Good evening, everyone. I’m Jeremy Price, MicroStrategy Senior Vice President of Financial Planning and Analysis and Head of Investor Relations. I'll be your moderator for MicroStrategy's 2020 Fourth Quarter Earnings Webinar. Before we proceed, I will read the Safe Harbor statement. Some of the information we provide during today's call regarding our future expectations, plans, and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-Q filed with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. Also, during today's call, we'll refer to certain non-GAAP financial measures. Reconciliations showing GAAP versus non-GAAP results were available in our earnings release and presentation, which were issued today and are available on our website at www.microstrategy.com.

Hi, this is Michael Saylor. I'm the Chairman and CEO of MicroStrategy. I'd like to welcome all of you here today to our webinar regarding our 2020 fourth quarter financial results. I'm here with Phong Le, our President and Chief Financial Officer. I'd like to pass the floor to Phong, who is going to discuss our operational and financial results for the quarter.

Thank you, Jeremy. Thank you, Michael. The fourth quarter was a good finish to what was an exciting and transformational year for MicroStrategy. Before I review our fourth quarter results in detail, I want to underscore the key highlights from 2020 for the company. First, we had a solid sales year in light of the economic environment. Total revenue for the year was down only modestly and our performance in the second half of the year was notably strong. We also made important progress in our shift towards our cloud offering, which drove current subscription billings to $15.5 million as of December 31, 2020, up 41% year-over-year. Second, we embraced the virtual wave to dramatically improve the cost structure and operating efficiency of the business. For the year, we reduced non-GAAP operating expenses by 15% or $55.8 million and increased non-GAAP operating income to $68.2 million from $9.2 million in 2019. Third, we deployed the excess capital on our balance sheet to generate substantial shareholder value. We returned $123 million to shareholders via share repurchases and instituted a unique and innovative treasury reserve policy that made MicroStrategy the first publicly traded company to utilize bitcoin as its primary treasury reserve asset. Over the course of the year, we purchased 70,469 bitcoins for an aggregate price of $1.125 billion or an average price of $15,964 per bitcoin. As of 4:00 p.m. on January 27, our digital assets had a market value of $2.2 billion. Finally, regarding our bitcoin strategy, our pioneering decision to make bitcoin our primary treasury reserve asset has made MicroStrategy a thought leader in the cryptocurrency market and has generated great interest in MicroStrategy as a corporation.

Thanks, Phong. I'm really excited about 2021 looking ahead. If we think about the truly exciting technology opportunities we have, HyperIntelligence is really the cutting edge of MicroStrategy’s business development strategy. HyperNow represents giving people the power of HyperIntelligence from the cloud in a multi-tenant environment in less than an hour. I think HyperNow gives us scalable HyperIntelligence. If we can take all of the human labor out of the mix along with all of the software downloads and installations, it becomes possible for a mid-sized company in Singapore on a Saturday afternoon to find our website, sign up for HyperNow, plug into our SaaS offering, integrate into one of their databases, plug in their enterprise security, build an application, and deploy it out to thousands, tens of thousands, or even hundreds of thousands of their employees—all without even calling someone on the phone or going into the office. It's just really compelling. HyperIntelligence is exciting not just because we'll be deploying it out of the cloud in 2021. It's also thrilling because we've made a lot of nice upgrades to HyperIntelligence. For example, we provided HyperVision. You can see an example of HyperVision on our strategy.com website. The idea is, I look at the documents and I highlight them in 10 different colors based on the underlying metrics that the HyperIntelligence engine sees and codifies. Wouldn't it be great if I could read a list of one thousand names and spot the ones in green that are making me money, the ones in red that are losing money, and the ones in yellow that I need to focus on—you would see it in a split second. That's HyperVision. We've made it possible to build these HyperVision applications and deploy them rapidly, often in less than half an hour. Our technology strategy is to take 20 years of industrial-strength engineering in business intelligence that was formally deployed on-premises or in single-user instances and place that into a multi-tenant SaaS offering to remove friction and enable anyone at any time to build these applications quickly and easily. Hyper is a significant part of this. The multi-tenant cloud is fundamental, and another exciting aspect of our offering is the embedded nature of our business intelligence tools. Everyone wants to embed intelligence into their applications and websites. With HyperIntelligence, you can actually build a HyperCard application. If you're a major retailer or exchange, like Amazon or eBay, you can build a HyperCard application that you deploy on your own website with just a few lines of code using our SDK. What that means is, if you own a site with millions of users and you want to deploy HyperIntelligence on your website—with no downloads, no installations, and no special authentication—you could build and deploy that app in our cloud in an hour on a Saturday. That's really powerful embedding. We focus on similar types of embedding technology to allow deep analytics from MicroStrategy’s platform or dossiers from MicroStrategy’s platform to be integrated into existing applications. I believe what makes us truly industrial strength in 2021 is the ability to spin up these cloud environments, plug them into data, and embed them into applications that already have large user bases. We're really excited about that. I'm also thrilled about other cool innovations we are working on. For example, the next version of HyperNow and HyperIntelligence will have the ability to tweet and share HyperCards on Twitter. Therefore, I think you'll start seeing more HyperCards floating around the Twitter sphere shortly. As always, our business strategy is to innovate on the cutting edge and provide the most modern, enterprise-grade platform we can. We aim to be the industrial-strength platform for intelligence for corporations that make their living off extracting insights, and those corporations need to embed those into their own OEM offerings. We are running the virtual wave, as you can see right now. I often tell people in our corporation, in the era of the virtual wave, you can transmit information at the speed of light and bend time and space. What are you going to do with that power? For us, it means reaching out to more of our customers more frequently and effectively. You'll see that in full force next week with MicroStrategy World, our biggest marketing and education event in the company's history. It's free for all. It used to be our business was about collecting 2,000 to 4,000 customers for a few days at some hotel in Vegas or Orlando or Europe, where they had to take three to five days of their lives to come. I estimate that between MicroStrategy’s expenses and customer expenses, it was a $10 million operation to stage MicroStrategy World. This year, we will hold the MicroStrategy World event, which will be better and more comfortable for our customers. We'll have dramatically more attendees, spend an order of magnitude less money, and they will spend almost nothing. We already expect over 10,000 attendees, and registration is building rapidly as we approach the final date. This MicroStrategy World will have more engaging sessions, and we'll have solutions sessions. We'll connect customers working on common platforms globally. We're doing innovative things to involve international customers in Europe and Asia-Pacific. Of course, we'll generate significant amounts of content that will be uploaded as on-demand streaming for our customers throughout the next 12 months. With this MicroStrategy World event, we’ve added a track called the Bitcoin for Corporations Summit, which is very exciting for us. I'll share more about that in a moment. A few words on our capital allocation strategy: as you know, we've been using bitcoin as our treasury reserve asset, and we continue to believe that bitcoin serves as the best store of value and is an attractive investment asset with considerable long-term appreciation potential compared to holding cash. Going forward, we will pursue two corporate strategies. One is to grow our enterprise software business. The other is to acquire more bitcoin. Our bitcoin strategy means we will not only keep our bitcoin as our primary treasury reserve asset but will also actively seek to acquire additional bitcoin as part of our corporate strategy. In the quarter, we did acquire bitcoin on two separate occasions. We acquired $50 million worth of bitcoin at $19,227 per bitcoin, which we announced around the 4th of December. On approximately the 21st of December, we announced acquiring another $650 million worth of bitcoin at around $21,925 per bitcoin. And of course, as Phong pointed out on January 22nd, we acquired another $10 million worth at $31,808 per bitcoin. We believe bitcoin is the technically superior digital asset in the world. It's a superior asset for storing value over the long term. This means we expect capital to flow into this asset from weaker assets or those with less favorable financial attributes than bitcoin. Beyond being a great digital asset and store of value, bitcoin is also an open protocol for moving monetary energy. Essentially, it is the first digital monetary network, engineered to safeguard wealth, and its operation on a digital monetary network creates a remarkably unique opportunity for our company. We intend to remain innovators and market thought leaders in this space. We have prepared a bitcoin corporate playbook and gathered documents related to governance, accounting, security, technical protocols, and finance that we believe will interest other corporations wishing to integrate bitcoin into their strategy. We plan to open source these documents and make them freely available to the world. We think this is beneficial for the industry and ourselves. If you sign up for our Bitcoin for Corporations Summit next week, you'll gain early access to these documents. We will expand this further by creating other bitcoin educational materials for anyone interested. So far, we've placed many of these materials on our hope.com domain. Just remember, if you want to learn more about bitcoin, type 'hope' and you’ll land on our hope domain, where you can register for the conference, as well as access the other bitcoin materials we have compiled. I continue to advocate for the bitcoin standard, evangelizing bitcoin as a solution to many challenges faced by corporations and individual investors worldwide. We've had good success with our outreach on YouTube, with some videos viewed 400,000 times and approximately 2 million hours of streaming video that we’ve contributed. We believe this is advantageous for bitcoin and enhances MicroStrategy’s brand. We anticipate it will help grow our enterprise software business and support our bitcoin strategy. So far, we've received a lot of positive feedback from our employees; we’re finding it easier to attract and retain employees. Our educational initiatives have also proven beneficial for sales and marketing outreach to corporations worldwide. When you're an enterprise software company, establishing relationships with senior C-suite executives is critical. If they know your company and there are positive vibes around your brand, it facilitates engagement for all our executives and sales teams with customers. We feel great about the synergy between our software strategy and our bitcoin strategy and will continue to pursue both. Regarding the Bitcoin for Corporations event next week, on February 3rd and 4th, we expect about 2,000 or more executives, officers, directors, and advisors of corporations interested in incorporating bitcoin into their strategy. This is a hot topic, especially as the bitcoin monetary network expands; examples like Grayscale, which grew their assets tenfold in 12 months, illustrate this. You’ll see success stories like Square and PayPal, both of which have achieved extraordinary success by integrating their mobile apps with bitcoin. Other companies, like Genesis and BlockFi, have excelled as prime brokers for bitcoin while firms like Fidelity offer fund, brokerage, and custodial services for bitcoin. The industry is growing rapidly, and all companies that manage to incorporate bitcoin into their strategies—either as a treasury reserve asset or influencing their P&L—are experiencing a positive, enthusiastic response, gaining market share and creating shareholder value. We will share our methodology and experiences, and we’ll also interview the CEOs or the heads of institutional services and sales for ten of the leading bitcoin vendors in the space. So if someone wants to get up to speed in a matter of hours and accelerate a process that would normally take months, they can achieve this in two days next week. After the sessions next week, we’ll upload those on demand for the industry’s ongoing benefit. To summarize, we're really enthusiastic about our enterprise software strategy. HyperIntelligence, our multi-tenant cloud, and our embedded intelligence capabilities provide us with a differentiated offering in the market. We're best-in-class in this respect, and I expect we'll continue with that business growth. We are very excited about our bitcoin strategy, as we have a chance to lead the market in this sector. We're committed to executing on this strategy while helping other companies follow in our footsteps. With that, I want to thank everyone for your support, and I’ll pass the floor to Jeremy for Q&A.

Thank you, Michael. We've got some good questions here, and we'll start off with Michael. Michael, how do you envision the role of MicroStrategy's participation in the bitcoin network evolving in the future? Will the company look to build a software business that leverages the growth of the bitcoin monetary network? Will you expand the company beyond being a leader for bitcoin treasury education?

We have a strong team, and we're actively studying the bitcoin industry and all the activities and data in the market to determine the best way for us to add value with our existing business intelligence and HyperIntelligence. Although we don't have anything ready to announce at this moment, we are enthusiastic about the opportunity to bring our intelligence to the industry at the right time.

Next question for Phong: how should we think about the growth of license revenue in 2021, given the momentum around cloud and subscription?

Yes, thanks, Jeremy. We're really excited about our transition to the cloud. We're still early in this process, but as I noted, we saw 21% growth in our cloud revenue year-over-year and 41% growth for cloud billings year-over-year, following an impressive 80% growth in Q3. Although early on, we're beginning to see good momentum. Our subscription revenue is recognized on a ratable basis, which can slightly depress our product license revenue. Many people studying cloud transition models have experienced this challenge. If not for our cloud growth in Q4, we would have seen higher product license revenues. Overall, our revenue was generally flat from Q4 and flat for the full year. As we accelerate our growth in 2021 across both perpetual licenses and cloud, I aim not to see a significant change in product license revenue due to our transition to cloud. I expect growth in both areas, and with the momentum present, I believe that outcome is positive and achievable.

Thank you, Phong. The next question: Are you planning to do another convertible debt offering, or have you considered issuing equity, debt, or other securities to allow the purchase of more bitcoins?

We're continuously evaluating our capital position and market conditions in the capital markets. We have sufficient liquidity to operate our business as it currently stands, and while it's possible to raise additional capital if it makes sense, I won't comment on any future financial plans.

A follow-up question: Will you purchase additional bitcoins in future periods?

Bitcoin is a crucial component of our overall strategy. Going forward, we plan to continue holding our bitcoin, and we will invest additional excess cash flows into bitcoin. We will explore various approaches to acquire more bitcoin as part of our corporate strategy.

Are you a software company or just a bitcoin investment vehicle?

We're a global leader in enterprise analytics software and services. We continue to operate our software business as we have for the last 30 years. However, at the same time, bitcoin is an important part of our strategy. We have both a bitcoin strategy and a software strategy, pursuing them both enthusiastically. That's the best way to think about the company. We're going to grow our enterprise software business and acquire more bitcoin on our balance sheet.

Does your bitcoin strategy depend on selling high and buying back more bitcoin at lower prices?

No, no, it doesn't. Our belief is that bitcoin is the first effective digital monetary network, and it's going to grow over time. We are early adopters. The early bitcoin holders are adopters; it is a solution to every company's problem and every individual investor’s problem. As more and more corporations adopt the bitcoin standard and use it as a store of value, and as more investors and mutual funds and hedge funds use it as a store of value, the total amount of monetary energy flowing into the network is going to increase over time. Since there is a fixed amount of bitcoin, that only means the price will appreciate. In a free market, capital flows from the weakest assets to the strongest. For example, if your currency collapses—like Venezuela's—while you have dollars and Venezuelan Bolivars, the dollar will go up in value compared to the Bolivar continuously. Free capital markets adjust as capital flows to where it earns the highest return. Because bitcoin is the technically superior asset, it will attract more monetary energy. The price will continue to rise, and there's no reason it shouldn't replace gold as a non-sovereign store of wealth, especially given that gold is a $10 trillion asset class. We don’t attempt to time the market and see no strategic benefit for trading out of it. Bitcoin is a better store of value—if something better than bitcoin emerges and gains larger adoption, we’ll share that with our shareholders and factor it into our treasury reserve strategy. But for now, bitcoin remains the strongest and most technically sound asset. Therefore, we plan to progressively acquire more bitcoin, likely at rising prices.

Thank you, Michael. From a technical perspective, what would you estimate is the average time frame from when a CFO or CEO of a publicly traded company commits to buying bitcoin until it appears on the company’s balance sheet?

That's a great question, Jeremy, and it's something we'll address in our Bitcoin for Corporations Summit next week. There's no straightforward answer—it varies based on how a company decides to invest in bitcoin. If they choose to invest in a fund, it could be quite fast. There are corporate governance and treasury issues to navigate. Investing directly in bitcoin on an exchange could take longer as the company identifies the right platform and custodians. Companies can invest in a matter of weeks through a fund, but it may take months—up to six or nine months—for others depending on their corporate governance structure.

Is MicroStrategy using a self-custody cold storage solution for the company’s bitcoin holdings, or is a third-party custodian being utilized?

We can't comment on that for security reasons, unfortunately, but thank you for your question.

Are you interested in acquiring other cryptocurrencies or diversifying beyond bitcoin?

Our view is that bitcoin is an institutional-grade treasury reserve asset. It dominates as a proof-of-work crypto asset network, making it the crypto asset winner if the use case is long-term store of value—essentially, digital gold. With our treasury, we want digital gold from the dominant monetary network that is the most secure and adopted by institutional-grade investors, and that is bitcoin. Other cryptocurrencies represent investment theses; they are akin to venture capital investments and carry differing risk-reward profiles. Therefore, we do not allocate a portion of our treasury to venture capital, making diversification inappropriate for us.

When do you think your subscription revenue will exceed 50% of total revenue? Would you agree that assuming your current product offering, a 7-9% CAGR over the next five years is conservative and would generate over $500 million in free cash flow?

There are several interesting questions in that one. Currently, we have about $280 million in support revenue and $35 million in subscription revenue—about 10% of total revenue is subscription. We are actively working to change this mix and move customers currently on-prem perpetual maintenance to subscription customers. We believe subscription customers are higher quality and offer better engagement, and the organization is focused on this transition. Not every customer is ready to migrate, however, and we won’t force them. Following our significant upgrade program in 2019, our current strategy involves transitioning customers to our enterprise cloud and eventually our SaaS cloud. The pacing on that will become clearer after this year, as we will move as quickly as possible without pressuring customers. As for growth levels, we've outlined a three-to-five-year plan in which we anticipate achieving 10% revenue growth. Whether this translates to a 7-9% CAGR over five years is uncertain, but we find that range not unreasonable. Consequently, we expect to generate incremental cash flow for reinvestment in the business or into bitcoin.

How are you hedging the volatility in the price of bitcoin in your financial statements? If bitcoin is accounted for as an indefinitely lived intangible asset with annual impairment tests, won't there be significant volatility in your financials year over year?

That's an excellent accounting question. It relates to the book value of our bitcoin versus its perceived market value. Based on the accounting treatment of bitcoin as an intangible asset, we take each wallet’s price quarterly using the lowest prevailing rates on current exchanges and either write down or impair those wallet values accordingly. This process resulted in the GAAP changes you've seen on our balance sheet in Q3 and Q4. This creates a perceived disconnect between book value and what might be interpreted as market value. We provide non-GAAP financials that exclude the impact of this accounting method, which offers transparency into both the book value and potential market value for further clarity. I believe the market understands this well and is quite mature, so we do not feel the need for additional hedging against bitcoin asset volatility.

To add on, we don't hedge our bitcoin. I don't believe it would be wise to hedge bitcoin. The volatility is simply part of its increasing value. Pursuing a hedging strategy would likely result in missing out on returns on bitcoin over time. Our financing timeline is five years with a five-year convertible note, so we don't focus on any short-term market volatility. Over a five-year period, we don't have any financing tied directly to the value of bitcoin itself, but against the business as a whole. We characterize ourselves as patient, long-term holders of bitcoin, not unduly concerned with short-term or midterm volatility.

Thank you both for your answers, and I appreciate everyone for submitting questions and participating in the call. I'll turn it back over to Michael for some closing remarks.

Okay, Jeremy. I want to thank everyone who joined us today. To our shareholders, thank you for your support. We look forward to speaking with you again in 12 weeks, and until then, all the best.