Earnings Call Transcript - MSTR Q1 2024

Shirish Jajodia, Vice President of Investor Relations and Treasury

Hello everyone and good afternoon. I am Shirish Jajodia, Vice President of Investor Relations and Treasury at MicroStrategy. I'll be your moderator for MicroStrategy's 2024 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-K 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. You can submit questions throughout the webinar and Michael, Phong, or Andrew will answer questions at the end of the session. Please be sure to provide your name and your company's name when submitting your questions. Now I'll walk you through the agenda for today's call. First, Phong Le will cover the business results and the key pillars of our strategy. Second, Andrew Kang will cover the financial results for Q1 of 2024. Then Michael Saylor will provide a strategic review and discuss our recent Bitcoin market updates. And lastly, we will open up to Q&A. With that, I will turn the call over to Phong Le, President and CEO of MicroStrategy.

Phong Le, President and CEO

Thanks, Shirish. Hello, everyone. I'd like to welcome all of you to today's webinar. We're excited to be reporting live from MicroStrategy World 2024 in Las Vegas, Nevada. We have a packed agenda lined up for the next three days and we're excited to see our customers, partners, analysts, shareholders, and employees all in person to share our passion for BI, AI, Bitcoin, and Innovation. The business intelligence track tomorrow will feature my keynote presentation titled Let The Data Lifeblood Flow, and we'll explore how to create more innovative, competitive, high performing organizations by using AI and BI to make smart data more accessible to frontline employees. Our Chief Product Officer, Saurabh Abhyankar will share the latest MicroStrategy technologies for delivering convenient, flexible and reliable data within operational workflows, not just in dashboards, to everyone who needs it. The keynote presentation will feature guest speakers from Microsoft, Amazon Web Services, Bayer Pharmaceuticals, the U. S. Department of State, and Vuori. Throughout MicroStrategy World, more than 30 top brands, including MassMutual, Pfizer, Fannie Mae, Victoria's Secret, and NBCUniversal, will present how they use the MicroStrategy platform, Gen AI, and the cloud to become truly data-driven businesses. The Bitcoin for corporations track on Wednesday and Thursday will feature notable institutions and industry luminaries highlighting the advantages of integrating Bitcoin as a part of their corporate treasury and product offerings. It will be a unique gathering of corporations that are already adopting or looking to adopt Bitcoin strategies, and we are very excited to host this event. Also, for the first time, we will livestream our World Keynote, as well as all the Bitcoin for Corporation sessions. For those of you attending the conference here in Las Vegas, we look forward to seeing you in person. Turning to the business highlights for Q1 2024. MicroStrategy remains the largest corporate holder of Bitcoin in the world, now holding 214,400 Bitcoin with a total Bitcoin market value of $14 billion as of yesterday. Since December 31, 2023, we acquired an additional 25,250 Bitcoin for a total purchase cost of $1.6 billion at an average price of $65,232. This past quarter, the price of Bitcoin appreciated significantly, spurred notably by the approval of the spot Bitcoin exchange traded products or ETPs, which has drawn considerable institutional attention. We believe the introduction of spot Bitcoin ETPs further evidences the maturation of Bitcoin as an institutional grade asset class with broader regulatory recognition and institutional adoption. We remain highly committed to our Bitcoin strategy with a long-term focus. Andrew will provide further details on our Bitcoin purchase activity for this quarter. MicroStrategy is also positioned as the world's largest independent publicly traded business intelligence company. Our objective to grow in AI, our objective is to grow in AI and cloud powered BI software. We have over 1,800 employees focused on our software business, devoted to achieving our vision of intelligence everywhere. In the first quarter of 2024, we continued our shift towards our cloud offering, resulting in subscription services revenues of $23 million, an increase of 22% year-over-year. A strong growth in our subscription services revenue was driven by both existing customer migrations to the cloud and new customer wins. Our customer renewal rate continues to remain high and our subscription billings remain strong. Overall, we continue to see further global adoption of our cloud platform as a result of transitioning our business strategy and product offerings from an on-prem perpetual licensed software company to a cloud native profitability. Our key strategic goals in 2024 are to grow cloud, innovate with AI, and increase profitability. Customers can benefit from a range of innovative first to market AI powered functionality, powered by the Azure, OpenAI, LLM. Capabilities include Auto SQL, which allows users to generate SQL using natural language, auto dashboard, which allows natural language generation of new visualizations. Auto Answers, which allows customers to ask questions of their datasets and dashboards, Auto Expert which allows users to ask questions of our MicroStrategy knowledge base and log support tickets on our website and our custom Auto Bot, which enables end users to access BI insights from within a custom bot, stand alone or embedded in any application. We also just launched Auto Express, which offers a simple way to trial our AI capabilities in minutes. In April, MicroStrategy one became available on Google Cloud Marketplace in addition to prior deployments on Azure and AWS, allowing enterprises to easily find and deploy this cloud native platform. Additionally, we expect to provide the ability to deploy MicroStrategy in a private cloud later this year. This will distinguish us from other BI platforms with the flexibility and automation that enterprise customers desire. We believe such investment and capability will encourage current on-prem customers to embrace the benefits of MicroStrategy Cloud, such as containerized architecture, proactive cloud management from experts, seamless backups and single click updates. Transitioning our customer base to the technology of the future remains a key focus, and our resource deployment underscores our commitment to the cloud first approach. As customers and prospects move to the cloud to empower their AI-driven digital transformations, we expect to see a continued decrease in product license revenues, which will in part be offset by increases in subscription services revenues. This will be most pronounced in the balance of 2024. This may result in a decrease in total recognized revenue in the short-term, but in the long run, we expect it to be more than offset by increases in subscription services revenue. Additional benefits include more engaged customers using our very latest software, higher retention rates, and ultimately more recurring revenue. As we discussed last quarter, MicroStrategy considers itself to be the world's first Bitcoin development company. We are a publicly traded operating company committed to the continued development of the Bitcoin network throughout our activities in the financial markets, advocacy and technology innovation. As an operating business, we are able to use cash flows, as well as proceeds from equity and debt financing in this to accumulate Bitcoin, which serves as our primary treasury reserve asset. We also bring our enterprise analytics software development capabilities to develop Bitcoin applications. We believe that the combination of our operating structure, Bitcoin strategy, and focus on technology innovation provides a unique opportunity for value creation. Being an operating company, our software technology business remains our core revenue and cash flow generator. In addition, it also enables us to acquire Bitcoin through the use of excess cash or proceeds from equity capital raises or corporate debt capital raises. These capital market levers allow us to deploy intelligent leverage to increase our Bitcoin holdings in a manner, which we believe has created shareholder value. Since our adoption of our Bitcoin strategy, we've used three primary mechanisms to acquire more Bitcoin: cash flows from software operations. Since 2020, we've invested $825 million of total cash on our balance sheet. Equity issuances, we have issued $3.2 billion in equity in a manner that we believe to be accretive to existing shareholders. And debt financing, we've issued $3.6 billion in debt through the issuance of both senior secured notes and convertible notes. We've used the proceeds from these issuances principally to purchase Bitcoin. The blended cost of our outstanding debt is fixed at 1.3% annually. In the first quarter of 2024, we generated approximately $7.2 billion of incremental value from the effect of increases in the price of Bitcoin on our existing Bitcoin holdings, as well as our strategic use of equity and debt capital market activities. We began the year with 189,150 Bitcoin holdings with a market value of approximately $8 billion. As Bitcoin prices increased from $42,500 to $71,000 by the end of the first quarter, we experienced an increase of $5.4 billion in value based on our Bitcoin holdings at the start of the year. In addition to the incremental value from the price appreciation of the Bitcoin we held as of the beginning of the year, we purchased an additional $1.6 billion of Bitcoin in the first quarter using proceeds from the issuance of additional equity and two convertible senior note offerings, as well as excess cash from operations. As a result, we added an additional 25,128 Bitcoin to our holdings at an average price of roughly $65,200, which generated an incremental approximate $145 million of value from an increase in the price of Bitcoin after those purchases were made through the end of Q1. Overall, 2024 started off as a tremendously successful year taking into account our Bitcoin purchases and appreciation of our Bitcoin holdings year-to-date. While the overall market benefited from the increase in Bitcoin price as well, we believe our opportunistic use of leverage and excess cash to acquire Bitcoin, as well as our capital market strategy generated $1.8 billion of incremental shareholder value, demonstrating our track record of generating value for our shareholders. This slide shows an illustrative example of how intelligent leverage can be used to boost returns when Bitcoin prices are increasing. The baseline returns of any long Bitcoin strategy from spot Bitcoin price appreciation. Bitcoin ETPs also benefit from this, offset by the management fees that are charged for those products. Leverage provides the opportunity to generate higher returns if the price increases. In this illustration, assuming Bitcoin price reaches $250,000 keeping Bitcoin count constant, spot Bitcoin without leverage would return approximately 290%. In this example, adding leverage to acquire more Bitcoin would return between approximately 395% to 425% depending on the amount of leverage, further boosting returns compared to simply holding the spot Bitcoin. If the market value of our Bitcoin increases, we believe this would create more opportunities to manage our leverage targets. With the opportunity to take on more leverage in a prudent risk-managed fashion, the value generated from our increasing Bitcoin holdings would be expected to outperform even further if Bitcoin prices continue to rise. We believe our unique value proposition as the world's first Bitcoin development company has enabled us to generate tremendous value for our shareholders. I'll now turn the call over to Andrew to discuss our financials for the quarter in further detail.

Andrew Kang, CFO

Thank you, Phong. I'll start with first, a recap of our software financial results. For Q1, total revenues were $115.2 million, which was down about 5% year-over-year. Consistent with prior recent quarters, the slight decline remains in part due to our ongoing shift of revenue from on-prem to cloud. Q1 on-prem product license revenues, which make up about 11% of total revenue, were about $12.9 million, which is down 26% year-over-year. As I mentioned in prior calls, we continue to transition our business to the cloud, and we fully anticipate lower product license revenues to continue as we migrate existing customers off on-prem licenses and bring them on to the cloud. More importantly, as Phong mentioned earlier, we continue to grow subscription services revenues, which reflects stronger, more durable recurring software revenue. In Q1, subscription services revenues, which now make up about 20% of total revenues, were $23 million, which reflects an increase of 22% year-over-year. Non-GAAP subscription billings, which represent new cloud bookings in the quarter, also grew by 30% in Q1 to $17.7 million, which was our fourth straight year of quarterly double-digit growth in cloud bookings. Q4 last year was an important milestone for us in the progress toward cloud transition, where for the first time, our subscription services revenues were higher than our product license revenues. This successful trend continued in the first quarter of 2024, which reflects the ongoing progress towards converting our revenue to recurring subscription services. The mix of revenue will continue to shift from on-premise product license to subscription services throughout 2024, as we focus on delivering meaningful AI-based products to our customers, which is only available in the cloud. We are pleased with the progress we have made from the adoption from our customers to our cloud platform worldwide, and we still have more to do, and we'll continue to focus on new products and innovation to drive more demand in that space. Beginning with the first quarter of 2024, we modified our reported financials to break out our quarterly results into two categories: First, the software business category reflects income or loss from operations related distinctly to our enterprise BI software business. And the corporate and other category reflects the other non-software related components associated with our digital asset holdings, which include impairment charges and other related third-party costs. While we continue to operate under one reportable operating segment, which is engaged in design, development, and sales of our software platform through licensing arrangements, cloud subscriptions, and related services, we believe this breakout of our operating results into these two categories provides better transparency with respect to the performance of our software business, while isolating the impacts related to changes in Bitcoin prices. In Q1, the software business revenues were $115 million as mentioned a moment ago, while the cost of revenues were $30 million, up 7.4%, compared to Q1 of last year. The increase in costs were in part due to higher cloud hosting, a result of higher usage by new and existing cloud subscription services customers. It was also attributed to costs associated with standing up an enhanced customer success function with an added focus on transitioning customers to our cloud platform, in addition to servicing and managing our strong existing customer base. Software business operating expenses were $96.1 million, up 1.7%, compared to $94.5 million in Q1 of last year. The increase was primarily due to higher G&A expenses this quarter, which was specifically related to an increase in employer payroll taxes in connection with employee stock option exercises in Q1. However, overall operating expenses were also offset by lower costs in sales, marketing, and R&D, also consistent with recent quarters as we maintain strong discipline in expenses and we continue to optimize overall headcount. Non-cash, stock-based compensation expense was mostly flat year-over-year at $17.8 million for the quarter. And overall, non-GAAP adjusted operating income or profit from the software business category was $6.9 million. If you take into account the employer paid payroll taxes related to stock option exercises in Q1, which were not material in prior periods, non-GAAP adjusted operating income from the core software business would have reflected $14.3 million for the first quarter, more appropriately reflecting the quarter's profitability from our software business. Lastly, the corporate and other operating expense category for the quarter is almost entirely attributable to Bitcoin impairment charges, which were $192 million, compared to $20 million in Q1 of last year, the result of Bitcoin price fluctuations throughout this past quarter. Turning to our Bitcoin strategy more specifically, we had one of the most successful quarters of adding more Bitcoin to our balance sheet, as we acquired 25,128 Bitcoins in the first quarter, our second-largest single quarter increase in Bitcoin holdings since Q4 2020. Additionally, after the end of the first quarter, we purchased an additional 122 Bitcoins using $8 million of excess cash. And as of April 26, 2024, the company held a total of 214,400 Bitcoins acquired from an aggregate cost of $7.54 billion or $35,180 per Bitcoin. To break down the Bitcoin acquisition activity year-to-date by entity, Bitcoin acquired the proceeds from equity capital markets activities that occurred after the issuance of our senior secured notes are held at MacroStrategy, a wholly-owned subsidiary of MicroStrategy. Year-to-date, we have added 2,652 Bitcoins to MacroStrategy's Holdings at an aggregate purchase price of $137 million using net proceeds from our at-the-market or ATM equity issuance programs in February. Currently, we hold 175,721 unencumbered Bitcoins, representing 82% of our total holdings or $11.2 billion incurred market value, which are held at MacroStrategy. These are all unrestricted and provide the option to potentially leverage this strategic asset in the future. Bitcoins acquired through proceeds from debt activities that occurred after the issuance of our senior secured notes, namely the two recent convertible note issuances in Q1 are held at MicroStrategy, the parent, and also serve as collateral securing our 2028 senior secured notes. Year-to-date, we have added 20,180 Bitcoins to MicroStrategy's holdings at an aggregate purchase price of $1.4 billion using net proceeds from our two convertible note issuances in March. Lastly, Bitcoins purchased through excess cash from the software business are also held at MicroStrategy, the parent entity, and also collateralize our 2028 senior secured notes. Year-to-date we have added 2,418 Bitcoins to MicroStrategy's Holdings at an aggregate purchase price of $136 million using proceeds from excess cash. As of April 26, there are a total of 38,679 Bitcoins held at MicroStrategy or $2.4 billion in current market value. Our commitment to our Bitcoin strategy remains unchanged and steadfast, and we plan to strategically and opportunistically buy more Bitcoin as we have in every quarter since August of 2020 using excess cash from operations and proceeds from any capital markets activities. MicroStrategy remains the largest corporate holder of Bitcoin in the world, and we remain committed to our Bitcoin acquisition strategy with the utmost conviction, long-term focus, and with a strong risk-managed approach. As a Bitcoin development company, the unique ability to access the capital markets and the positive impact from using intelligent leverage are illustrated on this slide. During the first quarter of 2024, our total Bitcoin Holdings increased by 13.3%. During the same period, our total basic share count comprised of total basic Class A shares outstanding and total basic Class B shares outstanding increased by only 4.6%. This is in part due to the deferred dilution impact of leveraging convertible debt and our opportunistic execution of these financings, which has resulted in tremendous value creation for our shareholders. The difference between our Bitcoin accretion and the share dilution is representative of the yield we are able to generate for our shareholders as a Bitcoin development company. Hypothetically, assuming all outstanding convertible notes are fully converted at their respective conversion prices, all outstanding options are fully exercised and all restricted stock units and performance stock units fully vest, the fully diluted share count would have increased by only 4.8% during the first quarter. Thus, the increase in our Bitcoin holdings has outpaced the increase in our total share counts in Q1. Turning to slide 15, Bitcoin has significantly outperformed most other asset classes year-to-date. And as of March 31, 2024 the aggregate costs of our Bitcoin purchases were $7.5 billion versus the carrying value of our Bitcoin holdings of $5.1 billion. This is compared to the market value of our holdings of $15.2 billion based on the Bitcoin prices of the last day of the quarter. Currently, the market value of our Bitcoin holdings is significantly above our average cost basis, which is equal to an average purchase price of approximately $35,200. The new accounting rule that was approved by the FASB last December requires companies holding digital assets, including Bitcoin, to adopt fair value accounting treatment by Q1 of 2025. We fully plan to adopt the change by when the rule takes effect, and we are determining when the most appropriate time to do so would be. Now turning to our capital markets activities. Since the inception of our Bitcoin strategy, we have issued $3.6 billion of corporate debt through senior secured notes and convertible notes with a very attractive blended interest rate of approximately 1.3%. With staggered maturities over several years through March 2031. Leverage remains a key component of our active capital allocation strategy, which when opportunistically deployed enables us to add more Bitcoin holdings at an attractive cost. Our two recent convertible note financings were both upsized and well received by the market. We issued $800 million of convertible notes due March 2030 at an annual interest rate of 0.625% and a conversion premium of 42.5% to the closing price of our Class A common stock on the pricing day, reflecting a conversion price of approximately $14.98 per share. The following week, given the strong rally in MSTR stock price, we were able to access the market again in a follow-on offering and issued an additional $603.75 million of convertible notes due March 2031 at an annual interest rate of 0.875%, a conversion premium of 40% to the volume weighted average price of our Class A common stock on the pricing day, and a conversion price of approximately $2,327 per share. The net proceeds from both convertible note issuances were used expeditiously to acquire additional Bitcoin. In addition to raising debt, we continue to demonstrate a solid track record of issuing permanent equity in a manner that we believe is accretive to shareholders. Since the third quarter of 2021, we have raised a total of $3.2 billion in proceeds through our ATM offerings, with an average price of approximately $464 per share across total equity raised. As we have done in the past, we will continue to actively monitor the capital markets and carefully evaluate the most accretive use of the capital markets to drive incremental value for our shareholders. Debt financing helps us maintain healthy leverage relative to the market value of our Bitcoin Holdings, and raising equity helps us to deleverage our balance sheet when needed. The primary use of proceeds from our debt and equity capital activities to date have been to acquire additional Bitcoin, which we have done in a manner we believe to be extremely accretive. Our overall capital allocation strategy continues to be focused on increasing our total Bitcoin Holdings, while managing our debt very closely and prudently. Lastly, as of the end of the first quarter, we grew unrestricted cash and cash equivalents on our balance sheet to $81.3 million and we continue to maintain more than sufficient overall liquidity to manage our ongoing operating needs. The next slide illustrates our debt maturity profile. And as you can see the nearest maturity is more than six quarters away, and not until late 2025. While the 2025 convertible notes have been trading well in the market, as we have said previously, we continue to monitor the markets and evaluate liability management opportunities in order to manage our debt, as well as opportunities to raise additional financing in the future. The management team has demonstrated a strong track record of disciplined approach to navigate through volatile times in the Bitcoin market, and we believe we have established significant credibility to execute on our strategic goal of generating value for our shareholders. As Phong said earlier, we believe that the combination of our operating structure, Bitcoin strategy, and focus on technology innovation provides a unique value proposition for shareholder value creation, when compared to other forms of exposure to Bitcoin.

Michael Saylor, Executive Chairman

Thank you, Andrew, and thanks to everyone for joining us today. I want to share some thoughts on our strategy and Bitcoin after the comments made by Phong and Andrew. I'll start with our performance metrics; we evaluate ourselves every quarter against relevant benchmarks. This slide demonstrates that among the enterprise software firms we compete with in business intelligence, we have achieved performance levels that are 10 to 30 times greater than those companies since we initiated our Bitcoin strategy in summer 2020. We're pleased to report that we've also outperformed leading tech stocks like Google by a factor of eight to 80 over the past three years. However, our primary focus remains our Bitcoin strategy. To explain MicroStrategy's remarkable 937% return compared to the S&P's 52% return over that same period, we need to consider the optimal treasury strategy and company capitalization. If you finance your company with bonds, you would have faced a negative 21% return during this timeframe, as bonds offer a negative real yield. The S&P Index serves as a good benchmark for the cost of capital, and in comparison, neither gold nor silver perform well as the money supply expands. Bitcoin's performance stands out due to its digital nature, making it superior in a world that is increasingly embracing digital transformation. Additionally, Bitcoin is a commodity without an issuer, giving it a global appeal, whereas securities are tied to their issuers, which have local operations and jurisdictions. Furthermore, Bitcoin's scarcity—capped at 21 million—is another key advantage over other commodities like gold and silver, which are not similarly limited. The lessons to be learned from Bitcoin's rise are that digital assets surpass analog ones, scarcity is more valuable than abundance, and global assets are superior to local ones. The last four years have established Bitcoin as a global, digital, scarce commodity. If MicroStrategy had followed a pure Bitcoin strategy, we might have matched its performance, but we have capitalized on volatility and our capacity to issue securities like convertible bonds. Our acceptance of the volatility in the asset class has enabled us to raise significant capital—billions in equity and debt. For example, we successfully raised $3 billion in convertible bonds at an interest rate of around 0.5%, significantly benefiting our performance compared to the potential 8% to 10% on standard loans. Our low capital costs and access to ample funding result from our strategy, allowing us to capitalize on Bitcoin as the premier asset. This combination has driven our outstanding 937% performance. Looking ahead to the first quarter of 2024, we believe we are nearing the end of the chaotic era in cryptocurrency, marking a shift towards institutional recognition of Bitcoin. The approval of Bitcoin Spot ETFs earlier this quarter is a pivotal development, solidifying Bitcoin's status in the institutional asset landscape. It's clear that Bitcoin is the sole cryptocurrency prepared for sale as a Spot ETF in the U.S., marking it as a unique and institutional-grade asset. As we transition, Bitcoin will not compete with other cryptocurrencies but with traditional stores of value like gold, fine art, real estate, and equities. Many investors view these assets, including Bitcoin, as a means of value preservation. Bitcoin, representing digital property, is positioned to continue its growth, with a promising future as institutions increasingly adopt it. Over the next decade, we anticipate growing institutional interest, with expanded Bitcoin products and services emerging worldwide. The recent halving event serves as a reminder of Bitcoin's uniqueness as a scarce asset. As supply approaches 21 million coins, Bitcoin stands as the most scarce investment asset globally. The daily acquisition rate from Spot ETFs has exceeded natural supply from miners, creating a supply-demand imbalance that the market has yet to fully recognize. This situation suggests that significant investment sums will likely need to flow into Bitcoin if large institutional investors choose to acquire it consistently over the coming years. MicroStrategy's approach remains steadfast, but we’re enhancing our understanding of our unique advantages. Operating as a public company allows us to leverage the capital markets effectively. We have successfully raised significant equity and engage in prudent debt financing strategies. Our balanced approach has been beneficial and allowed us to maintain a premium to our net asset value. In summary, Bitcoin has crossed into mainstream institutional acceptance and is recognized as the primary cryptocurrency asset. MicroStrategy has established a well-rounded strategy for acquiring Bitcoin through operational cash flows and market instruments, offering institutional investors a diverse range of options to structure their investments. This encapsulates the value proposition of MicroStrategy and our prospective opportunities moving forward. I'll now pass it back to Shirish.

Shirish Jajodia, Vice President of Investor Relations and Treasury

Thank you, Michael. Now we will begin our Q&A's and the first question is for Phong. Can you elaborate on the company's new positioning as the Bitcoin development company? And are there any new developments that you would like to highlight?

Phong Le, President and CEO

Yes. Thanks, Shirish. I guess we talked quite extensively during our prepared remarks about the Bitcoin development company. I think perhaps the question is more specific about the development portion and whether we're doing any software development in the Bitcoin area. For those who are attending Bitcoin for corporations on Wednesday, we'll have about a half day talking about the technology ecosystem associated with Bitcoin. And we’ll also share some new developments in an area of Bitcoin security that we're working on. And I think people will be excited to see some of the things we're doing in that space. We continue to experiment and continue to advocate for Bitcoin development, and so there's more work going on in that area that we'll share in a couple of days.

Shirish Jajodia, Vice President of Investor Relations and Treasury

Great. Thanks, Phong. Next question is for Michael. MicroStrategy's equity premium towards Bitcoin Holdings has expanded materially over the past few months. And despite the recent Bitcoin pullback, the premium remains healthy? How do you think about the premium and what do you attribute this to?

Michael Saylor, Executive Chairman

I think that if we had no leverage and we generated no accretion, then we would start to look like a Spot Bitcoin ETF. But if we have leverage, then the leverage will justify a premium. If the leverage was if we just had a $1 billion of leverage and we were paying 10% interest, it would be a small premium. We would be basically levering a $1 billion at 10% interest that’s yielding where Bitcoin is appreciating at 40% or more. So there would definitely be a premium, but it would be the difference between the leverage and the yield of Bitcoin or the depreciated Bitcoin on a small amount of money on a $1 billion. But if we have more leverage and if the cost of the capital is lower, then that justifies a higher premium. So when you get to $3 billion of converts and when the converts are 50 basis points, then you've got more leverage and you've got a lower cost to capital. So I think that justifies a higher premium. When you're able to issue billions of dollars of equity at that premium, then that justifies in turn an even higher premium. And it also strengthens the capital structure, providing us with unpledged assets that we can use for future financings or to leverage future corporate opportunities. And then, of course, when we're able to do convertible issuances and then convert it into Bitcoin and capture, not just the premium upfront but the benefits over the next six years of Bitcoin appreciation, that justifies another premium. So you could imagine if you could, if you thought you could generate an 8% accretion per year, there's no reason why you couldn't justify a 100% or more premium in that asset value. If you could generate an 8% accretion more often than once a year, if you could do it from quarter-to-quarter or every other quarter or do anything consistently over time, then, it's quite possible to come to any number of different premium calculations. Ultimately, you know, the company's premium is a function of our ability to execute over a long period of time and also, you know, the market's view as to whether or not they appreciate that. And of course, that's a shifting sentiment, and there's uncertainty into the future. So there will continue to be uncertainty about what the right premium ought to be, and I think that's what makes the market.

Shirish Jajodia, Vice President of Investor Relations and Treasury

Thank you, Michael. The next question is regarding Michael's 10B51 plan. Has the plan to exercise MicroStrategy stock options completed already? And can you please provide further color on the executed plan and the thought process behind the stock sales?

Phong Le, President and CEO

Yes, Shirish, let me take that one. So I guess, first off, Michael's option exercises were planned and actually fully disclosed. I believe it was in our Q3 filing of last year. And as most know, as officers and directors of the company, we have to put in place a 10B51 plan, which discloses that upfront. The plan was related to 400,000 options, which Michael received back in 2014, which were set to expire this April. So, you know, the sales were programmatic. Michael sold 5,000 shares, on each trading day between Jan 2 and April 25 at market prices. And, again, the sales were executed under the plan. It was completed on the 25, as disclosed, and he does not have any additional 10B51 plan in place at the time. So it's worth noting also, that, obviously, Michael still holds a significant ownership stake in the company. And I know there's been a lot of some questions and chatter around on the sales, but it's really as simple as, they were put in place, disclosed and programmatic, to do so before, his options expired.

Shirish Jajodia, Vice President of Investor Relations and Treasury

Thanks, Andrew. We're coming to the end of the time. We'll take one last question here. This one is for Phong. Can you please elaborate on the progress of converting software clients to Cloud from license and the AI-related partnerships?

Phong Le, President and CEO

We have been actively working with major cloud providers like Microsoft, AWS, and Google Cloud to transition our customers to the cloud. This ambitious strategy may temporarily affect our product license revenue, which comes from on-prem customers, as we shift towards cloud solutions. However, over time, this transition will balance out. The push towards cloud adoption is further driven by our AI offerings, which are exclusively available in the cloud. While this shift may disrupt our product license and overall revenue in the short term, many companies have successfully navigated similar transitions, and I am optimistic about the long-term benefits for us.

Shirish Jajodia, Vice President of Investor Relations and Treasury

Thank you, Phong. And thank you everyone for your questions. We received a lot of great questions and we tried to address in the prepared remarks and the Q&A afterwards. So this concludes the Q&A portion of the webinar today. I will now turn the call over to Phong for the final closing remarks.

Phong Le, President and CEO

Thanks, everyone. I really want to thank everyone for being with us today. We appreciate your support. We're also excited to host MicroStrategy World in Las Vegas over the next three days and looking forward to seeing customers, prospects, partners, analysts, and shareholders alike at this one-of-a-kind event. For those who aren't able to be here in person, we're also live streaming our keynotes from MicroStrategy World, which starts at 9:30 a.m. Pacific time tomorrow, and the entirety of Bitcoin for corporations. So you'll be able to watch both of those online. If you're not able to be here in person, you're invited to join. Get details at our website www.microstrategy.com. We're as enthusiastic as ever. With both our enterprise software strategy as well as our Bitcoin strategy, and we wish you a good quarter and look forward to seeing you all again in 12 weeks. Thank you all.