Earnings Call Transcript
Strategy Inc (MSTR)
Earnings Call Transcript - MSTR Q1 2022
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
We'll get started. Hello, everyone, and good evening. I am Shirish Jajodia, MicroStrategy's Senior Director of Treasury and Head of Investor Relations. I'll be your moderator for MicroStrategy's 2022 First 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 will refer to certain non-GAAP financial measures. Reconciliations showing GAAP versus non-GAAP results are available in our earnings release and presentation, which were issued today and are available on our website at microstrategy.com. I would like to welcome you all to today's webinar and let you know that we will be taking questions using the Q&A feature at the bottom of your screen. With that, I will turn the call over to Michael Saylor, Chairman and CEO of MicroStrategy. Michael?
Michael Saylor, Chairman and CEO
Thank you, Shirish. I'm Michael Saylor. I'm the Chairman and CEO of MicroStrategy. I'd like to welcome all of you to today's webinar regarding our 2022 first quarter financial results. I'm here with Phong Le, our President and Chief Financial Officer. First, I'd like to pass the floor to Phong, who's going to provide an update on our operations and the financials for the quarter.
Phong Le, President and CFO
Thank you, Michael. We are pleased with our corporate strategies in the first quarter of 2022. Here's a summary of our first quarter software results. Revenues decreased 3% year-over-year and were flat when adjusted for currency. We experienced some revenue challenges in Q1, including a difficult macroeconomic environment due to the conflict in Ukraine, a tough comparison from Q1 2021, where our license revenue grew 69% and total revenue grew 10% year-over-year, and ongoing cloud growth, which negatively impacted product license and total revenue in the short term. Our cloud business continues to perform well, with subscription revenue increasing 28% year-over-year and current subscription billings up 18% year-over-year, marking our eighth consecutive quarter of double-digit growth. However, several large cloud deals were delayed from Q1 due to macroeconomic uncertainty, leading to a sequential decline in billings growth. Regarding our Bitcoin strategy, we had another active and successful quarter, purchasing $215 million worth of Bitcoin at an average price of $44,645 each, net of fees and expenses. We have not sold any Bitcoin to date, and these purchases were financed through excess cash and a $205 million Bitcoin-backed term loan. I will provide more details about the loan in our financial section. Overall, we've raised a total of $3.4 billion in new debt and equity capital to support our Bitcoin acquisition strategy, which we view as a long-term investment. As of March 31, 2022, we owned 129,218 Bitcoins, acquired for a total cost of $3.97 billion or $30,700 each, net of fees and expenses. The market value of our Bitcoin holdings was $5.9 billion on that date, reflecting $1.9 billion in unrealized gains or nearly 50% appreciation compared to the original cost. The carrying value of our Bitcoin holdings was roughly $2.9 billion, which included $1.1 billion in cumulative impairment charges. We continue to see opportunities for MicroStrategy to tap into a multibillion-dollar software market that is just beginning to transition from legacy technology to the cloud. We are well-positioned to meet enterprise customers' needs with our modern analytics platform and recognize three key areas for growth: enterprise analytics, embedded analytics, and cloud. We aim to grow by enhancing our pipeline, ensuring customer success, and continuing to innovate, automate, and simplify our technology stack. I would also like to update you on the product enhancements in our latest platform release, which expands customer value and presents future growth opportunities. Our product now has a differentiated set of new capabilities allowing organizations to build seamless, scalable business intelligence applications more quickly, in standalone deployments or embedded within other products. With a fully modern design, we introduced a no-code application development option through MicroStrategy Library, empowering developers to create customized data portals rapidly for multiple user groups at an enterprise scale. MicroStrategy applications provide a competitive edge for customers; developers can create tailored apps for different employees while ensuring data consistency across the board, leading to greater trust, reduced hassle, and lower maintenance costs. Additionally, our applications offer enhanced security controls for limited access and sophisticated embedding functionality for flexibility and customization. In terms of security, we distinguished ourselves by responding quickly and effectively to the high-profile Log4j and Spring for Shell vulnerabilities, ensuring our customers benefited from rapid mitigation and remediation, solidifying the trust they expect from us. MicroStrategy Cloud is rapidly becoming an integral part of our business. We aim to accelerate subscription billings growth in 2022 by transitioning on-prem customers to the cloud, expanding our existing cloud customer base, and defaulting new customer deployments to the cloud. We anticipate having our MicroStrategy FedRAMP-compliant software version available in Q3 this year. For customers not ready to move to the cloud, particularly those in highly regulated sectors, we remain committed to supporting them. We are also enhancing our cloud architecture using containers and microservices to deliver highly scalable multi-tenant SaaS solutions for tens of thousands of users, providing developers a streamlined experience for continuous integration and development. Overall, I'm pleased with our pace of product innovation and confident in achieving our long-term growth targets while maintaining profitability. Our recent Annual User Conference, MicroStrategy World, was extremely successful. The event allowed us to connect with a larger audience through customer success stories, product presentations, and thought leadership keynotes, including a popular Bitcoin for Corporations event. We had nearly 14,000 registrants and over 180,000 viewers for the content. Replays are available on our website. Turning to our financial results for Q1 2022, revenues were $119.3 million, down 3% year-over-year and nearly flat on a constant currency basis. Over the past 12 months, total revenues have increased by 3%. Product license revenues hit $16.5 million, a decrease of 22% year-over-year, largely due to a significant transaction from Q1 2021 that skewed the comparison. In the past year, product license revenues increased by 2%. Subscription services revenues rose to $12.8 million, marking a 28% increase year-over-year. This growth reflects more of our product bookings being related to our managed cloud platform. Our current subscription billings in Q1 were $11.4 million, which is an increase of 18% year-over-year. The growth was lower than anticipated, as some deals slipped out of the quarter due in part to the ongoing conflict in Ukraine affecting customer purchasing behaviors. We see strong demand and opportunities in the pipeline for our cloud licenses, indicating potential for future growth. Product support revenues were $67.2 million, a 5% decrease year-over-year, partially due to existing customers shifting from perpetual product licenses to subscription offerings and influenced by unfavorable foreign currency exchange. As we witness more on-prem conversions to our cloud offering, we expect product support revenues to decline modestly over time. However, our in-quarter product support renewal rates for Q1 were among the highest we've ever seen. Other services revenues, primarily from consulting, were $22.8 million, representing a 9% increase year-over-year, driven by more billable hours globally, despite negative impacts from currency exchange and lower average billing rates. This increase in consulting revenues indicates our customers are engaged in modernizing their deployments of the MicroStrategy platform. Regarding expenses, total non-GAAP expenses, including share-based compensation, were $275 million, which does not include those compensation expenses and were primarily driven by increases in cloud customer hosting fees and personnel costs from added headcount. As we accelerate our cloud transition, we expect higher infrastructure costs and headcount to support new customers, but anticipate those costs will decrease as a percentage of total revenue over time. Non-GAAP sales and marketing expenses were $29 million, a decrease of $6.9 million or 19% year-over-year, mainly due to reduced variable compensation, higher capitalized commissions, and lower bonus and personnel costs. As a percentage of product license and subscription revenue, this expense reflects a 16% decrease, partly due to improved productivity within our sales and marketing teams. Non-GAAP research and development expenses grew to $30 million, an increase of $2.8 million or 10% year-over-year, with a 3% increase as a percentage of total revenue driven by headcount growth and wage inflation. We expect the current wage inflation and competition for resources in the tech sector to persist throughout 2022, necessitating ongoing R&D investment to retain our talented engineers and innovate. We are also shifting some roles to lower-cost regions, which should lead to efficiencies over time. Non-GAAP general and administrative expenses were $21 million, an 11% year-over-year increase, which reflects a 2.3% increase relative to total revenue. Overall, we are comfortable with our cost structure and our ability to sustainably generate cash flow. Our total non-GAAP operating loss for Q1 2022 was $155.6 million, which includes a $170.1 million impairment charge related to Bitcoin. The carrying value of our Bitcoin holdings as of March 31, 2022, was $2.9 billion, which included $1.1 billion in cumulative impairment charges, also reflected in losses on our GAAP income statements. These non-cash impairment charges are subject to Bitcoin market price volatility. As a leading advocate for digital assets, we are collaborating with peer companies and policy-setting agencies in the US to develop an alternative accounting framework for digital assets. Currently, non-investment companies report Bitcoin as intangible assets, which means it's recorded at initial cost but deemed impaired if market prices drop below that value, with no ability to adjust upward if prices rise. In Q4 2021, the Financial Accounting Standards Board added a project to examine accounting for exchange-traded digital assets, and as the largest public corporate holder of Bitcoin, we feel it is our responsibility to share insights from our experience to facilitate other companies diversifying their balance sheets with this asset class. Next, I’ll discuss our first-ever Bitcoin-backed term loan with Silvergate Bank, where we raised $205 million as an interest-only loan for three years, collateralized by Bitcoin. The loan matures on March 23, 2025, and bears monthly interest at a floating rate of the Secured Overnight Financing Rate plus 3.70%, with a floor of 3.75%. The loan can be prepaid at any time with modest prepayment fees, and we must maintain a loan-to-collateral value ratio of 50% or less, allowing for a significant decrease in Bitcoin prices before needing to post additional collateral. We can also manage the LTV ratio proactively by posting additional collateral if needed. If Bitcoin appreciates and the LTV falls below 25%, we can reclaim excess collateral as long as the LTV remains under 25%. We also established a $5 million cash reserve account with Silvergate as additional collateral for interest payments for the last six months of the loan. We held back about $9 million from the loan proceeds for corporate purposes, including interest payments or buying more Bitcoin. This loan is not guaranteed by any party and does not restrict us from incurring additional debt or selling assets that are not collateral for this loan. Thus, this loan could benefit shareholders as long as Bitcoin’s price increases exceed the issuance and interest costs. MicroStrategy has been at the forefront of integrating digital assets within corporate treasury strategies, creating value for our shareholders. As of March 31, 2022, we held 129,218 Bitcoins, with about 14,100 Bitcoins at the MicroStrategy level as collateral for our 2028 secured notes. The remaining 115,100 Bitcoins are held in the MacroStrategy subsidiary, of which around 19,500 are pledged as collateral for the Bitcoin-backed term loan, leaving over 95,600 Bitcoins unpledged. We may explore more opportunities to utilize this strategic asset in the future, like entering more Bitcoin-backed financings or lending to third parties for yield, all depending on market conditions. I want to highlight the strength of our capital structure. We are insulated from near-term Bitcoin price volatility since we have no debt principal maturities until March 2025. Our total annualized interest expense is about $44 million, corresponding to a blended rate of roughly 1.82% on our debt obligations of $2.4 billion. We expect cash flows from our software business to cover our interest obligations, and we maintain a minimum cash balance for working capital needs. As of the first quarter, we had $95 million in cash. Moving forward, we will evaluate debt or equity capital-raising opportunities that could benefit shareholders and support our Bitcoin acquisition strategy or optimize our capital structure as necessary. We believe that increased global Bitcoin adoption will positively influence Bitcoin prices, potentially offering significant upside for shareholders. Our outlook for 2022 remains strong, with our ongoing transition to the cloud and expectations for consistent subscription billings growth. This transition will increase subscription revenue and billings, but it is possible that product license revenue and total revenue growth may slow in the near term due to the mix of new sales between cloud and on-premises licenses. This is because new cloud contracts, which may have higher total values, still result in lower recognized revenue in the first year. Overall, we are confident about achieving our long-term sales growth target of over 10% and increasing free cash flows over time. Lastly, I’d like to announce the appointment of our new CFO, Andrew Kang, who will be joining MicroStrategy around May 9. Andrew brings over 20 years of experience in banking and consumer finance, most recently as CFO for GreenSky, Inc. He has also held leadership roles in capital markets and treasury at notable financial institutions. Following Andrew's appointment, I look forward to focusing more on my role as President, overseeing day-to-day operations, and strategically planning for our long-term growth in both our business intelligence and Bitcoin strategies. I’ll now turn the call over to Michael to share thoughts on the MicroStrategy World Event, our Bitcoin acquisition strategy, and the regulatory outlook for digital assets.
Michael Saylor, Chairman and CEO
Thank you, Phong, and thank you to everyone for joining us today. I’d like to begin with some insights on global developments. In the first quarter, we experienced significant events like the trucker crisis in Canada, the war in Ukraine, Russian sanctions, ongoing inflation, supply chain disruptions, and worries about food and energy shortages. These factors combined with a weakening currency environment, as many currencies from countries like China, Japan, South Africa, and others fell against the dollar. Almost every currency in the world, with just a couple of exceptions, is currently struggling against the dollar. This creates a particularly tough macroeconomic landscape, leading to uncertainty and challenges for all businesses. On the positive side, it has increased recognition of the necessity for a digital asset like Bitcoin, meaning that hundreds of millions of people are now beginning to understand the importance of a non-sovereign store of value like Bitcoin. The downside is that it contributes to a very difficult operational environment for many. In Bitcoin's world over the past few months, there are notable developments. The Executive Order from the Biden administration on March 9 was unprecedented—it's the first time the U.S. Executive Branch has highlighted and endorsed a critical asset class for the nation's future. This was a promising sign. Janet Yellen’s speech on April 7 at American University was similarly important, as it showcased the Treasury Secretary advocating for decentralized networks and the concept of digital property, along with the need for digital currencies. The administration appears committed to putting responsible regulations in place to help this economy grow, which I find vital. When we consider these macroeconomic factors alongside regulatory signals, we see a world uneasy about currencies and property rights, insecure with traditional banking systems, and increasingly aware of the need for solutions. Another noteworthy shift is that the critics of Bitcoin and digital assets are being countered by a government that recognizes their significance. Criticism likening Bitcoin to a Ponzi scheme or dismissing it as intangible is being challenged by notable leaders in the U.S. government acknowledging its importance. This recognition isolates the skeptics, who may concede the value of Bitcoin but worry that it’ll be banned by politicians. However, the administration's stance, particularly after the March 9 Executive Order and the Yellen speech, makes it difficult to maintain that skeptical perspective, as opposing the White House is no longer tenable. Thus, both detractors and skeptics are losing ground, shifting the Bitcoin market towards traders, technocrats, and maximalists. Currently, market volatility largely correlates with the NASDAQ, as tech investors adjust their positions in response to rising interest rates. Despite the challenging macroeconomic conditions facing all risk assets and companies, we have seen substantial fundamental and political developments related to Bitcoin, leading to increased awareness. Comparing today’s context to two years ago, we observe a considerable maturation of the asset class, with decreased risks associated with holding Bitcoin. Previously skeptical voices are diminishing, and the discourse now skews towards traders, technocrats, or maximalists. Recently, I attended the Bitcoin Conference in Miami Beach this April, where interest in Bitcoin surged among politicians, media, and investors, many of whom were previously unaware. This newfound attention aligns with the March 9 Executive Order and has led to more media coverage, evolving from dismissive or skeptical tones to more respectful engagement. Journalists from leading publications now show a deeper understanding of the crypto economy and Bitcoin’s value proposition. Furthermore, notable individuals, like Carlos Salinas, Paul Tudor Jones, and Orlando Bravo, have become more vocal about Bitcoin, and the trend is expected to continue. Significant advancements in the Lightning Network—a Layer 2 network—have occurred, enhancing the speed and capacity for transactions. Lightning is evolving into a crucial aspect of Bitcoin’s functionality, transitioning from merely an asset to a high-frequency, scalable transaction network capable of moving various digital assets efficiently while maintaining the security of the Bitcoin network. This year has seen essential milestones, including integrating Lightning with the Cash App and the release of the Taro protocol specifications. Moreover, Fidelity's recent launch of a 401(k) opportunity featuring Bitcoin is exciting, and we are proud to serve as an early anchor partner in this venture. Should individuals look to invest in assets for generational wealth or retirement, Bitcoin certainly presents a compelling case. Influential macro investors like Paul Tudor Jones have expressed skepticism about traditional equities and bonds, advocating for Bitcoin as a sidestep to potential asset depreciation risks. The 401(k) offering will prompt critical conversations about Bitcoin as a potentially low-risk addition to retirement portfolios, encouraging widespread awareness and education within the finance industry. Moving forward, our strategy will focus on providing our investors with spot exposure and leverage to Bitcoin. MicroStrategy aims to increase our Bitcoin holdings over time through various mechanisms without engaging in trading or selling our Bitcoin. We aim to offer a superior investment compared to a spot ETF by providing leveraged exposure without additional fees. I’m pleased about the Bitcoin-backed loan secured this quarter, although we will manage such instruments carefully to mitigate risks associated with Bitcoin’s volatility. Market conditions will dictate our pace of acquisition, and we will communicate our activities quarterly. We have utilized a range of strategies to acquire Bitcoin, including secured debt, cash flows from our core business, and asset-backed financing, each timed for maximum benefit to our shareholders. Lastly, I want to emphasize our commitment to education and advocacy for Bitcoin. As the largest public holder of Bitcoin, we seek to inform regulators, corporations, media, and politicians about Bitcoin’s potential benefits and implications. I encourage everyone to follow my updates on Twitter, where I share insights on the digital asset landscape. We recently reached 2 million views on my podcast discussing Bitcoin with Lex Friedman, highlighting significant interest in this field. The public’s thirst for knowledge regarding Bitcoin and the entire crypto economy is immense, representing an ongoing effort in education. We will continue to harness our platform to enhance understanding and address misconceptions about Bitcoin and mining, showcasing its efficiency and sustainability. In summary, the leadership role in acquiring and holding Bitcoin has positioned us to educate the public effectively, and we are committed to this endeavor in the upcoming year. Thank you all for your support, and I'm happy to take any questions now.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Thank you, Michael. We're going to jump right into questions. We have received a lot of good questions, and we'll try to cover as many as we can. So the first question is for Phong. On the software business, clearly, you have been through a few economic cycles over the years. How discretionary is BI software? And do you see the current macro, just pushing deal cycles out, or do you think there are certain deals that will be put on hold for a while?
Phong Le, President and CFO
Yes. Thanks for the question, Shirish. The short answer is that there is a portion of BI spend that is discretionary and I'll call that speculative, trying out new things without necessarily a concrete use case or operational outcome. And then there's a portion that's required, and that's the piece that is required to operate and run an enterprise. Fortunately, MicroStrategy falls more into the latter than the former. So that kind of spending might get pushed out one quarter when there are uncertain macroeconomic conditions like we had in Q1, but it isn't permanently shelved for the whole year or multiple years. Generally speaking, I feel good about our ability to weather macroeconomic downturns better than we've seen in some of our newer competitors who've joined the market recently.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Thank you, Phong. The next question is for Michael. When you purchase Bitcoin, how much do you consider dollar-cost averaging into the purchase during the quarter versus a more one-off purchase strategy?
Michael Saylor, Chairman and CEO
Yes. We try to be thoughtful about the way that we acquire Bitcoin, and we do it in such a way that we wouldn't impact the market, and we'll spread it over a time period, sometimes a long time period, sometimes a shorter time period, depending upon our perception of the market and the volatility. As a practical matter, because we've purchased Bitcoin on many different occasions over the past two years, we are dollar-cost averaging as we acquire more capital. That's what I would say to that.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
And one more question for Michael. Are you comfortable with the leverage level? And what is your long-term debt strategy?
Michael Saylor, Chairman and CEO
Yeah. I think we're comfortable with our leverage level, and our long-term debt strategy is not to take on more debt than we can reasonably manage.
Phong Le, President and CFO
I can add to that a little bit. You saw us share a little bit earlier. Right now, our interest expenses are around $44 million annually, which compared to last year's earnings before interest, tax, depreciation, if you were to adjust out the Bitcoin depreciation is about half of that. I think we have plenty of earnings and cash flow to cover our interest expense. So we're in a pretty comfortable place right now with our leverage.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Thank you. Next question is for Phong. How far does Bitcoin have to fall for MicroStrategy to receive a margin call on the Silvergate loan? And was this loan needed for cash flow purposes?
Phong Le, President and CFO
I'll take the second part first. No, the loan was not needed for cash flow purposes. We took out the loan primarily so that we could continue to invest more in Bitcoin and also really to create a market for a Bitcoin-backed term loan. So being the first company to do that in the public markets is consistent with what Mike said, which is really us being a leader in the Bitcoin space in general. As far as where Bitcoin needs to fall, we took out the loan at a 25% LTV; the margin call occurs at 50% LTV. Essentially, Bitcoin needs to cut in half or around $21,000 before we'd have a margin call. That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there, so we don't ever get into a situation of a margin call.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
And continue with the next question for Phong as well. Are there any risks of Bitcoin collateral being liquidated due to extreme market volatility regarding the Silvergate loan?
Phong Le, President and CFO
It sort of relates to just that last question. The risk is really that we would have to contribute more Bitcoin. As you can see, we mentioned previously that we have quite a bit of uncollateralized Bitcoin. We have 95,643 unencumbered Bitcoins. So we have more that we could contribute in case we have a lot of downward volatility. But again, we're talking about $21,000 before we get to a point where there needs to be more margin or more collateral contributions. I think we're in a pretty comfortable place where we are right now.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Next question is for Michael. What would be the company's strategy if the price of Bitcoin stays flat for a prolonged amount of time?
Phong Le, President and CFO
We'll continue with our strategy. We'll keep generating cash flow in the core business and from time to time, we'll acquire more Bitcoin.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
And I'll follow up one more for Michael. Can MicroStrategy provide any details on exploring the yield generation opportunities on unencumbered MacroStrategy Bitcoins?
Phong Le, President and CFO
No.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Is there anything else on that?
Phong Le, President and CFO
Yes. I mean we're looking at a lot of different things out there. It's sort of part of our role that we've been playing as a leader in the market. But what we're going to do, when we're going to do it, and with deal generation, there is a lot more to it in terms of accounting implications, etc. So they are all things we look at from time to time.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Next question is for Phong. How did you get comfortable including Bitcoin in your 401(k) program? Can you please provide some details on the plan and whether it's already active?
Phong Le, President and CFO
Yes. It's similar to the question of how do we get comfortable with Bitcoin in general, right? Mike talked about this a little bit. First of all, I think it's great what Fidelity is doing as a leader in the market. As one of the leading retirement savings plan providers, it's great to see what they're doing from a leadership perspective. We got comfortable because the executive team, the Board, leadership, and employees have spent the last two years learning about studying, understanding details about Bitcoin, especially as a store value, especially as an investment. The idea that it's a great long-term historic value, which is why we put so much of our investment into Bitcoin, would make sense for a certain number of employees. It doesn't make sense for everyone and ultimately, it will be something that's voluntary. We have not rolled this out yet. It's something we plan on doing in the second half of the year, and we're still working through details as to exactly how we're going to go about it.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Thank you, Phong. I'll ask one more question for Phong. How much longer do you expect product license revenue to face headwinds, and how large will the segment be by the time it stabilizes?
Phong Le, President and CFO
As we go through this transition to cloud, product license revenues start to decline as we replace that with faster-growing subscription revenues. I can imagine last year was a pretty big increase from the previous year, and that we wouldn't expect to see that level of growth on a go-forward basis on a year-over-year basis for product license revenue. As we replace that with cloud and subscription revenues over time, that will be the engine of growth in the organization and our revenue line.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Thank you, Phong. Next question is for Michael. Can you provide any thoughts on whether it's better to buy MicroStrategy stock or the comparison of buying MicroStrategy stock versus buying Bitcoin direct?
Michael Saylor, Chairman and CEO
I think that there are some companies in some situations where people literally can't buy the Bitcoin; either legally or by charter they can't buy the Bitcoin, but they can buy securities. There are other situations where people can't or don't wish to buy securities, but they wish to buy property. These are very different things. One of them is digital property. The other is a security that happens to hold on its balance sheet digital property. I think these are the primary issues. For those people that prefer to own securities in their portfolio but want Bitcoin exposure, then MicroStrategy will be one of their options. For those that prefer to own property, then Bitcoin's digital property, and I think that's the right way to think of it.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Thank you, Michael. I think one last question for Phong, is the top-line miss this quarter driven by a faster-than-expected migration to the cloud, or is it a reflection of weaker demand due to macroeconomic risk?
Phong Le, President and CFO
I think it's more of the latter. I think that is primarily manifested in slippages of both cloud and perpetual deals into the second quarter. So I don't think this is a permanent change or impact. We do have a little bit of the impact coming from stronger cloud, but I think it's more on the macroeconomic side due to the war in Ukraine.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Great. So I think we are at the top of the time now. Thank you, everyone, for your questions. This concludes the Q&A portion of the webinar. I will now turn the call over to Michael for any closing remarks.
Michael Saylor, Chairman and CEO
I want to thank everybody for being with us today, and thanks for your support. We wouldn't be here without you. So we'll continue with our strategy, and we look forward to speaking with you again in 12 weeks. Wishing you the best.
Shirish Jajodia, Senior Director of Treasury and Head of Investor Relations
Thank you.