MICROSTRATEGY Inc

Previous wording

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. 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. This overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes, including to generate cash for treasury management (which may include debt repayment), or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.

Current wording

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. This overall strategy also contemplates that we may (i) periodically sell bitcoin for general corporate purposes or in connection with strategies that generate tax benefits in accordance with applicable law, (ii) enter into additional capital raising transactions that are collateralized by our bitcoin holdings, and (iii) consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.

Previous wording

Our bitcoin strategy includes (i) acquiring bitcoin using cash flows from operations and proceeds from equity and debt financings, (ii) developing product innovations that leverage Bitcoin blockchain technology, and (iii) periodically engaging in advocacy and educational activities regarding the continued acceptance and value of bitcoin as an open, secure protocol for an internet-native digital asset.

Current wording

Additionally, we periodically engage in advocacy and educational activities regarding the continued acceptance and value of Bitcoin as an open, secure protocol for an internet-native digital capital asset, and we leverage our software development capabilities to explore innovation in Bitcoin applications.

Previous wording

During 2023 and 2024, we used proceeds from various capital raising transactions to purchase bitcoin. As of June 30, 2024, we held an aggregate of approximately 226,331 bitcoins, with 50,610 bitcoins held directly by MicroStrategy and 175,721 bitcoins held by MacroStrategy, a wholly-owned subsidiary of MicroStrategy. As of June 30, 2024, all of the approximately 50,610 bitcoins held directly by MicroStrategy Incorporated, which had a market value of $3.134 billion based on the $61,926.69 market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on June 30, 2024, are held in a separate custodial account from those held by MacroStrategy and serve as part of the collateral securing our 2028 Secured Notes. See below for further disclosure surrounding market value calculations of our bitcoin.

Current wording

During 2023 and 2024, we used proceeds from various capital raising transactions to purchase bitcoin. As of September 30, 2024, we held an aggregate of approximately 252,220 bitcoins.

Previous wording

Our digital asset impairment losses have significantly contributed to our operating expenses. During the three months ended June 30, 2024, digital asset impairment losses of $180.1 million represented 64.1% of our operating expenses, compared to digital asset impairment losses of $24.1 million, representing 20.1% of our operating expenses, during the three months ended June 30, 2023. During the six months ended June 30, 2024, digital asset impairment losses of $371.7 million represented 65.2% of our operating expenses, compared to digital asset impairment losses of $43.1 million, representing 18.4% of our operating expenses, during the six months ended June 30, 2023.

Current wording

Our digital asset impairment losses have significantly contributed to our operating expenses. During the three months ended September 30, 2024, digital asset impairment losses of $412.1 million represented 80.1% of our operating expenses, compared to digital asset impairment losses of $33.6 million, representing 26.2% of our operating expenses, during the three months ended September 30, 2023. During the nine months ended September 30, 2024, digital asset impairment losses of $783.8 million represented 72.3% of our operating expenses, compared to digital asset impairment losses of $76.6 million, representing 21.1% of our operating expenses, during the nine months ended September 30, 2023.

Previous wording

As of August 5, 2024, we held approximately 226,500 bitcoins that were acquired at an aggregate purchase price of $8.340 billion and an average purchase price of approximately $36,821 per bitcoin, inclusive of fees and expenses. As of August 5, 2024, at 4:00 p.m. Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $53,469.63.

Current wording

As of October 30, 2024, we held approximately 252,220 bitcoins that were acquired at an aggregate purchase price of $9.904 billion and an average purchase price of approximately $39,266 per bitcoin, inclusive of fees and expenses. As of October 30, 2024, at 4:00 p.m. Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was $71,812.70.

Previous wording

As we continue to transition our business strategy and product offerings to a cloud-native model, we are enhancing our go-to-market and sales strategies with the goal of focusing on acquiring new customers, driving revenue growth, increasing margins, and streamlining our operations. As part of this strategic transformation, we have taken and will continue to take measures to reorganize and optimize efficiency across our business functions, including sales, marketing, consulting, product, engineering, as well as other corporate functions.

Current wording

As we continue to transition our business strategy and product offerings to a cloud-native model, we are enhancing our go-to-market and sales strategies with the goal of focusing on acquiring new customers, driving revenue growth, increasing margins, and streamlining our operations. As part of this transition, we have taken and will continue to take measures, including headcount optimization, to reorganize and increase efficiency across our business functions.

Previous wording

The following table sets forth certain operating highlights (in thousands) for the three and six months ended June 30, 2024 and 2023:

Current wording

The following table sets forth certain operating highlights (in thousands) for the three and nine months ended September 30, 2024 and 2023:

Previous wording

As of June 30, 2024, we had a total of 1,839 employees, of whom 603 were based in the United States and 1,236 were based internationally. The following table summarizes employee headcount as of the dates indicated:

Current wording

As of September 30, 2024, we had a total of 1,637 employees, of whom 478 were based in the United States and 1,159 were based internationally. The following table summarizes employee headcount as of the dates indicated:

Previous wording

The $5.1 million increase in share-based compensation expense during the three months ended June 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested. The $5.4 million increase in share-based compensation expense during the six months ended June 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans and the revaluation and exercise of certain liability-classified stock-based awards, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested. As of June 30, 2024, we estimated that an aggregate of approximately $158.4 million of additional share-based compensation expense associated with the Stock Incentive Plans and the 2021 ESPP will be recognized over a remaining weighted average period of 2.6 years.

Current wording

The $2.6 million increase in share-based compensation expense during the three months ended September 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested. The $7.9 million increase in share-based compensation expense during the nine months ended September 30, 2024, as compared to the same period in the prior year, was primarily due to the grant of additional awards under the Stock Incentive Plans and the revaluation and exercise of certain liability-classified stock-based awards, partially offset by the forfeiture of certain stock awards and certain awards that became fully vested. As of September 30, 2024, we estimated that an aggregate of approximately $133.1 million of additional share-based compensation expense associated with the Stock Incentive Plans and the 2021 ESPP will be recognized over a remaining weighted average period of 2.4 years.

Previous wording

Comparison of the three and six months ended June 30, 2024 and 2023

Current wording

Comparison of the three and nine months ended September 30, 2024 and 2023

Previous wording

Product licenses revenues. Product licenses revenues decreased $6.2 million and $10.7 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to an overall decrease in the volume and average size of deals. Our product licenses revenues may continue to experience declines in future periods as we continue to promote our cloud offering to new and existing customers.

Current wording

Product licenses revenues. Product licenses revenues decreased $13.0 million and $23.7 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to an overall decrease in the volume and average size of deals. Our product licenses revenues may continue to experience declines in future periods as we continue to promote our cloud offering to new and existing customers.

Previous wording

Subscription services revenues. Subscription services revenues are derived from our MCE cloud subscription service and are recognized ratably over the service period in the contract. Subscription services revenues increased $4.2 million and $8.4 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, a net increase in the use of subscription services by existing customers, and sales contracts with new customers. We expect our subscription services revenues to continue to grow in future periods as we continue to promote our cloud offering to new and existing customers.

Current wording

Subscription services revenues. Subscription services revenues are derived from our MCE cloud subscription service and are recognized ratably over the service period in the contract. Subscription services revenues increased $6.8 million and $15.2 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, a net increase in the use of subscription services by existing customers, and sales contracts with new customers. We expect our subscription services revenues to continue to grow in future periods as we continue to promote our cloud offering to new and existing customers.

Previous wording

Product support revenues are derived from providing technical software support and software updates and upgrades to customers. Product support revenues are recognized ratably over the term of the contract, which is generally one year. Product support revenues decreased $4.3 million and $7.1 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services offerings. Our product support revenues may experience declines in future periods as we continue to promote our cloud offering to new and existing customers.

Current wording

Product support revenues are derived from providing technical software support and software updates and upgrades to customers. Product support revenues are recognized ratably over the term of the contract, which is generally one year. Product support revenues decreased $5.8 million and $13.0 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services offerings. Our product support revenues may experience declines in future periods as we continue to promote our cloud offering to new and existing customers.

Previous wording

Consulting revenues. Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues decreased $2.4 million and $5.9 million for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to a decrease in billable hours worldwide.

Current wording

Consulting revenues. Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues decreased $1.2 million and $7.1 million for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to a decrease in demand for domestic consulting services.

Previous wording

Education revenues. Education revenues are derived from the education and training that we provide to our customers to enhance their ability to fully utilize the features and functionality of our software. These offerings include self-tutorials, custom course development, joint training with customers’ internal staff, and standard course offerings, with pricing dependent on the specific offering delivered. Education revenues did not materially change for the three and six months ended June 30, 2024, as compared to the same periods in the prior year.

Current wording

Education revenues. Education revenues are derived from the education and training that we provide to our customers to enhance their ability to fully utilize the features and functionality of our software. These offerings include self-tutorials, custom course development, joint training with customers’ internal staff, and standard course offerings, with pricing dependent on the specific offering delivered. Education revenues did not materially change for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year.

Previous wording

Cost of product licenses 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 for the three and six months ended June 30, 2024, as compared to the same periods in the prior year.

Current wording

Cost of product licenses 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 for the three months ended September 30, 2024, as compared to the same period in the prior year. Cost of product licenses revenues increased $0.8 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to the amortization of the prepaid patent license received as part of the settlement agreement with Daedalus, as described in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements.

Previous wording

Cost of subscription services revenues. 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. Cost of subscription services revenues increased $2.3 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to a $2.4 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers. Cost of subscription services revenues increased $3.1 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to a $3.3 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers.

Current wording

Cost of subscription services revenues. 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. Cost of subscription services revenues increased $3.4 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to a $2.9 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers. Cost of subscription services revenues increased $6.5 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to a $6.2 million increase in cloud hosting infrastructure costs, which is a result of the increased usage by new and existing cloud subscription services customers.

Previous wording

Cost of product support revenues. Cost of product support revenues consists of personnel and related overhead costs. Cost of product support revenues increased $2.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $0.7 million increase in salaries and personnel costs, (ii) a $0.7 million increase in variable compensation, and (iii) a $0.5 million net increase in share-based compensation expense, which were all primarily attributable to an increase in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year, which previously resulted in compensation costs for certain consulting personnel being allocated to cost of product support revenues. Cost of product support revenues increased $5.2 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.7 million increase in variable compensation, (ii) a $1.5 million increase in salaries and personnel costs, and (iii) a $1.0 million net increase in share-based compensation expense, which were all primarily attributable to an increase in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year.

Current wording

Cost of product support revenues. Cost of product support revenues consists of personnel and related overhead costs. Cost of product support revenues increased $3.0 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.1 million increase in severance costs due to headcount reductions, (ii) a $0.7 million increase in salaries and personnel costs, (iii) a $0.5 million increase in variable compensation, and (iv) a $0.4 million net increase in share-based compensation expense. Other than the increase in severance costs, these changes were primarily attributable to an increase in average staffing levels from the internal transfer of certain employees to product support functions, partially offset by the discontinuance of our Enterprise Support program in the current year, which previously resulted in compensation costs for certain consulting personnel being allocated to cost of product support revenues. Cost of product support revenues increased $8.2 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.3 million increase in salaries and personnel costs, (ii) a $2.2 million increase in variable compensation, (iii) a $1.4 million net increase in share-based compensation expense, (iv) a $1.1 million increase in severance costs due to headcount reductions, and (v) a $0.6 million increase in facility and other related support costs. Other than the increase in severance costs, these changes were primarily attributable to an increase in average staffing levels from the internal transfer of certain employees to product support functions, partially offset by the discontinuance of our Enterprise Support program in the current year.

Previous wording

Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs. Cost of consulting revenues decreased $1.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $0.8 million decrease in variable compensation and (ii) a $0.7 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year. Cost of consulting revenues decreased $2.7 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.4 million decrease in variable compensation and (ii) a $1.1 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, partially offset by the discontinuance of our Enterprise Support program in the current year.

Current wording

Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs. Cost of consulting revenues increased $0.9 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.1 million increase in severance costs due to headcount reductions, partially offset by (ii) a $0.2 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, substantially offset by the discontinuance of our Enterprise Support program (pursuant to which costs associated with certain consulting personnel had been recognized in cost of product support revenues) in the current year. Cost of consulting revenues decreased $1.8 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.8 million decrease in variable compensation and (ii) a $0.9 million decrease in salaries and personnel costs attributable to a decrease in average staffing levels, partially offset by the discontinuance of our Enterprise Support program (pursuant to which costs associated with certain consulting personnel had been recognized in cost of product support revenues) in the current year, and (iii) a $0.4 million decrease in facility and other related support costs, partially offset by (iv) a $0.8 million increase in subcontractor costs, and (v) a $0.7 million increase in severance costs due to headcount reductions.

Previous wording

Cost of education revenues. Cost of education revenues consists of personnel and related overhead costs. Cost of education revenues did not materially change for the three and six months ended June 30, 2024, as compared to the same periods in the prior year.

Current wording

Cost of education revenues. Cost of education revenues consists of personnel and related overhead costs. Cost of education revenues did not materially change for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year.

Previous wording

Sales and marketing expenses decreased $3.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.1 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $1.5 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (iii) a $0.5 million decrease in facility and other related support costs, and (iv) a $0.4 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards, partially offset by the grant of additional awards under the Stock Incentive Plans, partially offset by (v) a $1.0 million increase in marketing costs, and (vi) a $0.5 million increase in subcontractor costs.

Current wording

Sales and marketing expenses did not materially change for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.1 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $0.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels (including from the internal transfer of certain employees to product support functions), partially offset by wage increases, (iii) a $0.2 million decrease in non-income taxes, (iv) a $0.2 million decrease in recruiting costs, (v) a $0.2 million decrease in facility and other related support costs, and (vi) a $0.1 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards and the internal transfer of certain employees to product support functions, substantially offset by the grant of additional awards under the Stock Incentive Plans, substantially offset by (vii) a $2.8 million increase in severance costs due to headcount reductions, and (viii) a $0.8 million increase in marketing costs.

Previous wording

Sales and marketing expenses decreased $6.1 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $3.8 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $3.6 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (iii) a $0.9 million decrease in facility and other related support costs, and (iv) a $0.8 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards, partially offset by the grant of additional awards under the Stock Incentive Plans and the fair value remeasurement of certain liability-classified awards upon exercise or at the end of the reporting period, partially offset by (v) a $1.7 million increase in marketing costs, and (vi) a $1.2 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans.

Current wording

Sales and marketing expenses decreased $6.3 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $6.7 million decrease in variable compensation primarily attributable to an increase in net capitalized commissions, partially offset by an increase in commissions earned, (ii) a $4.4 million decrease in employee salaries primarily attributable to a decrease in average staffing levels (including from the internal transfer of certain employees to product support functions), partially offset by wage increases, (iii) a $1.0 million decrease in facility and other related support costs, (iv) a $0.8 million net decrease in share-based compensation expense primarily attributable to the forfeiture of certain awards and the internal transfer of certain employees to product support functions, partially offset by the grant of additional awards under the Stock Incentive Plans and the fair value remeasurement of certain liability-classified awards upon exercise or at the end of the reporting period, (v) a $0.6 million decrease in cloud hosting infrastructure costs, and (vi) a $0.5 million decrease in recruiting costs, partially offset by (vii) a $2.6 million increase in severance costs due to headcount reductions, (viii) a $2.5 million increase in marketing costs, and (ix) a $2.4 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans.

Previous wording

Research and development expenses increased $1.0 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $1.8 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans and (ii) a $0.9 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, partially offset by (iii) a $1.0 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases.

Current wording

Research and development expenses increased $3.6 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $5.1 million increase in severance costs due to headcount reductions, and (ii) a $0.3 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by the forfeiture of certain awards, partially offset by (iii) a $0.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, and (iv) a $0.7 million decrease in variable compensation.

Previous wording

General and administrative expenses increased $7.3 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $3.0 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested, (ii) a $2.9 million increase in legal, consulting, and other advisory costs, (iii) a $2.4 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, and (iv) a $1.0 million increase in custodial fees incurred on our bitcoin holdings, partially offset by (v) a $1.2 million loss recorded in the prior year with respect to the Brazilian matters noted in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements, and (vi) a $0.8 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases.

Current wording

General and administrative expenses increased $4.3 million for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $2.0 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested, (ii) a $1.6 million increase in legal, consulting, and other advisory costs, (iii) a $1.0 million increase in custodial fees incurred on our bitcoin holdings, and (iv) a $0.6 million increase in severance costs due to headcount reductions, partially offset by (v) a $0.7 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases.

Previous wording

General and administrative expenses increased $14.1 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $7.6 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, (ii) a $4.1 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested and the forfeiture of certain awards, (iii) a $3.9 million increase in legal, consulting, and other advisory costs, and (iv) a $1.5 million increase in custodial fees incurred on our bitcoin holdings, partially offset by (v) a $1.6 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases and (iv) a $1.2 million loss recorded in the prior year with respect to the Brazilian matters noted in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements.

Current wording

General and administrative expenses increased $18.3 million for the nine months ended September 30, 2024, as compared to the same period in the prior year, primarily due to (i) a $7.6 million increase in personnel costs primarily attributable to an increase in employer payroll taxes related to the exercise or vesting of certain awards under the Stock Incentive Plans, (ii) a $6.1 million net increase in share-based compensation expense primarily attributable to the grant of additional awards under the Stock Incentive Plans, partially offset by certain awards that became fully vested and the forfeiture of certain awards, (iii) a $5.5 million increase in legal, consulting, and other advisory costs, (iv) a $2.5 million increase in custodial fees incurred on our bitcoin holdings, (v) a $0.9 million increase in severance costs due to headcount reductions, and (vi) a $0.6 million increase in costs related to the maintenance and operations of our corporate aircraft, partially offset by (vii) a $2.3 million decrease in employee salaries primarily attributable to a decrease in average staffing levels, partially offset by wage increases, (viii) a $1.2 million loss recorded in the prior year with respect to the Brazilian matters noted in Note 6, Commitments and Contingencies, to the Consolidated Financial Statements, (ix) a $0.7 million decrease in business insurance costs, and (x) a $0.5 million decrease in variable compensation.

Previous wording

We did not sell any of our digital assets during the three and six months ended June 30, 2024 and 2023. We may continue to incur significant digital asset impairment losses in the future. For example, we have incurred at least $275.5 million in digital asset impairment losses during the third quarter of 2024 on bitcoin we held as of June 30, 2024.

Current wording

We did not sell any of our digital assets during the nine months ended September 30, 2024 or 2023. We may continue to incur significant digital asset impairment losses in the future. For example, we have incurred at least $18.9 million in digital asset impairment losses during the fourth quarter of 2024 on bitcoin we held as of September 30, 2024.

Previous wording

Interest expense, net, primarily relates to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements. The following table sets forth interest expense, net (in thousands) and related percentage changes for the periods indicated:

Current wording

Interest expense, net, primarily relates to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements. The following table sets forth interest expense, net (in thousands) for the periods indicated:

Previous wording

Interest expense, net, increased $4.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily as a result of interest incurred related to the 2030 Convertible Notes and 2031 Convertible Notes (which were each issued in March 2024) and interest incurred related to the 2032 Convertible Notes (which were issued in June 2024). Interest expense, net, increased $1.3 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily as a result of interest incurred related to the 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, partially offset by the repayment of the 2025 Secured Term Loan in March 2023. Interest expense for future periods in 2024 is expected to increase compared to the same periods in 2023 as a result of the issuances of our 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, partially offset by the 2025 Convertible Notes having been converted or redeemed in their entirety by July 15, 2024. Refer to Note 5, Long-term Debt, to the Consolidated Financial Statements for further information.

Current wording

Interest expense, net, increased $7.1 million and $8.4 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in the prior year, primarily as a result of (i) interest incurred related to the 2032 Convertible Notes (which were issued in June 2024), (ii) interest incurred related to the 2030 Convertible Notes and 2031 Convertible Notes (which were each issued in March 2024), (iii) interest incurred related to the 2028 Convertible Notes (which were issued in September 2024), partially offset by (iv) the repayment of the 2025 Secured Term Loan in March 2023 (for the comparison of the nine months ended September 30, 2024 and 2023), (v) the 2025 Convertible Notes having been converted or redeemed in their entirety by July 15, 2024, and (vi) the 2028 Secured Notes having been redeemed in their entirety on September 26, 2024.

Previous wording

For the six months ended June 30, 2023, the $44.7 million gain on debt extinguishment resulted from the repayment of the 2025 Secured Term Loan. Refer to Note 5, Long-term Debt, to the Consolidated Financial Statements for further information.

Current wording

For the three and nine months ended September 30, 2024, the $22.9 million loss on debt extinguishment resulted from the redemption of the 2028 Secured Notes. For the nine months ended September 30, 2023, the $44.7 million gain on debt extinguishment resulted from the repayment of the 2025 Secured Term Loan. Refer to Note 5, Long-term Debt, to the Consolidated Financial Statements for further information.

Previous wording

For the three and six months ended June 30, 2024, other income, net, of $0.7 million and $2.4 million, respectively, were comprised primarily of foreign currency transaction net gains. For the three and six months ended June 30, 2023, other expense, net, of $0.3 million and $1.7 million, respectively, were comprised primarily of foreign currency transaction net losses.

Current wording

For the three and nine months ended September 30, 2024, other expense, net, of $5.0 million and $2.6 million, respectively, were comprised primarily of foreign currency transaction net losses. For the three and nine months ended September 30, 2023, other income, net, of $2.4 million and $0.7 million, respectively, were comprised primarily of foreign currency transaction net gains.

Previous wording

We recorded a benefit from income taxes of $273.3 million on a pretax loss of $428.9 million that resulted in an effective tax rate of 63.7% for the six months ended June 30, 2024, as compared to a benefit from income taxes of $513.5 million on a pretax loss of $30.0 million that resulted in an effective tax rate of 1,708.9% for the six months ended June 30, 2023. During the six months ended June 30, 2024, our benefit from income taxes primarily related to (i) a tax benefit related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units) and (ii) a tax benefit from an increase in our deferred tax asset related to the impairment on our bitcoin holdings. During the six months ended June 30, 2023, our benefit from income taxes primarily related to the release of a portion of the valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the increase in market value of bitcoin as of June 30, 2023 compared to December 31, 2022.

Current wording

We recorded a benefit from income taxes of $411.8 million on a pretax loss of $907.6 million that resulted in an effective tax rate of 45.4% for the nine months ended September 30, 2024, as compared to a benefit from income taxes of $403.9 million on a pretax loss of $63.9 million that resulted in an effective tax rate of 632.2% for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, our benefit from income taxes primarily related to (i) a tax benefit from an increase in our deferred tax asset related to the impairment on our bitcoin holdings and (ii) a tax benefit related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units). During the nine months ended September 30, 2023, our benefit from income taxes primarily related to the release of a portion of the valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the increase in market value of bitcoin as of September 30, 2023 compared to December 31, 2022.

Previous wording

The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet in “Accounts receivable, net” and “Deferred revenue and advance payments” and instead are included in the remaining performance obligation disclosure below. Total deferred revenue and advance payments decreased $25.9 million as of June 30, 2024, as compared to December 31, 2023, primarily due to (i) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts and (ii) a decrease in deferred other services revenue from an increase in revenue recognized from previously deferred other services, partially offset by (iii) an increase in deferred revenue from subscription services contracts. Total deferred revenue and advance payments increased $3.7 million as of June 30, 2024, as compared to June 30, 2023, primarily due to (i) an increase in deferred revenue from subscription services contracts, partially offset by (ii) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts.

Current wording

The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet in “Accounts receivable, net” and “Deferred revenue and advance payments” and instead are included in the remaining performance obligation disclosure below. Total deferred revenue and advance payments decreased $45.9 million as of September 30, 2024, as compared to December 31, 2023, primarily due to (i) a decrease in deferred product support revenue due to the timing of product support renewals and an increase in conversions from on-premises to subscription services contracts and (ii) decreases in deferred other services revenue and deferred product licenses revenues, partially offset by (iii) an increase in deferred revenue from subscription services contracts. Total deferred revenue and advance payments increased $3.9 million as of September 30, 2024, as compared to September 30, 2023, primarily due to (i) an increase in deferred revenue from subscription services contracts, partially offset by (ii) a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts.

Previous wording

Our remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancelable amounts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation excludes contracts that are billed in arrears, such as certain time and materials contracts. As of June 30, 2024, we had an aggregate transaction price of $360.7 million allocated to the remaining performance obligation related to subscription services, product support, product licenses, and other services contracts. We expect to recognize approximately $242.4 million of the remaining performance obligation over the next 12 months and the remainder thereafter. However, the timing and ultimate recognition of our deferred revenue and advance payments and other remaining performance obligations depend on our satisfaction of various performance obligations, and the amount of deferred revenue and advance payments and remaining performance obligations at any date should not be considered indicative of revenues for any succeeding period.

Current wording

Our remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancellable amounts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation excludes contracts that are billed in arrears, such as certain time and materials contracts. As of September 30, 2024, we had an aggregate transaction price of $380.5 million allocated to the remaining performance obligation related to subscription services, product support, product licenses, and other services contracts. We expect to recognize approximately $237.1 million of the remaining performance obligation over the next 12 months and the remainder thereafter. However, the timing and ultimate recognition of our deferred revenue and advance payments and other remaining performance obligations depend on our satisfaction of various performance obligations, and the amount of deferred revenue and advance payments and remaining performance obligations at any date should not be considered indicative of revenues for any succeeding period.

Previous wording

Liquidity. Our principal sources of liquidity are cash and cash equivalents and on-going collection of our accounts receivable. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments, certificates of deposit, and U.S. Treasury securities. 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, which are classified as indefinite-lived intangible assets. On August 1,

Current wording

Liquidity. Our principal sources of liquidity are cash and cash equivalents and on-going collection of our accounts receivable. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments, certificates of deposit, and U.S. Treasury securities. 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, which are classified as indefinite-lived intangible assets. On August 1, 2024, we filed a prospectus for a new at-the-market equity offering program pursuant to which we may sell class A common stock having an aggregate offering price of up to $2.0 billion from time to time. As of September 30, 2024, approximately $891.3 million of our class A common stock remained available for issuance and sale pursuant to the August 2024 Sales Agreement. On October 30, 2024, we filed a prospectus for a new at-the-market equity offering program pursuant to which we may sell class A common stock having an aggregate offering price of up to $21 billion from time to time. For additional information, see “—At-the-Market Equity Offerings” below.

Previous wording

As of June 30, 2024 and December 31, 2023, the amount of cash and cash equivalents held by our U.S. entities was $30.3 million and $10.5 million, respectively, and by our non-U.S. entities was $36.6 million and $36.3 million, respectively. We earn a significant amount of our revenues outside the United States. We did not repatriate any foreign earnings and profits during the six months ended June 30, 2024 or 2023.

Current wording

As of September 30, 2024 and December 31, 2023, the amount of cash and cash equivalents held by our U.S. entities was $15.6 million and $10.5 million, respectively, and by our non-U.S. entities was $30.7 million and $36.3 million, respectively. We earn a significant amount of our revenues outside the United States. We repatriated foreign earnings and profits of $6.5 million and $10.0 million during the nine months ended September 30, 2024 and 2023.

Previous wording

principal due upon maturity of our long-term debt instruments in the aggregate of $3.762 billion, excluding the 2025 Convertible Notes, which were converted or redeemed in their entirety on or before July 15, 2024;

Current wording

principal due upon maturity of our long-term debt instruments in the aggregate of $4.272 billion;

Previous wording

$9.0 million in coupon interest due each semi-annual period for the 2032 Convertible Notes;

Current wording

$9.0 million in coupon interest due each semi-annual period for the 2032 Convertible Notes; and

Previous wording

The above items are explained in further detail in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report as well as under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in the Notes to the Consolidated Financial Statements included therein. Other than our issuances of the 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes described more fully below and in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report, and the conversions and redemption of the 2025 Convertible Notes described more fully below and in Note 5, Long-term Debt, and Note 13, Subsequent Events, to the Consolidated Financial Statements included in this Quarterly Report, there have been no changes to our material contractual obligations and cash requirements since December 31, 2023.

Current wording

The above items are explained in further detail in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report as well as under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in the Notes to the Consolidated Financial Statements included therein. Other than (i) our issuances of the 2030 Convertible Notes, 2031 Convertible Notes, 2032 Convertible Notes, and 2028 Convertible Notes, (ii) the conversions and redemption of the 2025 Convertible Notes, and (iii) the redemption of the 2028 Secured Notes, all of which are described more fully below and in Note 5, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report, there have been no changes to our material contractual obligations and cash requirements since December 31, 2023.

Previous wording

In addition, while the 2030 Convertible Notes, the 2031 Convertible Notes, and the 2032 Convertible Notes have maturity dates of March 15, 2030, March 15, 2031, and June 15, 2032, respectively, the holders of these Convertible Notes each have the right to require us to repurchase for cash all or any portion of these Convertible Notes on September 15, 2028, in the case of the 2030 Convertible Notes and the 2031 Convertible Notes, or June 15, 2029, in the case of the 2032 Convertible Notes, at a repurchase price in each case equal to 100% of the principal amount of the applicable Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding the repurchase date.

Current wording

In addition, while the 2028 Convertible Notes, the 2030 Convertible Notes, the 2031 Convertible Notes, and the 2032 Convertible Notes have maturity dates of September 15, 2028, March 15, 2030, March 15, 2031, and June 15, 2032, respectively, the holders of these Convertible Notes each have the right to require us to repurchase for cash all or any portion of these Convertible Notes on September 15, 2027, in the case of the 2028 Convertible Notes, September 15, 2028, in the case of the 2030 Convertible Notes and the 2031 Convertible Notes, or June 15, 2029, in the case of the 2032 Convertible Notes, at a repurchase price in each case equal to 100% of the principal amount of the applicable Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding the repurchase date.

Previous wording

As of June 30, 2024, we held approximately 226,331 bitcoins, of which approximately 175,721 are unencumbered. 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. The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of instability in the bitcoin market, we may not be able to sell our bitcoins at reasonable prices or at all. As a result, our bitcoins are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. In addition, upon sale of our bitcoin, we may incur additional taxes related to any realized gains or we may incur capital losses as to which the tax deduction may be limited.

Current wording

As of September 30, 2024, we held approximately 252,220 bitcoins, all of which are unencumbered. 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. The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of instability in the bitcoin market, we may not be able to sell our bitcoins at reasonable prices or at all. As a result, our bitcoins are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. In addition, upon sale of our bitcoin, we may incur additional taxes related to any realized gains or we may incur capital losses as to which the tax deduction may be limited.