Earnings Call Transcript - MSTR Q4 2025

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

Hello, everyone, and good evening. I'm Shirish Jajodia, Corporate Treasurer and Head of Investor Relations at Strategy. I will be your moderator for Strategy's 2025 Fourth Quarter Earnings Webinar. We will start the call with a 60-minute presentation starting with Andrew Kang, followed by Phong Le and then Michael Saylor. This will be followed by a 30-minute interactive Q&A session with four Wall Street equity analysts and four Bitcoin analysts. Before we proceed, I will read the safe harbor statement. Some of the information we provide in this presentation 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 fluctuations in the price of Bitcoin. And the risk factors discussed in our current report on Form 8-K filed with the SEC on October 6, 2025, and under the caption Risk Factors in Strategy's quarterly report on Form 10-Q filed with the SEC on November 3, 2025. And the risks described in other filings that Strategy may make with the SEC from time to time. We assume no obligations to update these forward-looking statements, which speak only as of today. With that, I would like to turn the call over to Andrew Kang, the CFO of Strategy.

Andrew Kang, CFO

Thank you, Shirish, and thank you, everyone, for joining our call today. I'll start by touching on a few of our highlights for Q4 as well as for the full year 2025. We closed the year with 713,502 Bitcoin on our balance sheet, which represented approximately 3.4% of all Bitcoin that will ever exist. This reflects continued discipline around Bitcoin accumulation through the fourth quarter and further reinforces our position as the largest corporate holder of Bitcoin in the world. Also during 2025, we successfully raised over $25 billion of total capital, funding growth across our treasury strategy and expanding our product ecosystem. We now have five listed preferred equity securities, which has broadened investor access across yield, duration and risk profiles. Our execution throughout the year puts us in a position to enter 2026 with a stronger balance sheet, more access to liquidity and upside when hopefully Bitcoin price rallies soon. 2025 overall was a very important year with several strategic corporate events that I think strengthened our foundation as the world's leading Bitcoin treasury company. We adopted fair value accounting at the beginning of the year, which provided greater investor and market transparency of our Bitcoin holdings, which are now, as you know, marked to market each quarter. Second, Treasury and IRS guidance confirmed that unrealized Bitcoin gains would not be subject to additional corporate alternative minimum tax. We also received the first-ever credit rating for a Bitcoin treasury company, which marked an important step, I think, in institutional recognition and setting the foundation for future progress. And lastly, in Q4, we established a $2.25 billion cash reserve, which provides over 2.5 years of dividend coverage. This is an important enhancement to our overall risk management framework and supports our ability to meet our interest and dividend obligations through market cycles like the one we are seeing today. Turning to our Q4 financial results. We reported an operating loss of $17.4 billion and a net loss of $12.6 billion. These results were obviously driven by the quarter-end decline in Bitcoin's fair value under our mark-to-market accounting. For the full year, we reported an operating loss of $5.4 billion and a net loss of $4.2 billion. We updated our target range for the full year 2025, precisely because our results are highly dependent on Bitcoin price and can move meaningfully based on market conditions. It's important to call out that our full year results were within our target guidance based on where Bitcoin price ended the year. And while accounting outcomes may fluctuate quarter-to-quarter, our long-term focus remains unchanged. We are committed to increasing Bitcoin per share and building durable shareholder value over the long term. Turning to our Bitcoin KPI performance for the full year. At the start of the year, we established clear KPI targets tied to Bitcoin per share growth while recognizing a wide range of possible Bitcoin price outcomes. Under those conditions, we delivered a BTC yield of 22.8% for the year, beating the lower end of our target range, which was set at 22% to 26%. That translated into a total BTC Gain of 101,873 Bitcoin and a BTC dollar gain of $8.9 billion, also beating the lower end of our target range. I think the key takeaway is that even with significant volatility in Bitcoin price, our strategy remained disciplined, and we executed against our KPIs of increasing Bitcoin per share and compounding shareholder value for the long term. Since adopting Bitcoin as our treasury asset in 2020, we've consistently added Bitcoin per share each year. 2025 was yet another strong year in this regard and building on the momentum of prior years demonstrating our ability to add more Bitcoin per share in both good markets and in challenging ones as well. Our focus remains unchanged. As I mentioned before, our goal is to systematically increase Bitcoin per share over time regardless of near-term market cycles and continue to deliver durable BTC value for our long-term investors. Now turning to the balance sheet. I'll start at the top here. Our digital assets increased from $23.9 billion at the end of 2024 to $58.9 billion at the end of 2025. This was due to a $17.9 billion increase in fair value at the beginning of the year balance as well as the fair value of the Bitcoin we added in 2025. As a result, we ended the year with also $2.3 billion in cash and cash equivalents of which, as I mentioned earlier, $2.25 billion of that represents our USD cash reserve. As of the end of 2025, we have a $1.9 billion deferred tax liability, which reflects the accounting difference between the market value and the cost basis of our Bitcoin. This is a balance sheet item and not a cash tax obligation, and it fluctuates with the price of Bitcoin. In terms of long-term debt, we ended the year at $8.2 billion, taking into account a new convertible bond and the equitization of a prior convertible bond, both executed in early 2025. We do not plan to issue any new convertible debt in the future, focusing instead on strategic liability management opportunities as market conditions allow. Over time, we aim to reduce our leverage to enhance our credit profile. Additionally, we added $6.9 billion of preferred equity, which diversifies our capital-raising channels. Consequently, total equity, including both preferred and common stock, rose to $51.1 billion at the year's end, up from $22.8 billion a year earlier. We raised $6.9 billion in preferred equity through five distinct IPOs and subsequent activities, while our common equity increased to $44.2 billion. We deployed all that capital effectively to acquire more Bitcoin. I'd say the year-over-year growth of our capital base strengthens our balance sheet and provides more durable base to continue raising capital efficiently and acquiring more Bitcoin over the long term. At the end of Q3, the market value of our Bitcoin position was approximately $73.2 billion, that was based on a Bitcoin price of about $114,000. During Q4, Bitcoin, as we all know, experienced a price decline, which drove the total unrealized fair value loss of $17.4 billion. Look, quarter-to-quarter moves like this can be sharp. It can also be unsettling, but it's important to emphasize that our strategy is built for the long term. It's built to withstand short-term price volatility, even short-term extreme conditions like we're seeing today. And importantly, even in a volatile environment, we continue to execute, we purchased an additional 32,470 Bitcoin in Q4 for approximately $3.1 billion. For the full year 2025, the market value of our Bitcoin holdings increased by approximately $17 billion from $41.8 billion at the end of 2024 to $58.9 billion at the end of 2025. And during the year, we added approximately 225,000 Bitcoin. We also recognized an unrealized fair value loss of about $5.4 billion across the year, but we significantly expanded our Bitcoin position, right? We increased our total holdings from 447,000 to 672,500 Bitcoin for the year. Our total interest and dividend obligations are now $888 million, which is made up of about $35 million in interest on our converts. That represents an average cost of about 42 basis points. It's also made up of $713 million in dividend obligations from our cumulative preferreds, an additional $140 million related to our non-cumulative preferreds. You can see here, our cash reserve of $2.25 billion, which was established in Q4, now provides over 2.5 years of interest and dividend coverage, and it's an important and direct benefit to our debt and credit investors. In October, MSCI opened a public comment period around the proposal that could have excluded companies whose digital asset holdings represented more than 50% of total assets. We felt it was important for us to be a voice on this matter, and we submitted formal written feedback to MSCI. We noted that this threshold would, in our opinion, be discriminatory towards digital assets. It's arbitrary. And in many ways, I think the proposal was unworkable, and that it rested on a mischaracterization of Strategy. As a result, MSCI determined not to implement their initial proposal. I'd note Strategy is an operating company. We have 30-plus years of history in software and tech. We have 1,500 employees. Last year, in 2025, we generated $477 million in annual revenue. And while our Bitcoin holdings have grown significantly from a balance sheet perspective, we are an operating company with a treasury balance sheet built upon a commodity. And lastly, look, on a final note, I just want to say thank you. We appreciate the strong support we received from both active and passive retail and institutional investors, regulators and policymakers all in support of our efforts on index inclusion. I think there's still some more work to be done, and we look forward to working with the industry in the coming year on that as well. So with that, I will turn over to Phong, our CEO. Thank you.

Phong Le, CEO

Thanks, Andrew. First, just want to acknowledge. I understand the market conditions for today's call is challenging. And the fact that we have thousands of people watching this, is a testament to your intellect, your curiosity and for many of you, your conviction. So thanks, everyone, for joining us today. I also want to share, look, some of you bought Bitcoin or MSTR in the last year. This is your first downturn. My advice is to hold on. Remember the fundamentals that cause you to buy Bitcoin. It's because Bitcoin is the digital transformation of capital or maybe it's because it's the hardest and most ethical form of money or because you believe in a non-sovereign censor-resistant store of value. None of these fundamentals have changed. They didn't change in the last year. They haven't changed in the last 18 years. For the MicroStrategy shareholders and the Strategy shareholders now, remember the fundamentals of why you bought into MSTR common, because we are levered and amplified Bitcoin, we're built to outperform Bitcoin over the long run. It could be because you see us as digital innovators. We invented the enterprise business intelligence software space in the 1990s, and we invented digital treasury companies in 2020. Or it's because you believe in the management team that's here today. None of that has changed in the last year. And for those of you who have been with us on this journey since 2020, you've seen other periods of Bitcoin and MSTR downturns, and you held on and you were rewarded for your conviction. So thank you. And perhaps I ask that you share your wisdom and your confidence with those who are newer to the community. X is a great place to do this, in person is a great place to do this, and a great opportunity to get together in person. It is Bitcoin for Corporations. We will have our sixth annual Bitcoin for Corporations in Las Vegas in 3 weeks, February 23 through 26. I'd love to see you there. It's a great place to get together and learn about Bitcoin, Bitcoin treasury companies, digital credit, digital capital and digital money. It's also a great place to see our software business in action. And as Andrew mentioned, our software business constitutes 1,500 employees and over 3,000 customers, and they'll be there, showcasing the transformation of intelligence and the intersection of AI and BI. Take a step back, this is our business. We have been buying and holding Bitcoin since the third quarter of 2020, every single quarter. We now have 713,502 Bitcoin with a total acquisition cost of $54 billion and a $76,000 average Bitcoin purchase price. Recognizing now that Bitcoin is below the average Bitcoin price, you might ask the question, what does that mean? It really doesn't mean anything, right? It doesn't mean that we have any issues servicing our debt or paying the dividends on our preferreds. We don't have any covenants or triggers that say when Bitcoin price goes below our average Bitcoin purchase price, that anything has to occur other than we continue with our strategy. 2025, as Andrew mentioned, was a pretty big year for us in the capital markets. As you see here, in 2024, we raised $22.6 billion, and we actually outstripped that number in 2025. The big change last year was we moved from convertible debt, $6.2 billion in '24 and $2 billion in '25, to $7 billion of preferred. We invented digital credit, and we invented the preferred market, which now other Bitcoin treasury companies are moving into, issuing perpetual preferreds. We're pretty excited about this. You'll see here, we had five IPOs. The other thing I'll note here is that year-to-date 2026 in the face of a tougher Bitcoin market, we were able to, in 1 month, raise an additional $3.9 billion of capital. And for the most part, buy Bitcoin with that. So what do those big numbers mean? How do you think about that? In 2024, we were the largest U.S. issuer of equity in the entire country. Last year, 2025, we were once again the largest issuer of equity. We were 8% of the entire equity capital markets, 6% to the common equity market and 33% of the preferred equity market. We are getting people to invest in our company through equity raises and preferred raises, and turn that into Bitcoin, Bitcoin per share and Bitcoin yield to our shareholders. And we're doing it with the intersection of traditional finance with some of the largest banking partners in the world. Morgan Stanley, Barclays, Moelis, TD, Benchmark, Clear Street have all been participants in these markets. And they give us distribution out to wealth management and to retail and to institutions. So we've been very successful in the last year with continuing our strategy. You'll see here in addition to getting folks to participate in our equity raises in our equity capital markets. We continue to add more and more research analysts. Here you can see price targets, and you can see they all have buy ratings on Strategy. First, I mentioned 2025 marked the launch of digital credit, and we launched five different instruments. We started with Strike, which is convertible digital credit. And it was really a gateway from convertible debt, which we no longer are issuing, to a convertible preferred note. We then launched Strife, which was our most senior of our instruments, our first fixed perpetual digital credit instrument. And after that, we launched our most junior one, Stride. And as you can see, the size gets bigger and bigger with each one. And then we launched the most important, which was Stretch, which is $2.5 billion in our first digital credit instrument. And then in November, we went to the euro market and launched Stream, which is USD 717 million. And the importance of this is accessing a European market and those who want euro exposure. Our plan with Stream is to, over time, up-list it into a regulated retail accessible market, and we're excited to do that over the course of this year. Here’s the overview of digital credit. I think the most notable here is to look at, as an example, the liquidity that we're experiencing in Stretch, $118 million traded a day over the last 30 days. As a comparison, typical U.S.-based preferreds trade $1 million a day. So these are very liquid and very interesting instruments, the dividend at 11.25% and on a tax equivalent basis 18%. And you also see the volatility here at 7%. So it's an instrument where we've been able to start to target a very finite price close to $100 and drive that volatility down to 7%. What is 2025, the third quarter and the rest of 2026 has been about? It's really been about seasoning our digital credit. And by seasoning, I mean, maturing in the market and making the instrument more creditworthy. So after we launched Stretch on July 25, there were a couple of actions we took that made the credit more creditworthy and a better investment. First, and Andrew mentioned it, the CAMT guidance was a big deal. This is a big change by Treasury and IRS, acknowledging the importance of the digital asset ecosystem and that there should be no unrealized capital gains taxes on Bitcoin, period. The second thing is we got an S&P rating, a B- issuer credit rating, which is a starting point for us to be able to access different types of investors in the credit market. November 4, we got to what really was our target, was to get Stretch to trade at par, $100 for the first time. $100 is important because it decreases the volatility of the instrument. It shows that we're able to do something that no other preferred instrument has done in its past, which is to target a specific price, and it allows us to raise more via our ATM. And then we added our U.S. dollar reserve. At the same time, since we launched Stretch, we have added 105,732 Bitcoin to our balance sheet. That's about 16% more. These are all actions we took to make our digital credit stronger over time. Stretch is one of the most attractive instruments and securities in the market today. It pays an 11% effective yield, 18% on a tax equivalent basis. We paid monthly dividends on time, on schedule. And we have said that we expect the return of capital treatment for the next 10 years. We'll run our business to be able to give everybody tax-deferred earnings for the next 10 years. We're targeting $100 price. The volatility is 7%, its actually decreased recently to 6%, and we have mechanisms above and below that price to keep the price stable. It's quite a feat of financial engineering. And it's extremely over-collateralized; after you take out all instruments that are senior to Stretch, we still have 5.6x collateral over Stretch. And so it's an over-collateralized instrument. And then after that, we've added $2.25 billion of U.S. dollar reserves. So we have 2 to 3 years of dividend coverage. We have a BTC reserve at $60 billion. This was as of last Friday, now it's $45 billion. And our equity or enterprise value still trades above our Bitcoin reserve. Our convertible debt, that's the notes that come due or preferred equity doesn't come due, is at about 10% leverage. With the latest Bitcoin price as of today, we still have about 13% leverage. So the $8.2 billion that come due is 13% leverage. How do you think about 13% leverage? Those who do not spend a lot of time in the debt world, you might say, well, 13% sounds like a lot. Let me show you how we compare 13% to the S&P 500 universe. Our net debt is $6 billion. As I mentioned, our net leverage is 10% and it's 13% with the most recent Bitcoin price. If you look on the bottom left-hand side, this is how we compare to the S&P 500 universe, right? We have 10%, currently 13%, leverage. If you're AAA-rated, right, investment-grade company, your bonds are trading as AAA rated, you have 23% leverage. If you're BBB rated, high yield, you have 32% leverage. We have half the leverage of an investment-grade company, 1/3 of the leverage of a high-yield company. How about looking at it by sector? Strategy at 13%, it looks like a tech company, which is low capital, low assets, high income, right? They're levered at about 15.7%. You compare us to asset heavy, high debt companies and industries, utilities or real estate, they’re levered at 42% to 48%. We are not a highly-levered company. What happens when our convertible debt comes due over the next 5 or 6 years, are we worried that we're not going to be able to pay back our convertibles? No, not really. You'll see here the net debt of $6 billion compared to a Bitcoin reserve of $59 billion, now $45 billion. In the extreme downside, if we were to have a 90% decline in Bitcoin price, and the price was $8,000, right, which I still think is pretty hard to imagine, that is the point at which our Bitcoin reserve equals our net debt, and we will not be able to then pay off our convertibles using our Bitcoin reserve, and we either look at restructuring, issuing additional equity, issuing additional debt. This is over the course of the next 5 years, right? So I'm not really worried at this point in time, even with Bitcoin drops that we're not going to be able to service our convertible debt. All that said, it's staggered over time. We have put dates between 2027 and 2032, and our plan is to equitize that over time. And if we're not able to equitize it, we'll find different ways to restructure the debt. And what does it really do for us? It creates long-term durability. That's why we've been building it up. That's why we've added about 16% over the last 9 months to our Bitcoin reserve. It gives us long-term durability to issue more credit ultimately. And as we issue more credit, the dividends will rise. Our dividends, as Andrew explained, $888 million, we have 67 years of dividend coverage with our Bitcoin reserve. If Bitcoin goes up 1.5% a year, that's our breakeven ARR, we could just sell the incremental Bitcoin that we get, not that that's what we'll do, to pay our dividends. So we don't need a large increase in Bitcoin price to be able to service our dividends, primarily through Stretch. Our U.S. dollar reserve is $2.25 billion, which provides us with 30 months of dividend coverage. This means that if we were unable to raise capital, which we have demonstrated is possible through equity issuances, we could pause operations and still pay our dividends for 30 months using this reserve. Following our B- stable outlook credit rating from S&P, we've undertaken numerous positive actions for improvement. If S&P were to evaluate our situation today, they would likely raise our rating, but such evaluations are generally performed annually. We've established a $2.25 billion U.S. dollar reserve, and I want to emphasize that we raised the first $1.44 billion in just 8 days. Additionally, we've maintained strong access to capital, having raised $9.5 billion in 3 months and 72,300 Bitcoin. This demonstrates our liquidity and capacity to access capital while consistently paying dividends every month and quarter since obtaining our credit rating. In addition to improving the credit quality, we've been working with brokerages like Robinhood and Cash App to get Stretch and preferreds listed there. Robinhood, in fact, launched the first-ever preferreds on their platform because of the demand and the liquidity that they saw in Stretch. We've been working with wirehouses, wealth management and broker-dealers, RIAs to help explain Stretch. We've integrated Stretch now into crypto. So just like you saw MSTR turn into MSTY, MSPU, etc., we're seeing Buck and other coins like Saturn, APYX, A-P-Y-X and TradFi platform starting to launch products on top of Stretch. And we expect, over time, Stretch will be tokenized. We'll integrate with ETFs also, right. We started, we've been involved in industry conferences, leveraged finance conferences, teach-in sessions, and so we're telling everybody about Stretch. And we engaged in digital marketing, you might have seen ads on X or YouTube or Wall Street Journal. And of course, we have strategy.com Strategy app, interviews and podcasts. I do want to update a slight change to our Stretch guidance. In the past, we've said that we're going to base our actions on Stretch on a 5-day VWAP at the end of the month. What we found is that Stretch trades very interestingly around dates like our record day and our payment date. Our record date falls before the 5 days at the end of the month, and that's where we've seen people try to buy Stretch, so beginning before the record date. So we thought the better view of Stretch price is to look over the course of the entire month. In the last four months, Bitcoin has decreased by 30% as of the first of February, while Stretch has increased by 1%. It's clear from this comparison. If you are a retiree, a corporate treasurer, a fixed income investor, or any kind of investor, and you examine these two charts—if you are curious about cryptocurrency or considering Bitcoin—you might appreciate it but be put off by its volatility, and it's easy to understand why. We believe that our efforts are expanding the market by attracting new capital from various types of investors into the digital asset space. We are developing a gateway product, or an on-ramp, to digital assets and digital capital through STRC. We are still in the early stages, with just the first 5 months of STRC's development. We anticipate that after 12 months, we will have a clearer understanding. Typically, with credit instruments, it can take 2 to 4 years for people to decide to buy. We expect STRC to continue maturing, hardening, stabilizing, and building assets under management and liquidity, while we make progress on reducing volatility over the next few years.

Michael Saylor, CEO

Thank you, Phong. I'm delighted to have you join us today. All of our strategy is based upon looking at the fundamentals and taking a 10-year view. And so when you consider the fundamentals of digital capital, you have to start with the most important regulator in the entire world. And that is the President of the United States. We have a Bitcoin President, and he's intent upon making America the Bitcoin superpower, the crypto capital of the world and the leader in digital assets. I don't think you can underestimate the importance of having support for the industry and digital capital at the very top of the political structure. When I mention embraced Bitcoin, I am referring to how, 18 months ago, only one person in the government was aware of it and had a skeptical to neutral or grudgingly accepting attitude. The rest of the government was either negative or uninformed about it. Now, I want to highlight 12 individuals. J.D. Vance, the Vice President; Scott Bessent, the Treasury Secretary; Paul Atkins, the Head of the SEC; and Kevin Warsh, the Fed Chair Nominee, who understands digital assets and their use case for Bitcoin. This marks a significant advancement for us, a major fundamental shift, as the leaders of the SEC, Treasury, and the Fed all recognize the critical importance of digital assets and the country's growth. Capitol Hill has embraced Bitcoin. We've got bipartisan consensus that the United States should embrace digital assets, should embrace digital capital, should be a leader. That is not a debate. No one is saying that there's one party in favor of digital capital, another party against it. That's a big deal. So although the political process is complicated, the fact that we have moved from an asset which was a scary speculative thing and maybe a legitimate to a legitimate asset that most reasoned politicians and regulators and policymakers believe they need to move constructively forward with. Big banks are embracing Bitcoin. Roll the clock back 18 months, and this Harvey Ball diagram is pretty much blank, mostly blank. And so when you actually look at the top financial institutions and you ask the question, do they allow IBIT trading? Well, there's an avalanche of support there. That's flipped in 12 months. The second question is do they offer credit against IBIT? That's a big deal. 12 months ago, it was almost impossible to get a loan or a margin loan against IBIT. Now there are many banks coming in the space. Would they let you trade BTC? Now you have banks that are announcing support for that. You have banks announcing support to custody BTC and you have banks announcing intent to offer credit against BTC. TradFi and fintech have embraced Bitcoin. If you look at the number of accounts of BTC trading assets, there's a pretty clear bullish trend here both across crypto-native exchanges, fintechs and neobanks and the brokerages and banks in the wealth management channel. Those are large numbers. Fundamentally, we're going from an asset class that no one could buy if they wanted to, to an asset class where everyone is competing to facilitate access and exposure. This is the ETF trend. ETFs are starting to adopt Bitcoin, with 125 ETFs or ETPs launched and 1.4 million Bitcoin held in them. This is a consistent trend, showing steady growth. Now looking at the corporate trend, there was virtually nothing in 2019. We were the initial major player and felt isolated for some time. We increased from 33 to 64 in 2024, and now we stand at 194. This growth is clearly significant, indicating a strong signal. The public markets are embracing Bitcoin. Look at these IPOs that have taken place this year. Bullish, Circle, Gemini, BitGo, Kraken that's coming. And then Coinbase, Block and Robinhood have all been included in the S&P 500. So I see this as a very bullish indicator and a fundamental improvement in the structure of the industry. The current topic of concern is quantum computers, and many are questioning whether they pose a threat to Bitcoin. It’s important to note that worries about quantum computing are just the latest iteration in a long history of unfounded fears surrounding Bitcoin. Initially, there were doubts about Bitcoin's functionality, with claims that it wasn't effective enough and needed smart contracts to succeed. Then, it was labeled a Ponzi scheme, and afterwards, critics pointed to its volatility. There were also concerns about potential bugs, the risk of a 51% attack, and the influence of Chinese control. At one point, we even heard that China would shut it down, which evolved into fears about a lack of support from China. Additionally, we faced various debates over block size, bandwidth usage, environmental impact, wealth concentration, and the notion that other cryptocurrencies might outperform Bitcoin. What I would say is whenever dealing with each of these concerns, we have to take them seriously. We have to consider them, but we have to remember two things. One, the two words on the back of the Hitchhiker's Guide to the Galaxy: Don't panic. Most important. Two words, more important than everything and the encyclopedia or the Hitchhiker's Guide to the Galaxy. The second observation, the Hippocratic Oath: do no harm. And so whenever you're faced with a challenge in any system or any network, you have to make sure you don't panic, you're not railroaded into doing something foolish or destructive. And you also can't do something that causes harm. So our position on quantum computing: one, we think it's probably 10 or more years away before there's a threat. That is the consensus. It's a promising technology, but it's still nascent. Many industries, including finance and defense are dependent upon traditional cryptography. They face the same risks. There's a significant global investment going into building quantum-resistant protocols, not just in the Bitcoin community, across all communities. The Bitcoin community in specific is engaged on research and development in these efforts. There's good work that's taking place. If Bitcoin requires an upgrade, there will be global consensus. Right now, there isn't a global consensus that existing cryptographic libraries are at risk. And to stampede into a hypothetical fix before there is consensus would introduce new attack surfaces and new complexity and new failure modes that don't currently exist. It's very similar to over-vaccinating and it's like, well, there's a 0.001% chance that the kid might get a disease. So we're going to vaccinate them just in case, but of course, 3% of the people that get the vaccine have side effects. And so it's very important that we don't over-insure, over-vaccinate, overtreat, over-worry. A famous President of the United States once said that if you see ten problems on the road, nine of them will likely resolve themselves before they reach you. Therefore, you cannot purchase a hundred costly insurance policies that together consume all your operating income to protect against something with just a 2% chance of occurring. It's crucial to be deliberate in managing these risks and to address them at the appropriate moment, neither too early nor too late. Addressing them too early may result in inadequate technology and excessive insurance, while waiting too long may lead to accepting unnecessary risks. This is why achieving consensus is vital. Bitcoin will be stronger if and when that quantum upgrade takes place, right? And so Bitcoin is upgradable, and Bitcoin can be upgraded to be stronger, and we, of course, are optimists. And we believe that the human race will accept challenges and will upgrade to meet those challenges and do it in a rational fashion. And Bitcoin has a history of meeting challenges in a rational fashion such that it is stronger, and you can see all those examples. Last, but probably most important on this slide, Strategy, we are going to initiate a Bitcoin security program that coordinates with the global cybersecurity community, the global crypto security community and the global Bitcoin security committee, in order to help and contribute to consensus and solutions to address the quantum computing threat as well as any other emerging security threats that evolve. We think it's reasonable and appropriate for us to do this, given our large responsibility as a Bitcoin holder but we want to do it in a very responsible fashion. And we want to make sure that we coordinate with the global cyber, crypto and Bitcoin security community because there are a lot of very, very brilliant minds here. There's a lot of good work being done. And it's likely that consensus will form and solutions will form at the right time in a responsible fashion.

Phong Le, CEO

Our company focuses on structuring and securing Bitcoin and serves as a digital credit issuer. The natural volatility of Bitcoin is approximately 45%. Therefore, a 45% decline in value should not be surprising. Currently, Bitcoin has indeed dropped about 45% since its all-time high four months ago. This type of drawdown aligns with the expected behavior of such a volatile asset, similar to the possibility of an 80% decline when it was exhibiting 80% volatility. What is clear is that our strategy has effectively reduced the volatility of Bitcoin. For instance, the volatility for Strike was 32%, Stride 27%, Strife 24%, and Stretch down to 7%. By minimizing Bitcoin's volatility, we are conserving both energy and volatility. The volatility we have removed from credit instruments is reallocated to common equity, which is why MSTR experiences 63% volatility. It’s not a complicated process; it simply involves straightforward financial engineering. There are investors looking for low-volatility, principal-protected credit instruments, while others prefer high-volatility, high-performance options. Think of us as a digital credit vehicle. Our role is to move forward by issuing digital credit. Digital credit is the product, with Bitcoin serving as the backing collateral. The key for us is to construct this vehicle in the most robust and fault-tolerant manner, ensuring it is scalable. You can view it as a Bitcoin battery and a U.S. dollar battery. We have many options available, including running on the U.S. dollar reserve, selling equity, selling Bitcoin, and selling Bitcoin derivatives. We keep our options open to best serve all of our stakeholders. Companies are designed to transform capital into cash flows. Essentially, there are capital investors and credit investors. The credit investor seeks a steady income, while the capital investor may acquire substantial assets without immediate cash returns. They might earn high returns, but fundamentally, the system relies on capital and operates on credit. Bitcoin represents digital capital, while STRC represents digital credit. An operating company is necessary to convert capital into credit. If we were a real estate development company, we could take $50 billion of capital, buy a bunch of land in New York City, build a bunch of buildings, market the buildings, rent the buildings and generate cash flows. That's a way to do this, but you take on all sorts of liability, all sorts of counterparty risk, operating risk, it takes a lot of time. You have property taxes, employment taxes, income taxes, usage taxes, etc. That's the 20th-century way to actually create credit from capital. We've taken a much faster route, we would just take the money, buy Bitcoin and just issue the credit, and we skip all the intermediate steps. That makes us extremely technically efficient, it makes us extremely economically efficient, it makes us extremely tax efficient. At the core, what are we doing, right? we're transforming that capital into credit. We're taking BTC and we're converting it into a currency, whether it's a U.S. dollar or a euro. We're stripping the risk by over-collateralizing it, right? If you have $5 of Bitcoin, right, and it falls by 80%, then you've got $1 of Bitcoin. But when you have $1 of STRC backed by $5 of Bitcoin and it falls by 80%, you still got $1 of STRC backed by $1 of Bitcoin. So we're stripping or reducing the risk by the BTC rating. And then we're also taking other actions to reduce risk, right? We're an operating company. We can raise capital. We can sell equity. We can refinance. What we can do to make Stretch even better? In addition to improving the credit quality, we've been working with brokerages like Robinhood and Cash App to get Stretch and preferreds listed there. Robinhood, in fact, launched the first-ever preferreds on their platform because of the demand and the liquidity that they saw in Stretch. We've been working with wirehouses, wealth management and broker-dealers, RIAs to help explain Stretch. We've integrated Stretch now into crypto. So just like you saw MSTR turn into MSTY, MSPU, etc., we're seeing Buck and other coins like Saturn, APYX, A-P-Y-X and TradFi platform starting to launch products on top of Stretch. And we expect, over time, Stretch will be tokenized. We have a BTC reserve at $60 billion. This was as of last Friday, now it's $45 billion. And our equity or enterprise value still trades above our Bitcoin reserve. Our convertible debt, that's the notes that come due or preferred equity doesn't come due, is at about 10% leverage. With the latest Bitcoin price as of today, we still have about 13% leverage. We also added $6.9 billion of preferred equity, diversifying our capital-raising channels. Essentially, we're able to create the best credit in the world, and to create the best credit you can using digital capital. Let’s go to the next slide.

Michael Saylor, CEO

I'm not worried, we're not worried and no, we're not having issues. What's the reason? One, we have a BTC reserve at $60 billion. This was as of last Friday, now it's $45 billion. And our equity or enterprise value still trades above our Bitcoin reserve. Our convertible debt is at about 10% leverage. With the latest Bitcoin price as of today, we still have about 13% leverage. The $8.2 billion that come due is 13% leverage. How do you think about 13% leverage? Those who do not spend a lot of time in the debt world, you might say, well, 13% sounds like a lot.

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

Thank you, Michael. We are now going to proceed to the interactive live Q&A section of our webinar. I would like to welcome all our Q&A guests and invite them to come on video. We look forward to hearing your questions. So for the first question, I would like to invite Lance Vitanza, our research analyst from TD.

Lance Vitanza, Research Analyst

My question is, since the beginning of the year, I can count 3 weeks over which your Bitcoin acquisitions have generated slight negative Bitcoin yield. Now I'm all in favor of buying Bitcoin even when times are tough, but shouldn't the goal be to increase Bitcoin per share at all times rather than just increasing the total amount of Bitcoin that you own? And maybe if you could just talk about the strategy or the thinking that went into those 3 particular weeks and what that could mean going forward?

Michael Saylor, CEO

Yes, we agree with you. We don't aim to replicate those weeks. The times when we executed dilutive transactions on a Bitcoin per share basis were during the crypto winter when we needed to recapitalize our balance sheet due to some toxic debt. We took on debt through asset-backed loans or senior debt with EBITDA covenants that we believed were hindering the company's growth. In short, we do this to enhance the company's creditworthiness. If we sensed a credit issue, we would take action. Currently, we believe we've built our U.S. dollar reserves sufficiently, and we do not have a credit problem. We're in a good position for the next few years.

Lance Vitanza, Research Analyst

And just if I could just get a follow-up question regarding that $2.5 billion cash reserve

Michael Saylor, CEO

Yes, we could. We can use it for any corporate purpose. We could use it to pay dividends. We could use it to meet a credit obligation. We could use it to pay interest on a loan. We could use it for whatever.

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

Great. Thank you. For the next question, I would like to invite Tom Lee from Fundstrat and Bitmine.

Tom Lee, Analyst

That was a really insightful presentation, and I took many notes. However, I have a two-part question. On Slide 53, you discussed the quantum vulnerability of Bitcoin. While this might be a bit technical, I know many people are curious about this issue since Bitcoin has the potential to upgrade its network. Yet, I am aware that there are three types of wallets that still remain vulnerable to quantum threats.

Michael Saylor, CEO

I believe our role is to support various communities and help develop a consensus on what actions should be taken, how they should be executed, and when. However, if these processes are rushed or pressured, it can lead to solving non-existent problems, potentially causing more issues. The second topic to address is what can improve Bitcoin's price. I believe the key drivers for this are regulatory support. Currently, we have the most favorable group of financial regulators in the history of the industry. I think that the second catalyst will be banking adoption. The formation of the banking credit networks as the large banks and as companies like Schwab, they start to allow you to trade Bitcoin, custody Bitcoin, borrow against Bitcoin. They're going to legitimize the asset, and they're going to decrease the volatility of the asset. They're going to improve the usefulness of the asset.

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

For the next question, I would like to invite Pete Christiansen from Citi.

Pete Christiansen, Analyst

Michael, I want to talk about events of the last week. On Friday, the President presented his nominee for next Fed Chair, which exacerbated volatility across a number of asset classes, including Bitcoin. The good news is Kevin Warsh is on the tape noting that Bitcoin is the new gold. So that's good. But I guess my question is, how would strategy's capital allocation framework or possibly if it would change, if the next Fed chair is perceived to be less independent, perhaps maybe more tolerant of fiscal dominance?

Michael Saylor, CEO

We try to be very reactive to market signals. So for example, when our equity trades weak, we don't sell it. When our credit instruments are trading weak when the cost of credit is too high, we don't sell them. The most obvious is STRC, if it trades below 100, we don't sell it. So in periods where the marketplace loses confidence in our particular credit instruments, we simply wait. And in periods when the NAV of the equity explodes to 3 or 3.5, we might sell $1 billion a day, right?

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

I would like to invite Lynn Alden from Lynn Alden Investment Strategy.

Unknown Analyst, Analyst

Given the popularity of STRC, my question is focused on that. The company established that USD reserve, which I think shored up the confidence of these products and make them more attractive. Right now, the USD reserve is on the website, 30 months of coverage compared to the dividends of the preferreds. The other preferreds are fixed dividends. STRC is a variable dividend, which introduces some degree of uncertainty around how many months of coverage there are for the total amount of dividends payable.

Michael Saylor, CEO

I think stating that publicly to people who are buying Stretch would be important just so people understand. If we were to say something along the lines of we're not going to let it go below 7 or something because it's going to get to be really popular at some point in time. And those of us who are buying it are buying it with multi-decade time frames.

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

So we can move on to the next question. For that, I would like to invite Mark Palmer from Benchmark.

Mark Palmer, Analyst

A couple of questions. First of all, we have seen over the last year, a tremendous number of new digital asset treasury companies formed. What is your take on how this industry is likely to evolve in terms of the number of players, whether there's going to be a shakeout, if there is a shakeout, will there be consolidation? And most importantly, what could this all mean for strategy as it unfolds?

Michael Saylor, CEO

Every business has to have an operating model that works, that adds value if it's going to grow and prosper. So one model is just to provide Bitcoin exposure if people in the country in question can't get it any other way. There are a lot of people in the U.K. that bought our stock for 4 years because they just couldn't buy Bitcoin any other way. So if there's a value proposition in Brazil or in France or wherever, then maybe just you can be a simple Bitcoin holder. I think another value proposition is issue digital credit, and you can see that Stryve and MetapPinet have both pursued digital credit. I think that the winners will evolve and they'll find a niche. And I think that the ones that don't evolve, if you're just a holding company holding Bitcoin, not doing anything with it, might you get bought up? Yes, you might get bought and would that be good for you? You're a lot better off if you have something people want to buy.

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

For the next question, I would like to invite Larry Lepard from Equity Management Associates.

Larry Lepard, Analyst

Thank you for having me. I see two key points from the call. First, the guidance on the STRC rate is impressive, and I have a related question that I’d like to save for later. The second important point is that we're planning to upgrade and take a leadership role in the technical direction of Bitcoin. This is an excellent approach to address concerns surrounding Quantum, which may have deterred some larger institutions considering Bitcoin and questioning who is in control. At some point, this product is going to be amazing and everyone will want it. If the price is set at $100, could it ever decrease? I'm planning to buy it and probably gift it to my kids since the tax basis will be zero, and I don't intend to sell it. Can you consider establishing a lower limit for the yield? I find 11% attractive, as well as 9%, 8%, and 7%. However, if the yield were to decrease to 5, 4, 3, 2, or even 1%, potential buyers might wonder if there is a point below which the yield cannot drop. We would feel more comfortable purchasing if we knew that such a limit on the yield exists.

Michael Saylor, CEO

Yes. Another point to make is we can't lower the rate more than 25 basis points a month. So we're always going to be very incremental. We would only lower the rate in a manner that keeps it within the range of 99 to 101, as we want to target it at 100. Five years from now, it's possible that the rational credit spreads the market assigns to us are 300 basis points instead of 600, and investors might want to buy at 400 basis points over SOFR. However, we would approach that change very gradually and still expect STRC to be trading around 100.

Shirish Jajodia, Corporate Treasurer and Head of Investor Relations

So with that, I would like to thank everyone for joining us today. If we don’t see you in Las Vegas, we look forward to speaking with you all at our next earnings call. Have a great evening everyone.