchase price of approximately $2.627 billion for an average purchase price of approximately $48,710 per bitcoin, inclusive of fees and expenses. We did not sell any bitcoin during 2021.
During the period between January 1, 2024 and February 14, 2024, we purchased a total of approximately 850 bitcoins at an aggregate purchase price of approximately $37.2 million for an average purchase price of approximately $43,723 per bitcoin, inclusive of fees and expenses. We did not sell any bitcoins during the period between January 1, 2024 and February 14, 2024.
If we are unable to access our private keys or if we experience a cyberattack or other data loss relating to our bitcoin, our financial condition and results of operations could be materially adversely affected .” In addition, the Bitcoin network relies on open-source developers to maintain and improve the Bitcoin protocol.
Risk Factors—Risks Related to Our Bitcoin Acquisition Strategy and Holdings—If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our bitcoin, or if our private keys are 10 lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our bitcoin and our financial condition and results of operations could be materially adversely affected.” In addition, the Bitcoin network relies on open-source developers to maintain and improve the Bitcoin protocol.
The decentralization of user nodes and miners also mitigates the risk of a 51% attack, which would be very costly and difficult to execute with respect to a digital asset such as bitcoin, with such an expansive and robust network.
The decentralization of user nodes and miners also mitigates the risk of a 51% attack, which would be very costly and difficult to execute with respect to bitcoin because the Bitcoin network is open source and widely distributed, and transactions on the blockchain require significant computing power to be validated.
The Bitcoin protocol limits the total number of bitcoin that can be generated over time to 21 million. The current reward for miners that successfully validate a block of transactions is 6.25 bitcoin per mined block. The reward is expected to decrease by half to 3.125 bitcoin per mined block in early-to-mid-2024.
The current reward for miners that successfully validate a block of transactions is 6.25 bitcoin per mined block. Based on current mining rates, we anticipate the reward will decrease by half to 3.125 bitcoin per mined block sometime in April 2024.
We use the due diligence we conduct in connection with our custodial arrangements as part of our due diligence process for such parties that execute transactions for us. We also conduct due diligence reviews during the custodial relationship to monitor the safekeeping of our bitcoin.
We leverage the due diligence we conduct in connection with our custodial arrangements when conducting due diligence of these trade execution service providers. We also conduct due diligence reviews during the custodial relationship to monitor the safekeeping of our bitcoin. As part of our process, we obtain and review our custodians’ Services Organization Controls reports.
In addition to these platforms, over-the-counter markets and derivatives markets for bitcoin also exist. For a discussion of risks associated with digital asset exchanges, see “Item 1A.
For a discussion of risks associated with digital asset exchanges, see “Item 1A.
Our consultants serve as critical resources for operations, maintenance, and end-to-end lifecycle projects that develop and deploy customers’ business intelligence environments. With thousands of successful projects delivered to customers worldwide spanning all major industries, our consultants apply industry best practices to guide our customers in defining, developing, and delivering business analytics solutions.
With thousands of successful projects delivered to customers worldwide, our consultants apply industry best practices to define, develop, and deliver AI-powered analytics solutions for virtually any business intelligence need.
The Bitcoin blockchain can be updated without any single entity owning or operating the network. The Bitcoin blockchain can also support smart contract implementations, such as the lightning network, which is a decentralized second-layer payment protocol built atop of the Bitcoin blockchain and that is intended to enable fast and less costly transactions.
Bitcoin-Related Innovations We believe the Bitcoin network provides the infrastructure and opportunity for the development of financial and technological innovations, such as the Lighting Network (a decentralized second-layer payment protocol built on top of the Bitcoin blockchain that is intended to enable fast and less costly transactions).
Additionally, all of our custodians are New York Department of Financial Services (“NYDFS”) regulated custodians. On January 23, 2023, the NYDFS released “Guidance on Custodial Structures for Customer Protection in the Event of Insolvency” with the stated purpose of helping to protect customers in the event that a custodian enters bankruptcy, receivership or similar insolvency proceedings.
All of our custodians are subject to regulatory regimes intended to protect customers in the event that a custodian enters bankruptcy, receivership or similar insolvency proceedings.
The rules involving this alternative data transfer option are also undergoing revision and this transfer mechanism may also be declared invalid (or require us to change our business practices) in the future, requiring us to provide an alternative means of data transfer.
Privacy Shield may begin relying on DPF immediately and will be provided with guidance to facilitate transition to DPF. Similar to the SCCs, the requirements under the DPF are subject to change and this transfer mechanism may also be declared invalid (or require us to change our business practices) in the future.
Our future success depends on our ability to differentiate our offerings and successfully compete across analytics implementation projects of varying sizes. Our ability to compete successfully depends on a number of factors, both within and outside of our control.
For enterprise analytics, we compete with global ISVs, such as IBM, Microsoft, Oracle, Salesforce, and SAP. Our ability to compete successfully depends on a number of factors within and outside of our control.
We embrace an agile approach to development and innovation. Our platform integrates with common applications including Excel, Power BI, Tableau, RStudio, and Jupyter. Developers can leverage scripts, APIs, and 200+ connectors (local and cloud) to embed the platform or build predictive, machine learning-enhanced data models on top of a secure and trusted foundation.
Developers can leverage scripts, APIs, and 200+ connectors (local and cloud) to embed the platform or build predictive, machine learning-enhanced data models on top of a secure and trusted foundation. 12 FedRAMP Authorization The MicroStrategy Cloud for Government service (“MCG Service”) is authorized to operate under the Federal Risk and Authorization Management Program (“FedRAMP”) guidelines, which certifies compliance with essential cloud security and data protection standards set by the U.S.
In recent years, there has been an expansion of the number and type of services offered to the Bitcoin industry by traditional financial institutions, and we believe that this trend will continue if bitcoin becomes more widely adopted. Other Digital Assets As of the date of this Annual Report, bitcoin was the largest digital asset by market capitalization.
If adoption of the Bitcoin network continues to materially increase, we anticipate that service providers may expand the currently available range of services and that additional parties will enter the service sector for the Bitcoin network. Other Digital Assets As of the date of this Annual Report, bitcoin was the largest digital asset by market capitalization.
MicroStrategy Support Our global network of MicroStrategy-certified support experts brings a wealth of experience and knowledge to help customers achieve their system availability and uptime goals and to improve the overall customer experience through highly responsive troubleshooting and proactive technical product support. Standard Support is included in each customer’s maintenance plan.
MicroStrategy Professional Services™ Through our MicroStrategy Support, MicroStrategy Consulting, and MicroStrategy Education services, we help customers deploy and customize our solutions to facilitate adoption and maximize returns on data investments. MicroStrategy Support Our global network of MicroStrategy-certified technical support experts help our customers achieve their system availability and usage goals through highly responsive troubleshooting and assistance.
Some of these factors include software deployment options; analytical, mobility, data discovery, visualization, artificial intelligence, and machine learning capabilities; performance and scalability; the quality and reliability of our customer service and support; and brand recognition.
Some of these factors include software quality, performance and reliability; the quality of our service and support teams; marketing and prospecting effectiveness; the ability to incorporate artificial intelligence and other technically advanced features; and our ability to differentiate our products.
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Item 1. Business Overview MicroStrategy ® pursues two corporate strategies in the operation of its business. One strategy is to acquire and hold bitcoin and the other strategy is to grow our enterprise analytics software business.
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Item 1. Business Overview MicroStrategy® recently announced that it considers itself the world’s first Bitcoin development company. We are a publicly-traded operating company committed to the continued development of the Bitcoin network through our activities in the financial markets, advocacy and technology innovation.
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We believe that undertaking these two, interdependent corporate strategies serves as a key differentiator for our business, as our bitcoin acquisition strategy has raised our profile with potential software customers while our enterprise analytics software business has provided stable cash flows that allow us to acquire and hold bitcoin for the long-term.
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As an operating business, we are able to use cash flows as well as proceeds from equity and debt financings to accumulate bitcoin, which serves as our primary treasury reserve asset. We also develop and provide industry-leading AI-powered enterprise analytics software that promotes our vision of Intelligence Everywhere™, and are using our software development capabilities to develop bitcoin applications.
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We have not set any specific target for the amount of bitcoin we seek to hold, and we will continue to monitor market conditions in determining whether to engage in additional financings to purchase additional bitcoin.
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Our software business, which we have operated for over 30 years, is our predominant operational focus, providing cash flows and enabling us to pursue our bitcoin strategy. We believe that the combination of our operating structure, bitcoin strategy and focus on technology innovation differentiates us in the digital assets industry.
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In addition, we believe that our bitcoin acquisition strategy is complementary to our enterprise analytics software business, as we believe that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand. We are also exploring opportunities to apply bitcoin and lightning network-related technologies into our software offerings.
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Bitcoin Strategy Our bitcoin strategy includes (i) acquiring bitcoin using cash flows from operations and proceeds from equity and debt financings, (ii) developing product innovations that leverage Bitcoin blockchain technology, and (iii) periodically engaging in advocacy and educational activities regarding the continued acceptance and value of bitcoin as an open, secure protocol for an internet-native digital asset and the Lightning Network.
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MicroStrategy is also a global leader in enterprise analytics software and services. Since our founding in 1989, we have focused on empowering organizations to leverage the immense value of data. Our vision is to enable Intelligence Everywhere ™ by providing world-class software and services that provide enterprise users with actionable insights.
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We are working to develop software products and service offerings that leverage the Lightning Network and exploring additional opportunities to develop offerings that leverage Bitcoin blockchain-based technology.
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The MicroStrategy Platform is an enterprise analytics software platform that incorporates a comprehensive suite of software offerings that are packaged and configured to meet customer requirements. The MicroStrategy Platform empowers organizations to leverage the immense value of their data. The platform enables users to connect to, sort and cleanse a wide variety of data.
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Bitcoin Advocacy and Education Through various initiatives, such as our Bitcoin for Corporations sessions at MicroStrategy World, we seek to engage with and educate others about the opportunities available if they adopt bitcoin as a treasury reserve asset and to develop tools that leverage the Bitcoin blockchain and Lightning Network.
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Sitting at the top of a technology stack, it can blend a myriad of sources to provide organizations with a comprehensive view of their business.
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In 2023, we also provided comments to the Financial Accounting Standards Board (“FASB”) on their published proposal with respect to the accounting treatment of digital assets.
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As part of our bitcoin acquisition strategy, we also periodically engage in activities to educate the market regarding bitcoin.
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The FASB published the final standard in December 2023. 7 Our Bitcoin Holdings During 2023, we purchased a total of approximately 56,650 bitcoins at an aggregate purchase price of approximately $1.902 billion for an average purchase price of approximately $33,580 per bitcoin, inclusive of fees and expenses. We did not sell any bitcoin during 2023.
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Our bitcoin acquisition strategy generally involves acquiring bitcoin with our liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin.
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During 2022, we purchased a total of approximately 8,813 bitcoins at an aggregate purchase price of approximately $287.9 million for an average purchase price of approximately $32,670 per bitcoin, inclusive of fees and expenses, and sold a total of approximately 704 bitcoins for cash proceeds of approximately $11.8 million at an average sale price of approximately $16,786 per bitcoin, net of fees and expenses.
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See “ Item 1A. Risk Factors – Risks Related to Our Bitcoin Acquisition Strategy and Holdings – The loss or destruction of a private key required to access our bitcoin may be irreversible.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeNakamoto; • interruptions in service or failures of the principal markets for bitcoin, for example the announcement by the digital asset exchange FTX Trading that it would freeze withdrawals and transfers from its accounts and subsequent filing for bankruptcy protection; • the filing for bankruptcy protection by, liquidation of, or market concerns about the financial viability of digital asset custodians, trading venues, lending platforms, investment funds, or other digital asset industry participants, such as the filing for bankruptcy protection by digital asset trading venues FTX Trading and BlockFi and digital asset lending platforms Celsius Network and Voyager Digital Holdings in 2022, and the ordered liquidation of the digital asset investment fund Three Arrows Capital in 2022; • regulatory, legislative, enforcement and judicial actions that adversely affect the price, ownership, transferability, legality or public perception of bitcoin, or that adversely affect the operations of digital asset custodians or trading venues; • further reductions in mining rewards of bitcoin, including block reward halving events, which are events that occur after a specific period of time that reduce the block reward earned by “miners” who validate bitcoin transactions; • transaction congestion and fees associated with processing transactions on the bitcoin network; • macroeconomic changes, such as changes in the level of interest rates and inflation, fiscal and monetary policies of governments, trade restrictions, and fiat currency devaluations; 20 • developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography being used by bitcoin becoming insecure or ineffective; and • changes in national and international economic and political conditions, including, without limitation, the adverse impact attributable to the economic and political instability caused by the current conflict between Russia and Ukraine and the economic sanctions adopted in response to the conflict.
Biggest changeNakamoto; • disruptions, failures, unavailability, or interruptions in service of trading venues for bitcoin, such as, for example, the announcement by the digital asset exchange FTX Trading that it would freeze withdrawals and transfers from its accounts and subsequent filing for bankruptcy protection and the recent SEC enforcement action brought against Binance Holdings Ltd., which initially sought to freeze all of its assets during the pendency of the enforcement action; • the filing for bankruptcy protection by, liquidation of, or market concerns about the financial viability of digital asset custodians, trading venues, lending platforms, investment funds, or other digital asset industry participants, such as the filing for bankruptcy protection by digital asset trading venues FTX Trading and BlockFi and digital asset lending platforms Celsius Network and Voyager Digital Holdings in 2022, the ordered liquidation of the digital asset investment fund Three Arrows Capital in 2022, the announced liquidation of Silvergate Bank in 2023, the government-mandated closure and sale of Signature Bank in 2023, the placement of Prime Trust, LLC into receivership following a cease-and-desist order issued by the Nevada Department of Business and Industry in 2023, and the exit of Binance from the U.S. market as part of its settlement with the Department of Justice and other federal regulatory agencies; • regulatory, legislative, enforcement and judicial actions that adversely affect the price, ownership, transferability, trading volumes, legality or public perception of bitcoin, or that adversely affect the operations of or otherwise prevent digital asset custodians, trading venues, lending platforms or other digital assets industry participants from operating in a manner that allows them to continue to deliver services to the digital assets industry; • further reductions in mining rewards of bitcoin, including block reward halving events, which are events that occur after a specific period of time that reduce the block reward earned by “miners” who validate bitcoin transactions, or increases in the costs associated with bitcoin mining, including increases in electricity costs and hardware and software used in mining, that may cause a decline in support for the Bitcoin network; • transaction congestion and fees associated with processing transactions on the Bitcoin network; • macroeconomic changes, such as changes in the level of interest rates and inflation, fiscal and monetary policies of governments, trade restrictions, and fiat currency devaluations; • developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography used by the Bitcoin blockchain becoming insecure or ineffective; and • changes in national and international economic and political conditions, including, without limitation, the adverse impact attributable to the economic and political instability caused by the current conflict between Russia and Ukraine and the economic sanctions adopted in response to the conflict, and the potential broadening of the Israel-Hamas conflict to other countries in the Middle East.
Any such outcome could have a material adverse effect on our financial condition and the market price of our class A common stock. The broader digital assets industry is subject to counterparty risks, which could adversely impact the adoption rate and use of bitcoin.
Any such outcome could have a material adverse effect on our financial condition and the market price of our class A common stock. The broader digital assets industry is subject to counterparty risks, which could adversely impact the adoption rate, price, and use of bitcoin.
Various U.S. and foreign government bodies may enact new or additional laws or regulations, or issue rulings that invalidate prior laws or regulations, concerning privacy, data storage, data protection, and cross-border transfer of data that could materially adversely impact our business. In the European Union, the GDPR took effect in May 2018.
Various U.S. and foreign government bodies may enact new or additional laws or regulations, or issue rulings that invalidate prior laws or regulations, concerning privacy, data storage, data protection, and cross-border transfer of data that could materially adversely impact our business. In the European Union, GDPR took effect in May 2018.
If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
If we are forced to refinance these borrowings on less favorable terms or if we cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
Risks Related to Our Operations Business disruptions, including interruptions, delays, or failures of our systems, third-party data center hosting facility, or other third-party services, as a result of geopolitical tensions, acts of terrorism, natural disasters, pandemics (like the COVID-19 pandemic), and similar events, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our stock A significant portion of our research and development activities or certain other critical business operations are concentrated in facilities in Northern Virginia, China, Argentina, and Poland.
Risks Related to Our Operations 33 Business disruptions, including interruptions, delays, or failures of our systems, third-party data center hosting facility, or other third-party services, as a result of geopolitical tensions, acts of terrorism, natural disasters, pandemics (like the COVID-19 pandemic), and similar events, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our stock A significant portion of our research and development activities or certain other critical business operations are concentrated in facilities in Northern Virginia, China, Argentina, and Poland.
Responding to any infringement claim, regardless of its validity, could: • be time-consuming, costly, and/or result in litigation; • divert management’s time and attention from developing our business; 30 • require us to pay monetary damages or enter into royalty or licensing agreements that we would normally find unacceptable; • require us to stop selling certain of our offerings; • require us to redesign certain of our offerings using alternative non-infringing technology or practices, which could require significant effort and expense; • require us to rename certain of our offerings or entities; or • require us to satisfy indemnification obligations to our customers or channel partners.
Responding to any infringement claim, regardless of its validity, could: • be time-consuming, costly, and/or result in litigation; • divert management’s time and attention from developing our business; • require us to pay monetary damages or enter into royalty or licensing agreements that we would normally find unacceptable; • require us to stop selling certain of our offerings; • require us to redesign certain of our offerings using alternative non-infringing technology or practices, which could require significant effort and expense; • require us to rename certain of our offerings or entities; or • require us to satisfy indemnification obligations to our customers or channel partners.
Any security breach, ransomware attack, or successful denial of service attack could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt our normal business operations, require us to spend material resources to investigate or correct the breach, require us to notify affected customers or individuals and/or applicable regulators and others, provide identity theft protection services to individuals, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and materially adversely affect our revenues and operating results.
Any security breach, ransomware attack, or successful denial of service attack could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt our normal business operations, require us to spend material resources to investigate or correct the breach, require us to notify affected customers or individuals and/or applicable regulators and others, provide identity theft protection services to individuals, expose us to legal liabilities, including litigation, regulatory enforcement actions, and indemnity obligations, and materially adversely affect our revenues and operating results.
Given the relative novelty of digital assets, general lack of familiarity with the processes needed to hold bitcoin directly, as well as the potential reluctance of financial planners and advisers to recommend direct bitcoin holdings to their retail customers because of the manner in which such holdings are custodied, some investors have sought exposure to bitcoin through investment vehicles that hold bitcoin and issue shares representing fractional undivided interests 22 in their underlying bitcoin holdings.
Given the relative novelty of digital assets, general lack of familiarity with the processes needed to hold bitcoin directly, as well as the potential reluctance of financial planners and advisers to recommend direct bitcoin holdings to their retail customers because of the manner in which such holdings are custodied, some investors have sought exposure to bitcoin through investment vehicles that hold bitcoin and issue shares representing fractional undivided interests in their underlying bitcoin holdings.
Moreover, it is not clear whether any such legislation would give the Federal Trade Commission (“FTC”) any new authority to impose civil penalties for violations of the Federal Trade Commission Act in the first instance, whether Congress will grant the FTC rulemaking authority over privacy and information security, or whether Congress will vest some or all privacy and data security regulatory authority and enforcement power in a new agency, akin to EU data protection authorities.
Moreover, it is not clear whether any such legislation would give the FTC any new authority to impose civil penalties for violations of the Federal Trade Commission Act in the first instance, whether Congress will grant the FTC rulemaking authority over privacy and information security, or whether Congress will vest some or all privacy and data security regulatory authority and enforcement power in a new agency, akin to EU data protection authorities.
In addition, the adoption of our bitcoin acquisition strategy and the recent increase in our indebtedness has caused and may in the future cause certain of our existing or prospective customers to form negative perceptions regarding our corporate risk profile or our financial viability as a commercial counterparty, and such negative perceptions could negatively impact sales of our analytics software platform and related services to current or prospective customers.
In addition, the adoption of our bitcoin acquisition strategy and the increase in our indebtedness has caused and may in the future cause certain of our existing or prospective customers to form negative perceptions regarding our corporate risk profile or our financial viability as a commercial counterparty, and such negative perceptions could negatively impact sales of our analytics software platform and related services to current or prospective customers.
These restrictions limit our ability, and the ability of such restricted subsidiaries, to, among other things: • incur or guarantee additional debt or issue disqualified stock or certain preferred stock; • create or incur liens; • pay dividends, redeem stock, or make certain other distributions; • make certain investments; • create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; • transfer or sell assets; • merge or consolidate; and • enter into certain transactions with affiliates.
These restrictions limit our ability, and the ability of such restricted subsidiaries, to, among other things: • incur or guarantee additional debt or issue disqualified stock or certain preferred stock; • create or incur liens; • pay dividends, redeem stock, or make certain other distributions; • make certain investments; • create restrictions on the ability of our Restricted Subsidiaries to pay dividends to us or make other intercompany transfers; 42 • transfer or sell assets; • merge or consolidate; and • enter into certain transactions with affiliates.
Even if we are able to prevent our bitcoin from being considered the property of the custodian’s bankruptcy estate as part of an insolvency proceeding, it is possible that we would still be delayed or may otherwise experience difficulty in accessing our bitcoin held by the affected custodian during the pendency of the insolvency proceedings.
Even if we are able to prevent our bitcoin from being considered the property of a custodian’s bankruptcy estate as part of an insolvency proceeding, it is possible that we would still be delayed or may otherwise experience difficulty in accessing our bitcoin held by the affected custodian during the pendency of the insolvency proceedings.
Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, bitcoin trading venues may experience greater fraud, security failures or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in bitcoin trading venues and adversely affect the value of our bitcoin Bitcoin trading venues are relatively new and, in many cases, unregulated.
Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, bitcoin trading venues may experience greater fraud, security failures or regulatory or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in bitcoin trading venues and adversely affect the value of our bitcoin Bitcoin trading venues are relatively new and, in many cases, unregulated.
In certain jurisdictions, our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these difficulties could materially adversely affect our business and results of operations. If we are unable to recruit or retain skilled personnel, or if we lose the services of Michael J.
In certain jurisdictions, our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these difficulties could materially adversely affect our business and results of operations. 35 If we are unable to recruit or retain skilled personnel, or if we lose the services of Michael J.
Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s CBDC project was made available to consumers in January 2022, and governments including the United States and the European Union have been discussing the potential creation of new CBDCs .
Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s CBDC project was made available to consumers in January 2022, and governments including the United States, the European Union, and Israel have been discussing the potential creation of new CBDCs.
For product licenses, customers typically pay us a lump sum soon after 27 entering into a license agreement, and we typically recognize product licenses revenue when control of the license is transferred to the customer. For cloud subscriptions, customers typically make periodic payments over the subscription period and we recognize subscription services revenues ratably over the subscription period.
For product licenses, customers typically pay us a lump sum soon after entering into a license agreement, and we typically recognize product licenses revenue when control of the license is transferred to the customer. For cloud subscriptions, customers typically make periodic payments over the subscription period and we recognize subscription services revenues ratably over the subscription period.
In particular, unauthorized parties have attempted, and we expect 25 that they will continue to attempt, to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through various means, such as hacking, social engineering, phishing and fraud.
In particular, unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through various means, such as hacking, social engineering, phishing and fraud.
In light of our status as a controlled company, our Board of Directors has determined not to establish an independent nominating committee or have its independent directors exercise the nominating function and has elected instead to have the Board of Directors be 37 directly responsible for nominating members of the Board.
In light of our status as a controlled company, our Board of Directors has determined not to establish an independent nominating committee or have its independent directors exercise the nominating function and has elected instead to have the Board of Directors be directly responsible for nominating members of the Board.
Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain. 18 We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion.
Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain. We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion.
These attacks may occur on our systems or those of our third-party service providers or partners. We may experience breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities or other irregularities.
These attacks may occur on our systems or those of our third-party service providers or partners. We may experience breaches of our security measures due to human error, malfeasance, 27 insider threats, system errors or vulnerabilities or other irregularities.
If we fail to comply with the terms or conditions associated with third-party software that we use, if we inadvertently embed certain types of third-party software into one or more of our offerings, or if third-party software that we license is found to infringe the intellectual property rights of others, we could subject ourselves to infringement liability and be required to re-engineer our offerings, discontinue the sale of our offerings, or make available to certain third parties or generally available, in source code form, our proprietary code, any of which could materially adversely affect our business, operating results, and financial condition.
If we fail to comply with the terms or conditions associated with third-party software that we use, if we inadvertently embed certain types of third-party software into one or more of our offerings, or if third-party software that we license is found to infringe the intellectual property rights of others, we could become subject to infringement liability and be required to re-engineer our offerings, discontinue the sale of our offerings, or make available to certain third parties or generally available, in source code form, our proprietary code, any of which could materially adversely affect our business, operating results, and financial condition.
The number of such claims may increase as we expand our offerings and branding, the number of offerings and level of competition in our industry grow, the functionality of offerings overlaps, and the volume of issued patents, patent applications, and copyright and trademark registrations continues to increase.
The frequency of such claims may increase as we expand our offerings and branding, the number of offerings and level of competition in our industry grow, the functionality of offerings overlaps, and the volume of issued patents, patent applications, and copyright and trademark registrations continues to increase.
Although we have implemented various measures that are designed to mitigate our counterparty risks, including by storing substantially all of the bitcoin we own in custody accounts at U.S.-based, institutional-grade custodians and negotiating contractual arrangements intended to establish that our property interest in custodially-held bitcoin is not subject to claims of the custodian’s creditors, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts.
Although we have implemented various measures that are designed to mitigate our counterparty risks, including by storing substantially all of the bitcoin we own in custody accounts at U.S.-based, institutional-grade custodians and negotiating contractual arrangements intended to establish that our property interest in custodially-held bitcoin is not subject to claims of our custodians’ creditors, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts.
Any disruptions or failures of our systems or the third-party hosting facility or other services that we use, including as a result of a natural disaster, fire, cyberattack (including the potential increase in risk for such attacks due to cyberwarfare in connection with the ongoing conflict between Russia and Ukraine), act of terrorism, geopolitical conflict (including due to the ongoing conflict between Russia and Ukraine and any potential conflict involving China and Taiwan), pandemic (including the ongoing COVID-19 pandemic), the effects of climate change, or other catastrophic event, as well as power outages, telecommunications infrastructure outages, a decision by one of our third-party service providers to close facilities that we use without adequate notice or to materially change the pricing or terms of their services, host country restrictions on the conduct of our business operations or the availability of our offerings, or other unanticipated problems with our systems or the third-party services that we use, such as a failure to meet service standards, could severely impact our ability to conduct our business operations or to attract new customers or maintain existing customers, or result in a material weakness in our internal control over financial reporting, any of which could materially adversely affect our future operating results.
Any disruptions or failures of our systems or the third-party hosting facility or other services that we use, including as a result of a natural disaster, fire, cyberattack (including the potential increase in risk for such attacks due to cyberwarfare in connection with the ongoing Russia-Ukraine and Israel-Hamas conflicts), act of terrorism, geopolitical conflict (including due to the ongoing Russia-Ukraine and Israel-Hamas conflicts and any potential conflict involving China and Taiwan), pandemic (including the COVID-19 pandemic), the effects of climate change, or other catastrophic event, as well as power outages, telecommunications infrastructure outages, a decision by one of our third-party service providers to close facilities that we use without adequate notice or to materially change the pricing or terms of their services, host country restrictions on the conduct of our business operations or the availability of our offerings, or other unanticipated problems with our systems or the third-party services that we use, such as a failure to meet service standards, could severely impact our ability to conduct our business operations or to attract new customers or maintain existing customers, or result in a material weakness in our internal control over financial reporting, any of which could materially adversely affect our future operating results.
If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness. 41 The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results In the event the conditional conversion feature of either the 2025 Convertible Notes or the 2027 Convertible Notes is triggered, holders of the applicable Convertible Notes will be entitled to convert such notes at any time during specified periods at their option.
If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness. 43 The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results In the event the conditional conversion feature of either the 2025 Convertible Notes or the 2027 Convertible Notes is triggered, holders of the applicable Convertible Notes will be entitled to convert such notes at any time during specified periods at their option.
Our international operations require significant management attention and financial resources and expose us to additional risks, including: • fluctuations in foreign currency exchange rates; • new, or changes in, regulatory requirements; • tariffs, export and import restrictions, restrictions on foreign investments, tax laws, sanctions, laws and policies that favor local competitors (such as mandatory technology transfers), and other trade barriers or protection measures; • compliance with a wide variety of laws, including those relating to labor matters, antitrust, procurement and contracting, consumer and data protection, privacy, data localization, governmental access to data, network security, and encryption; • costs of localizing offerings and lack of acceptance of localized offerings; • difficulties in and costs of staffing, managing, and operating our international operations; 31 • economic weakness or currency-related crises; • generally longer payment cycles and greater difficulty in collecting accounts receivable; • weaker intellectual property protection; • increased risk of corporate espionage or misappropriation, theft, or misuse of intellectual property, particularly in foreign countries where we have significant software development operations that have access to product source code, such as China; • our ability to adapt to sales practices and customer requirements in different cultures; • natural disasters, acts of war (including risks relating to the ongoing conflict between Russia and Ukraine and any potential conflict involving China and Taiwan), terrorism, or pandemics (including the ongoing COVID-19 pandemic); and • political instability and security risks in the countries where we are doing business, including, without limitation, political and economic instability caused by the current conflict between Russia and Ukraine and economic sanctions adopted in response to the conflict.
Our international operations require significant management attention and financial resources and expose us to additional risks, including: • fluctuations in foreign currency exchange rates; • new, or changes in, regulatory requirements; • tariffs, export and import restrictions, restrictions on foreign investments, tax laws, sanctions, laws and policies that favor local competitors (such as mandatory technology transfers), and other trade barriers or protection measures; • compliance with a wide variety of laws, including those relating to labor matters, antitrust, procurement and contracting, consumer and data protection, privacy, data localization, governmental access to data, network security, and encryption; • costs of localizing offerings and lack of acceptance of localized offerings; • difficulties in and costs of staffing, managing, and operating our international operations; • economic weakness or currency-related crises; • generally longer payment cycles and greater difficulty in collecting accounts receivable; • weaker intellectual property protection; • increased risk of corporate espionage or misappropriation, theft, or misuse of intellectual property, particularly in foreign countries where we have significant software development operations that have access to product source code, such as China; • our ability to adapt to sales practices and customer requirements in different cultures; • natural disasters, acts of war (including risks relating to the ongoing conflict between Russia and Ukraine, a potential broadening of the Israel-Hamas conflict to other countries in the Middle East, and any potential conflict involving China and Taiwan), terrorism, or pandemics (including the COVID-19 pandemic); and • political instability and security risks in the countries where we are doing business, including, without limitation, political and economic instability caused by the current conflict between Russia and Ukraine and economic sanctions adopted in response to the conflict, and a potential broadening of the Israel-Hamas conflict to other countries in the Middle East.
If, as a result of an audit or review, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties or administrative sanctions, including contract termination, forfeiture of profits, fines, and suspensions or debarment from future government business and we may suffer harm to our reputation.
If, as a result of an audit or review, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties or administrative sanctions, including contract termination, forfeiture of profits, fines, treble damages, and suspensions or debarment from future government business and we may suffer harm to our reputation.
Any material adverse effect on our financial condition caused by a significant decline in the market value of our bitcoin holdings may create liquidity and credit risks for our business operations, as we would have limited means 26 to obtain cash beyond the revenues generated by our enterprise analytics software business.
Any material adverse effect on our financial condition caused by a significant decline in the market value of our bitcoin holdings may create liquidity and credit risks for our business operations, as we would have limited means 28 to obtain cash beyond the revenues generated by our enterprise analytics software business.
Awards made to directors and officers subject to Section 16 of the Exchange Act under the 2013 Equity Plan are also approved by the Compensation Committee. Additionally, while our Compensation Committee is empowered with the authority to retain and terminate outside counsel, compensation consultants, and other experts or consultants, it is not required to assess their independence.
Awards made to directors and officers subject to Section 16 of the Exchange Act under the 2023 Equity Plan are also approved by the Compensation Committee. Additionally, while our Compensation Committee is empowered with the authority to retain and terminate outside counsel, compensation consultants, and other experts or consultants, it is not required to assess their independence.
See “Risks Related to Our Bitcoin Acquisition Strategy and Holdings – Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our bitcoin holdings.” Our bitcoin acquisition strategy has not been tested over an extended period of time or under different market conditions.
See “Risks Related to Our Bitcoin Acquisition Strategy and Holdings – Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our bitcoin holding s .” Our bitcoin acquisition strategy has not been tested over an extended period of time or under different market conditions.
As of December 31, 2022, the insurance that covers losses of our bitcoin holdings covers only a small fraction of the value of the entirety of our bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we have or that such coverage will cover losses with respect to our bitcoin.
As of December 31, 2023, the insurance that covers losses of our bitcoin holdings covers only a small fraction of the value of the entirety of our bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we have or that such coverage will cover losses with respect to our bitcoin.
Moreover, the use of custodians to hold our bitcoin exposes us to the risk that the bitcoin custodially-held on our behalf could be subject to insolvency proceedings and we could be treated as a general unsecured creditor of the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin.
Moreover, our use of custodians exposes us to the risk that the bitcoin our custodians hold on our behalf could be subject to insolvency proceedings and we could be treated as a general unsecured creditor of the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin.
If a contract is terminated due to a default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative software or services. 32 Compliance with Government Contracting Requirements.
If a contract is terminated due to our default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative software or services. Compliance with Government Contracting Requirements.
Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks, whether or not we are directly impacted, could lead to a general loss of confidence in the broader bitcoin blockchain ecosystem or in the use of bitcoin networks to conduct financial transactions, which could negatively impact us.
Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks, regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader Bitcoin blockchain ecosystem or in the use of the Bitcoin network to conduct financial transactions, which could negatively impact us.
For example, these restrictions do not prevent us from incurring obligations, such as certain trade payables and operating leases, which do not constitute indebtedness as defined under our debt instruments. To the extent we incur additional indebtedness or other obligations, the risks described herein with respect to our indebtedness may increase significantly. Item 1B. Unresolved Staff Comments None.
For example, these restrictions do not prevent us from incurring obligations, such as certain trade payables and operating leases, which do not constitute indebtedness as defined under our debt instruments. To the extent we incur additional indebtedness or other obligations, the risks described herein with respect to our indebtedness may increase significantly. Item 1B. Unresolv ed Staff Comments None.
For example, in 2019 there were reports claiming that 80-95% of bitcoin trading volume on trading venues was false or non-economic in nature, with specific focus on unregulated exchanges located outside of the United States.
In 2019 there were reports claiming that 80-95% of bitcoin trading volume on trading venues was false or non-economic in nature, with specific focus on unregulated exchanges located outside of the United States.
The IRA applies to tax years beginning after December 31, 2022 and introduces a 15% corporate alternative minimum tax for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the tax year exceeds $1 billion and a 1% excise tax on certain stock repurchases made by publicly traded US corporations after December 31, 2022.
The IRA applies to tax years beginning after December 31, 2022 and introduces a 15% corporate alternative minimum tax for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the tax year exceeds $1 billion and a 1% excise tax on certain stock repurchases made by publicly traded U.S. corporations after December 31, 2022.
For example, our execution partners, custodians, or other counterparties might fail to perform in accordance with the terms of our agreement with them, which could result in a loss of bitcoin, a loss of the opportunity to generate funds, or other losses.
For example, our execution partners, custodians, or other counterparties might fail to perform in accordance with the terms of our agreements with them, which could result in a loss of bitcoin, a loss of the opportunity to generate funds, or other losses.
Security breaches may occur due to technological error, computer viruses, or third-party action, including intentional misconduct by computer hackers or state actors, physical break-ins, industrial espionage, fraudulent inducement of employees, customers, or channel partners to disclose sensitive information such as user names or passwords, and employee, customer, or channel partner error or malfeasance.
Security breaches may occur due to technological error, computer viruses, or third-party action, including intentional misconduct by computer hackers or state actors, physical break-ins, industrial espionage, fraudulent inducement of employees, customers, or channel partners to disclose sensitive information such as usernames or passwords, and employee, customer, or channel partner error or malfeasance.
There are a variety of risks in doing business with government entities, including: Procurement. Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring us to incur significant up-front time and expense without any assurance that we will win a contract. Budgetary Constraints and Cycles.
There are a variety of risks in doing business with government entities, including: Procurement. Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring us to incur significant up-front time and expense without any assurance that we will win a contract.
Our quarterly operating results may fluctuate, in part, as a result of: • fluctuations in the price of bitcoin, of which we have significant holdings and with respect to which we expect to continue to make significant future purchases, and potential material impairment charges that may be associated therewith; • any sales by us of our bitcoin at prices above their then-current carrying costs, which would result in our recording gains upon sale of our digital assets; • regulatory, commercial, and technical developments related to bitcoin or the bitcoin blockchain; • the size, timing, volume, and execution of significant orders and deliveries; • the mix of our offerings ordered by customers, including product licenses and cloud subscriptions, which can affect the extent to which revenue is recognized immediately or over future quarterly periods; • the timing of the release or delivery of new or enhanced offerings and market acceptance of new and enhanced offerings; • the timing of announcements of new offerings by us or our competitors; • changes in our pricing policies or those of our competitors; • the length of our sales cycles; • seasonal or other buying patterns of our customers; • changes in our operating expenses; • the impact of COVID-19 and its variants, or other future infectious diseases, on the global economy and on our customers, suppliers, employees, and business; • the timing of research and development projects; • utilization of our consulting and education services, which can be affected by delays or deferrals of customer implementation of our software; • fluctuations in foreign currency exchange rates; • bilateral or multilateral trade tensions, which could affect our offerings in particular foreign markets; • our profitability and expectations for future profitability and their effect on our deferred tax assets and net income for the period in which any adjustment to our net deferred tax asset valuation allowance may be made; • increases or decreases in our liability for unrecognized tax benefits; and • changes in customer decision-making processes or customer budgets. 17 Limited Ability to Adjust Expenses.
Our quarterly operating results may fluctuate, in part, as a result of: • fluctuations in the price of bitcoin, of which we have significant holdings and with respect to which we expect to continue to make significant future purchases, and potential material impairment charges that may be associated therewith; • any sales by us of our bitcoin at prices above their then-current carrying costs, which would result in our recording gains upon sale of our digital assets; • regulatory, commercial, and technical developments related to bitcoin or the Bitcoin blockchain, or digital assets more generally; • the size, timing, volume, and execution of significant orders and deliveries; • the mix of our offerings ordered by customers, including product licenses and cloud subscriptions, which can affect the extent to which revenue is recognized immediately or over future quarterly periods; • the timing of the release or delivery of new or enhanced offerings and market acceptance of new and enhanced offerings; • the timing of announcements of new offerings by us or our competitors; • changes in our pricing policies or those of our competitors; • the length of our sales cycles; • seasonal or other buying patterns of our customers; • changes in our operating expenses; • the impact of war, terrorism, infectious diseases (such as COVID-19), natural disasters and other global events, and government responses to such events, on the global economy and on our customers, suppliers, employees, and business; • the timing of research and development projects; • utilization of our consulting and education services, which can be affected by delays or deferrals of customer implementation of our software; • fluctuations in foreign currency exchange rates; • bilateral or multilateral trade tensions, which could affect our offerings in particular foreign markets; • our profitability and expectations for future profitability and their effect on our deferred tax assets and net income for the period in which any adjustment to our net deferred tax asset valuation allowance may be made; • increases or decreases in our liability for unrecognized tax benefits; and • changes in customer decision-making processes or customer budgets. 17 Limited Ability to Adjust Expenses.
Any of these events could in turn 39 result in cross-defaults under our other indebtedness.
Any of these events could in turn result in cross-defaults under our other indebtedness.
Item 1A. Risk Factors You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Item 1A. Ri sk Factors You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
T he United States has put in place higher tariffs and other restrictions on trade with China, the European Union, Canada, and Mexico, among other countries, including limiting trade and/or imposing tariffs on imports from such countries. In addition, China, the European Union, Canada, and Mexico, among others, have either threatened or put into place retaliatory tariffs of their own.
The United States has put in place higher tariffs and other restrictions on trade with China, the European Union, Canada, and Mexico, among other countries, including limiting trade and/or 34 imposing tariffs on imports from such countries. In addition, China, the European Union, Canada, and Mexico, among others, have either threatened or put into place retaliatory tariffs of their own.
In addition, our indemnity arrangements with Mr. Saylor may result in some investors perceiving that our independent directors are not sufficiently independent from Mr. Saylor due to their entitlement to personal indemnification from him, which may have an adverse effect on the market price of our class A common stock.
In addition, our indemnification arrangement with Mr. Saylor may result in some investors perceiving that our independent directors are not sufficiently independent from Mr. Saylor due to their entitlement to personal indemnification from him, which may have an adverse effect on the market price of our class A common stock.
Additionally, during times of market instability, including in particular at times when the price of bitcoin has materially declined, we may be unable to enter into term loans or other capital raising transactions collateralized by our unencumbered bitcoin or otherwise generate funds using our bitcoin holdings.
Additionally, we may be unable to enter into term loans or other capital raising transactions collateralized by our unencumbered bitcoin or otherwise generate funds using our bitcoin holdings, including in particular during times of market instability or when the price of bitcoin has declined significantly.
Risks Related to Our Technology and Intellectual Property If we are unable to develop and release new offerings and software enhancements to respond to rapid technological change, new customer requirements, or evolving industry standards in a timely and cost-effective manner, our business, operating results, and financial condition could be materially adversely affected The market for our offerings is characterized by frequent new offerings and software enhancements in response to rapid technological change, new customer requirements, and evolving industry standards.
Risks Related to Our Technology and Intellectual Property If we are unable to develop and release new software product offerings or enhancements to our existing offerings in a timely and cost-effective manner, our business, operating results, and financial condition could be materially adversely affected The software market is characterized by frequent new offerings and enhancements in response to rapid technological change, new customer requirements, and evolving industry standards.
Other alternative digital assets that compete with bitcoin in certain ways include “stablecoins,” which are designed to maintain a constant price because 24 of their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar deposits and short-term U.S. treasury securities) equal to the total value of stablecoins in circulation.
Other alternative digital assets that compete with bitcoin in certain ways include “stablecoins,” which are designed to maintain a constant price because of, for instance, their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar deposits and short-term U.S. 26 treasury securities) equal to the total value of stablecoins in circulation.
We, and our service providers, may experience and have experienced attempts by third parties to identify and exploit software and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized access to our or our customers’ or service providers’ cloud environments, networks, and other systems.
We, and our service providers, have experienced and may in the future experience attempts by third parties to identify and exploit software and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized access to our or our customers’ or service providers’ cloud environments, networks, and other systems.
The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying and accessing bitcoin, institutional demand for bitcoin as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for bitcoin as a means of 21 payment, and the availability and popularity of alternatives to bitcoin.
The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to bitcoin, institutional demand for bitcoin as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for bitcoin as a means of payment, and the availability and popularity of alternatives to bitcoin.
Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could also compete with, or replac e , bitcoin and other digital assets as a medium of exchange or store of value.
Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could also compete with, or replace, bitcoin and other digital assets as a medium of exchange or store of value.
Upon the occurrence of an event of default under any of MicroStrategy’s indebtedness, the holders of the defaulted indebtedness could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest and, in the case of our 2028 Secured Notes, enforce their security interests on substantially all of MicroStrategy’s assets and the assets of our subsidiary guarantors, but excluding bitcoins that are currently owned by our MacroStrategy subsidiary or acquired by MacroStrategy in future periods in transactions permitted by the terms of the 2028 Secured Notes.
Upon the occurrence of an event of default under any of MicroStrategy’s indebtedness, the holders of the defaulted indebtedness could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest and, in the case of our 2028 Secured Notes, enforce their security interests on substantially all of MicroStrategy’s assets and the assets of our subsidiary guarantors, but excluding bitcoins that are currently owned by MacroStrategy LLC, a wholly-owned subsidiary of MicroStrategy Incorporated, (“MacroStrategy”), or acquired by MacroStrategy in future periods in transactions permitted by the terms of the 2028 Secured Notes.
For example, in 2022, each of Celsius Networks, Voyager Digital Holdings, Three Arrows Capital, FTX, and BlockFi filed for bankruptcy, following which the market prices of bitcoin and other digital assets significantly declined.
For example, in 2022, each of Celsius Network, Voyager Digital, Three Arrows Capital, FTX, and BlockFi filed for bankruptcy, following which the market prices of bitcoin and other digital assets significantly declined.
Failure to compete successfully in any one of these or other areas may reduce the demand for our offerings and materially adversely affect our revenue from both existing and prospective customers. Some of our competitors have longer operating histories, more focused business strategies and significantly greater financial, technical, and marketing resources than we do.
Failure to perform in these or other areas may reduce the demand for our offerings and materially adversely affect our revenue from both existing and prospective customers. Some of our competitors have longer operating histories, more focused business strategies and significantly greater financial, technical, and marketing resources than we do.
We may not be able to finance required repurchases of the 2028 Secured Notes or the Convertible Notes upon a change of control or a fundamental change or the repayment of amounts due under the 2025 Secured Term Loan upon a change of control Upon a change of control or a fundamental change as defined in the indentures governing the 2028 Secured Notes and the Convertible Notes, the holders of such notes will have the right to require us to offer to purchase all of the applicable notes then outstanding at a price equal to 101% of the principal amount of the 2028 Secured Notes and 100% of the principal amount of the Convertible Notes, respectively, plus, in each case, accrued and unpaid interest, if any, to, but excluding, the repurchase date.
We may not be able to finance required repurchases of the 2028 Secured Notes or the Convertible Notes upon a change of control or a fundamental change Upon a change of control or a fundamental change as defined in the indentures governing the 2028 Secured Notes and the Convertible Notes, the holders of such notes will have the right to require us to offer to purchase all of the applicable notes then outstanding at a price equal to 101% of the principal amount of the 2028 Secured Notes and 100% of the principal amount of the Convertible Notes, respectively, plus, in each case, accrued and unpaid interest, if any, to, but excluding, the repurchase date.
The application of securities laws and other laws and regulations to such assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of bitcoin.
The application of state and federal securities laws and other laws and regulations to digital assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of bitcoin.
Saylor, our Chairman of the Board of Directors and Executive Chairman, beneficially owned 1,961,668 shares of class B common stock, or 67.1% of the total voting power. Accordingly, Mr.
Saylor, our Chairman of the Board of Directors and Executive Chairman, beneficially owned 1,961,668 shares of class B common stock, or 56.6% of the total voting power. Accordingly, Mr.
Negative perception, a lack of stability in the broader bitcoin markets and the closure, temporary shutdown or operational disruption of bitcoin trading venues, lending institutions, institutional investors, institutional miners, custodians, or other major participants in the bitcoin ecosystem, due to fraud, business failure, hackers or malware, government-mandated regulation, bankruptcy, or for any other reason, may reduce confidence in bitcoin and the broader bitcoin ecosystem and may result in greater volatility in the price of bitcoin.
Negative perception, a lack of stability in the broader bitcoin markets and the closure, temporary shutdown or operational disruption of bitcoin trading venues, lending institutions, institutional investors, institutional miners, custodians, or other major participants in the bitcoin ecosystem, due to fraud, business failure, cybersecurity events, government-mandated regulation, bankruptcy, or for any other reason, may result in a decline in confidence in bitcoin and the broader bitcoin ecosystem and greater volatility in the price of bitcoin.
China also adopted new legislation on the protection of privacy and personal data in November 2021, including the Personal Information Protection Law (“PIPL”) and Data Security Law that impose new data processing obligations on us.
China also adopted new legislation on the protection of privacy and personal data in November 2021, including the PIPL and Data Security Law that impose new data processing obligations on us.
Finally, if we are not able to successfully grow sales of our cloud subscription platform, we may not be able to achieve the scale necessary to achieve increase d operating margins .
Finally, if we are not able to successfully grow sales of our cloud subscription platform, we may not be able to achieve the scale necessary to achieve increased operating margins.
As explained more fully in Note 2(g) to our consolidated financial statements for the year ended December 31, 2022 included in this Annual Report, we determine the fair value of our bitcoin based on quoted (unadjusted) prices on the Coinbase exchange (our principal market for bitcoin).
As explained more fully in Note 2(g) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2023, we determine the fair value of our bitcoin based on quoted (unadjusted) prices on the Coinbase exchange (our principal market for bitcoin).
In addition, the required terms for contracts containing SCCs along with recommended supplemental provisions are changing and may require us to assume additional obligations, otherwise inhibit or restrict our ability to undertake certain activities, or incur additional costs related to data protection.
In addition, the required terms for contracts containing SCCs along with recommended supplemental provisions are changing and may require us to assume additional obligations, otherwise inhibit or restrict our ability to undertake certain activities, or incur additional costs related to data protection. In addition, in June 2021, the EDPB issued the EDPB Recommendations.
A majority of our Board of Directors is currently comprised of independent directors, and our Board of Directors has established a Compensation Committee comprised entirely of independent directors. The Compensation Committee determines the compensation of our Chief Executive Officer and will also determine the compensation of our Executive Chairman.
A majority of our Board of Directors is currently comprised of independent directors, and our Board of Directors has established a Compensation Committee comprised entirely of independent directors. The Compensation Committee determines the compensation of our Chief Executive Officer and Executive Chairman.
Our failure to comply with the restrictive covenants described above, as well as other terms of our indebtedness or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date and/or face insolvency proceedings.
Our failure to comply with the restrictive covenants described above, as well as other terms of our indebtedness or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date, the liquidation of our assets serving as collateral and/or potential insolvency proceedings.
State privacy laws in the United States also may impact our business operations. The state of California has also adopted a comprehensive privacy law, the California Consumer Privacy Act (“CCPA”), which took effect in January 2020 and became enforceable in July 2020.
State privacy laws in the United States also may impact our business operations. The state of California has adopted a comprehensive privacy law, the CCPA, which took effect in January 2020 and became enforceable in July 2020.
The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain restricted subsidiaries of ours, which may prevent us from capitalizing on business opportunities The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain designated restricted subsidiaries of ours.
The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain subsidiaries of ours, which may prevent us from capitalizing on business opportunities The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain designated Restricted Subsidiaries (as defined in the indenture for the 2028 Secured Notes).
The price of bitcoin has recently experienced a significant decline, and this has had, and any further significant declines in the price of bitcoin would have, a more pronounced impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.
The price of bitcoin experienced a significant decline in 2022, and this had, and any future significant declines in the price of bitcoin would have, a more pronounced impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.
The rules involving this alternative data transfer option are also undergoing revision and this transfer mechanism may also be declared invalid (or require us to change our business practices) in the future, requiring us to provide an alternative means of data transfer.
Because the rules involving this data transfer mechanism are also undergoing revision and this transfer mechanism may also be declared invalid (or require us to change our business practices) in the future, these developments may require us to provide an alternative means of data transfer.
In addition, geopolitical and domestic political developments, such as existing and potential trade wars and other events beyond our control, such as conflict in the Ukraine, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.
In addition, geopolitical and domestic political developments, such as existing and potential trade wars and other events beyond our control, including the conflicts in Ukraine and the Middle East, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.
Additionally, if we are unable to regain profitability in the future, we may also be required to increase the valuation allowance against the remaining deferred tax assets. A significant increase in the valuation allowance could result in a charge that would materially adversely affect net income in the period in which the charge is incurred.
Additionally, if we do not achieve profitability in the future, we may also be required to increase the valuation allowance against the remaining deferred tax assets. A significant increase in the valuation allowance could result in a charge that would materially adversely affect net income in the period in which the charge is incurred.
These and any other bitcoin-related transactions we may enter into, beyond simply acquiring and holding bitcoin, may subject us to additional regulatory compliance requirements and scrutiny, including under federal and state money services regulations, money transmitter licensing requirements and various commodity and securities laws and regulations.
These types of bitcoin-related transactions are the subject of enhanced regulatory oversight. These and any other bitcoin-related transactions we may enter into, beyond simply acquiring and holding bitcoin, may subject us to additional regulatory compliance requirements and scrutiny, including under federal and state money services regulations, money transmitter licensing requirements and various commodity and securities laws and regulations.
For the year ended December 31, 2022, transactions by channel partners for which we recognized revenue accounted for 24.7% of our total product licenses revenues, and our ability to achieve revenue growth in the future will depend in part on our ability to maintain these relationships.
For the year ended December 31, 2023, transactions by channel partners for which we recognized revenue accounted for 27.2% of our total product licenses revenues, and our ability to achieve revenue growth in the future will depend in part on our ability to maintain these relationships.
We may be required to devote substantial resources to implement and maintain compliance with the CCPA, and noncompliance could result in regulatory investigations and fines or private litigation.
We have been required to devote substantial resources to implement and maintain compliance with the CCPA, and noncompliance could result in regulatory investigations and fines or private litigation.
These factors include, but are not limited to: • fluctuations in the price of bitcoin, of which we have significant holdings, and in which we expect we will continue to make significant purchases and announcements about our transactions in bitcoin; 36 • changes to our bitcoin acquisition strategy; • announcement of additional capital raising transactions; • regulatory, commercial and technical developments related to bitcoin or the Bitcoin blockchain; • quarterly variations in our results of operations or those of our competitors; • announcements about our earnings that are not in line with analyst expectations, the likelihood of which may be enhanced because it is our policy not to give guidance relating to our anticipated financial performance in future periods; • announcements by us or our competitors of acquisitions, dispositions, new offerings, significant contracts, commercial relationships, or capital commitments; • our ability to develop, market, and deliver new and enhanced offerings on a timely basis; • commencement of, or our involvement in, litigation; • recommendations by securities analysts or changes in earnings estimates and our ability to meet those estimates; • investor perception of our Company; • announcements by our competitors of their earnings that are not in line with analyst expectations; • the volume of shares of our class A common stock available for public sale; • sales or purchases of stock by us or by our stockholders and issuances of awards under our stock incentive plan; and • general economic conditions and slow or negative growth of related markets, including as a result of the COVID-19 pandemic.
These factors include, but are not limited to: • fluctuations in the price of bitcoin, of which we have significant holdings, and in which we expect we will continue to make significant purchases and announcements about our transactions in bitcoin; • changes to our bitcoin acquisition strategy; • announcement of additional capital raising transactions; • regulatory, commercial and technical developments related to bitcoin or the Bitcoin blockchain; • quarterly variations in our results of operations or those of our competitors; • announcements about our earnings that are not in line with analyst expectations, the likelihood of which may be enhanced because it is our policy not to give guidance relating to our anticipated financial performance in future periods; • announcements by us or our competitors of acquisitions, dispositions, new offerings, significant contracts, commercial relationships, or capital commitments; • our ability to develop, market, and deliver new and enhanced offerings on a timely basis; • commencement of, or our involvement in, litigation; • recommendations by securities analysts or changes in earnings estimates and our ability to meet those estimates; • investor perception of our Company, including as compared to investment vehicles that are designed to track the price of bitcoin, such as spot bitcoin ETPs; 39 • announcements by our competitors of their earnings that are not in line with analyst expectations; • the volume of shares of our class A common stock available for public sale; • sales or purchases of stock by us or by our stockholders and issuances of awards under our equity incentive plan; and • general economic conditions and slow or negative growth of related markets, including as a result of war, terrorism, infectious diseases (such as COVID-19), natural disasters and other global events, and government responses to such events.
If we continue to increase our overall holdings of bitcoin in the future, our bitcoin holdings will have a greater impact on our financial results and the market price of our class A common stock.
Our bitcoin holdings have significantly affected our financial results and if we continue to increase our overall holdings of bitcoin in the future, they will have an even greater impact on our financial results and the market price of our class A common stock.
If our custodially-held bitcoin were nevertheless considered to be the property of our custodian’s estate in the event that the custodian enters bankruptcy, receivership or similar insolvency proceedings, we could be treated as a general unsecured creditor of the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin and this may ultimately result in the loss of the value related to some or all of such bitcoin.
If our custodially-held bitcoin were nevertheless considered to be the property of our custodians’ estates in the event that any such custodians were to enter bankruptcy, receivership or similar insolvency proceedings, we could be treated as a general unsecured creditor of such custodians, inhibiting our ability to exercise ownership rights with respect to such bitcoin and this may ultimately result in the loss of the value related to some or all of such bitcoin.
The United States and other key international economies have experienced significant economic and market downturns recently characterized by restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, inflation, bankruptcies and overall uncertainty with respect to the economy.
The United States and other key international economies have experienced significant economic and market downturns in recent periods, which have been characterized by restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, inflation, bank failures, bankruptcies and overall uncertainty with respect to the economy.
In addition, we had $94.6 million of other remaining performance obligations as of December 31, 2022, consisting of the portions of multi-year contracts that will be invoiced in the future that are not reflected on our balance sheet.
In addition, we had $103.0 million of other remaining performance obligations as of December 31, 2023, consisting of the portions of multi-year contracts that will be invoiced in the future that are not reflected on our balance sheet.
As a result, our business, results of operations, and financial condition may be materially adversely affected. As of December 31, 2022, we had $188.2 million of deferred tax assets, which reflects a $511.4 million valuation allowance. The largest deferred tax asset relates to the impairment on our bitcoin holdings.
As a result, our business, results of operations, and financial condition may be materially adversely affected. As of December 31, 2023, we had $757.6 million of deferred tax assets, which reflects a $1.4 million valuation allowance. The largest deferred tax asset relates to the impairment on our bitcoin holdings.
Our recognition of deferred revenue and advance payments is subject to future performance obligations and may not be representative of revenues for succeeding periods Our deferred revenue and advance payments totaled $230.2 million as of December 31, 2022.
Our recognition of deferred revenue and advance payments is subject to future performance obligations and may not be representative of revenues for succeeding periods Our deferred revenue and advance payments totaled $236.7 million as of December 31, 2023.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeAs of December 31, 2022, we utilized approximately 26,000 square feet of office and other space in the United States, in addition to our corporate headquarters, and approximately 102,000 square feet of office space in various foreign locations. 42
Biggest changeAs of December 31, 2023, we utilized approximately 23,000 square feet of office and other space in the United States, in addition to our corporate headquarters, and approximately 97,000 square feet of office space in various foreign locations.
Item 2. Properties As of December 31, 2022, we leased approximately 190,000 square feet of office space at a location in Northern Virginia that serves as our corporate headquarters. This lease provides for certain tenant allowances and incentives and will expire in December 2030.
Item 2. Properties As of December 31, 2023, we leased approximately 190,000 square feet of office space at a location in Northern Virginia that serves as our corporate headquarters. This lease provides for certain tenant allowances and incentives and will expire in December 2030.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are involved in various legal proceedings arising in the normal course of business, including the matter described below.
Biggest changeItem 3. Legal Proceedings We are involved in various legal proceedings arising in the normal course of business, including the matter referred to below.
Removed
On August 31, 2022, the District of Columbia (the “District”), through its Office of the Attorney General, filed a civil complaint in the Superior Court of the District of Columbia naming as defendants (i) Michael J. Saylor, the Chairman of our Board of Directors and our Executive Chairman, in his personal capacity, and (ii) the Company.
Added
The information required by this Item is provided under the subheading “ False Claims Act Matter ” in section (b) of Note 9, Commitments and Contingencies to our Consolidated Financial Statements and incorporated herein by reference. Item 4. Mine Saf ety Disclosures Not applicable. 45 PART II
Removed
The District is seeking, among other relief, monetary damages under the District’s False Claims Act for the alleged failure of Mr. Saylor to pay personal income taxes to the District over a number of years together with penalties, interest, and treble damages. The complaint alleges that the amount of personal income taxes purportedly involved is more than $25 million.
Removed
The complaint also alleges that we violated the District’s False Claims Act by conspiring to assist Mr. Saylor’s alleged failure to pay personal income taxes. We believe that the District’s claims against us have no merit and we are defending aggressively against these allegations. On October 26, 2022, we filed a motion to dismiss the District’s complaint.
Removed
We filed a motion to stay discovery on September 28, 2022, and the court granted this motion on October 28, 2022. The outcome of this matter is not presently determinable. Item 4. Mine Safety Disclosures Not applicable. 43 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMeasurement points are December 29, 2017, December 31, 2018, December 31, 2019, December 31, 2020, December 31, 2021, and December 30, 2022. 12/29/17 12/31/18 12/31/19 12/31/20 12/31/21 12/30/22 MicroStrategy Incorporated $ 100.00 $ 97.28 $ 108.60 $ 295.81 $ 414.48 $ 107.75 Nasdaq Composite Index $ 100.00 $ 97.16 $ 132.81 $ 192.47 $ 235.15 $ 158.65 Nasdaq Computer Index $ 100.00 $ 97.38 $ 147.97 $ 221.92 $ 305.94 $ 196.49 NOTE: Prepared by Zacks Investment Research, Inc.
Biggest changeMeasurement points are December 31, 2018, December 31, 2019, December 31, 2020, December 31, 2021, December 30, 2022, and December 29, 2023. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/30/2022 12/29/2023 MicroStrategy Incorporated $ 100.00 $ 111.63 $ 304.07 $ 426.05 $ 110.76 $ 494.10 Nasdaq Composite Index $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 Nasdaq Computer Index $ 100.00 $ 151.95 $ 227.90 $ 314.18 $ 201.78 $ 335.90 NOTE: Prepared by Zacks Investment Research, Inc.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our class A common stock is traded on the Nasdaq Global Select Market under the symbol “MSTR.” There is no established public trading market for our class B common stock.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Our class A common stock is traded on the Nasdaq Global Select Market under the symbol “MSTR.” There is no established public trading market for our class B common stock.
Companies) (the “Nasdaq Composite Index”) and (ii) the Nasdaq Computer Index. The graph assumes the investment of $100.00 on December 29, 2017 in our class A common stock, the Nasdaq Composite Index, and the Nasdaq Computer Index, and assumes that any dividends are reinvested.
Companies) (the “Nasdaq Composite Index”) and (ii) the Nasdaq Computer Index. The graph assumes the investment of $100.00 on December 31, 2018 in our class A common stock, the Nasdaq Composite Index, and the Nasdaq Computer Index, and assumes that any dividends are reinvested.
Used with permission. All rights reserved. Copyright 1980-2023. NOTE: Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. Item 6. [Reserved] 45
Used with permission. All rights reserved. Copyright 1980-2024. NOTE: Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. Item 6. [ Reserved] 46
As of February 2, 2023, there were approximately 990 stockholders of record of our class A common stock and two stockholders of record of our class B common stock.
As of February 1, 2024, there were approximately 958 stockholders of record of our class A common stock and two stockholders of record of our class B common stock.
The average price per share and aggregate cost amounts disclosed above include broker commissions. 44 Performance Graph The following graph compares the cumulative total stockholder return on our class A common stock from December 29, 2017 (the last trading day before the beginning of our fifth preceding fiscal year) to December 30, 2022 (the last trading day of the fiscal year ended December 31, 2022) with the cumulative total return of (i) the Total Return Index for The Nasdaq Stock Market (U.S.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Performance Graph The following graph compares the cumulative total stockholder return on our class A common stock from December 31, 2018 (the last trading day before the beginning of our fifth preceding fiscal year) to December 29, 2023 (the last trading day of the fiscal year ended December 31, 2023) with the cumulative total return of (i) the Total Return Index for The Nasdaq Stock Market (U.S.
Removed
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” The following table provides information about our repurchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act during the periods indicated: (a) (b) (c) (d) Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) (1) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2022 – October 31, 2022 0 N/A 0 $ 209,137,964 November 1, 2022 – November 30, 2022 0 N/A 0 $ 209,137,964 December 1, 2022 – December 31, 2022 0 N/A 0 $ 209,137,964 Total: 0 N/A 0 $ 209,137,964 (1) On July 28, 2005, we announced that the Board of Directors authorized us to repurchase up to an aggregate of $300.0 million of our class A common stock from time to time on the open market (the “Share Repurchase Program”).
Removed
The Share Repurchase Program was subsequently amended to authorize us to repurchase up to an aggregate of $800.0 million of our class A common stock through April 29, 2023, although the program may be suspended or discontinued by us at any time.
Removed
The timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors. The Share Repurchase Program may be funded using our working capital, as well as proceeds from any other funding arrangements that we may enter into in the future.
Removed
As of December 31, 2022, pursuant to the Share Repurchase Program, we had repurchased an aggregate of 5,674,226 shares of our class A common stock at an average price per share of $104.13 and an aggregate cost of $590.9 million.
Removed
As of December 31, 2022, $209.1 million of our class A common stock remained available for repurchase pursuant to the Share Repurchase Program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table sets forth product licenses and subscription services revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Product Licenses and Subscription Services Revenues: Product Licenses Domestic $ 54,794 $ 54,107 1.3 % International 31,704 47,697 -33.5 % Total product licenses revenues 86,498 101,804 -15.0 % Subscription Services Domestic 42,428 31,306 35.5 % International 18,318 11,763 55.7 % Total subscription services revenues 60,746 43,069 41.0 % Total product licenses and subscription services revenues $ 147,244 $ 144,873 1.6 % 53 The following table sets forth a summary, grouped by size, of the number of recognized product licenses transactions for the periods indicated: Years Ended December 31, 2022 2021 Product Licenses Transactions with Recognized Licenses Revenue in the Applicable Period: More than $1.0 million in licenses revenue recognized 11 13 Between $0.5 million and $1.0 million in licenses revenue recognized 14 19 Total 25 32 Domestic: More than $1.0 million in licenses revenue recognized 9 10 Between $0.5 million and $1.0 million in licenses revenue recognized 11 11 Total 20 21 International: More than $1.0 million in licenses revenue recognized 2 3 Between $0.5 million and $1.0 million in licenses revenue recognized 3 8 Total 5 11 The following table sets forth the recognized revenue (in thousands) attributable to product licenses transactions, grouped by size, and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Product Licenses Revenue Recognized in the Applicable Period: More than $1.0 million in licenses revenue recognized $ 23,858 $ 26,838 -11.1 % Between $0.5 million and $1.0 million in licenses revenue recognized 9,882 12,809 -22.9 % Less than $0.5 million in licenses revenue recognized 52,758 62,157 -15.1 % Total 86,498 101,804 -15.0 % Domestic: More than $1.0 million in licenses revenue recognized 20,591 18,391 12.0 % Between $0.5 million and $1.0 million in licenses revenue recognized 8,124 7,364 10.3 % Less than $0.5 million in licenses revenue recognized 26,079 28,352 -8.0 % Total 54,794 54,107 1.3 % International: More than $1.0 million in licenses revenue recognized 3,267 8,447 -61.3 % Between $0.5 million and $1.0 million in licenses revenue recognized 1,758 5,445 -67.7 % Less than $0.5 million in licenses revenue recognized 26,679 33,805 -21.1 % Total $ 31,704 $ 47,697 -33.5 % Product licenses revenues decreased $15.3 million during 2022, as compared to the prior year.
Biggest changeThe following table sets forth product licenses and subscription services revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Product Licenses and Subscription Services Revenues: Product Licenses Domestic $ 39,193 $ 54,794 -28.5 % International 36,158 31,704 14.0 % Total product licenses revenues 75,351 86,498 -12.9 % Subscription Services Domestic 52,528 42,428 23.8 % International 28,651 18,318 56.4 % Total subscription services revenues 81,179 60,746 33.6 % Total product licenses and subscription services revenues $ 156,530 $ 147,244 6.3 % Product licenses revenues.
Our bitcoin acquisition strategy generally involves acquiring bitcoin with our liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin.
Our Bitcoin Acquisition Strategy Our bitcoin acquisition strategy generally involves acquiring bitcoin with our liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin.
Subscription services revenues are derived from our MCE cloud subscription service and are recognized ratably over the service period in the contract.
Subscription services revenues. Subscription services revenues are derived from our MCE cloud subscription service and are recognized ratably over the service period in the contract.
The 2028 Secured Notes have a stated maturity date of June 15, 2028, but include a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is (i) 91 days prior to the existing maturity date of the 2025 Convertible Notes (which is September 15, 2025), (ii) 91 days prior to the existing maturity date of the 2027 Convertible Notes (which is November 16, 2026), or (iii) the maturity date of any future convertible debt that we may issue that is then outstanding, unless on such dates we meet specified liquidity requirements or less than $100,000,000 of aggregate principal amount of the 2025 Convertible Notes, the 2027 Convertible Notes, or such future convertible debt, as applicable, remains outstanding.
The 2028 Secured Notes have a stated maturity date of June 15, 2028, but include a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is (i) 91 days prior to the existing maturity date of the 2025 Convertible Notes (which is September 15, 2025), (ii) 91 days prior to the existing maturity date of the 2027 Convertible Notes (which is November 16, 2026), or (iii) 91 days prior to the maturity date of any future convertible debt that we may issue that is then outstanding, unless on such dates we meet specified liquidity requirements or less than $100,000,000 of aggregate principal amount of the 2025 Convertible Notes, the 2027 Convertible Notes, or such future convertible debt, as applicable, remains outstanding.
We do not believe we will need to sell or engage in other transactions with respect to any of our bitcoins within the next twelve months to meet our working capital requirements, although we may from time to time sell or engage in other transactions with respect to our bitcoins as part of treasury management operations, as noted above.
We do not believe we will need to sell or engage in other transactions with respect to any of our bitcoins within the next twelve months to meet our 57 working capital requirements, although we may from time to time sell or engage in other transactions with respect to our bitcoins as part of treasury management operations, as noted above.
We consider certain estimates and judgments related to revenue recognition to be critical accounting estimates for us, as discussed further below. 52 Revenue Recognition See Note 2(n), Summary of Significant Accounting Policies – Revenue Recognition, to the Consolidated Financial Statements for information regarding our significant accounting policies over revenue recognition.
We consider certain estimates and judgments related to revenue recognition to be critical accounting estimates for us, as discussed further below. Revenue Recognition See Note 2(n), Summary of Significant Accounting Policies – Revenue Recognition, to the Consolidated Financial Statements for information regarding our significant accounting policies over revenue recognition.
(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.
(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. 62
Our product support revenues may experience declines in future periods as we continue to promote our cloud offering to new and existing customers. Other services revenues.
Our product support revenues may experience declines in future periods as we continue to promote our cloud offering to new and existing customers. 52 Other services revenues.
We also perform analyses on a semi-annual basis using historical pricing data for both product license and subscription services transactions to assess whether the selling price is highly variable in order to support our conclusion that the residual method to estimate SSP of our product licenses and subscription services is a fair allocation of the transaction price.
We also perform analyses on a semi-annual basis using historical pricing data for both product license and subscription services transactions to assess whether the selling price is highly variable in order to support our conclusion that the residual method to estimate SSP of our product licenses and subscription services continues to be a fair allocation of the transaction price.
Our material contractual obligations (explained in further detail in the Notes to the Consolidated Financial Statements, as referenced below) and cash requirements consist of: • principal and interest payments related to our long-term debt (Note 8, Long-term Debt); • rent payments under noncancellable operating leases (Note 7, Leases); • payments related to the Transition Tax (Note 9, Commitments and Contingencies); • payments under various purchase agreements, primarily related to third-party software supporting our products, marketing, and operations (Note 9, Commitments and Contingencies); and • ongoing personnel-related expenditures and vendor payments.
Our material contractual obligations (explained in further detail in the Notes to the Consolidated Financial Statements, as referenced below) and cash requirements consist of: • principal and interest payments related to our long-term debt (Note 8, Long-term Debt); • rent payments under noncancellable operating leases (Note 7, Leases); • payments related to the Transition Tax (Note 9, Commitments and Contingencies); • payments under various purchase agreements, primarily related to third-party cloud hosting services and third-party software supporting our products, marketing, and operations (Note 9, Commitments and Contingencies); and • ongoing personnel-related expenditures and vendor payments.
(f) The "Market Value of Bitcoin Held at End of Year Using Ending Market Price" represents a mathematical calculation consisting of the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective year multiplied by the number of bitcoins held by us at the end of the applicable year.
(f) The “Market Value of Bitcoin Held at End of Year Using Ending Market Price” represents a mathematical calculation consisting of the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective year multiplied by the number of bitcoins held by us at the end of the applicable year.
Cost of product licenses revenues consists of referral fees paid to channel partners, the costs of product manuals and media, and royalties paid to third-party software vendors. Cost of product licenses revenues did not materially change during 2022 as compared to the prior year. Cost of subscription services revenues.
Cost of product licenses revenues consists of referral fees paid to channel partners, the costs of product manuals and media, and royalties paid to third-party software vendors. Cost of product licenses revenues did not materially change during 2023 as compared to the prior year. Cost of subscription services revenues.
Management’s Discussion and Analysis for the Year Ended December 31, 2020 Management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2020, including comparison of our results for the years ended December 31, 2021 and 2020, is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Management’s Discussion and Analysis for the Year Ended December 31, 2021 Management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021, including comparison of our results for the years ended December 31, 2022 and 2021, is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.
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) we may not be able to sell our bitcoins at the Market Value amounts indicated above, at the market price as reported on the Coinbase exchange (our principal market) on the date of sale, or at all.
Moreover, (i) the bitcoin market historically has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks that are, or may be, inherent in its entirely electronic, virtual form and decentralized network and (ii) we may not be able to sell our bitcoins at the Market Value amounts indicated above, at the market price as reported on the Coinbase exchange (our principal market) on the date of sale, or at all.
This overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes, including to generate cash for treasury management or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing additional strategies to create income streams or otherwise generate funds using our bitcoin holdings.
This overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes, including to generate cash for treasury management (which may include debt repayment), or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.
(c) The "Highest Market Price Per Bitcoin During Year" represents the highest market price for one bitcoin reported on the Coinbase exchange during the respective year, without regard to when we purchased any of our bitcoin.
(c) The “Highest Market Price Per Bitcoin During Year” represents the highest market price for one bitcoin reported on the Coinbase exchange during the respective year, without regard to when we purchased any of our bitcoin.
For example, we expect that share-based compensation expense, which is excluded from the first two non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors.
For example, we expect that share-based compensation expense, which is excluded from certain of the non-GAAP financial measures below, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors.
(e) The "Market Price Per Bitcoin at End of Year" represents the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective year.
(e) The “Market Price Per Bitcoin at End of Year” represents the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective year.
In 2022 and 2021, the changes in net cash (used in) provided by investing activities primarily relate to purchases and sales of digital assets and expenditures on property and equipment.
Net cash used in investing activities. In 2023 and 2022, the changes in cash used in and provided by investing activities primarily relate to purchases and sales of digital assets and expenditures on property and equipment.
If the market value of bitcoin continues to decline or we are unable to regain profitability in future periods, we may be required to increase further the valuation allowance against our deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred.
If the market value of bitcoin declines or we are unable to regain profitability in future periods, we may be required to increase the valuation allowance against our deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred.
Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions. We believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis.
Non-GAAP Financial Measures We are providing supplemental non-GAAP financial measures below which management uses internally to help understand, manage, and evaluate our business performance and to help make operating decisions. We believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis.
We do not expect any significant tax payments related to unrecognized tax benefits during 2023. Recent Accounting Standards See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information. 62
We do not expect any significant tax payments related to unrecognized tax benefits during 2024. Recent Accounting Standards See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information.
Included in research and development expenses for 2022 is an aggregate $2.3 million favorable foreign currency exchange impact. General and administrative expenses. General and administrative expenses consist of personnel and related overhead costs, and other costs of our executive, finance, human resources, information systems, and administrative departments, as well as third-party consulting, legal, and other professional fees.
Included in research and development expenses for 2023 is an aggregate $1.2 million favorable foreign currency exchange impact. 54 General and administrative expenses. General and administrative expenses consist of personnel and related overhead costs, and other costs of our executive, finance, human resources, information systems, and administrative departments, as well as third-party consulting, legal, and other professional fees.
We used the net proceeds from the issuance of the Convertible Notes to acquire bitcoin. During 2022 and 2021, we paid $4.9 million and $4.9 million, respectively, in interest to holders of the 2025 Convertible Notes.
We used the net proceeds from the issuance of the Convertible 58 Notes to acquire bitcoin. During 2023 and 2022, we paid $4.9 million and $4.9 million, respectively, in interest to holders of the 2025 Convertible Notes.
Our digital asset impairment losses, net of gains on sale, have significantly contributed to our operating expenses and net loss.
Our digital asset impairment losses, net of gains on sale, have significantly contributed to our operating expenses.
As of December 31, 2022, we had $6.1 million of total gross unrecognized tax benefits, including accrued interest, all of which was recorded in “Other long-term liabilities.” The timing of any payments that could result from these unrecognized tax benefits will depend on a number of factors, and accordingly the amount and period of any future payments cannot be estimated.
As of December 31, 2023, we had $8.3 million of total gross unrecognized tax benefits, including accrued interest, all of which was recorded in “Other long-term liabilities.” The timing of any payments that could result from these unrecognized tax benefits will depend on a number of factors, and accordingly the amount and period of any future payments cannot be estimated.
The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network.
The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized network.
Cost of subscription services revenues increased $7.9 million during 2022, as compared to the prior year, primarily due to (i) a $5.1 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, (ii) a $1.7 million increase in employee salaries primarily attributable to an increase in average staffing levels and wage increases, and (iii) a $0.7 million increase in variable compensation.
Cost of subscription services revenues increased $7.0 million during 2023, as compared to the prior year, primarily due to (i) a $5.7 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, (ii) a $0.5 million increase in employee salaries primarily attributable to an increase in average staffing levels and wage increases, and (iii) a $0.4 million increase in variable compensation. 53 Cost of product support revenues.
We used $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan to acquire bitcoin, used $5.0 million of the net proceeds to establish a reserve account that serves as collateral for the 2025 Secured Term Loan, and have used and expect to continue to use the remaining net proceeds to pay fees, interest, and expenses related to the 2025 Secured Term Loan.
We used $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan to acquire bitcoin, $5.0 million of the net proceeds to establish a reserve account that served as collateral for the 2025 Secured Term Loan, and the remaining net proceeds to pay fees, interest, and expenses related to the 2025 Secured Term Loan.
During 2022 , we paid $ 7 . 7 million in interest to Silvergate. In June 2022, we, through one of our wholly-owned subsidiaries, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027.
In June 2022, we, through one of our wholly-owned subsidiaries, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027. During 2023 and 2022, we paid $1.1 million and $0.5 million, respectively, in principal and interest to the lender.
In 60 2022 and 2021 , n on-cash items to further reconcile net loss to net cash provided by operating activities consist primarily of depreciation and amortization, reduction in the carrying amount of operating lease right-of-use assets, credit losses and sales allowances, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, digital asset impairment losses (gains on sale), net, and amortization of the issuance costs on our long-term deb t .
In 2023 and 2022, non-cash items to further reconcile net income (loss) to net cash provided by operating activities consist primarily of depreciation and amortization, reduction in the carrying amount of operating lease right-of-use assets, credit losses and sales allowances, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, digital asset impairment losses, net of gains on sale, amortization of the issuance costs on our long-term debt, and gain on extinguishment of debt.
During 2022, our top three product licenses transactions totaled $13.1 million in recognized revenue, or 15.1% of total product licenses revenues, compared to $12.6 million, or 12.4% of total product licenses revenues, during 2021. Our product licenses revenues may experience declines in future periods as we continue to promote our cloud offering to new and existing customers.
During 2023, our top three product licenses transactions totaled $8.9 million in recognized revenue, or 11.8% of total product licenses revenues, compared to $13.1 million, or 15.1% of total product licenses revenues, during 2022. Our product licenses revenues may continue to experience declines in future periods as we continue to promote our cloud offering to new and existing customers.
Furthermore, if certain conditions are met, we may have the right to elect to settle the Convertible Notes upon a conversion of such Convertible Notes in shares of our class A common stock, or a combination of cash and shares of class A common stock, which may enable us to reduce the amount of our cash obligations under the Convertible Notes.
Furthermore, we may elect to settle the Convertible Notes upon a conversion of such Convertible Notes in cash, shares of our class A common stock, or a combination of cash and shares of class A common stock, which may enable us to reduce the amount of our cash obligations under the Convertible Notes.
During 2022, we purchased bitcoin using $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan, $44.6 million of the net proceeds from the sale of class A common stock under the 2022 Sales Agreement, $11.8 million in proceeds from sales of bitcoin, and Excess Cash.
(a) During 2022, we purchased bitcoin using $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan, $44.6 million of the net proceeds from our sale of class A common stock under an at-the-market equity offering program, $11.8 million in proceeds from sales of bitcoin, and Excess Cash.
The first supplemental financial measure excludes a significant non-cash expense that we believe is not reflective of our 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.
Non-GAAP loss from operations Non-GAAP loss from operations excludes share-based compensation expense, which is a significant non-cash expense that we believe is not reflective of our general business performance, and for which the accounting requires management judgment. Consequently, our accounting for share-based compensation expense could vary significantly in comparison to other companies.
As of December 31, 2022, all of the approximately 14,890 bitcoins held by MicroStrategy Incorporated serve as part of the collateral for the 2028 Secured Notes. During 2022 and 2021, we paid $30.6 million and $15.4 million, respectively, in interest to holders of the 2028 Secured Notes.
As of December 31, 2023, approximately 16,081 bitcoins held by MicroStrategy Incorporated serve as part of the collateral for the 2028 Secured Notes. During 2023 and 2022, we paid $30.6 million and $30.6 million, respectively, in interest to holders of the 2028 Secured Notes.
We may effect debt repurchases or repayments using proceeds from the sale of our class A common stock pursuant to the 2022 Sales Agreement (under which approximately $453.4 million remains available for sale as of the date hereof). Unrecognized tax benefits.
We may effect debt repurchases or prepayments using proceeds from the sale of our class A common stock pursuant to the November 2023 Sales Agreement (under which approximately $137.8 million remains available for sale as of the date hereof). 59 Unrecognized tax benefits.
The following table sets forth digital asset impairment losses ( gains on sale ), net (in thousands) and related percentage changes for the periods indicated : Years Ended December 31, 2022 2021 % Change Digital asset impairment losses $ 1,287,213 $ 830,621 55.0 % Gains on sale of digital assets $ 927 $ 0 n/a Digital asset impairment losses (gains on sale), net $ 1,286,286 $ 830,621 54.9 % We may continue to incur significant digital asset impairment losses in the future.
The following table sets forth digital asset impairment losses (gains on sale), net (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Digital asset impairment losses $ 115,851 $ 1,287,213 -91.0 % Gains on sale of digital assets 0 927 -100.0 % Digital asset impairment losses (gains on sale), net $ 115,851 $ 1,286,286 -91.0 % We may continue to incur significant digital asset impairment losses in the future.
Accordingly, the Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of our bitcoin may be different from such amounts and such deviation may be material.
Bitcoin and bitcoin markets may be subject to manipulation and the spot price of bitcoin may be subject to fraud and manipulation. Accordingly, the Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of our bitcoin may be different from such amounts and such deviation may be material.
(b) The "Market Value of Bitcoin Held Using Lowest Market Price" represents a mathematical calculation consisting of the lowest market price for one bitcoin reported on the Coinbase exchange during the respective year (or for 2020, during the period July 1, 2020 to December 31, 2020) multiplied by the number of bitcoins held by us at the end of the applicable year.
(b) The “Market Value of Bitcoin Held Using Lowest Market Price” represents a mathematical calculation consisting of the lowest market price for one bitcoin reported on the Coinbase exchange during the respective year multiplied by the number of bitcoins held by us at the end of the applicable year.
(d) The "Market Value of Bitcoin Held Using Highest Market Price" represents a mathematical calculation consisting of the highest market price for one bitcoin reported on the Coinbase exchange during the respective year (or for 2020, during the period July 1, 2020 to December 31, 2020) multiplied by the number of bitcoins held by us at the end of the applicable year.
(d) The “Market Value of Bitcoin Held Using Highest Market Price” represents a mathematical calculation consisting of the highest market price for one bitcoin reported on the Coinbase exchange during the respective year multiplied by the number of bitcoins held by us at the end of the applicable year.
The following table presents a roll-forward of our bitcoin holdings, including additional information related to our bitcoin purchases, sales, and digital asset impairment losses within the respective periods: 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 (Disposed) Approximate Average Purchase or Sale Price Per Bitcoin Balance at December 31, 2020 $ 1,125,000 $ (70,698 ) $ 1,054,302 70,469 $ 15,964 Digital asset purchases (a) 2,626,529 2,626,529 53,922 48,710 Digital asset impairment losses (830,621 ) (830,621 ) Balance at December 31, 2021 $ 3,751,529 $ (901,319 ) $ 2,850,210 124,391 $ 30,159 Digital asset purchases (b) 287,921 287,921 8,813 32,670 Digital asset impairment losses (1,287,213 ) (1,287,213 ) Digital asset sales * (46,260 ) 35,370 (10,890 ) (704 ) 16,786 Balance at December 31, 2022 $ 3,993,190 $ (2,153,162 ) $ 1,840,028 132,500 $ 30,137 * During 2022, we sold approximately 704 bitcoins having an original cost basis of $46.3 million and cumulative digital asset impairment losses of $35.4 million, resulting in a carrying value of $10.9 million at the time of sale.
The following table presents a roll-forward of our bitcoin holdings, including additional information related to our bitcoin purchases, sales, and digital asset impairment losses within the respective periods: 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 (Disposed) Approximate Average Purchase or Sale Price Per Bitcoin Balance at December 31, 2021 $ 3,751,529 $ (901,319 ) $ 2,850,210 124,391 $ 30,159 Digital asset purchases (a) 287,921 287,921 8,813 32,670 Digital asset impairment losses (1,287,213 ) (1,287,213 ) Digital asset sales * (46,260 ) 35,370 (10,890 ) (704 ) 16,786 Balance at December 31, 2022 $ 3,993,190 $ (2,153,162 ) $ 1,840,028 132,500 $ 30,137 Digital asset purchases (b) 1,902,299 1,902,299 56,650 33,580 Digital asset impairment losses (115,851 ) (115,851 ) Balance at December 31, 2023 $ 5,895,489 $ (2,269,013 ) $ 3,626,476 189,150 $ 31,168 * During 2022, we sold approximately 704 bitcoins having an original cost basis of $46.3 million and cumulative digital asset impairment losses of $35.4 million, resulting in a carrying value of $10.9 million at the time of sale.
We have principal due upon maturity of our long-term debt instruments in the aggregate of $2.413 billion in addition to $2.4 million in coupon interest due each semi-annual period for the 2025 Convertible Notes, $15.3 million in coupon interest due each semi-annual period for the 2028 Secured Notes, an estimated $1.3 million due monthly in variable coupon interest for the 2025 Secured Term Loan (based on the interest rate in effect at December 31, 2022), and $0.1 million due monthly in principal and interest related to our other long-term secured debt.
We have principal due upon maturity of our long-term debt instruments in the aggregate of $2.208 billion in addition to $2.4 million in coupon interest due each semi-annual period for the 2025 Convertible Notes, $15.3 million in coupon interest due each semi-annual period for the 2028 Secured Notes, and $0.1 million due monthly in principal and interest related to our other long-term secured debt.
Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues increased $1.1 million during 2022, as compared to the prior year, primarily due to an increase in average bill rates and an increase in billable hours worldwide, partially offset by a $5.1 million unfavorable foreign currency exchange impact. Education revenues.
Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues decreased $8.8 million during 2023, as compared to the prior year, primarily due to a decrease in billable hours worldwide, partially offset by an increase in average bill rates. Education revenues.
During 2022, digital asset impairment losses, net of gains on sale, of $1.286 billion represented 76.9% of our operating expenses, contributing to our net loss of $1.470 billion for 2022, compared to digital asset impairment losses of $830.6 million during 2021, representing 69.0% of our operating expenses and contributing to our net loss of $535.5 million for 2021.
During 2023, digital asset impairment losses of $115.9 million represented 23.1% of our operating expenses, compared to digital asset impairment losses, net of gains on sale, of $1.286 billion during 2022, representing 76.9% of our operating expenses and contributing to our net loss of $1.470 billion for 2022.
As of December 31, 2022, we estimated that an aggregate of approximately $171.0 million of additional share-based compensation expense associated with the 2013 Equity Plan and the 2021 ESPP will be recognized over a remaining weighted average period of 2.7 years.
As of December 31, 2023, we estimated that an aggregate of approximately $131.7 million of additional share-based compensation expense associated with the Stock Incentive Plans and the 2021 ESPP will be recognized over a remaining weighted average period of 2.3 years.
It shows the increase (decrease) in material international revenues or expenses, as applicable, from the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates. The term “international” refers to operations outside of the United States and Canada.
It shows the increase (decrease) in material international revenues or expenses, as applicable, from the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates.
We earn a significant amount of our revenues outside the United States and w e repatriated foreign earnings and profits of $ 44 . 7 million during 2022 and $ 57.5 million during 2021 .
We earn a significant amount of our revenues outside the United States and we repatriated foreign earnings and profits of $20.3 million during 2023 and $44.7 million during 2022.
Interest Expense, Net During 2022, interest expense, net, of $53.1 million was primarily related to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements.
In 2022, interest expense, net, was comprised primarily of contractual interest expense and amortization of issuance costs related to our long-term debt arrangements.
Included in sales and marketing expenses for 2022 is an aggregate $6.7 million favorable foreign currency exchange impact. Research and development expenses. Research and development expenses consist of the personnel costs for our software engineering personnel, depreciation of equipment, and other related costs.
Included in sales and marketing expenses for 2023 is an aggregate $0.7 million unfavorable foreign currency exchange impact. Research and development expenses. Research and development expenses consist of the personnel costs for our software engineering personnel and related overhead costs.
The following table sets forth product support revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Product Support Revenues: Domestic $ 159,385 $ 161,288 -1.2 % International 107,136 119,921 -10.7 % Total product support revenues $ 266,521 $ 281,209 -5.2 % Product support revenues are derived from providing technical software support and software updates and upgrades to customers.
The following table sets forth product support revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Product Support Revenues: Domestic $ 158,308 $ 159,385 -0.7 % International 105,580 107,136 -1.5 % Total product support revenues $ 263,888 $ 266,521 -1.0 % Product support revenues are derived from providing technical software support and software updates and upgrades to customers.
Provision for (Benefit from) Income Taxes During 2022, we recorded a provision for income taxes of $147.3 million on a pre-tax loss of $1.322 billion that resulted in an effective tax rate of (11.1)%, as compared to a benefit from income taxes of $275.9 million on a pre-tax loss of $811.4 million that resulted in an effective tax rate of 34.0% during 2021.
(Benefit from) Provision for Income Taxes During 2023, we recorded a benefit from income taxes of $553.6 million on a pre-tax loss of $124.5 million that resulted in an effective tax rate of 444.6%, as compared to a provision for income taxes of $147.3 million on a pre-tax loss of $1.322 billion that resulted in an effective tax rate of (11.1)% during 2022.
Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We may also repay our outstanding indebtedness, including our 2025 Secured Term Loan.
Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We may also prepay our outstanding indebtedness. The amounts involved in any such repurchase or repayment may be material.
Product support revenues decreased $14.7 million during 2022, as compared to the prior year, primarily due to an $11.6 million unfavorable foreign currency exchange impact and certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses offerings.
Product support revenues decreased $2.6 million during 2023, as compared to the prior year, primarily due to certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses offerings, partially offset by a $1.5 million favorable foreign currency exchange impact.
Sales and marketing expenses consist of personnel costs , commissions, office facilities, travel, advertising, public relations programs, and promotional events, such as trade shows, seminars, and technical conferences. Sales and marketing headcount decreased 7.7% to 434 at December 31, 2022 from 470 at December 31, 2021 .
Sales and marketing expenses consist of personnel costs, commissions, office facilities, travel, advertising, public relations programs, and promotional events, such as trade shows, seminars, and technical conferences.
We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.
During the years ended December 31, 2023 and 2022, we did not repurchase or prepay any of our other outstanding debt. We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.
Subscription services revenues increased $17.7 million during 2022, as compared to the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, an increase in the use of subscription services by existing customers, and sales contracts with new customers, partially offset by a $2.3 million unfavorable foreign currency exchange impact.
Subscription services revenues increased $20.4 million during 2023, as compared to the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, a net increase in the use of subscription services by existing customers, and sales contracts with new customers.
Other Income, Net During 2022, other income, net, of $6.4 million was comprised primarily of foreign currency transaction net gains. During 2021, other income, net, of $2.3 million was comprised primarily of foreign currency transaction net gains.
Other (Expense) Income, Net Other expense, net, of $5.2 million in 2023 was comprised primarily of foreign currency transaction net losses. Other income, net, of $6.4 million in 2022 was comprised primarily of foreign currency transaction net gains.
The following table sets forth sales and marketing expenses (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Sales and marketing expenses $ 146,882 $ 160,141 -8.3 % Sales and marketing expenses decreased $13.3 million during 2022, as compared to the prior year, primarily due to (i) a $17.0 million decrease in variable compensation primarily attributable to a net increase in capitalized commissions and decreases in other personnel costs and employee relations expenses, (ii) a $1.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (iii) a $0.7 million decrease in marketing and advertising costs, (iv) a $0.7 million decrease in facility and other related support costs, and (v) a $0.6 million decrease in cloud hosting infrastructure costs, partially offset by (vi) a $5.4 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the 2013 Equity Plan, partially offset by the forfeiture of certain awards and the fair value remeasurement of certain liability-classified awards at the end of the reporting period and (vii) a $1.8 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted.
The following table sets forth sales and marketing expenses (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Sales and marketing expenses $ 149,671 $ 146,882 1.9 % Sales and marketing expenses increased $2.8 million during 2023, as compared to the prior year, primarily due to (i) a $3.0 million increase in severance costs associated with streamlining our organization, (ii) a $2.3 million increase in travel and entertainment expenditures due to the return of in-person events and meetings, (iii) a $1.9 million increase in marketing costs due to the return of in-person events and meetings, and (iv) a $0.8 million increase in facility and other related support costs, partially offset by (v) a $2.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (vi) a $2.4 million decrease in variable compensation primarily attributable to a decrease in commissions earned, partially offset by a decrease in net capitalized commissions and increases in other personnel costs and employee relations expenses, and (vii) a $0.2 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards, being substantially offset by the grant of additional awards under the Stock Incentive Plans and the fair value remeasurement of certain liability-classified awards at the end of the reporting period.
The following table summarizes research and development expenses (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Research and development expenses $ 127,428 $ 117,117 8.8 % Research and development expenses increased $10.3 million during 2022, as compared to the prior year, primarily due to (i) a $6.5 million increase in employee salaries primarily attributable to wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, (ii) a $3.1 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the 2013 Equity Plan, partially offset by certain awards that became fully vested and the fair value remeasurement of certain liability-classified awards at the end of the reporting period, (iii) a $1.4 million increase in variable compensation, and (iv) a $0.5 million increase in consulting and advisory costs, partially offset by (v) a $1.5 million decrease in facility and other related support costs.
The following table summarizes research and development expenses (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Research and development expenses $ 120,530 $ 127,428 -5.4 % Research and development expenses decreased $6.9 million during 2023, as compared to the prior year, primarily due to (i) a $3.9 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (ii) a $2.0 million decrease in variable compensation, (iii) a $0.6 million decrease in recruiting costs, (iv) a $0.6 million decrease in facility and other related support costs, (v) a $0.5 million decrease in subcontractor costs, and (vi) a $0.3 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards, being substantially offset by the grant of additional awards under the Stock Incentive Plans and the fair value remeasurement of certain liability-classified awards at the end of the reporting period, partially offset by (vii) a $1.7 million increase in severance costs associated with streamlining our organization.
The following table summarizes deferred revenue and advance payments (in thousands), as of: December 31, 2022 2021 Current: Deferred product licenses revenue $ 2,825 $ 993 Deferred subscription services revenue 51,861 35,589 Deferred product support revenue 155,366 166,477 Deferred other services revenue 7,376 6,801 Total current deferred revenue and advance payments $ 217,428 $ 209,860 Non-current: Deferred product licenses revenue $ 2,742 $ 68 Deferred subscription services revenue 3,030 1,064 Deferred product support revenue 6,387 6,203 Deferred other services revenue 604 754 Total non-current deferred revenue and advance payments $ 12,763 $ 8,089 Total current and non-current: Deferred product licenses revenue $ 5,567 $ 1,061 Deferred subscription services revenue 54,891 36,653 Deferred product support revenue 161,753 172,680 Deferred other services revenue 7,980 7,555 Total current and non-current deferred revenue and advance payments $ 230,191 $ 217,949 The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet in “Accounts receivable, net” and “Deferred revenue and advance payments” and instead are included in the remaining performance obligation disclosure below.
The following table summarizes deferred revenue and advance payments (in thousands), as of: December 31, 2023 2022 Current: Deferred product licenses revenue $ 3,579 $ 2,825 Deferred subscription services revenue 65,512 51,861 Deferred product support revenue 152,012 155,366 Deferred other services revenue 7,059 7,376 Total current deferred revenue and advance payments $ 228,162 $ 217,428 Non-current: Deferred product licenses revenue $ 0 $ 2,742 Deferred subscription services revenue 3,097 3,030 Deferred product support revenue 4,984 6,387 Deferred other services revenue 443 604 Total non-current deferred revenue and advance payments $ 8,524 $ 12,763 Total current and non-current: Deferred product licenses revenue $ 3,579 $ 5,567 Deferred subscription services revenue 68,609 54,891 Deferred product support revenue 156,996 161,753 Deferred other services revenue 7,502 7,980 Total current and non-current deferred revenue and advance payments $ 236,686 $ 230,191 The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet in “Accounts receivable, net” and “Deferred revenue and advance payments” and instead are included in the remaining performance obligation disclosure below.
Net cash used in investing activities decreased $2.351 billion during 2022, as compared to the prior year, primarily due to a $2.339 billion decrease in purchases of bitcoins, partially offset by an $11.8 million increase in sales of bitcoins.
Net cash used in investing activities increased $1.627 billion during 2023, as compared to the prior year, primarily due to a $1.614 billion increase in purchases of bitcoins and an $11.8 million decrease in sales of bitcoins.
The change in our effective tax rate in 2022, as compared to the prior year, was primarily due to the establishment of a valuation allowance on our deferred tax asset related to the impairment of our bitcoin holdings, attributable to the decrease in the market value of bitcoin as of December 31, 2022. The U.S.
Our benefit from income taxes increased compared to the prior year primarily due (i) the release of the valuation allowance during 2023 on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the increase in market value of bitcoin as of December 31, 2023 compared to December 31, 2022, compared to (ii) the establishment of a valuation allowance during 2022 on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the decrease in market value of bitcoin as of December 31, 2022 compared to December 31, 2021. 55 The U.S.
Cost of education revenues decreased $0.8 million during 2022, as compared to the prior year, primarily due to a $0.6 million decrease in compensation and related costs primarily attributable to a decrease in average staffing levels. 56 Sales and marketing expenses.
Cost of education revenues decreased $2.0 million during 2023, as compared to the prior year, primarily due to (i) a $1.2 million decrease in employee salaries primarily attributable to a decrease in average staffing levels and (ii) a $0.4 million decrease in variable compensation. Sales and marketing expenses.
The following table shows the approximate number of bitcoins held at the end of each respective period, as well as market value calculations of our bitcoin holdings based on the lowest, highest, and ending market prices of one bitcoin on the Coinbase exchange (our principal market) for each respective year, as further defined below: Approximate Number of Bitcoins Held at End of Year Lowest Market Price Per Bitcoin During Year (a) Market Value of Bitcoin Held at End of Year Using Lowest Market Price (in thousands) (b) Highest Market Price Per Bitcoin During Year (c) Market Value of Bitcoin Held at End of Year Using Highest Market Price (in thousands) (d) Market Price Per Bitcoin at End of Year (e) Market Value of Bitcoin Held at End of Year Using Ending Market Price (in thousands) (f) December 31, 2020 70,469 $ 8,905.84 $ 627,586 $ 29,321.90 $ 2,066,285 $ 29,181.00 $ 2,056,356 December 31, 2021 124,391 $ 27,678.00 $ 3,442,894 $ 69,000.00 $ 8,582,979 $ 45,879.97 $ 5,707,055 December 31, 2022 132,500 $ 15,460.00 $ 2,048,450 $ 48,240.00 $ 6,391,800 $ 16,556.32 $ 2,193,712 (a) The "Lowest Market Price Per Bitcoin During Year" represents the lowest market price for one bitcoin reported on the Coinbase exchange during the respective year, without regard to when we purchased any of our bitcoin.
Excess Cash refers to cash in excess of the minimum Cash Assets that we are required to hold under our Treasury Reserve Policy, which may include cash generated by operating activities and cash from the proceeds of financing activities. 48 The following table shows the approximate number of bitcoins held at the end of each respective period, as well as market value calculations of our bitcoin holdings based on the lowest, highest, and ending market prices of one bitcoin on the Coinbase exchange (our principal market) for each respective year, as further defined below: Approximate Number of Bitcoins Held at End of Year Lowest Market Price Per Bitcoin During Year (a) Market Value of Bitcoin Held at End of Year Using Lowest Market Price (in thousands) (b) Highest Market Price Per Bitcoin During Year (c) Market Value of Bitcoin Held at End of Year Using Highest Market Price (in thousands) (d) Market Price Per Bitcoin at End of Year (e) Market Value of Bitcoin Held at End of Year Using Ending Market Price (in thousands) (f) December 31, 2021 124,391 $ 27,678.00 $ 3,442,894 $ 69,000.00 $ 8,582,979 $ 45,879.97 $ 5,707,055 December 31, 2022 132,500 $ 15,460.00 $ 2,048,450 $ 48,240.00 $ 6,391,800 $ 16,556.32 $ 2,193,712 December 31, 2023 189,150 $ 16,490.00 $ 3,119,084 $ 45,000.00 $ 8,511,750 $ 42,531.41 $ 8,044,816 (a) The “Lowest Market Price Per Bitcoin During Year” represents the lowest market price for one bitcoin reported on the Coinbase exchange during the respective year, without regard to when we purchased any of our bitcoin.
The following table sets forth other services revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Other Services Revenues: Consulting Domestic $ 39,147 $ 36,814 6.3 % International 41,697 42,918 -2.8 % Total consulting revenues 80,844 79,732 1.4 % Education 4,655 4,948 -5.9 % Total other services revenues $ 85,499 $ 84,680 1.0 % Consulting revenues.
The following table sets forth other services revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Other Services Revenues: Consulting Domestic $ 35,261 $ 39,147 -9.9 % International 36,814 41,697 -11.7 % Total consulting revenues 72,075 80,844 -10.8 % Education 3,768 4,655 -19.1 % Total other services revenues $ 75,843 $ 85,499 -11.3 % Consulting revenues.
As of February 15, 2023, we held approximately 132,500 bitcoins that were acquired at an aggregate purchase price of $3.993 billion and an average purchase price of approximately $30,137 per bitcoin, inclusive of fees and expenses. As of February 15, 2023, at 4:00 p.m.
As of February 14, 2024, we held approximately 190,000 bitcoins that were acquired at an aggregate purchase price of $5.933 billion and an average purchase price of approximately $31,224 per bitcoin, inclusive of fees and expenses. As of February 14, 2024, at 4:00 p.m.
However, we consider the risk of significant volatility in our established SSP to be small given our historical transaction experience and internal processes to monitor SSP ranges on an ongoing basis and work with management in the event a trend that could impact the future ranges is detected.
However, we consider the risk of significant volatility in our established SSP to be small given our historical transaction experience and internal processes to monitor SSP ranges on an ongoing basis and work with management in the event a trend that could impact the future ranges is detected. 51 Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 Revenues Except as otherwise indicated herein, the term “domestic” refers to operations in the United States and Canada and the term “international” refers to operations outside of the United States and Canada.
The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Net cash provided by operating activities $ 3,211 $ 93,833 -96.6 % Net cash used in investing activities $ (278,590 ) $ (2,629,235 ) -89.4 % Net cash provided by financing activities $ 265,188 $ 2,541,685 -89.6 % Net cash provided by operating activities.
The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Net cash provided by operating activities $ 12,712 $ 3,211 295.9 % Net cash used in investing activities $ (1,905,237 ) $ (278,590 ) 583.9 % Net cash provided by financing activities $ 1,889,886 $ 265,188 612.7 % Net cash provided by operating activities.
In 2022 and 2021, the changes in net cash provided by (used in) financing activities primarily relate to the issuance of our long-term debt, the sale of class A common stock under the 2021 Open Market Sale Agreement and 2022 Sales Agreement, the exercise of stock options under the 2013 Equity Plan, the sales of class A common stock under the 2021 ESPP, the payment of withholding tax on vesting of restricted stock units, and the repayments of other long-term secured debt.
In 2023 and 2022, the changes in cash provided by and used in financing activities primarily relate to the sale of class A common stock under our at-the-market equity offering program, the issuance and subsequent repayment of our long-term debt, the exercise or vesting of certain awards under the 2013 Equity Plan, and the sales of class A common stock under the 2021 ESPP.
We have maintained our conclusion that the residual method is appropriate for our product licenses and subscription services since adopting ASU 2014-09. In the future, SSP for our software and services could be impacted by various factors, including potential changes in our pricing practices, customer demand for our products and services, and various market or economic conditions.
In the future, SSP for our software and services could be impacted by various factors, including potential changes in our pricing practices, customer demand for our products and services, and various market or economic conditions.
Included in cost of product support revenues for 2022 is an aggregate $1.1 million favorable foreign currency exchange impact. Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs, excluding those under our Enterprise Support program which are allocated to cost of product support revenues.
Cost of consulting revenues consists of personnel and related overhead costs, excluding those under our Enterprise Support program which are allocated to cost of product support revenues.
During 2021, we purchased bitcoin using the net proceeds from the issuance of our 2027 Convertible Notes and 2028 Secured Notes, the sale of class A common stock under the Open Market Sale Agreement, and Excess Cash. Net cash provided by financing activities.
During 2022, we purchased $287.9 million of bitcoin using net proceeds from the issuance of the 2025 Secured Term Loan, net proceeds from the sale of class A common stock under our at-the-market offering program, proceeds from sales of bitcoin, and Excess Cash. Net cash provided by financing activities.
The following table sets forth cost of revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2022 2021 % Change Cost of Revenues: Product licenses and subscription services: Product licenses $ 1,672 $ 1,721 -2.8 % Subscription services 24,770 16,901 46.6 % Total product licenses and subscription services 26,442 18,622 42.0 % Product support 21,264 19,254 10.4 % Other services: Consulting 50,820 48,773 4.2 % Education 4,463 5,260 -15.2 % Total other services 55,283 54,033 2.3 % Total cost of revenues $ 102,989 $ 91,909 12.1 % Cost of product licenses revenues.
The following table sets forth cost of revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2023 2022 % Change Cost of Revenues: Product licenses and subscription services: Product licenses $ 1,929 $ 1,672 15.4 % Subscription services 31,776 24,770 28.3 % Total product licenses and subscription services 33,705 26,442 27.5 % Product support 22,434 21,264 5.5 % Other services: Consulting 51,311 50,820 1.0 % Education 2,494 4,463 -44.1 % Total other services 53,805 55,283 -2.7 % Total cost of revenues $ 109,944 $ 102,989 6.8 % Cost of product licenses revenues.
Our Bitcoin Acquisition Strategy In September 2020, our Board of Directors adopted a Treasury Reserve Policy (as amended to date, the “Treasury Reserve Policy”) that updated our treasury management and capital allocation strategies, under which our treasury reserve assets will consist of: • cash and cash equivalents and short-term investments (“Cash Assets”) held by us that exceed working capital requirements; and • bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets.
Under our Treasury Reserve Policy, our treasury reserve assets consist of: • Cash Assets held by us that exceed working capital requirements; and • bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets.
Cost of subscription services revenues consists of equipment, facility and other related support costs (including cloud hosting infrastructure costs), and personnel and related overhead costs. Subscription services headcount increased 52.8% to 110 at December 31, 2022 from 72 at December 31, 2021.
Cost of subscription services revenues consists of equipment, facility and other related support costs (including cloud hosting infrastructure costs), and personnel and related overhead costs.
Net cash provided by operating activities decreased $90.6 million during 2022, as compared to the prior year, due to a $934.3 million increase in net loss and a $47.7 million decrease from changes in operating assets and liabilities, partially offset by an $891.4 million increase in non-cash items (principally related to digital asset impairment losses and deferred taxes).
Net cash provided by operating activities increased $9.5 million during 2023, as compared to the prior year, due to a $1.899 billion increase in net income and a $15.6 million increase from changes in operating assets and liabilities, partially offset by a $1.905 billion decrease in non-cash items (principally related to digital asset impairment losses and deferred taxes and gain on extinguishment of debt).
Net cash provided by financing activities decreased $2.276 billion during 2022, as compared to the prior year, due to (i) a $1.297 billion year-over-year reduction in proceeds, net of issuance costs, from long-term debt from our 2027 Convertible Notes and 2028 Secured Notes during 2021 as compared to the proceeds, net of issuance costs, from long-term debt from our 2025 Secured Term Loan and other long-term secured debt during 2022, (ii) a $944.2 million reduction in net proceeds from the sale of class A common stock under public offerings from the 2021 Open Market Sale Agreement and the 2022 Sales Agreement, and (iii) a $39.3 million decrease in proceeds from the exercise of stock options under the 2013 Equity Plan during 2022 compared to 2021, partially offset by (iv) a $2.6 million decrease in payment of withholding tax on vesting of restricted stock units during 2022 compared to 2021 and (v) a $1.6 million increase in proceeds from the sales of class A common stock under the 2021 ESPP during 2022 compared to 2021.
Net cash provided by financing activities increased $1.625 billion during 2023, as compared to the prior year, primarily due to (i) a $1.974 billion increase in net proceeds from the sale of class A common stock under our at-the-market equity offering program during 2023 as compared to 2022, (ii) a $29.1 million increase in proceeds from the exercise of stock options under the 2013 Equity Plan during 2023 compared to 2022, partially offset by (iii) a $215.4 million decrease in long-term debt proceeds, net of lender fees and issuance costs during 2023 as compared to 2022, (iv) the $160.0 million repayment of the 2025 Secured Term Loan and related third-party extinguishment costs during 2023, which was repaid using proceeds from our sale of class A common stock offered under our at-the-market equity offering program, (v) a $2.0 million increase in payment of withholding tax on vesting of restricted stock units during 2023 compared to 2022 and (vi) a $0.5 million decrease in proceeds from the sales of class A common stock under the 2021 ESPP during 2023 compared to 2022.
Share-based compensation expense (in thousands) from these awards was recognized in the following cost of revenues and operating expense line items for the periods indicated: Years Ended December 31, 2022 2021 Cost of subscription services revenues $ 304 $ 282 Cost of product support revenues 2,039 1,176 Cost of consulting revenues 1,754 799 Cost of education revenues 177 112 Sales and marketing 18,274 12,875 Research and development 13,896 10,757 General and administrative 27,175 18,125 Total share-based compensation expense $ 63,619 $ 44,126 The $19.5 million increase in share-based compensation expense during 2022, as compared to the prior year, is primarily due to the continued expansion of our equity award programs worldwide.
Share-based compensation expense (in thousands) from these awards was recognized in the following cost of revenues and operating expense line items for the periods indicated: Years Ended December 31, 2023 2022 Cost of subscription services revenues $ 361 $ 304 Cost of product support revenues 2,156 2,039 Cost of consulting revenues 1,940 1,754 Cost of education revenues 99 177 Sales and marketing 18,022 18,274 Research and development 13,549 13,896 General and administrative 33,444 27,175 Total share-based compensation expense $ 69,571 $ 63,619 50 The $6.0 million increase in share-based compensation expense during 2023, as compared to the prior year, is primarily due to the grant of additional awards under the Stock Incentive Plans as part of the expansion of our equity award program worldwide and the revaluation of certain liability-classified stock-based awards, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested.
We also provide opportunities to eligible employees to purchase shares of our class A common stock under our 2021 Employee Stock Purchase Plan (the “2021 ESPP”).
Each restricted stock unit and performance stock unit represents a contingent right to receive a share of our class A common stock upon the satisfaction of applicable vesting requirements. We also provide opportunities for eligible employees to purchase shares of our class A common stock under our 2021 Employee Stock Purchase Plan (the “2021 ESPP”).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs discussed in Note 2(g), Summary of Significant Accounting Policies, to the Consolidated Financial Statements, we account for our bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our bitcoin decreases below their carrying value at any time since their acquisition. Impairment losses cannot be recovered for any subsequent increase in fair value.
Biggest changeAs discussed in Note 2(g), Summary of Significant Accounting Policies – Digital Assets, to the Consolidated Financial Statements, we account for our bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our bitcoin decreases below their carrying value at any time since their acquisition.
We attempt to minimize our foreign currency risk by converting our excess foreign currency held in foreign jurisdictions to U.S. dollar-denominated cash and investment accounts. As of December 31, 2022, a 10% adverse change in foreign currency exchange rates versus the U.S. dollar would have decreased our aggregate reported cash and cash equivalents by 4.5%.
We attempt to minimize our foreign currency risk by converting our excess foreign currency held in foreign jurisdictions to U.S. dollar-denominated cash and investment accounts. As of December 31, 2023, a 10% adverse change in foreign currency exchange rates versus the U.S. dollar would have decreased our aggregate reported cash and cash equivalents by 5.4%.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to the impact of market price changes in bitcoin, foreign currency fluctuations, and interest rate fluctuations. Market Price Risk of Bitcoin.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to the impact of market price changes in bitcoin and foreign currency fluctuations. Market Price Risk of Bitcoin.
If average exchange rates during the year ended December 31, 2022 had changed unfavorably by 10%, our revenues for the year ended December 31, 2022 would have decreased by 3.7%.
If average exchange rates during the year ended December 31, 2023 had changed unfavorably by 10%, our revenues for the year ended December 31, 2023 would have decreased by 3.6%.
International revenues accounted for 40.2%, 44.0%, and 41.9% of our total revenues for the years ended December 31, 2022, 2021, and 2020, respectively. We anticipate that international revenues will continue to account for a significant portion of our total revenues. The functional currency of each of our foreign subsidiaries is generally the local currency.
International revenues accounted for 42.7%, 41.0%, and 44.7% of our total revenues for the years ended December 31, 2023, 2022, and 2021, respectively. We anticipate that international revenues will continue to account for a significant portion of our total revenues. The functional currency of each of our foreign subsidiaries is generally the local currency.
For example, the market price of one bitcoin on the Coinbase exchange (our principal market for bitcoin) ranged from a low of $15,460.00 to a high of $48,240.00 during the year ended December 31, 2022, but the carrying value of each bitcoin we held at the end of the reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition.
For example, the market price of one bitcoin on the Coinbase exchange (our principal market for bitcoin) ranged from a low of $16,490.00 to a high of $45,000.00 during the year ended December 31, 2023, but the carrying value of each bitcoin we held at the end of the reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition.
We have used a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoin and, as of December 31, 2022, we held approximately 132,500 bitcoins. The carrying value of our bitcoins as of December 31, 2022 was $1.840 billion, which reflects cumulative impairments of $2.153 billion, on our Consolidated Balance Sheet.
We have used a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoin and, as of December 31, 2023, we held approximately 189,150 bitcoins. The carrying value of our bitcoins as of December 31, 2023 was $3.626 billion, which reflects cumulative impairments of $2.269 billion, on our Consolidated Balance Sheet.
For the year ended December 31, 2022, we incurred impairment losses, net of gains on sale, of $1.286 billion on our bitcoin. Foreign Currency Risk. We conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our Consolidated Financial Statements.
For the year ended December 31, 2023, we incurred impairment losses of $115.9 million on our bitcoin. Foreign Currency Risk. We conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our Consolidated Financial Statements.
During the year ended December 31, 2022, our revenues were lower by 4.5% as a result of a 10.1% unfavorable change in weighted average exchange rates, as compared to the prior year. Interest Rate Risk.
During the year ended December 31, 2023, our revenues were higher by 0.5% as a result of a 1.5% favorable change in weighted average exchange rates, as compared to the prior year. Item 8.
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Our 2025 Secured Term Loan bears interest at a floating rate equal to the Secured Overnight Financing Rate 30 Day Average, as published by the Federal Reserve Bank of New York’s website, plus 3.70%, with a floor of 3.75%. At December 31, 2022, the floating rate equaled 7.76%.
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Impairment losses cannot be recovered for any subsequent increase in fair value.
Removed
Based on this rate, annual interest expense on the 2025 Secured Term Loan would be approximately $16.1 million. If the floating rate increased 100 basis points, the annual interest expense on the 2025 Secured Term Loan would be approximately $18.2 million.
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Financial Statemen ts and Supplementary Data Our Consolidated Financial Statements, together with the related notes and the associated Reports of Independent Registered Public Accounting Firm, are set forth on the pages indicated in Item 15. Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure None. 63

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