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What changed in Strategy Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Strategy Inc's 2022 and 2023 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 2023 report.

+559 added−420 removedSource: 10-K (2023-02-16) vs 10-K (2022-02-16)

Top changes in Strategy Inc's 2023 10-K

559 paragraphs added · 420 removed · 332 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

48 edited+82 added−27 removed55 unchanged
Biggest changeWe 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 and can therefore serve as a hedge against inflation. We also believe that bitcoin offers additional opportunity for appreciation in value with increasing adoption due to its limited supply.
Biggest changeWe 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 store a substantial amount of customer and employee data, including personal data, on our networks and other systems and the cloud 10 environments we manage. In addition, the types of data subject to protection as personal data in the European Union, the United States, and elsewhere have been expanding.
We store a substantial amount of customer and employee data, including personal data, on our networks and other systems and the cloud environments we manage. In addition, the types of data subject to protection as personal data in the European Union, the United States, and elsewhere have been expanding.
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 2021, 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 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.
In the first quarter of 2021, we adopted, in addition to and in conjunction with our Treasury Reserve Policy, a corporate strategy of acquiring and holding bitcoin, and from time to time, subject to market conditions, issuing debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase bitcoin.
In the first quarter of 2021, we adopted, in addition to and in conjunction with our Treasury Reserve Policy, a corporate strategy of acquiring and holding bitcoin, 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.
Although sales through MCE have increased as a percentage of our overall sales, the majority of our sales are product licenses sold to customers for them to deploy the platform on their infrastructure either on premises or in the customer’s cloud environment. Revenues from product license sales comprise product licenses revenues, and revenues from cloud subscriptions comprise subscription services revenues.
Although cloud subscription sales have increased as a percentage of our overall sales, the majority of our sales are product licenses sold to customers for them to deploy the platform on their infrastructure either on premises or in the customer’s cloud environment. Revenues from product license sales comprise product licenses revenues, and revenues from cloud subscriptions comprise subscription services revenues.
Information found on our website is not part of this Annual Report or any other report filed with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including us, that file or furnish electronically with the SEC at www.sec.gov . 13
Information found on our website is not part of this Annual Report or any other report filed with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including us, that file or furnish electronically with the SEC at www.sec.gov . 16
This misuse, or the perception of such misuse (even if untrue), could lead to greater regulatory oversight of bitcoin and bitcoin platforms, and there is the possibility that law enforcement agencies could close bitcoin platforms or other bitcoin-related infrastructure with little or no notice and prevent users from accessing or retrieving bitcoin held via such platforms or infrastructure.
This misuse, or the perception of such misuse, could lead to greater regulatory oversight of bitcoin and Bitcoin platforms, and there is the possibility that law enforcement agencies could close Bitcoin platforms or other bitcoin-related infrastructure with little or no notice and prevent users from accessing or retrieving bitcoin held via such platforms or infrastructure.
In addition, since transactions in bitcoin provide a reasonable degree of pseudo anonymity, they are susceptible to misuse for criminal activities, such as money laundering.
In addition, since transactions in bitcoin provide a degree of anonymity, they are susceptible to misuse for criminal activities, such as money laundering.
Key Differentiators • A comprehensive, modern, and open enterprise analytics platform uniquely featuring HyperIntelligence, embedded analytics, transformational mobility, and federated analytics. • Our exclusive and patented HyperIntelligence capabilities that inject contextual analytics into existing tools, websites, and online workflows. • Our proprietary Enterprise Semantic Graph. • Over 200 connectors to popular drivers and gateways to enterprise data sources on premise and in the cloud. • A comprehensive set of REST APIs that makes it easy to embed the platform in packaged and custom applications, workflows, and devices. • Flexible deployment methods that allow our customers to deploy our platform efficiently and securely using their own hardware or in a cloud environment they manage or via the MCE, our fully managed and hosted cloud subscription service. • Comprehensive platform administration, security, and architecture, including role-based access to both row and column data. • A platform that is designed to scale with large datasets and deliver rapid response times.
Key Differentiators • A comprehensive, modern, and open enterprise analytics platform uniquely featuring HyperIntelligence, embedded analytics, transformational mobility, and federated analytics. • Our exclusive and patented HyperIntelligence capabilities that inject contextual analytics into existing tools, websites, and online workflows. • Our proprietary Enterprise Semantic Graph. • Over 200 connectors to popular drivers and gateways to enterprise data sources on premise and in the cloud. • A comprehensive set of REST APIs that makes it easy to embed the platform in packaged and custom applications, workflows, and devices. • Flexible deployment methods that allow our customers to deploy our platform efficiently and securely using their own hardware or in a cloud environment they manage or via our fully managed and hosted cloud subscription service. • Comprehensive platform administration, security, and architecture, including role-based access to both row and column data. • A platform that is designed to scale with large datasets and deliver rapid response times. • The MCG Service operates under FedRAMP guidelines—public sector agencies can now access the platform.
This decentralization limits certain threats common to centralized computer networks, such as denial of service attacks, and reduces the dependency of the bitcoin network on any single system.
This decentralization mitigates the risks of certain threats common to centralized computer networks, such as denial-of-service attacks, and reduces the dependency of the bitcoin network on any single system.
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. Analytics Software and Services Strategy Sales and Services MicroStrategy sells its platform in two ways.
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.
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 conduct debt or equity financings to purchase additional bitcoin.
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.
Employees As of December 31, 2021, we had a total of 2,121 employees, of whom 796 were based in the United States and 1,325 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, 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.
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 and can therefore serve as a hedge against inflation.
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.
Our Bitcoin Holdings We purchased a total of approximately 53,922 bitcoin at an aggregate purchase price of approximately $2.627 billion in 2021 for an average purchase price of approximately $48,710 per bitcoin, inclusive of fees and expenses.
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.
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. 9 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 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.
The following table summarizes employee headcount as of the dates indicated: December 31, December 31, December 31, 2021 2020 2019 Subscription services 72 49 69 Product support 174 154 219 Consulting 413 393 392 Education 36 37 38 Sales and marketing 470 479 597 Research and development 699 642 743 General and administrative 257 243 338 Total headcount 2,121 1,997 2,396 12 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, 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.
We pursue, as part of our overall corporate strategy, a strategy of 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 in capital raising transactions with the objective of using the proceeds to purchase bitcoin.
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.
As with other issues related to Brexit, there are open questions about how personal data will be protected in the UK and whether personal information can transfer from the EU to the UK.
As with other issues related to the withdrawal of the United Kingdom from the European Union, commonly referred to as “Brexit,” there are open questions about how personal data will be protected in the UK and whether personal information can transfer from the EU to the UK.
As of February 14, 2022, we held approximately 125,051 bitcoins that were acquired at an aggregate purchase price of $3.777 billion and an average purchase price of approximately $30,200 per bitcoin, inclusive of fees and expenses. As of February 14, 2022, at 4:00 p.m.
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.
At December 31, 2020, we carried $1.054 billion of digital assets on our balance sheet, consisting of approximately 70,469 bitcoins and reflecting $70.7 million in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $59.7 million in cash and cash equivalents.
At December 31, 2022, we carried $1.840 billion of digital assets on our balance sheet, consisting of approximately 132,500 bitcoins and reflecting $2.153 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held $43.8 million in cash and cash equivalents.
While the bitcoin network as a whole is decentralized, the private keys used to access bitcoin balances are not widely distributed and are held on hardware (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 and loss of such private keys results in an inability to access, and effective loss of, the corresponding bitcoin.
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.
In addition, we believe that our bitcoin acquisition strategy is complementary to our enterprise analytics software and services business, as we believe that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand and can provide opportunities to secure new customers for our analytics offerings.
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.
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.
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.
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.
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.
For additional services, customers can choose one of our three premium support options: Extended Support, Premier Support, or Elite Support.
For additional services, customers can choose one of our three premium support options: Extended Support, Premier Support, or Elite Support. With these premium support options, customers can receive extended coverage and enhanced service at each touchpoint.
Under this corporate strategy, we also periodically engage in activities to educate the market regarding bitcoin and the bitcoin network.
As part of our bitcoin acquisition strategy, we also periodically engage in activities to educate the market regarding bitcoin.
We believe that in the context of the economic and public health crisis precipitated by the COVID-19 pandemic and the unprecedented government financial stimulus measures adopted around the world, decreasing interest rates, increasing inflation, as well as the breakdown of trust in and between political institutions and political parties in the United States and globally, bitcoin represents a more attractive store of value than fiat currency, and further that opportunity for appreciation in the value of bitcoin exists in the event that 6 such factors lead to even more widespread adoption of the use and acceptance of bitcoin and the adoption of bitcoin as a treasury reserve alternative.
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.
These laws may impact our ongoing business activities and our relationships with our business partners, customers and service providers. In addition to these specific laws, we also are subject to other privacy, security, and data protection laws around the world.
In addition to these specific laws, we also are subject to other privacy, security, and data protection laws around the world. In addition to the laws in place already, other countries are also considering new or expanded laws governing privacy and data security that may impact our business practices.
In addition, a recent decision from the European Commission appears to deem the UK as being “essentially adequate” for purposes of data transfer from the EU to the UK, although this decision may be reevaluated in the future. 11 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.
In addition, other states, including Virginia and Colorado, already have passed state privacy laws. 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.
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.
The first is to sell product licenses to customers for them to deploy the platform on their infrastructure either on premises or in the customer’s cloud environment. The second is through MCE, a fully managed and hosted cloud subscription service that allows customers to access our software in a cloud environment designed to deliver a myriad of business benefits.
The second is through MCE and MCG, which are fully managed and hosted cloud subscription services that allow customers to access our software in a cloud environment designed to deliver a myriad of business benefits.
The channels we use to communicate with prospective constituencies include digital and social media, advertising, free and evaluation software, events, media coverage, channel partners, and word-of-mouth and peer references. Customers Our customers include leading companies from a wide range of industries, including retail, consulting, technology, manufacturing, banking, insurance, finance, healthcare, telecommunications, as well as the public sector.
The channels we use to communicate with prospective constituencies include digital and social media, advertising, free and evaluation software, events, media coverage, channel partners, and word-of-mouth and peer references.
Through our joint efforts, we believe customers are able to minimize their risk and maximize the return on their business intelligence projects.
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.
Our ability to compete successfully depends on a number of factors, both within and outside of our control, including software deployment options; analytical, mobility, data discovery, and visualization capabilities; performance and scalability; the quality and reliability of our customer service and support; and brand recognition.
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.
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. 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.
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 not targeted 5 any specific amount of bitcoin holdings, and we will continue to monitor market conditions in determining whether to conduct debt or equity financings to purchase additional bitcoin .
We view our bitcoin holdings as long-term holdings and expect to continue to accumulate bitcoin. 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.
Overview of Bitcoin Bitcoin is a digital asset that is issued by and transmitted through an open source protocol collectively maintained by a peer-to-peer network of decentralized user nodes. This network hosts a public transaction ledger, known as the bitcoin blockchain, on which bitcoin holdings and transactions in bitcoin are recorded.
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.
In addition, other countries are also considering new or expanded laws governing privacy and data security that may impact our business practices. The state of California also adopted a comprehensive privacy law, the California Consumer Privacy Act (“CCPA”), which took effect in January 2020 and became enforceable in July 2020.
For example, the state of California adopted a comprehensive privacy law, the California Consumer Privacy Act (“CCPA”), which took effect in January 2020 and became enforceable in July 2020.
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 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.
We are also exploring opportunities to apply bitcoin related technologies such as blockchain analytics into our software offerings. MicroStrategy is also a global leader in enterprise analytics software and services. Since our founding in 1989, MicroStrategy has focused on empowering organizations to leverage the immense value of their data.
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.
New bitcoin is created and allocated by the protocol that governs bitcoin through a “mining” process that rewards users that verify transactions in the bitcoin blockchain. The bitcoin protocol limits the total issuance of bitcoin over time to 21 million.
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.
These risks, in turn, make bitcoin subject to theft, destruction, or loss of value from hackers, corruption, or technology-specific factors such as viruses that do not affect conventional fiat currency. In addition, the bitcoin network relies on open source developers to maintain and improve the bitcoin protocol.
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.
Many companies lack the internal expertise to define requirements and deliver solutions in a timely and high-quality manner. MicroStrategy Consulting provides customers with architecture and implementation services to help them quickly realize results. Our consultants serve as critical resources for operations, maintenance, and end-to-end lifecycle projects that develop and deploy customers’ business intelligence environments.
MicroStrategy Consulting Our consulting services materially complement our software by increasing analytics adoption and helping our customers achieve returns on investment derived from better understanding their data. Many companies lack the internal expertise to define requirements and deliver solutions in a timely and high-quality manner. MicroStrategy Consulting provides customers with architecture and implementation services to help them quickly realize results.
Competition The analytics market is highly competitive and subject to rapidly changing technology. Within the analytics space, we compete with multiple software vendors, including IBM, Microsoft, Oracle, Qlik, Salesforce, and SAP. Our future success depends on the ability to differentiate our offerings and successfully compete across analytics implementation projects of varying sizes.
Customers Our customers include leading companies from a wide range of industries, including retail, banking, technology, consulting, manufacturing, insurance, healthcare, telecommunications, as well as the public sector. 13 Competition The analytics market is highly competitive and subject to rapidly changing technology. Within the analytics space, we compete with many different software vendors, including IBM, Microsoft, Oracle, Qlik, Salesforce, and SAP.
Our vision is to enable Intelligence Everywhere ™ by delivering world-class software and services that empower enterprise users with actionable intelligence.
Enterprise Analytics Software Strategy The MicroStrategy Platform MicroStrategy is 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 empower enterprise users with actionable insights.
Balances of bitcoin are stored in individual “wallet” functions, which associate network public addresses with a “private key” that controls the transfer of bitcoin. The bitcoin blockchain can be updated without any single entity owning or operating the network.
This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which bitcoin holdings and all validated transactions that have ever taken place on the Bitcoin network are recorded. Balances of bitcoin are stored in individual “wallet” functions, which associate network public addresses with one or more “private keys” that control the transfer of bitcoin.
The platform is designed to scale efficiently to hundreds of thousands of users, with millions of personalized queries, across hundreds of applications, built on top of the largest datasets. ○ Security – Our platform includes a comprehensive set of features that provides superior administration, security, and architecture, including role-based access to both row and column data.
Support high performance with analytics at scale. Our platform powers some of the largest analytics and business intelligence deployments in the world. The platform is architected to scale efficiently to hundreds of thousands of users, with millions of personalized queries, across hundreds of applications, built on top of large datasets. 10. Accelerate workflows through automation.
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We view our bitcoin holdings as long-term holdings, and we do not plan to engage in regular trading of bitcoin and have not hedged or otherwise entered into derivative contracts with respect to our bitcoin holdings, though we may sell bitcoin in future periods as needed to generate cash for treasury management and other general corporate purposes.
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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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Our core offering is the MicroStrategy platform, which delivers 1) pervasive, modern analytics experiences designed for everyone—not just the data-literate, 2) open architecture for developers to embed, extend, and inject data visualizations and direct insights into third-party websites and applications, 3) a governed, object-oriented semantic layer with our Enterprise Semantic Graph, and 4) enterprise-grade performance and security.
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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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Enterprise customers use MicroStrategy’s innovative technology to make information and actions flow faster and to more users—so their people can make smarter, data-driven decisions. We also offer MicroStrategy Consulting ™ and MicroStrategy Education ™ to help customers deploy, optimize, and manage their analytics initiatives—minimizing their total cost of ownership while maximizing results and business impact.
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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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We view our bitcoin holdings as long-term holdings and we do not plan to engage in regular trading of bitcoin, though we may sell bitcoins in future periods as needed to generate Cash Assets for treasury management and other general corporate purposes.
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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. 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.
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In addition, to date we have not hedged or otherwise entered into derivative contracts with respect to our bitcoin holdings, though we may consider issuing debt or other financial instruments that may be collateralized by our bitcoin holdings and may consider strategies to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to counterparties.
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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.
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We purchased a total of approximately 70,469 bitcoin at an aggregate purchase price of approximately $1.125 billion in 2020 for an average purchase price of approximately $15,964 per bitcoin, inclusive of fees and expenses.
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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.
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During the period between January 1, 2022 and February 14, 2022, we purchased a total of approximately 660 bitcoins at an aggregate purchase price of approximately $25.0 million for an average purchase price of approximately $37,865 per bitcoin, inclusive of fees and expenses. Refer to the “Our Bitcoin Acquisition Strategy” section under “Item 7.
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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.
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Eastern Time, the market price of one bitcoin reported on the Coinbase exchange (our principal market) was $42,202.99. We expect to purchase additional bitcoin in future periods, though we may also sell bitcoin in future periods as needed to generate Cash Assets for treasury management purposes.
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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.
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As a result, trading on these markets is likely more subject to manipulation than on securities markets regulated by the SEC, and pricing on these markets is likely affected by such manipulative activity. In addition to these platforms, over-the-counter markets and derivatives markets for bitcoin also exist; however, these markets are still maturing and many are unregulated.
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However, there is a core group of developers that maintain the code for the Bitcoin protocol, and they can propose changes to the source code and release periodic updates and other changes.
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Furthermore, in December 2020, the Financial Crimes Enforcement Network (“FinCEN”), a unit of the Treasury Department focused on money laundering, proposed a new set of rules for cryptocurrency-based exchanges aimed at reducing the use of cryptocurrencies for money laundering.
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Unlike most software that has a central entity that can push updates to users, bitcoin is a peer-to-peer network in which individual network participants, called nodes, decide whether to upgrade the software and accept the new changes.
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These proposed rules would require banks, credit unions and money services businesses, among others, to file reports with FinCEN regarding cryptocurrency transactions in excess of $10,000 and also impose record-keeping requirements for cryptocurrency transactions in excess of $3,000 involving users who manage their own private keys. It remains unclear whether these proposed rules will take effect.
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As a practical matter, a modification becomes part of the Bitcoin protocol only if the proposed changes are accepted by participants collectively having the most processing power, known as hash rate, on the network.
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The MicroStrategy Platform Our core product offering is our software platform. In December 2021, we released the latest version of our flagship enterprise analytics platform. MicroStrategy allows our customers to build high-performance, governed, and secure business and productivity applications that scale across the enterprise.
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If a certain percentage of the nodes reject the changes, then a “fork” takes place and participants can choose the version of the software they want to run. Forms of Attack Against the Bitcoin Network and Wallets Blockchain technology has many built-in security features that make it difficult for hackers and other malicious actors to corrupt the protocol or blockchain.
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Our platform is designed to empower the entire workforce—from executives to developers to frontline service representatives—with actionable intelligence through the following differentiated features: • Pervasive, Modern Analytics : MicroStrategy delivers insights across multiple clients and devices to users via our HyperIntelligence products, visualization and reporting capabilities, mobility features, and custom applications developed on our platform. ○ Data Visualization and Reporting – Dossier ® , our dashboarding and data-visualization tool, provides users with the formatting, layout, and input controls needed to quickly build low-code/no-code analytics applications, from infographic-style reports to high-impact productivity applications. ○ Transformational Mobility – Our platform empowers the mobile workforce to make decisions and take action from any location.
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However, as with any computer network, the Bitcoin network may be subject to certain attacks. Some forms of attack include unauthorized access to wallets that hold bitcoin and direct attacks, like “51% attacks” or “denial-of-service attacks” on the Bitcoin protocol.
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It delivers more ways to quickly deploy mobile productivity apps for a variety of business functions and roles on any standard smartphone or tablet. ○ HyperIntelligence – Our platform offers the potential to radically improve business processes by enhancing the websites, applications, and mobile devices people use every day with contextual intelligence, next-action suggestions, and workflows. ○ Custom Applications – Our platform enables users to create highly customized web and mobile applications that leverage the full breadth of the MicroStrategy platform to deliver intuitive BI apps for teams, departments, and organizations. 7 • Open, Federated Architecture : MicroStrategy embraces an agile approach to development and innovation, offering the most open analytics platform on the market. ○ Federated Analytics – Our platform provides analysts and data scientists with seamless access to trusted, governed data directly within their favorite tools.
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Bitcoin is controllable only by the possessor of both the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin is held.
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The MicroStrategy platform integrates with popular business apps including Microsoft Excel, Power BI, and Tableau to provide users with the flexibility to leverage trusted data from MicroStrategy directly within the client applications they are accustomed to.
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One form of obtaining unauthorized access to a wallet occurs following a phishing attack where the attacker deceives the victim and manipulates them into sharing their private keys for their digital wallet or other sensitive information. Other similar attacks may also result in the loss of private keys and the inability to access, and effective loss of, the corresponding bitcoin.
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The MicroStrategy platform also provides out-of-the-box integrations to popular data-science tools like Jupyter and RStudio, allowing users to develop predictive, machine learning-enhanced data models on top of the secure and trusted foundation offered by the MicroStrategy platform. ○ APIs and Gateways – Our gateways, APIs, and connectors enable the MicroStrategy platform to integrate with the most popular enterprise platforms and tools.
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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 changeOur financial results and the market price of our class A common stock would be adversely affected and our business and financial condition could be negatively impacted if the price of bitcoin decreased substantially, including as a result of: • decreased user and investor confidence in bitcoin; • investment and trading activities of highly active retail and institutional users, speculators, miners and investors; • negative publicity or events relating to bitcoin; • negative or unpredictable media or social media coverage on bitcoin; 16 • public sentiment related to the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private individuals and governmental actors related to the energy resources consumed in the bitcoin mining process; • changes in consumer preferences and the perceived value of bitcoin; • competition from other crypto assets that exhibit better speed, security, scalability, or other characteristics, or that are backed by governments, including the U.S. government; • the correlation between the prices of digital assets, including the potential that a crash in one digital asset or widespread defaults on one digital asset exchange or trading venue may cause a crash in the price of bitcoin, or a series of defaults by counterparties on bitcoin asset exchanges or trading venues; • the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed bitcoin, or the transfer of Satoshi’s bitcoin; • interruptions in service or failures of the principal markets for bitcoin; • 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; • changes in the level of interest rates and inflation, 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 being used by bitcoin becoming insecure or ineffective; and • national and international economic and political conditions.
Biggest changeOur financial results and the market price of our class A common stock would be adversely affected, and our business and financial condition would be negatively impacted, if the price of bitcoin decreased substantially (as it has in the past, including during 2022), including as a result of: • decreased user and investor confidence in bitcoin; • investment and trading activities of highly active retail and institutional users, speculators, miners and investors; • negative publicity or events relating to bitcoin, including potential public backlash against bitcoin to the extent the public views bitcoin as a vehicle that may be used to circumvent sanctions, including the recent sanctions imposed on Russia related to the ongoing conflict between Russia and Ukraine; • negative or unpredictable media or social media coverage of bitcoin or the digital asset industry, including in connection with bankruptcy proceedings of industry participants; • negative public sentiment related to the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private individuals, governmental, non-governmental organizations, and other actors related to the energy resources consumed in the bitcoin mining process; • changes in consumer preferences and the perceived value or prospects of bitcoin; • competition from other digital assets that exhibit better speed, security, scalability, or energy efficiency, that feature other more favored characteristics, that are backed by governments, including the U.S. government, or reserves of fiat currencies, or that represent ownership or security interests in physical assets; • a decrease in the price of other digital assets, including stablecoins, or the crash or unavailability of stablecoins that are used as a medium of exchange for bitcoin purchase and sale transactions, such as the crash of the stablecoin Terra USD in 2022, to the extent the decrease in the price of such other digital assets or the unavailability of such stablecoins may cause a decrease in the price of bitcoin or adversely affect investor confidence in digital assets generally; • the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed bitcoin, or the transfer of substantial amounts of bitcoin from bitcoin wallets attributed to Mr.
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.
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.
We may not have the ability to raise the funds necessary to settle for cash conversions of the Convertible Notes Upon conversion of the 2025 Convertible Notes or the 2027 Convertible Notes, unless we elect (or have previously irrevocably elected) to deliver solely shares of our class A common stock to settle such conversion of such Convertible Notes (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the applicable Convertible Notes being converted as described in the applicable indenture.
We may not have the ability to raise the funds necessary to settle for cash conversions of the Convertible Notes Upon conversion of the 2025 Convertible Notes or the 2027 Convertible Notes, unless we elect (or have previously irrevocably elected) to deliver solely shares of our class A common stock to settle the conversion of such Convertible Notes (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the applicable Convertible Notes being converted as described in the applicable indenture.
However, we may not have enough available cash or be able to obtain financing at the time we are required to pay cash with respect such notes being converted.
However, we may not have enough available cash or be able to obtain financing at the time we are required to pay cash with respect to such notes being converted.
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.
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.
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.
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.
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 Bitcoin is controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the bitcoin is held.
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 Bitcoin is controllable only by the possessor of both the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin is held.
Another reason for the substantial premium to NAV exhibited by the trading prices of shares of some bitcoin investment vehicles is that such vehicles operate in a manner similar to closed-end investment funds as opposed to exchange-traded funds (“ETFs”) and therefore do not continuously offer to create and redeem their shares at NAV in exchange for bitcoin.
Another reason for the substantial premium to NAV exhibited in the past by the trading prices of shares of some bitcoin investment vehicles is that such vehicles operate in a manner similar to closed-end investment funds as opposed to exchange-traded funds (“ETFs”) and therefore do not continuously offer to create and redeem their shares at NAV in exchange for bitcoin.
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 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 26 to obtain cash beyond the revenues generated by our enterprise analytics software business.
In addition, dividends, distributions, or other payments, as well as other transfers of assets, between our subsidiaries and from our subsidiaries to us may be subject to legal, 35 regulatory, or contractual restrictions, which may materially adversely affect our ability to transfer cash within our consolidated companies and our ability to meet our cash needs and service our indebtedness.
In addition, dividends, distributions, or other payments, as well as other transfers of assets, between our subsidiaries and from our subsidiaries to us may be subject to legal, regulatory, or contractual restrictions, which may materially adversely affect our ability to transfer cash within our consolidated companies and our ability to meet our cash needs and service our indebtedness.
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.
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.
We perform an analysis each 17 quarter to identify whether events or changes in circumstances, principally decreases in the quoted (unadjusted) prices on the active exchange, indicate that it is more likely than not that any of our bitcoin assets are impaired.
We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted (unadjusted) prices on the active exchange, indicate that it is more likely than not that any of our bitcoin assets are impaired.
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 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.
Our customers also include a number of foreign governments and government agencies. Similar procurement, budgetary, contract, and audit risks also apply to these entities. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources.
Our customers also include foreign governments and government agencies. Similar procurement, budgetary, contract, and audit risks also apply to these entities. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources.
For example, in October 2021 it was reported that hackers exploited a flaw in the account recovery process and stole from the accounts of at least 6,000 customers of the Coinbase exchange (our principal market), although the flaw was subsequently fixed and Coinbase reimbursed affected customers.
For example, in October 2021 it was reported that hackers exploited a flaw in the account recovery process and stole from the accounts of at least 6,000 customers of the Coinbase exchange (our principal market for bitcoin), although the flaw was subsequently fixed and Coinbase reimbursed affected customers.
Risks Related to Our Operations We face risks related to the COVID-19 pandemic that could significantly disrupt or materially adversely affect our business and operating results The COVID-19 pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets.
We face risks related to the COVID-19 pandemic that could significantly disrupt or materially adversely affect our business and operating results The COVID-19 pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets.
The liquidity of bitcoin may also be reduced and damage to the public perception of bitcoin may occur, if financial institutions were to deny banking services to businesses that hold bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin.
The liquidity of bitcoin may also be reduced and damage to the public perception of bitcoin may occur, if financial institutions were to deny or limit banking services to businesses that hold bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin.
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.
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.
Although currently a majority of our Board of Directors is comprised of independent directors and the Compensation Committee is comprised entirely of independent directors, we may elect in the future not to have independent directors constitute a majority of the Board of Directors or the Compensation Committee, our Chief Executive Officer’s compensation determined by a compensation committee of independent directors, or a compensation committee of the Board of Directors at all.
Although currently a majority of our Board of Directors is comprised of independent directors and the Compensation Committee is comprised entirely of independent directors, we may elect in the future not to have independent directors constitute a majority of the Board of Directors or the Compensation Committee, our Executive Chairman’s and Chief Executive Officer’s compensation determined by a compensation committee of independent directors, or a compensation committee of the Board of Directors at all.
We cannot assure you that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness, to refinance our indebtedness, or to fund our other 33 liquidity needs.
We cannot assure you that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness, to refinance our indebtedness, or to fund our other liquidity needs.
In addition, increasing government restrictions on 21 the collection, use, and transfer of personal data could impair the further growth of the market for analytics software, especially in foreign markets.
In addition, increasing government restrictions on the collection, use, and transfer of personal data could impair the further growth of the market for analytics software, especially in foreign markets.
China also adopted new legislation on the protection of privacy and personal data in November 2021, including the Personal Information Protection Law 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 Personal Information Protection Law (“PIPL”) and Data Security Law that impose new data processing obligations on us.
For example, these restrictions do not prevent us from incurring obligations, such as certain trade payables and operating leases, that 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. Unresolved Staff Comments None.
The U.S.-EU Privacy Shield provided a mechanism to lawfully transfer personal data from the European Union to the United States and certain other countries.
The U.S.-EU Privacy Shield provided a mechanism to lawfully transfer personal 33 data from the European Union to the United States and certain other countries.
We may be required to repay the 2028 Secured Notes prior to their stated maturity date, if the springing maturity feature is triggered 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 91 days prior to the existing maturity date of the 2025 Convertible Notes (which is September 15, 2025), the 2027 Convertible Notes (which is November 16, 2026), or 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 may be required to repay the 2028 Secured Notes prior to their stated maturity date, if the springing maturity feature is triggered 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.
We rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the 2028 Secured Notes and the Convertible Notes, and certain of our subsidiaries holding digital assets may not provide any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs We depend on dividends, distributions, and other payments from our subsidiaries to fund our obligations, including those arising under the 2028 Secured Notes and the Convertible Notes, and meet our cash needs.
We rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the 2028 Secured Notes, the Convertible Notes, and our other long-term indebtedness, and certain of our subsidiaries holding digital assets may not provide any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs We depend on dividends, distributions, and other payments from our subsidiaries to fund our obligations, including those arising under the 2028 Secured Notes, the Convertible Notes, and our other long-term indebtedness, and meet our cash needs.
We may not be able to retain our current key employees or attract, train, assimilate, and retain other highly skilled personnel in the future. Our future success also depends in large part on the continued service of Michael J. Saylor, our Chairman of the Board of Directors & Chief Executive Officer. If we lose the services of Mr.
We may not be able to retain our current key employees or attract, train, assimilate, and retain other highly skilled personnel in the future. Our future success also depends in large part on the continued service of Michael J. Saylor, our Chairman of the Board of Directors and Executive Chairman. If we lose the services of Mr.
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; • 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; 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 developments, including in China, may impact our activities with our customers, other MicroStrategy entities and vendors, and require us to take appropriate steps in light of data transfers between the U.S. and the EU (and the UK), as well as transfers and onward transfers of personal data from the EU to other non-EU countries.
These developments, including in Brazil and China, may impact our activities with our customers, other MicroStrategy entities and vendors, and require us to take additional and appropriate steps in light of data transfers between the U.S. and the EU (and the UK), as well as transfers and onward transfers of personal data from the EU to other non-EU countries.
As of December 31, 2021, 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, 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.
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 shipments; • 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 the COVID-19 pandemic, or other future infectious disease pandemics, 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. 14 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; • 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.
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. 15 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. 18 We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion.
Finally, our ability to accelerate our cloud strategy could be negatively impacted by any inability to provide necessary sales and sales engineering support, including the support of channel partners, our internal sales team, and digital marketing.
Additionally, our ability to accelerate our cloud strategy could be negatively impacted by any inability to provide necessary sales and sales engineering support, including the support of channel partners, our internal sales team, and digital marketing.
Any of these events could in turn result in cross-defaults under our other indebtedness.
Any of these events could in turn 39 result in cross-defaults under our other indebtedness.
The nature of our software makes it particularly susceptible to undetected errors, bugs, or security vulnerabilities, which could cause problems with how the software performs and, in turn, reduce demand for our software, reduce our revenue, and lead to litigation claims against us Despite extensive testing by us and our current and potential customers, we have in the past discovered software errors, bugs, or security vulnerabilities (including the log4j vulnerability which surfaced in December 2021 and affected companies worldwide) in our offerings after commercial shipments began and they may be found in future offerings or releases.
The nature of our software makes it particularly susceptible to undetected errors, bugs, or security vulnerabilities, which could cause problems with how the software performs and, in turn, reduce demand for our software, reduce our revenue, and lead to litigation claims against us Despite extensive testing by us and our current and potential customers, we have in the past discovered software errors, bugs, or security vulnerabilities (including the log4j and SpringShell vulnerabilities which surfaced in December 2021 and March 2022, respectively, and affected companies worldwide) in our offerings after commercial shipments began and they may be found in future offerings or releases.
Compliance with Government Contracting Requirements. Government contractors are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typical for commercial contracts.
Government contractors are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typical for commercial contracts.
As with deferred revenue and advanced payments, these other remaining performance obligations at any particular date may not be representative of actual revenue for any succeeding period.
As with deferred revenue and advance payments, these other remaining performance obligations at any particular date may not be representative of actual revenue for any succeeding period.
The operating results of our subsidiaries at any given time may not be sufficient to make dividends, distributions, or other payments to us in order to allow us to make payments on the 2028 Secured Notes and the Convertible Notes.
The operating results of our subsidiaries at any given time may not be sufficient to make dividends, distributions, or other payments to us in order to allow us to make payments on the 2028 Secured Notes, the Convertible Notes, and our other long-term indebtedness.
Security measures that we or our third-party service providers have implemented may not be effective against all current or future security threats, including any potential threats from the exploitation of the log4j vulnerability.
Security measures that we or our third-party service providers have implemented may not be effective against all current or future security threats, including any potential threats from the exploitation of the log4j or SpringShell vulnerabilities.
In addition, the arrangement 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 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.
As a result, if a substantial number of current customers shift to, or new customers purchase, cloud subscriptions instead of product licenses, the resulting change in payment terms and revenue recognition may result in our recognizing less revenue in the reporting period in which the sale transactions are consummated than has been the case in prior periods, with more revenue being recognized in future periods.
As a result, as our customers increasingly shift to, or new customers purchase, cloud subscriptions instead of product licenses, the resulting change in payment terms and revenue recognition may result in our recognizing less revenue in the reporting period in which the sale transactions are consummated than has been the case in prior periods, with more revenue being recognized in future periods.
The application of securities laws and other regulations to such assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may create new regulations or interpret laws in a manner that adversely affects the price of bitcoin.
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.
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; 26 • 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, terrorism, or pandemics (including the ongoing COVID-19 pandemic); and • political instability and security risks in the countries where we are doing business.
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.
To the extent investors view the value of our class A common stock as providing such exposure, it is possible that the value of our class A common stock also includes a premium over the value of our bitcoin.
To the extent investors view the value of our class A common stock as providing such exposure, it is possible that the value of our class A common stock may also include a premium over the value of our bitcoin.
Our future income tax liability could be materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates, earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the amount of unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations thereof (including in response to the COVID-19 pandemic).
Our future income tax liability could be materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates, earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the amount of our unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations thereof.
Some of these factors include software deployment options; analytical, mobility, data discovery, and visualization capabilities; performance and scalability; the quality and reliability of our customer service and support; and brand recognition.
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.
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, act of terrorism, geopolitical conflict, 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 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 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.
Transactions involving newly issued class A common stock, convertible debt instruments, or other convertible securities could result in possibly substantial dilution to holders of our class A common stock. 32 Our amended and restated by-laws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, then any other state court located in the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for such disputes with us or our directors, officers or employees Our amended and restated by-laws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, then any other state court located in the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or the Company’s certificate of incorporation or by-laws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine.
Our amended and restated by-laws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, then any other state court located in the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for such disputes with us or our directors, officers or employees Our amended and restated by-laws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, then any other state court located in the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or the Company’s certificate of incorporation or by-laws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine.
Moreover, the risks of engaging in a bitcoin-focused business strategy are relatively novel and have created, and may create further, complications due to the lack of experience that third parties have with companies engaging in such a business, such as the unavailability of director and officer liability insurance on acceptable terms.
Moreover, the risks of engaging in a bitcoin acquisition strategy are relatively novel and have created, and may create further, complications due to the lack of experience that third parties have with companies engaging in such a strategy, such as the unavailability on acceptable terms, or increased cost, of director and officer liability insurance.
Saylor, our Chairman of the Board of Directors & Chief Executive Officer, beneficially owned 1,961,668 shares of class B common stock, or 67.7% 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 67.1% of the total voting power. Accordingly, Mr.
Bitcoin does not pay interest or other returns and so our ability to generate cash from our bitcoin holdings depends on sales or implementing strategies that we may consider to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to counterparties.
Bitcoin does not pay interest or other returns and so our ability to generate cash from our bitcoin holdings depends on sales or implementing strategies that we may consider to create income streams or otherwise generate cash by using our bitcoin holdings.
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, consumer demand for bitcoin as a means of 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 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 rules involving this alternative SCC data transfer option are continually 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 or implement significant changes in our data security and protection practices.
The rules involving these alternative SCC data transfer options are continually undergoing revision and these transfer mechanisms 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 or implement significant changes in our data security and protection practices.
Bitcoin is a highly volatile asset that has traded below $30,000 per bitcoin and above $65,000 per bitcoin on the Coinbase exchange (our principal market) in the 12 months preceding the date of this Annual Report.
Bitcoin is a highly volatile asset that has traded below $20,000 per bitcoin and above $45,000 per bitcoin on the Coinbase exchange (our principal market for bitcoin) in the 12 months preceding the date of this Annual Report.
Given that it is relatively easy for customers to migrate on and off our cloud subscription platform, a substantial shift among our customers toward our cloud platform could result in higher future rates of attrition among our customers. In addition, the payment streams and revenue recognition timing for our product licenses are different from those for our cloud subscriptions.
Given that it is relatively easy for customers to migrate on and off our cloud subscription platform, as we continue to shift our customers toward our cloud platform, we could face higher future rates of attrition among our customers. In addition, the payment streams and revenue recognition timing for our product licenses are different from those for our cloud subscriptions.
Investors who are not eligible to participate in these private placements may nevertheless purchase shares of these investment vehicles in the over-the-counter market, where such shares have historically traded at a premium to the net asset value (“NAV”) of the underlying bitcoin. These premiums have at times been substantial.
Investors who are not eligible to participate in these private placements may nevertheless purchase shares of these investment vehicles in the over-the-counter market, where such shares have in the past traded at a premium to the net asset value (“NAV”) of the underlying bitcoin.
As a result, it is unclear as to whether or to what extent the existence of this ETF or other ETFs that invest in bitcoin futures contracts that may be listed in the future will have on any premium over the value of our bitcoin holdings that may be included in the value of our class A common stock.
It is unclear as to whether or to what extent the existence of ETFs that invest in bitcoin futures contracts will have on any premium over the value of our bitcoin holdings that may be included in the value of our class A common stock.
For the year ended December 31, 2021, transactions by channel partners for which we recognized revenue accounted for 32.0% 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, 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.
Nonetheless, a successful security breach or cyberattack could result in: • a partial or total loss of our bitcoin in a manner that may not be covered by insurance or indemnity provisions of the custody agreement with a custodian who holds our bitcoin; • harm to our reputation and brand; • improper disclosure of data and violations of applicable data privacy and other laws; or • significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure.
A successful security breach or cyberattack could result in: • a partial or total loss of our bitcoin in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who hold our bitcoin; • harm to our reputation and brand; • improper disclosure of data and violations of applicable data privacy and other laws; or • significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure.
In addition, the introduction of the ProShares ETF, the Valkyrie ETF, and any additional bitcoin ETFs on U.S. national securities exchanges may be viewed by investors as offering “pure play” exposure to bitcoin that would generally not be subject to federal income tax at the entity level as we are.
In addition, the introduction of the bitcoin futures focused ETFs and any future bitcoin focused ETFs on U.S. national securities exchanges may be viewed by investors as offering “pure play” exposure to bitcoin that would generally not be subject to federal income tax at the entity level as we are.
If our revenues are not sufficient to offset our operating expenses, or we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, we may incur operating losses in future periods, our profitability may decrease, or we may cease to be profitable.
If our revenues are not sufficient to offset our operating expenses, we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, or we incur additional significant impairment losses related to our digital assets, we may incur operating losses in future periods, our profitability may decrease, or we may cease to be profitable.
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.
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.
In addition, private actors that are wary of bitcoin or the regulatory concerns associated with bitcoin may take actions that may have an adverse effect on the market price of our class A common stock.
In addition, private actors that are wary of bitcoin or the regulatory concerns associated with bitcoin have in the past taken and may in the future take further actions that may have an adverse effect on our business or the market price of our class A common stock.
As a result, the marketplace may lose confidence in bitcoin trading venues, including prominent exchanges that handle a significant volume of bitcoin trading, in the event one or more bitcoin trading venues experience fraud, security failures or operational problems.
As a result, the marketplace may lose confidence in bitcoin trading venues, including prominent exchanges that handle a significant volume of bitcoin trading and/or are subject to regulatory oversight, in the event one or more bitcoin trading venues experience fraud, security failures or operational problems.
For the year ended December 31, 2021, our top three product licenses transactions with recognized revenue totaled $12.6 million, or 12.4% of total product licenses revenues, compared to $15.3 million, or 17.6% of total product licenses revenues, for the year ended December 31, 2020.
For the year ended December 31, 2022, our top three product licenses transactions with recognized revenue totaled $13.1 million, or 15.1% of total product licenses revenues, compared to $12.6 million, or 12.4% of total product licenses revenues, for the year ended December 31, 2021.
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 $217.9 million as of December 31, 2021.
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 access to protected health information triggers obligations to comply with certain privacy rules and data security requirements under HIPAA. 28 Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us or our third-party service providers to comply with applicable privacy policies, contractual obligations, or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by domestic or foreign government entities or others, including private plaintiffs in litigation.
Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us or our third-party service providers to comply with applicable privacy policies, contractual obligations, or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by domestic or foreign government entities or others, including private plaintiffs in litigation.
Our bitcoin holdings could subject us to regulatory scrutiny As noted above, several bitcoin investment vehicles have attempted to list their shares on a U.S. national securities exchange to permit them to function in the manner of an ETF with continuous share creation and redemption at NAV.
Our bitcoin acquisition strategy subjects us to enhanced regulatory oversight As noted above, several bitcoin investment vehicles have attempted to list their shares on a U.S. national securities exchange to permit them to function in the manner of an ETF with continuous share creation and redemption at NAV.
While we have implemented and maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in bitcoin by us may be restricted or prohibited.
While we have implemented and maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in bitcoin by us may be restricted or prohibited. 23 We have entered into a bitcoin-collateralized loan and may consider issuing additional debt or other financial instruments that may be collateralized by our bitcoin holdings.
Since August 11, 2020, the date on which we announced our initial purchase of bitcoin, the closing price of our class A common stock has increased from $123.62 as of August 10, 2020, the last trading day before our announcement, to $409.49 as of February 14, 2022.
Since August 11, 2020, the date on which we announced our initial purchase of bitcoin, the closing price of our class A common stock has increased from $123.62 as of August 10, 2020, the last trading day before our announcement, to $298.40 as of February 15, 2023.
Although our total revenues for the year ended December 31, 2021 were not materially impacted by COVID-19, we believe our revenues may be negatively impacted in future periods until the effects of the pandemic have fully subsided and the current macroeconomic 25 environment has substantially recovered.
Although our total revenues for the year ended December 31, 2022 were not materially impacted by COVID-19, our revenues may be negatively impacted in future periods until the effects of the pandemic and the efforts to address it have fully subsided and the current macroeconomic environment has substantially recovered.
Our results in any particular period may depend on the number and volume of large transactions in that period and these transactions may involve lengthier, more complex, and more unpredictable sales cycles than other transactions Larger, enterprise-level transactions often require considerably more resources, are often more complex to implement, and typically require additional management approval, which may result in a lengthier, more complex, and less predictable sales cycle and may increase the risk that an order is delayed or not brought to completion.
If we lose sales or sales are delayed due to these long sales and implementation cycles, our revenues and operating results for that period may be materially adversely affected. 28 Our results in any particular period may depend on the number and volume of large transactions in that period and these transactions may involve lengthier, more complex, and more unpredictable sales cycles than other transactions Larger, enterprise-level transactions often require considerably more resources, are often more complex to implement, and typically require additional management approval, which may result in a lengthier, more complex, and less predictable sales cycle and may increase the risk that an order is delayed or not brought to completion.
The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain.
The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations, including in respect of transactions involving bitcoin, where the ultimate tax determination is uncertain.
As a result, our business, results of operations, and financial condition may be materially adversely affected. As of December 31, 2021, we had $319.8 million of deferred tax assets, which reflects a $1.0 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, 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.
The impact of our bitcoin holdings on our financial results and the market price of our class A common stock will increase as we increase our overall holdings of bitcoin in the future.
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.
Saylor in lieu of procuring director and officer insurance offered by a third-party insurance carrier could have adverse effects on our business, including making it more difficult to attract and retain qualified directors and officers due to the unconventional nature of the arrangement and potential concerns that the indemnification arrangement might not provide the same level of protection that might otherwise be provided by conventional director and officer insurance.
Saylor could have adverse effects on our business, including making it more difficult to attract and retain qualified directors and officers due to the unconventional nature of the arrangement and potential concerns that the indemnification arrangement might not provide the same level of protection that might otherwise be provided by coverage obtained entirely through conventional director and officer insurance.
The concentration of our bitcoin holdings enhances the risks inherent in our bitcoin acquisition strategy As of February 14, 2022, we held approximately 125,051 bitcoins that were acquired at an aggregate purchase price of $3.777 billion and we intend to purchase additional bitcoin and increase our overall holdings of bitcoin in the future.
The concentration of our bitcoin holdings enhances the risks inherent in our bitcoin acquisition strategy As of February 15, 2023, we held approximately 132,500 bitcoins that were acquired at an aggregate purchase price of $3.993 billion and we intend to purchase additional bitcoin and increase our overall holdings of bitcoin in the future.
Changes in securities regulation may adversely impact the market price of our class A common stock Although bitcoin and other digital assets have experienced a surge of investor attention since bitcoin was invented in 2008, investors in the United States currently have limited means to gain exposure to bitcoin through traditional investment channels such as 401(k) retirement accounts, and instead generally must hold bitcoin through “hosted” wallets provided by digital asset service providers or through “unhosted” wallets that expose the investor to risks associated with loss or hacking of their private keys.
Changes in securities regulations, or the adoption of new laws or regulations, relating to bitcoin could adversely affect the price of bitcoin or our ability to transact in or own bitcoin, which may adversely impact the market price of our class A common stock Although bitcoin and other digital assets have experienced a surge of investor attention since bitcoin was invented in 2008, investors in the United States currently have limited means to gain direct exposure to bitcoin through traditional investment channels, and instead generally must hold bitcoin through “hosted” wallets provided by digital asset service providers or through “unhosted” wallets that expose the investor to risks associated with loss or hacking of their private keys.
International revenues accounted for 44.0%, 41.9%, and 43.7% of our total revenues for the years ended December 31, 2021, 2020, and 2019, respectively.
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.
However, our Board of Directors has authorized our Chief Executive Officer to determine the compensation of executive officers other than himself, rather than having such compensation determined by the Compensation Committee, except that certain performance-based executive officer compensation is determined by the Compensation Committee.
However, our Board of Directors has authorized our Chief Executive Officer to determine the compensation of executive officers other than himself and the Executive Chairman, except that equity-based compensation is determined by the Compensation Committee.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2021, we leased approximately 26,000 square feet of office and other space in the United States, in addition to our corporate headquarters, and approximately 105,000 square feet of office space in various foreign locations.
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
In December 2020, we exercised an option to early terminate approximately 24,000 square feet of space at our corporate headquarters at the beginning of January 2022. In addition, we lease offices in U.S. and foreign locations for our services and support, sales and marketing, research and development, and administrative personnel.
In December 2020, we exercised an option to early terminate approximately 24,000 square feet of space at our corporate headquarters at the beginning of January 2022. In addition, we utilize offices in U.S. and foreign locations for our services and support, sales and marketing, research and development, and administrative personnel.
Item 2. Properties As of December 31, 2021, we leased approximately 214,000 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, 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 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. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows. Item 4.
Biggest changeAlthough the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows.
Removed
Mine Safety Disclosures Not applicable. 36 PART II
Added
Item 3. Legal Proceedings We are involved in various legal proceedings arising in the normal course of business, including the matter described below.
Added
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 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.
Added
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.
Added
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 30, 2016, December 29, 2017, December 31, 2018, December 31, 2019, December 31, 2020, and December 31, 2021. 12/30/16 12/29/17 12/31/18 12/31/19 12/31/20 12/31/21 MicroStrategy Incorporated $ 100.00 $ 66.51 $ 64.72 $ 72.25 $ 196.83 $ 275.82 Nasdaq Composite Index $ 100.00 $ 129.64 $ 125.96 $ 172.17 $ 249.51 $ 304.85 Nasdaq Computer Index $ 100.00 $ 140.38 $ 136.70 $ 207.72 $ 311.54 $ 429.48 NOTE: Prepared by Zacks Investment Research, Inc.
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.
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, 2021 – October 31, 2021 0 N/A 0 $ 209,137,964 November 1, 2021 – November 30, 2021 0 N/A 0 $ 209,137,964 December 1, 2021 – December 31, 2021 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”).
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”).
As of December 31, 2021, 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.
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.
As of December 31, 2021, $209.1 million of our class A common stock remained available for repurchase pursuant to the Share Repurchase Program.
As of December 31, 2022, $209.1 million of our class A common stock remained available for repurchase pursuant to the Share Repurchase Program.
The average price per share and aggregate cost amounts disclosed above include broker commissions. 37 Performance Graph The following graph compares the cumulative total stockholder return on our class A common stock from December 30, 2016 (the last trading day before the beginning of our fifth preceding fiscal year) to December 31, 2021 (the last trading day of the fiscal year ended December 31, 2021) with the cumulative total return of (i) the Total Return Index for The Nasdaq Stock Market (U.S.
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.
Companies) (the “Nasdaq Composite Index”) and (ii) the Nasdaq Computer Index. The graph assumes the investment of $100.00 on December 30, 2016 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 29, 2017 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 1980-2022. NOTE: Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. Item 6. [Reserved] 38
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
As of February 1, 2022, there were approximately 1,028 stockholders of record of our class A common stock and two stockholders of record of our class B common stock.
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.

Item 7. Management's Discussion & Analysis

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

106 edited+40 added−32 removed51 unchanged
Biggest changeYears Ended December 31, GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2021 2021 2021 2020 2021 2021 Product licenses revenues $ 101,804 $ (858 ) $ 102,662 $ 86,743 17.4 % 18.4 % Subscription services revenues 43,069 519 42,550 33,082 30.2 % 28.6 % Product support revenues 281,209 3,816 277,393 284,434 -1.1 % -2.5 % Other services revenues 84,680 1,118 83,562 76,476 10.7 % 9.3 % Cost of product support revenues 19,254 33 19,221 23,977 -19.7 % -19.8 % Cost of other services revenues 54,033 341 53,692 49,952 8.2 % 7.5 % Sales and marketing expenses 160,141 323 159,818 148,910 7.5 % 7.3 % Research and development expenses 117,117 1,586 115,531 103,561 13.1 % 11.6 % General and administrative expenses 95,501 276 95,225 80,136 19.2 % 18.8 % GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2020 2020 2020 2019 2020 2020 Product licenses revenues $ 86,743 $ (1,227 ) $ 87,970 $ 87,471 -0.8 % 0.6 % Subscription services revenues 33,082 121 32,961 29,394 12.5 % 12.1 % Product support revenues 284,434 (358 ) 284,792 292,035 -2.6 % -2.5 % Other services revenues 76,476 304 76,172 77,427 -1.2 % -1.6 % Cost of product support revenues 23,977 (142 ) 24,119 28,317 -15.3 % -14.8 % Cost of other services revenues 49,952 (347 ) 50,299 54,365 -8.1 % -7.5 % Sales and marketing expenses 148,910 (2,184 ) 151,094 191,235 -22.1 % -21.0 % Research and development expenses 103,561 42 103,519 109,423 -5.4 % -5.4 % General and administrative expenses 80,136 (444 ) 80,580 86,697 -7.6 % -7.1 % (1) The “Foreign Currency Exchange Rate Impact” reflects the estimated impact of fluctuations in foreign currency exchange rates on international components of our Consolidated Statements of Operations.
Biggest changeFor example, in periods of GAAP net loss, otherwise dilutive potential shares of common stock from our share-based compensation arrangements and Convertible Notes are excluded from the GAAP diluted loss per share calculation as they would be antidilutive, and therefore are also excluded from the non-GAAP diluted earnings or loss per share calculation. 51 The following are reconciliations of certain non-GAAP constant currency revenues, cost of revenues, and operating expenses to their most directly comparable GAAP measures (in thousands) for the periods indicated: Years Ended December 31, GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2022 2022 2022 2021 2022 2022 Product licenses revenues $ 86,498 $ (4,618 ) $ 91,116 $ 101,804 -15.0 % -10.5 % Subscription services revenues 60,746 (2,331 ) 63,077 43,069 41.0 % 46.5 % Product support revenues 266,521 (11,570 ) 278,091 281,209 -5.2 % -1.1 % Other services revenues 85,499 (5,263 ) 90,762 84,680 1.0 % 7.2 % Cost of product support revenues 21,264 (1,130 ) 22,394 19,254 10.4 % 16.3 % Cost of other services revenues 55,283 (4,529 ) 59,812 54,033 2.3 % 10.7 % Sales and marketing expenses 146,882 (6,733 ) 153,615 160,141 -8.3 % -4.1 % Research and development expenses 127,428 (2,296 ) 129,724 117,117 8.8 % 10.8 % General and administrative expenses 111,421 (1,906 ) 113,327 95,501 16.7 % 18.7 % GAAP Foreign Currency Exchange Rate Impact (1) Non-GAAP Constant Currency (2) GAAP GAAP % Change Non-GAAP Constant Currency % Change (3) 2021 2021 2021 2020 2021 2021 Product licenses revenues $ 101,804 $ (858 ) $ 102,662 $ 86,743 17.4 % 18.4 % Subscription services revenues 43,069 519 42,550 33,082 30.2 % 28.6 % Product support revenues 281,209 3,816 277,393 284,434 -1.1 % -2.5 % Other services revenues 84,680 1,118 83,562 76,476 10.7 % 9.3 % Cost of product support revenues 19,254 33 19,221 23,977 -19.7 % -19.8 % Cost of other services revenues 54,033 341 53,692 49,952 8.2 % 7.5 % Sales and marketing expenses 160,141 323 159,818 148,910 7.5 % 7.3 % Research and development expenses 117,117 1,586 115,531 103,561 13.1 % 11.6 % General and administrative expenses 95,501 276 95,225 80,136 19.2 % 18.8 % (1) The “Foreign Currency Exchange Rate Impact” reflects the estimated impact of fluctuations in foreign currency exchange rates on international components of our Consolidated Statements of Operations.
The primary source of our cash provided by operating activities is cash collections of our accounts receivable from customers following the sales and renewals of our product licenses and product support, as well as consulting, education, and subscription services.
The primary source of our cash provided by operating activities is cash collections of our accounts receivable from customers following the sales and renewals of our product licenses, subscription services and product support, as well as consulting and education services.
During 2021 , we sold 1,413,767 shares of our class A common stock under the Open Market Sale Agreement, at an average gross price per share of approximately $707.33, for aggregate net proceeds (less $9.5 million in sales commissions and expenses) of approximately $990.5 million .
During 2021, we issued and sold 1,413,767 shares of our class A common stock under the 2021 Open Market Sale Agreement, at an average gross price per share of approximately $707.33, for aggregate net proceeds (less $9.5 million in sales commissions and expenses) of approximately $990.5 million.
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.
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 certain 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.
Under our Treasury Reserve Policy and bitcoin acquisition strategy, we use a significant portion of our cash, including cash generated from capital raising activities, to acquire bitcoins. As discussed in Note 2(g) Summary of Significant Accounting Policies – Digital Assets, to our Consolidated Financial Statements, our bitcoin are classified as indefinite-lived intangible assets.
Under our Treasury Reserve Policy and bitcoin acquisition strategy, we use a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoins. As discussed in Note 2(g) Summary of Significant Accounting Policies – Digital Assets, to our Consolidated Financial Statements, our bitcoin are classified as indefinite-lived intangible assets.
We 39 believe a key differentiator of MicroStrategy is our modern, open, comprehensive enterprise platform that can be extended to other tools and systems, can scale across the enterprise, is optimized for cloud or on-premises deployments, and can be combined with unique packages of our expert services and education offerings .
We believe a key differentiator of MicroStrategy is our modern, open, comprehensive enterprise platform that can be extended to other tools 46 and systems, can scale across the enterprise, is optimized for cloud or on-premises deployments, and can be combined with unique packages of our expert services and education offerings .
We consider certain estimates and judgments related to revenue recognition to be critical accounting estimates for us, as discussed further below. 46 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. 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.
As of December 31, 2021 , t he cumulative aggregate offering price of the shares of class A common stock sold under the Open Market Sale Agreement was approximately $1.0 billion, inclusive of sales commissions, constituting the maximum program amount under the Open Market Sale Agreement. Share repurchases.
As of December 31, 2021, t he cumulative aggregate offering price of the shares of class A common stock sold under the 2021 Open Market Sale Agreement was approximately $1.0 billion, inclusive of sales commissions, constituting the maximum program amount under the 2021 Open Market Sale Agreement.
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 2021, 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 2022 as compared to the prior year. Cost of subscription services revenues.
Management’s Discussion and Analysis for the Year Ended December 31, 2019 Management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2019, including comparison of our results for the years ended December 31, 2020 and 2019, is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.
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.
Results of Operations Comparison of the Years Ended December 31, 2021 and 2020 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. Product licenses and subscription services revenues.
Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 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. Product licenses and subscription services revenues.
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 (loss) income in the period in which the charge is incurred.
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.
In the case of multi-year service contract arrangements, the Company generally does not invoice more than one year in advance of services and does not record deferred revenue for amounts that have not been invoiced. Revenue is subsequently recognized in the period(s) in which control of the software or services is transferred to the customer.
In the case of multi-year service contract arrangements, we generally do not invoice more than one year in advance of services and do not record deferred revenue for amounts that have not been invoiced. Revenue is subsequently recognized in the period(s) in which control of the software or services is transferred to the customer.
The Tax Act imposed a mandatory deemed repatriation transition tax (“Transition Tax”) on previously untaxed accumulated and current earnings and profits of certain of our foreign subsidiaries.
Tax Cuts and Jobs Act imposed a mandatory deemed repatriation transition tax (“Transition Tax”) on previously untaxed accumulated and current earnings and profits of certain of our foreign subsidiaries.
During 2021, we purchased bitcoin using the net proceeds from the issuance of our 2027 Convertible Notes and 2028 Secured Notes, the issuance and sale of class A common stock under the Open Market Sale Agreement, and excess cash.
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.
For the years ended December 31, 2021 and 2020, product licenses transactions with more than $0.5 million in recognized revenue represented 38.9% and 43.5%, respectively, of our product licenses revenues.
For the years ended December 31, 2022 and 2021, product licenses transactions with more than $0.5 million in recognized revenue represented 39.0% and 38.9%, respectively, of our product licenses revenues.
Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP.
Non-GAAP financial measures are subject to material limitations as they are not measurements prepared in accordance with GAAP, and are not a substitute for such measurements.
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 offered under the Open Market Sale Agreement, the purchase of treasury stock, the exercise of stock options under the 2013 Equity Plan, the issuance of class A common stock under the 2021 ESPP, and the payment of withholding tax on vesting of restricted stock units.
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.
Included in our international deferred revenue balances at December 31, 2021 is a $5.9 million unfavorable foreign currency impact from the general strengthening of the U.S. dollar compared to the same period in the prior year.
Included in our international deferred revenue balances at December 31, 2022 is a $7.9 million unfavorable foreign currency impact from the general strengthening of the U.S. dollar compared to the prior year.
Domestic product licenses revenues increased $2.6 million during 2021, as compared to the prior year, primarily due to an increase in the average deal size of transactions with less than $0.5 million in recognized revenue and an increase in the number of transactions with recognized revenue between $0.5 million and $1.0 million, partially offset by a decrease in the average deal size of transactions with more than $1.0 million in recognized revenue.
Domestic product licenses revenues increased $0.7 million during 2022, as compared to the prior year, primarily due to an increase in the average deal size of transactions, partially offset by a decrease in the number of transactions with less than $0.5 million in recognized revenue and a decrease in the number of transactions with more than $1.0 million in recognized revenue. 54 International product licenses revenues.
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 1.9% to 470 at December 31, 2021 from 479 at December 31, 2020 .
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 .
As of December 31, 2021, we had $6.2 million of total gross unrecognized tax benefits, including accrued interest, of which $2.1 million was recorded in “Other long-term liabilities” and $4.1 million was recorded in “Deferred tax assets, net.” 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, 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, 2021, we recorded a deferred tax liability of $1.7 million on undistributed foreign earnings of $117.0 million related to foreign withholding tax and U.S. state income taxes. 52 Deferred Revenue and Advance Payments Deferred revenue and advance payments represent amounts received or due from our customers in advance of our transferring our software or services to the customer.
As of December 31, 2022, we recorded a deferred tax liability of $2.2 million on undistributed foreign earnings related to foreign withholding tax and U.S. state income taxes. 58 Deferred Revenue and Advance Payments Deferred revenue and advance payments represent amounts received or due from our customers in advance of our transferring our software or services to the customer.
Education revenues did not materially change during 2021, as compared to the prior year. 49 Costs and Expenses Cost of revenues.
Education revenues did not materially change during 2022 as compared to the prior year. 55 Costs and Expenses Cost of revenues.
The terms of the Open Market Sale Agreement are discussed more fully in Note 13, Open Market Sale Agreement, to the Consolidated Financial Statements.
The terms of the 2021 Open Market Sale Agreement are discussed more fully in Note 13, At-the-Market Equity Offerings, to the Consolidated Financial Statements.
We believe that existing cash and cash equivalents held by us and cash and cash equivalents anticipated to be generated by us are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months.
We believe that existing cash and cash equivalents held by us and cash and cash equivalents anticipated to be generated by us are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months. Beyond the next 12 months, our long-term cash requirements are primarily for obligations related to our long-term debt.
Effects of the COVID-19 pandemic that may negatively impact our business in future periods include, but are not limited to: limitations on the ability of our customers to conduct their business, purchase our products and services, and make timely payments; curtailed consumer spending; deferred purchasing decisions; delayed consulting services implementations; and decreases in product licenses revenues driven by channel partners.
Effects of the COVID-19 pandemic that may negatively impact our business in future periods include, but are not limited to: limitations on the ability of our customers to conduct their businesses, purchase our products and services, and make timely payments; curtailed consumer spending; deferred purchasing decisions; delayed consulting services implementations; decreases in product licenses revenues driven by channel partners; and compliance costs and business disruptions associated with certain government requirements and recommendations adopted in response to the pandemic.
Subscription services revenues are derived from MCE, a cloud subscription service, that are recognized ratably over the service period in the contract.
Subscription services revenues are derived from our MCE cloud subscription service and are recognized ratably over the service period in the contract.
Our primary uses of cash in operating activities are for personnel-related expenditures for software development, personnel-related expenditures for providing consulting, education, and subscription services, and for sales and marketing costs, general and administrative costs, and income taxes.
Our primary uses of cash in operating activities are for personnel-related expenditures for software development, personnel-related expenditures for providing consulting, education, and subscription services, and for sales and marketing costs, general and administrative costs, interest expense related to our long-term debt arrangements, and income taxes.
As of December 31, 2021, we estimated that an aggregate of approximately $143.8 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 3.1 years.
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, 2021, $25.1 million of the Transition Tax was unpaid, of which $22.1 million is included in “Other long-term liabilities” and $3.0 million is included in “Accounts payable, accrued expenses, and operating lease liabilities” in our Consolidated Balance Sheets.
As of December 31, 2022, $22.1 million of the Transition Tax was unpaid, of which $16.6 million is included in “Other long-term liabilities” and $5.5 million is included in “Accounts payable, accrued expenses, and operating lease liabilities” in our Consolidated Balance Sheets.
The second set of supplemental financial measures excludes the impact of (i) share-based compensation expense, (ii) non-cash interest expense arising from the amortization of debt issuance costs and (in 2020, before the adoption of ASU 2020-06) the debt discount related to our long-term debt, and (iii) related income tax effects.
The second set of supplemental financial measures excludes the impacts of (i) share-based compensation expense, (ii) non-cash interest expense arising from the amortization of debt issuance costs related to our long-term debt, and (iii) related income tax effects.
Our digital asset impairment losses 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 and net loss.
We do not expect any significant tax payments related to these obligations during 2022. Recent Accounting Standards See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information.
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
As of December 31, 2021, we had no U.S. federal net operating loss (“NOL”) carryforwards and $4.1 million of foreign NOL carryforwards. As of December 31, 2021, digital asset impairment losses, other temporary differences and carryforwards, and credits resulted in deferred tax assets, net of valuation allowances and deferred tax liabilities, of $319.7 million.
As of December 31, 2022, we had no U.S. federal net operating loss (“NOL”) carryforwards and $3.3 million of foreign NOL carryforwards. As of December 31, 2022, digital asset impairment losses, other temporary differences and carryforwards resulted in deferred tax assets, net of valuation allowances and deferred tax liabilities, of $188.0 million.
Management’s Discussion and Analysis of Financial Condition and Results of Operations”: • $650.0 million aggregate principal amount of 0.750% Convertible Senior Notes due 2025 (the “2025 Convertible Notes”) issued in December 2020; • $1.050 billion aggregate principal amount of 0% Convertible Senior Notes due 2027 (the “2027 Convertible Notes” and, together with the 2025 Convertible Notes, the “Convertible Notes”) issued in February 2021 ; • $500.0 million aggregate principal amount of 6.125% Senior Secured Notes due 2028 (the “2028 Secured Notes”) issued in June 2021; and • 1,413,767 shares of class A common stock issued during 2021, for aggregate gross proceeds of $1.0 billion pursuant to our Open Market Sale Agreement with Jefferies LLC, as agent (“Jefferies”).
Management’s Discussion and Analysis of Financial Condition and Results of Operations”: • $1.050 billion aggregate principal amount of 2027 Convertible Notes issued in February 2021; • $500.0 million aggregate principal amount of 6.125% Senior Secured Notes due 2028 (the “2028 Secured Notes”) issued in June 2021; • 1,413,767 shares of class A common stock issued during 2021, for aggregate gross proceeds of $1.0 billion pursuant to our 2021 Open Market Sale Agreement with Jefferies LLC, as agent (“Jefferies”); • $205.0 million aggregate principal amount of the 2025 Secured Term Loan issued in March 2022; and • 218,575 shares of class A common stock issued during 2022, for aggregate gross proceeds of $46.6 million pursuant to our 2022 Sales Agreement with the 2022 Sales Agents.
Open Market Sale Agreement On June 14, 2021, we entered into the Open Market Sale Agreement with Jefferies, pursuant to which we issued and sold shares of our class A common stock having an aggregate offering price of approximately $1.0 billion from time to time through Jefferies.
During 2022, we paid $0.5 million in principal and interest to the lender. At-the-Market Equity Offerings On June 14, 2021, we entered into the 2021 Open Market Sale Agreement with Jefferies, pursuant to which we issued and sold shares of our class A common stock having an aggregate offering price of approximately $1.0 billion from time to time through Jefferies.
The changes in net cash (used in) provided by investing activities primarily relate to purchases of digital assets, purchases and redemptions of short-term investments , and expenditures on property and equipment.
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.
In addition, we believe that our bitcoin acquisition strategy is complementary to our enterprise analytics software and services business, as we believe that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand and can provide opportunities to secure new customers for our analytics offerings.
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.
Subscription services revenues increased $10.0 million during 2021 , 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, sales contracts with new customers, and a $0. 5 million favorable foreign currency exchange impact .
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.
Non-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 ROU assets, credit losses and sales allowances, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, digital asset impairment losses, amortization of the issuance costs and debt discount on our long-term debt, and gain on partial lease termination.
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 .
We pursue, as part of our overall corporate strategy, a strategy of 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 in capital raising transactions with the objective of using the proceeds to purchase bitcoin.
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.
The following table sets forth product support revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2021 2020 % Change Product Support Revenues: Domestic $ 161,288 $ 167,266 -3.6 % International 119,921 117,168 2.3 % Total product support revenues $ 281,209 $ 284,434 -1.1 % 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, 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.
As of December 31, 2021, we had an aggregate transaction price of $267.6 million allocated to the remaining performance obligation related primarily to subscription services, product support, and product licenses. We expect to recognize approximately $219.2 million of the remaining performance obligation over the next 12 months and the remainder thereafter.
As of December 31, 2022, we had an aggregate transaction price of $324.8 million allocated to the remaining performance obligation related to product support, subscription services, product licenses, and other services contracts. We expect to recognize approximately $241.5 million of the remaining performance obligation over the next 12 months and the remainder thereafter.
We will continue to regularly assess the realizability of deferred tax assets. Beginning in the third quarter of 2020, we determined to no longer permanently reinvest our foreign earnings and profits.
To the extent the market value of bitcoin rises we may decrease the valuation allowance against our deferred tax asset. We will continue to regularly assess the realizability of deferred tax assets. Beginning in the third quarter of 2020, we determined to no longer permanently reinvest our foreign earnings and profits.
As of February 14, 2022, we held approximately 125,051 bitcoins that were acquired at an aggregate purchase price of $3.777 billion and an average purchase price of approximately $30,200 per bitcoin, inclusive of fees and expenses. As of February 14, 2022, at 4:00 p.m.
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 December 31, 2021, we held approximately 124,391 bitcoins. We do not believe we will need to sell any of our bitcoins within the next twelve months to meet our working capital requirements, although we may from time to time sell 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 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.
Benefit from Income Taxes During 2021, we recorded a benefit from income taxes of $275.9 million on pre-tax losses of $811.4 million that resulted in an effective tax rate of 34.0%, as compared to a benefit from income taxes of $12.4 million on pre-tax losses of $20.0 million that resulted in an effective tax rate of 62.3% during 2020.
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.
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 conduct debt or equity financings to purchase additional bitcoin.
We view our bitcoin holdings as long-term holdings and expect to continue to accumulate bitcoin. 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.
(b) During 2021, we purchased bitcoin using $1.026 billion in net proceeds from our issuance of the 2027 Convertible Notes, $990.5 million in net proceeds from our sale of 1,413,767 shares of class A common stock offered under the Open Market Sale Agreement, $487.2 million in net proceeds from our issuance of the 2028 Secured Notes, and excess cash. 40 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, 2019 0 n/a n/a n/a n/a n/a n/a 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 (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 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.
Other Income (Expense), Net During 2021, other income, net, of $2.3 million was comprised primarily of foreign currency transaction net gains. During 2020, other expense, net, of $7.0 million was comprised primarily of foreign currency transaction net losses.
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.
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, 2021 2020 % Change Net cash provided by operating activities $ 93,833 $ 53,619 75.0 % Net cash used in investing activities $ (2,629,235 ) $ (1,018,693 ) 158.1 % Net cash provided by financing activities $ 2,541,685 $ 563,233 351.3 % 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, 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 product licenses and subscription services revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2021 2020 % Change Product Licenses and Subscription Services Revenues: Product Licenses Domestic $ 54,107 $ 51,504 5.1 % International 47,697 35,239 35.4 % Total product licenses revenues 101,804 86,743 17.4 % Subscription Services Domestic 31,306 24,684 26.8 % International 11,763 8,398 40.1 % Total subscription services revenues 43,069 33,082 30.2 % Total product licenses and subscription services revenues $ 144,873 $ 119,825 20.9 % 47 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, 2021 2020 Product Licenses Transactions with Recognized Licenses Revenue in the Applicable Period: More than $1.0 million in licenses revenue recognized 13 10 Between $0.5 million and $1.0 million in licenses revenue recognized 19 18 Total 32 28 Domestic: More than $1.0 million in licenses revenue recognized 10 8 Between $0.5 million and $1.0 million in licenses revenue recognized 11 10 Total 21 18 International: More than $1.0 million in licenses revenue recognized 3 2 Between $0.5 million and $1.0 million in licenses revenue recognized 8 8 Total 11 10 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, 2021 2020 % Change Product Licenses Revenue Recognized in the Applicable Period: More than $1.0 million in licenses revenue recognized $ 26,838 $ 25,599 4.8 % Between $0.5 million and $1.0 million in licenses revenue recognized 12,809 12,096 5.9 % Less than $0.5 million in licenses revenue recognized 62,157 49,048 26.7 % Total 101,804 86,743 17.4 % Domestic: More than $1.0 million in licenses revenue recognized 18,391 20,108 -8.5 % Between $0.5 million and $1.0 million in licenses revenue recognized 7,364 6,568 12.1 % Less than $0.5 million in licenses revenue recognized 28,352 24,828 14.2 % Total 54,107 51,504 5.1 % International: More than $1.0 million in licenses revenue recognized 8,447 5,491 53.8 % Between $0.5 million and $1.0 million in licenses revenue recognized 5,445 5,528 -1.5 % Less than $0.5 million in licenses revenue recognized 33,805 24,220 39.6 % Total $ 47,697 $ 35,239 35.4 % Product licenses revenues increased $15.1 million during 2021, as compared to the prior year.
The 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.
Product support revenues decreased $3.2 million during 2021, 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 $3.8 million favorable foreign currency exchange impact. Other services revenues.
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.
During 2021, digital asset impairment losses of $830.6 million represented 69.0% of our operating expenses, contributing to our net loss of $535.5 million for 2021, compared to digital asset impairment losses of $70.7 million during 2020, representing 17.5% of our operating expenses and contributing to our net loss of $7.5 million for 2020.
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.
Non-GAAP Financial Measures We are providing supplemental financial measures for (i) non-GAAP loss from operations that excludes the impact of our share-based compensation expense, (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impact of our share-based compensation expense, interest expense arising from the amortization of debt issuance costs and (in 2020, before the adoption of Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”)) the debt discount on our long-term debt, and related income tax effects, and (iii) certain non-GAAP constant currency revenues, cost of revenues, and operating expenses that exclude foreign currency exchange rate fluctuations.
Non-GAAP Financial Measures We are providing supplemental financial measures for (i) non-GAAP loss from operations that excludes the impact of our share-based compensation expense, (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impact of our share-based compensation expense, interest expense arising from the amortization of debt issuance costs on our long-term debt, and related income tax effects, and (iii) certain non-GAAP constant currency revenues, cost of revenues, and operating expenses that exclude foreign currency exchange rate fluctuations.
The following is a reconciliation of our non-GAAP loss from operations, which excludes the impact of share-based compensation expense, to its most directly comparable GAAP measures (in thousands) for the periods indicated: Years Ended December 31, 2021 2020 Reconciliation of non-GAAP loss from operations: Loss from operations $ (784,527 ) $ (13,625 ) Share-based compensation expense 44,126 11,153 Non-GAAP loss from operations $ (740,401 ) $ (2,472 ) The following are reconciliations of our non-GAAP net loss and non-GAAP diluted loss per share, in each case excluding the impact of (i) share-based compensation expense, (ii) interest expense arising from the amortization of debt issuance costs and (in 2020, before the 44 adoption of ASU 2020-06) the debt discount on our long-term debt , and (i ii ) related income tax effects to their most directly comparable GAAP measures (in thousands, except per share data) for the periods indicated: Years Ended December 31, 2021 2020 Reconciliation of non-GAAP net loss: Net loss $ (535,480 ) $ (7,524 ) Share-based compensation expense 44,126 11,153 Interest expense arising from amortization of debt issuance costs and debt discount 7,201 1,543 Income tax effects (1) (47,976 ) (5,656 ) Non-GAAP net loss $ (532,129 ) $ (484 ) Reconciliation of non-GAAP diluted loss per share (2): Diluted loss per share $ (53.44 ) $ (0.78 ) Share-based compensation expense (per diluted share) 4.40 1.15 Interest expense arising from amortization of debt issuance costs and debt discount (per diluted share) 0.72 0.16 Income tax effects (per diluted share) (4.79 ) (0.58 ) Non-GAAP diluted loss per share $ (53.11 ) $ (0.05 ) (1) Income tax effects reflect the net tax effects of share-based compensation expense, which includes tax benefits on exercises of stock options and vesting of share-settled restricted stock units, and interest expense for amortization of debt issuance costs and debt discount.
We rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP financial measures only supplementally. 50 The following is a reconciliation of our non-GAAP loss from operations , which excludes the impact of share-based compensation expense , to its most directly comparable GAAP measures (in thousands) for the periods indicated: Years Ended December 31, 2022 2021 Reconciliation of non-GAAP loss from operations: Loss from operations $ (1,275,742 ) $ (784,527 ) Share-based compensation expense 63,619 44,126 Non-GAAP loss from operations $ (1,212,123 ) $ (740,401 ) The following are reconciliations of our non-GAAP net loss and non-GAAP diluted loss per share, in each case excluding the impacts of (i) share-based compensation expense, (ii) interest expense arising from the amortization of debt issuance costs on our long-term debt, and (iii) related income tax effects to their most directly comparable GAAP measures (in thousands, except per share data) for the periods indicated: Years Ended December 31, 2022 2021 Reconciliation of non-GAAP net loss: Net loss $ (1,469,797 ) $ (535,480 ) Share-based compensation expense 63,619 44,126 Interest expense arising from amortization of debt issuance costs 8,694 7,201 Income tax effects (1) (13,250 ) (47,976 ) Non-GAAP net loss $ (1,410,734 ) $ (532,129 ) Reconciliation of non-GAAP diluted loss per share (2): Diluted loss per share $ (129.83 ) $ (53.44 ) Share-based compensation expense (per diluted share) 5.62 4.40 Interest expense arising from amortization of debt issuance costs (per diluted share) 0.77 0.72 Income tax effects (per diluted share) (1.17 ) (4.79 ) Non-GAAP diluted loss per share $ (124.61 ) $ (53.11 ) (1) Income tax effects reflect the net tax effects of share-based compensation expense, which includes tax benefits and expenses on exercises of stock options and vesting of share-settled restricted stock units, and interest expense for amortization of debt issuance costs.
Share-based compensation expense (in thousands) from these awards was recognized in the following cost of revenues and operating expense line items in our Consolidated Statements of Operations for the periods indicated: Years Ended December 31, 2021 2020 Cost of subscription services revenues $ 282 $ 75 Cost of product support revenues 1,176 155 Cost of consulting revenues 799 23 Cost of education revenues 112 202 Sales and marketing 12,875 1,609 Research and development 10,757 2,740 General and administrative 18,125 6,349 Total share-based compensation expense $ 44,126 $ 11,153 43 The $33.0 million increase in share-based compensation expense during 2021, as compared to the prior year, is primarily due to the continued expansion of our equity award programs worldwide and an overall increase in the fair value of new awards during 2021, driven primarily by the increase in the market value of our class A common stock.
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.
Customers can also use our consulting and education offerings to harness MicroStrategy’s innovative technology and empower their people to make better, faster decisions. Our customers include leading companies from a wide range of industries, including retail, consulting, technology, manufacturing, banking, insurance, finance, healthcare, telecommunications, as well as the public sector. The analytics market is highly competitive.
Our customers include leading companies from a wide range of industries, including retail, banking, technology, consulting, manufacturing, insurance, healthcare, telecommunications, as well as the public sector. The analytics market is highly competitive.
Net cash provided by operating activities increased $40.2 million during 2021, as compared to the prior year, due to a $534.3 million increase from changes in non-cash items (principally related to digital asset impairment losses offset by deferred taxes) and a $33.9 million increase from changes in operating assets and liabilities, partially offset by a $528.0 million increase in net loss. 54 Net cash used in investing activities .
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).
The following table sets forth other services revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2021 2020 % Change Other Services Revenues: Consulting Domestic $ 36,814 $ 33,021 11.5 % International 42,918 38,324 12.0 % Total consulting revenues 79,732 71,345 11.8 % Education 4,948 5,131 -3.6 % Total other services revenues $ 84,680 $ 76,476 10.7 % Consulting revenues.
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.
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 and can therefore serve as a hedge against inflation. We also believe that bitcoin offers additional opportunity for appreciation in value with increasing adoption due to its limited supply.
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.
The sources could include the sale of bitcoins, as well as the issuance and sale of shares of our class A common stock (as we have done through the Open Market Sale Agreement).
The sources could include the sale of bitcoins, additional borrowings collateralized by our bitcoins, as well as the issuance and sale of shares of our class A common stock.
As of December 31, 2021, we had a valuation allowance of $1.0 million primarily related to certain foreign tax credit carryforward tax assets that, in our present estimation, more likely than not will not be realized.
As of December 31, 2022, we had a valuation allowance of $511.4 million primarily related to our deferred tax asset related to the impairment of our bitcoin holdings that, in our present estimation, more likely than not will not be realized.
Interest (Expense) Income, Net During 2021, interest expense, net, of $29.1 million was primarily related to the contractual interest expense related to our 2028 Secured Notes and 2025 Convertible Notes, the amortization of issuance costs related to our long-term debt arrangements, and contractual interest expense incurred on trade credits with Coinbase Credit, Inc.
During 2021, interest expense, net, of $29.1 million was primarily related to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements, and contractual interest expense incurred on trade credits with Coinbase. Refer to Note 8, Long-term Debt, and Note 4, Digital Assets, to the Consolidated Financial Statements for further information.
Although our total revenues for the years ended December 31, 2021 and 2020 were not materially impacted by COVID-19, we believe our revenues may be negatively impacted in future periods until the effects of the pandemic have fully subsided and the current macroeconomic environment has substantially recovered.
Although our total revenues for the years ended December 31, 2022 and 2021 were not materially impacted by COVID-19, our revenues may be negatively impacted in future periods.
The following table sets forth cost of revenues (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2021 2020 % Change Cost of Revenues: Product licenses and subscription services: Product licenses $ 1,721 $ 2,293 -24.9 % Subscription services 16,901 14,833 13.9 % Total product licenses and subscription services 18,622 17,126 8.7 % Product support 19,254 23,977 -19.7 % Other services: Consulting 48,773 42,923 13.6 % Education 5,260 7,029 -25.2 % Total other services 54,033 49,952 8.2 % Total cost of revenues $ 91,909 $ 91,055 0.9 % 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, 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.
Consulting revenues increased $8.4 million during 2021, as compared to the prior year, primarily due to an increase in billable hours worldwide and a $1.0 million favorable foreign currency exchange impact, partially offset by a decrease in average bill rates and a decrease in billable travel and entertainment expenditures. Education revenues.
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.
As of December 31, 2021 and 2020, the amount of cash and cash equivalents held by our U.S. entities was $13.1 million and $13.7 million, respectively, and by our non-U.S. entities was $50.3 million and $46.0 million, respectively.
For additional information, see “—At-the-Market Equity Offerings” below. 59 As of December 31, 2022 and 2021 , the amount of cash and cash equivalents held by our U.S. entities was $ 14.8 million and $ 13.1 million, respectively, and by our non-U.S. entities was $ 29 .0 million and $ 50.3 million, respectively.
In the first quarter of 2021, we adopted, in addition to and in conjunction with our Treasury Reserve Policy, a corporate strategy of acquiring and holding bitcoin, and from time to time, subject to market conditions, issuing debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase bitcoin.
In the first quarter of 2021, we adopted, in addition to and in conjunction with our Treasury Reserve Policy, a corporate strategy of acquiring and holding bitcoin.
Cost of subscription services revenues increased $2.1 million during 2021, as compared to the prior year, primarily due to a $2.8 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers, partially offset by a $0.6 million decrease in salaries. Cost of product support revenues.
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 product support revenues consists of personnel and related overhead costs, including those under our Enterprise Support program. Our Enterprise Support program utilizes primarily consulting personnel to provide product support to our customers at our discretion. Compensation related to personnel providing Enterprise Support services is reported as cost of product support revenues.
Our Enterprise Support program utilizes primarily consulting personnel to provide product support to our customers at our discretion. Compensation related to personnel providing Enterprise Support services is reported as cost of product support revenues. Product support headcount increased 5.2% to 183 at December 31, 2022 from 174 at December 31, 2021.
Digital asset impairment losses are recognized when the carrying value of our digital assets exceeds their lowest fair value at any time since their acquisition . Impaired digital assets are written down to fair value at the time of impairment , and such impairment loss cannot be recovered for any subsequent increases in fair value.
Impaired digital assets are written down to fair value at the time of impairment , and such impairment loss cannot be recovered for any subsequent increases in fair value. Gains (if any) are not recorded until realized upon sale .
Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $42,202.99. 41 Impact of COVID-19 on Our Software Strategy The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption despite progress made in the development and distribution of vaccines.
Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $24,163.86. 48 Impact of COVID-19 on Our Software Strategy The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption and uncertainty continues to exist concerning the impact of the COVID-19 pandemic on our customers’ and prospects’ business and operations in future periods.
Net cash provided by financing activities increased $1.978 billion during 2021, as compared to the prior year, due to $1.050 billion in gross proceeds from our 2027 Convertible Notes, $1.000 billion in gross proceeds from the sale of class A common stock offered under the Open Market Sale Agreement, $500.0 million in gross proceeds from our 2028 Secured Notes, a $123.2 million decrease in purchases of treasury stock, and $2.9 million in proceeds from the issuance of class A common stock under the 2021 ESPP, partially offset by $650.0 million in gross proceeds in 2020 from our 2025 Convertible Notes, $12.8 million of issuance costs paid for our 2028 Secured Notes, a $10.4 million decrease in proceeds from the exercise of stock options under the 2013 Equity Plan, a $10.2 million increase in issuance costs paid for our Convertible Notes, $9.5 million of issuance costs paid related to the Open Market Sale Agreement, and $4.7 million of withholding tax paid on vesting of restricted stock units.
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.
We will continue to actively monitor the nature and extent of the impact to our business, operating results, and financial condition. 42 Operating Highlights The following table sets forth certain operating highlights (in thousands) for the years ended December 31, 2021 and 2020: Years Ended December 31, 2021 2020 Revenues Product licenses $ 101,804 $ 86,743 Subscription services 43,069 33,082 Total product licenses and subscription services 144,873 119,825 Product support 281,209 284,434 Other services 84,680 76,476 Total revenues 510,762 480,735 Cost of revenues Product licenses 1,721 2,293 Subscription services 16,901 14,833 Total product licenses and subscription services 18,622 17,126 Product support 19,254 23,977 Other services 54,033 49,952 Total cost of revenues 91,909 91,055 Gross profit 418,853 389,680 Operating expenses Sales and marketing 160,141 148,910 Research and development 117,117 103,561 General and administrative 95,501 80,136 Digital asset impairment losses 830,621 70,698 Total operating expenses 1,203,380 403,305 Loss from operations $ (784,527 ) $ (13,625 ) We have incurred and may continue to incur significant impairment losses on our digital assets and we may recognize gains upon sale of our digital assets in the future, which would be presented net of any impairment losses within operating expenses.
Operating Highlights The following table sets forth certain operating highlights (in thousands) for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 Revenues Product licenses $ 86,498 $ 101,804 Subscription services 60,746 43,069 Total product licenses and subscription services 147,244 144,873 Product support 266,521 281,209 Other services 85,499 84,680 Total revenues 499,264 510,762 Cost of revenues Product licenses 1,672 1,721 Subscription services 24,770 16,901 Total product licenses and subscription services 26,442 18,622 Product support 21,264 19,254 Other services 55,283 54,033 Total cost of revenues 102,989 91,909 Gross profit 396,275 418,853 Operating expenses Sales and marketing 146,882 160,141 Research and development 127,428 117,117 General and administrative 111,421 95,501 Digital asset impairment losses (gains on sale), net 1,286,286 830,621 Total operating expenses 1,672,017 1,203,380 Loss from operations $ (1,275,742 ) $ (784,527 ) We have incurred and may continue to incur significant impairment losses on our digital assets and we have recognized and may continue to recognize gains upon sale of our digital assets in the future, which are presented net of any impairment losses within operating expenses.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Annual Report and Note 14, Treasury Stock, to the Consolidated Financial Statements for further information. 55 Unrecognized tax benefits.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Annual Report and Note 14, Treasury Stock, to the Consolidated Financial Statements for further information. Debt repurchases and repayments. During the years ended December 31, 2022 and 2021, we did not repurchase any of our outstanding debt.
The following table summarizes research and development expenses (in thousands) and related percentage changes for the periods indicated: Years Ended December 31, 2021 2020 % Change Research and development expenses $ 117,117 $ 103,561 13.1 % Research and development expenses increased $13.6 million during 2021, as compared to the prior year, primarily due to an $8.0 million net increase in share-based compensation expense, a $3.1 million increase in variable compensation (of which $0.5 million was due to certain COVID-19-related employer payroll tax exemptions in the Asia Pacific region in 2020), a $1.7 million increase in employee salaries primarily due to periodic wage increases partially offset by a decrease in average staffing levels and a shift in staffing levels to lower cost regions, a $1.4 million gain on partial lease termination of our corporate headquarters lease recorded during the fourth quarter of 2020 and allocated to research and development expenses, and a $0.7 million increase in recruiting costs, partially offset by a $0.9 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, 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.
Cost of subscription services revenues consists of equipment, facility and other related support costs, and personnel and related overhead costs. Subscription services headcount increased 46.9% to 72 at December 31, 2021 from 49 at December 31, 2020; however, average headcount for the respective periods did not materially change.
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.
Share-based Compensation Expense As discussed in Note 11, Share-based Compensation, to the Consolidated Financial Statements, we have outstanding stock options to purchase shares of our class A common stock, restricted stock units, and certain other stock-based awards under our 2013 Equity Plan, as well as opportunities for eligible employees to purchase shares of our class A common stock under our 2021 Employee Stock Purchase Plan (the “2021 ESPP”).
We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance. 49 Share-based Compensation Expense As discussed in Note 11, Share-based Compensation, to the Consolidated Financial Statements, we have outstanding stock options to purchase shares of our class A common stock, restricted stock units, each of which represents a right to receive a share of our class A common stock upon the satisfaction of applicable vesting requirements, and certain other stock-based awards under our 2013 Equity Plan.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+2 added−1 removed4 unchanged
Biggest changeThe carrying value of our bitcoins as of December 31, 2021 was $2.850 billion, which reflects cumulative impairments of $901.3 million, on our Consolidated Balance Sheet.
Biggest changeWe 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.
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 both market price changes in bitcoin and foreign currency fluctuations. Market Price Risk of Bitcoin.
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.
We attempt to minimize our foreign currency risk by converting our excess foreign currency held in foreign jurisdictions to U.S. dollar-denominated cash accounts. As of December 31, 2021, 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 4.0%.
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%.
International revenues accounted for 44.0%, 41.9%, and 43.7% of our total revenues for the years ended December 31, 2021, 2020, and 2019, 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 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.
If average exchange rates during the year ended December 31, 2021 had changed unfavorably by 10%, our revenues for the year ended December 31, 2021 would have decreased by 4.0%.
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%.
For the year ended December 31, 2021, we incurred impairment losses of $830.6 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.
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.
Gains and losses from transactions in local currencies are included in net income (loss). As a result of transacting in multiple currencies and reporting our Consolidated Financial Statements in U.S. dollars, our operating results may be adversely impacted by currency exchange rate fluctuations in the future.
Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in the results of operations. As a result of transacting in multiple currencies and reporting our Consolidated Financial Statements in U.S. dollars, our operating results may be adversely impacted by currency exchange rate fluctuations in the future.
For example, the market price of one bitcoin in our principal market ranged from $27,678.00 - $69,000.00 during the year ended December 31, 2021, 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 Coinbase exchange (our principal market) 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 $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.
During the year ended December 31, 2021, our revenues were higher by 0.9% as a result of a 3.0% favorable change in weighted average exchange rates, as compared to the prior year. 56
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.
Removed
We have used a significant portion of our cash, including proceeds from our issuance of long-term debt and proceeds from the sale of our class A common stock, to acquire bitcoin and, as of December 31, 2021, we held approximately 124,391 bitcoins.
Added
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%.
Added
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.

Other MSTR 10-K year-over-year comparisons