Indicate by check mark whether the ~~registrant:~~registrant,: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~21, 2021,~~25, 2022, the registrant had ~~8,393,584~~9,353,694 and 1,964,025 shares of class A common stock and class B common stock outstanding, respectively.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Class A

Class B Convertible

Additional

Accumulated Other

Common Stock

Common Stock

Paid-in

Treasury Stock

Comprehensive

Retained

Total

Shares

Amount

Shares

Amount

Capital

Shares

Amount

Loss

Earnings

Balance at January 1, 2020

$
508,559

15,888

$
16

2,035

$
2

$
593,583

(7,807
)

$
(658,880
)

$
(9,651
)

$
583,489

Net income

657

0

0

0

0

0

0

0

0

657

Other comprehensive loss

(547
)

0

0

0

0

0

0

0

(547
)

0

Issuance of class A common stock under stock option plans

340

3

0

0

0

340

0

0

0

0

Purchases of treasury stock

(50,747
)

0

0

0

0

0

(355
)

(50,747
)

0

0

Share-based compensation expense

3,164

0

0

0

0

3,164

0

0

0

0

Balance at March 31, 2020

$
461,426

15,891

$
16

2,035

$
2

$
597,087

(8,162
)

$
(709,627
)

$
(10,198
)

$
584,146

Net income

3,387

0

0

0

0

0

0

0

0

3,387

Other comprehensive income

1,011

0

0

0

0

0

0

0

1,011

0

Issuance of class A common stock under stock option plans

1,562

12

0

0

0

1,562

0

0

0

0

Purchases of treasury stock

(11,128
)

0

0

0

0

0

(90
)

(11,128
)

0

0

Share-based compensation expense

2,202

0

0

0

0

2,202

0

0

0

0

Balance at June 30, 2020

$
458,460

15,903

$
16

2,035

$
2

$
600,851

(8,252
)

$
(720,755
)

$
(9,187
)

$
587,533

Net loss

(14,229
)

0

0

0

0

0

0

0

0

(14,229
)
Other comprehensive income

2,287

0

0

0

0

0

0

0

2,287

0

Conversion of class B to class A common stock

0

21

0

(21
)

0

0

0

0

0

0

Issuance of class A common stock under stock option plans

1,714

13

0

0

0

1,714

0

0

0

0

Purchases of treasury stock

(61,349
)

0

0

0

0

0

(432
)

(61,349
)

0

0

Share-based compensation expense

2,409

0

0

0

0

2,409

0

0

0

0

Balance at September 30, 2020

$
389,292

15,937

$
16

2,014

$
2

$
604,974

(8,684
)

$
(782,104
)

$
(6,900
)

$
573,304

Net income

2,661

0

0

0

0

0

0

0

0

2,661

Other comprehensive income

3,015

0

0

0

0

0

0

0

3,015

0

Conversion of class B to class A common stock

0

50

0

(50
)

0

0

0

0

0

0

Issuance of class A common stock under stock option plans

47,466

320

0

0

0

47,466

0

0

0

0

Share-based compensation expense

2,801

0

0

0

0

2,801

0

0

0

0

Equity component of convertible senior notes, net of issuance cost and deferred tax liability

107,810

0

0

0

0

107,810

0

0

0

0

Balance at December 31, 2020

$
553,045

16,307

$
16

1,964

$
2

$
763,051

(8,684
)

$
(782,104
)

$
(3,885
)

$
575,965

Opening balance adjustment due to the adoption of ASU 2020-06

(106,853
)

0

0

0

0

(107,810
)

0

0

0

957

Net loss

(110,020
)

0

0

0

0

0

0

0

0

(110,020
)
Other comprehensive loss

(1,836
)

0

0

0

0

0

0

0

(1,836
)

0

Issuance of class A common stock under stock option plans

23,854

159

0

0

0

23,854

0

0

0

0

Share-based compensation expense

6,848

0

0

0

0

6,848

0

0

0

0

Balance at March 31, 2021

$
365,038

16,466

$
16

1,964

$
2

$
685,943

(8,684
)

$
(782,104
)

$
(5,721
)

$
466,902

Net loss

(299,347
)

0

0

0

0

0

0

0

0

(299,347
)
Other comprehensive income

397

0

0

0

0

0

0

0

397

0

Issuance of class A common stock under stock option plans

244

2

0

0

0

244

0

0

0

0

Share-based compensation expense

11,087

0

0

0

0

11,087

0

0

0

0

Balance at June 30, 2021

$
77,419

16,468

$
16

1,964

$
2

$
697,274

(8,684
)

$
(782,104
)

$
(5,324
)

$
167,555

Net loss

(36,136
)

0

0

0

0

0

0

0

0

(36,136
)
Other comprehensive loss

(1,457
)

0

0

0

0

0

0

0

(1,457
)

0

Issuance of class A common stock under stock option plans

7,282

50

0

0

0

7,282

0

0

0

0

Issuance of class A common stock under employee stock purchase plans

2,854

5

0

0

0

2,854

0

0

0

0

Share-based compensation expense

11,883

0

0

0

0

11,883

0

0

0

0

Issuance of class A common stock under public offerings

399,469

555

1

0

0

399,468

0

0

0

0

Balance at September 30, 2021

$
461,314

17,078

$
17

1,964

$
2

$
1,118,761

(8,684
)

$
(782,104
)

$
(6,781
)

$
131,419

				Class A				Class B Convertible				Additional									Accumulated Other			(Accumulated Deficit)
				Common Stock				Common Stock				Paid-in			Treasury Stock						Comprehensive			Retained
	Total			Shares		Amount		Shares		Amount		Capital			Shares			Amount			Loss			Earnings
Balance at January 1, 2021	$	446,192			16,307	$	16		1,964	$	2	$	655,241			(8,684	)	$	(782,104	)	$	(3,885	)	$	576,922
Net loss		(110,020	)		0		0		0		0		0			0			0			0			(110,020	)
Other comprehensive loss		(1,836	)		0		0		0		0		0			0			0			(1,836	)		0
Issuance of class A common stock upon exercise of stock options		23,854			159		0		0		0		23,854			0			0			0			0
Share-based compensation expense		6,848			0		0		0		0		6,848			0			0			0			0
Balance at March 31, 2021	$	365,038			16,466	$	16		1,964	$	2	$	685,943			(8,684	)	$	(782,104	)	$	(5,721	)	$	466,902
Net loss		(299,347	)		0		0		0		0		0			0			0			0			(299,347	)
Other comprehensive income		397			0		0		0		0		0			0			0			397			0
Issuance of class A common stock upon exercise of stock options		244			2		0		0		0		244			0			0			0			0
Share-based compensation expense		11,087			0		0		0		0		11,087			0			0			0			0
Balance at June 30, 2021	$	77,419			16,468	$	16		1,964	$	2	$	697,274			(8,684	)	$	(782,104	)	$	(5,324	)	$	167,555
Net loss		(36,136	)		0		0		0		0		0			0			0			0			(36,136	)
Other comprehensive loss		(1,457	)		0		0		0		0		0			0			0			(1,457	)		0
Issuance of class A common stock upon exercise of stock options		7,282			50		0		0		0		7,282			0			0			0			0
Issuance of class A common stock under employee stock purchase plan		2,854			5		0		0		0		2,854			0			0			0			0
Issuance of class A common stock under public offerings, net of issuance costs		399,469			555		1		0		0		399,468			0			0			0			0
Share-based compensation expense		11,883			0		0		0		0		11,883			0			0			0			0
Balance at September 30, 2021	$	461,314			17,078	$	17		1,964	$	2	$	1,118,761			(8,684	)	$	(782,104	)	$	(6,781	)	$	131,419
Net loss		(89,977	)		0		0		0		0		0			0			0			0			(89,977	)
Other comprehensive loss		(762	)		0		0		0		0		0			0			0			(762	)		0
Issuance of class A common stock upon exercise of stock options		9,271			58		0		0		0		9,271			0			0			0			0
Issuance of class A common stock upon vesting of restricted stock units, net of withholding taxes		(4,754	)		11		0		0		0		(4,754	)		0			0			0			0
Issuance of class A common stock under public offerings, net of issuance costs		590,994			859		1		0		0		590,993			0			0			0			0
Share-based compensation expense		12,872			0		0		0		0		12,872			0			0			0			0
Balance at December 31, 2021	$	978,958			18,006	$	18		1,964	$	2	$	1,727,143			(8,684	)	$	(782,104	)	$	(7,543	)	$	41,442
Net loss		(130,751	)		0		0		0		0		0			0			0			0			(130,751	)
Other comprehensive loss		(2,009	)		0		0		0		0		0			0			0			(2,009	)		0
Issuance of class A common stock upon exercise of stock options		288			2		0		0		0		288			0			0			0			0
Issuance of class A common stock under employee stock purchase plan		2,805			7		0		0		0		2,805			0			0			0			0
Issuance of class A common stock upon vesting of restricted stock units, net of withholding taxes		(501	)		3		0		0		0		(501	)		0			0			0			0
Share-based compensation expense		14,209			0		0		0		0		14,209			0			0			0			0
Balance at March 31, 2022	$	862,999			18,018	$	18		1,964	$	2	$	1,743,944			(8,684	)	$	(782,104	)	$	(9,552	)	$	(89,309	)
Net loss		(1,062,298	)		0		0		0		0		0			0			0			0			(1,062,298	)
Other comprehensive loss		(4,113	)		0		0		0		0		0			0			0			(4,113	)		0
Issuance of class A common stock upon exercise of stock options		423			3		0		0		0		423			0			0			0			0
Issuance of class A common stock upon vesting of restricted stock units, net of withholding taxes		(49	)		0		0		0		0		(49	)		0			0			0			0
Share-based compensation expense		15,970			0		0		0		0		15,970			0			0			0			0
Balance at June 30, 2022	$	(187,068	)		18,021	$	18		1,964	$	2	$	1,760,288			(8,684	)	$	(782,104	)	$	(13,665	)	$	(1,151,607	)
Net loss		(27,079	)		0		0		0		0		0			0			0			0			(27,079	)
Other comprehensive loss		(4,514	)		0		0		0		0		0			0			0			(4,514	)		0
Issuance of class A common stock upon exercise of stock options		621			4		0		0		0		621			0			0			0			0
Issuance of class A common stock under employee stock purchase plan		1,668			9		0		0		0		1,668			0			0			0			0
Issuance of class A common stock upon vesting of restricted stock units, net of withholding taxes		(642	)		4		0		0		0		(642	)		0			0			0			0
Share-based compensation expense		16,725			0		0		0		0		16,725			0			0			0			0
Balance at September 30, 2022	$	(200,289	)		18,038	$	18		1,964	$	2	$	1,778,660			(8,684	)	$	(782,104	)	$	(18,179	)	$	(1,178,686	)

The accompanying notes are an integral part of these Consolidated Financial Statements.

	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating activities:
Net loss	$	(445,503	)	$	(10,185	)	$	(1,220,128	)	$	(445,503	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		8,639			9,342			6,917			8,639
Reduction in carrying amount of right-of-use assets		6,190			6,134			6,020			6,190
Credit losses and sales allowances		748			1,874			1,189			748
Net realized gain on short-term investments		0			(94	)
Deferred taxes		(221,328	)		(13,341	)		90,166			(221,328	)
Release of liabilities for unrecognized tax benefits		(152	)		0			0			(152	)
Share-based compensation expense		30,973			7,897			46,587			30,973
Digital asset impairment losses		684,034			44,242			1,088,656			684,034
Amortization of issuance costs on long-term debt		5,084			0			6,490			5,084
Changes in operating assets and liabilities:
Accounts receivable		10,634			6,439			5,586			10,634
Prepaid expenses and other current assets		(1,693	)		391			(7,837	)		(1,693	)
Deposits and other assets		(594	)		(175	)		(8,314	)		(594	)
Accounts payable and accrued expenses		(606	)		902			(8,880	)		(10,788	)
Accrued compensation and employee benefits		(1,698	)		(7,221	)		(13,105	)		(1,698	)
Accrued interest								9,901			10,182
Deferred revenue and advance payments		24,385			(12,385	)		25,401			24,385
Operating lease liabilities		(7,714	)		(7,148	)		(7,390	)		(7,714	)
Other long-term liabilities		(813	)		1,625			150			(813	)
Net cash provided by operating activities		90,586			28,297			21,409			90,586
Investing activities:
Purchases of digital assets		(2,035,471	)		(425,000	)		(231,478	)		(2,035,471	)
Proceeds from redemption of short-term investments		0			119,886
Purchases of property and equipment		(1,882	)		(1,162	)		(1,851	)		(1,882	)
Purchases of short-term investments		0			(9,928	)
Net cash used in investing activities		(2,037,353	)		(316,204	)		(233,329	)		(2,037,353	)
Financing activities:
Proceeds from convertible senior notes		1,050,000			0			0			1,050,000
Issuance costs paid for convertible senior notes		(24,742	)		0			0			(24,742	)
Proceeds from senior secured notes		500,000			0			0			500,000
Issuance costs paid for senior secured notes		(12,792	)		0			0			(12,792	)
Proceeds from sale of class A common stock under public offerings		403,970			0
Issuance costs paid related to sale of class A common stock under public offerings		(4,501	)		0
Proceeds from sale of class A common stock under exercise of employee stock options		31,380			3,616
Proceeds from issuance of class A common stock under employee stock purchase plan		2,854			0
Purchases of treasury stock		0			(122,480	)
Net cash provided by (used in) financing activities		1,946,169			(118,864	)
Proceeds from secured term loan, net of lender fees								204,693			0
Issuance costs paid for secured term loan, excluding lender fees								(107	)		0
Proceeds from other long-term secured debt								11,100			0
Issuance costs paid for other long-term secured debt								(214	)		0
Repayments of other long-term secured debt								(121	)		0
Proceeds from sale of common stock under public offerings								0			403,970
Issuance costs paid related to sale of common stock under public offerings								0			(4,501	)
Proceeds from exercise of stock options								1,332			31,380
Proceeds from sales under employee stock purchase plan								4,473			2,854
Payment of withholding tax on vesting of restricted stock units								(1,105	)		0
Net cash provided by financing activities								220,051			1,946,169
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		(2,037	)		2,839			(5,597	)		(2,037	)
Net decrease in cash, cash equivalents, and restricted cash		(2,635	)		(403,932	)
Net increase (decrease) in cash, cash equivalents, and restricted cash								2,534			(2,635	)
Cash, cash equivalents, and restricted cash, beginning of period		60,759			457,816			64,434			60,759
Cash, cash equivalents, and restricted cash, end of period	$	58,124		$	53,884		$	66,968		$	58,124

The accompanying notes are an integral part of these Consolidated Financial Statements.

The accompanying Consolidated Financial Statements of MicroStrategy Incorporated (“MicroStrategy” or the “Company”) are unaudited. In the opinion of management, all adjustments necessary for a fair statement of financial position and results of operations have been included. All such adjustments are of a normal recurring nature, unless otherwise disclosed. Interim results are not necessarily indicative of results for a full year.

~~As discussed in Note 2, Recent Accounting Standards,~~In the prior year’s Consolidated Statements of Cash Flows, accrued interest related to the Company’s long-term debt has been reclassified from “Accounts payable and accrued expenses” to “Accrued interest” within operating activities to conform to current year presentation.

The balances presented in the Consolidated ~~Financial~~ Statements of Stockholders’ Equity as of January 1, 2021 include the ~~Company adopted~~opening balance adjustments due to the adoption of Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), ~~effective January 1,~~as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. ~~Comparative prior period Consolidated Financial Statements have not been restated for ASU 2020-06 and are not directly comparable to the current period Consolidated Financial Statements.~~

The Consolidated Financial Statements and Notes to Consolidated Financial Statements are presented as required by the United States Securities and Exchange Commission (“SEC”) and do not contain certain information included in the Company’s annual financial statements and notes. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020. During 2021, the Company made the following~~2021. There have been no significant changes in ~~its~~the Company’s accounting policies ~~which are discussed further below:~~since December 31, 2021.

The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company is not aware of any subsequent event that would require recognition or disclosure.

As discussed in Note 6, Long-term Debt, to the Consolidated Financial Statements, the Company issued convertible senior notes in December 2020 and February 2021 and senior secured notes in June 2021. The embedded conversion features in each of the convertible notes are indexed to the Company’s own stock and meet the criteria for classification in stockholders’ equity, and therefore derivative accounting does not apply. The Company records the aggregate principal amount of each of the convertible and secured notes as a liability on its Consolidated Balance Sheet, offset by the issuance costs associated with each offering. The issuance costs are amortized to interest expense using the effective interest method over the expected term of each of the notes.

The Company maintains the 2013 Equity Plan, under which the Company’s employees, officers, directors, and other eligible participants may be awarded various types of share-based compensation, including options to purchase shares of the Company’s class A common stock, restricted stock units, and other stock-based awards. During the first quarter of 2021, the Company adopted the 2021 ESPP, and in May 2021, the Company’s stockholders approved the 2021 ESPP, under which eligible employees of the Company and certain of its subsidiaries may be provided with opportunities to purchase shares of the Company’s class A common stock.

The Company recognizes share-based compensation expense associated with the 2013 Equity Plan and the 2021 ESPP on a straight-line basis over the requisite service period (generally, the vesting period for awards under the 2013 Equity Plan and the offering period under the 2021 ESPP). For options and other stock-based awards, the share-based compensation expense is based on the fair value of the awards on the date of grant, as estimated using the Black-Scholes valuation model. For the 2021 ESPP, the share-based compensation expense is based on the grant date fair value, which consists of the intrinsic value of any purchase discount and the fair value of the look-back provision using the Black-Scholes valuation model. For restricted stock units, the share-based compensation expense is based on the fair value of the Company’s class A common stock on the date of grant.

The Black-Scholes valuation model requires the input of certain management assumptions, including the expected term, expected stock price volatility, risk-free interest rate, and expected dividend yield. Beginning in 2021, the Company estimates the expected stock price volatility by calculating a blended rate from the historical stock price volatility of its class A common stock and the implied volatility of the Company’s traded financial instruments with similar terms to the respective award. For stock options granted prior to 2021, the Company relied exclusively on its historical stock price volatility to estimate the expected stock price volatility over the expected term

because the Company believed at the date of grant that future volatility was unlikely to differ from the past. The remaining assumptions in the Black-Scholes valuation model have not changed significantly since December 31, 2020. These assumptions are based on management’s best judgment, and changes to these assumptions could materially affect the fair value estimates and amount of share-based compensation expense recognized.

See Note 10, Share-based Compensation, to the Consolidated Financial Statements for further information regarding the 2013 Equity Plan, the 2021 ESPP, related share-based compensation expense, and assumptions used in determining fair value.

Basic earnings per share is determined by dividing the net income attributable to common stockholders by the weighted average number of common shares and participating securities outstanding during the period. Participating securities are included in the basic earnings per share calculation when dilutive. Diluted earnings per share is determined by dividing the net income attributable to common stockholders by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares are included in the diluted earnings per share calculation when dilutive. Potential common shares consisting of class A common stock issuable upon the exercise of outstanding employee stock options, the vesting of restricted stock units, and in connection with the 2021 ESPP are computed using the treasury stock method. Upon the adoption of ASU 2020-06, potential common shares consisting of class A common stock issuable upon conversion of the Company’s convertible senior notes are computed using the if-converted method. Prior to the adoption of ASU 2020-06, potential common shares consisting of class A common stock issuable upon conversion of the Company’s convertible senior notes were computed using the treasury stock method. See Note 2, Recent Accounting Standards, to the Consolidated Financial Statements for further information regarding the differences in the if-converted and treasury stock methods.

The Company early adopted ASU 2020-06 effective as of January 1, 2021 using the modified retrospective method, which resulted in a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption, recorded as follows (in thousands):

~~The following significant accounting changes occurred as result of the adoption of ASU 2020-06:~~

~~The Company adopted Accounting Standards Update No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (“ASU 2019-12”) effective as of January 1, 2021. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to outside basis differences. ASU 2019-12 requires certain amendments to be applied

prospectively and others retrospectively. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. Prior periods have not been adjusted and 0 cumulative-effect adjustment to retained earnings was made.

The Company accounts for its digital assets, which are comprised solely of bitcoin, as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill and Other. The Company’s digital assets are initially recorded at cost. Subsequently, they are measured at cost, net of any impairment losses incurred since acquisition.

During the nine months ended September 30, 2021, the Company purchased approximately 43,573 bitcoins for $2.035 billion in cash, including cash from the net proceeds related to the issuance of its convertible senior notes due 2027 and its senior secured notes due 2028, and the sale of its class A common stock offered under the Open Market Sale Agreement described in Note 11, Common Equity and Earnings per Share, to the Consolidated Financial Statements. During the nine months ended September 30, 2020, the Company purchased approximately 38,250 bitcoins for $425.0 million in cash, including cash from the liquidation of short-term investments.

During the three months ended September 30, 2021, MacroStrategy LLC (“MacroStrategy”) was extended short-term trade credits by Coinbase Credit, Inc., an affiliate of Coinbase, Inc. (the entity that operates the Coinbase exchange, the Company’s principal market). MacroStrategy is the Company’s subsidiary formed to hold bitcoins and digital assets thatImpairment losses are not included in the collateral securing the Company’s senior secured notes due 2028, discussed in Note 6, Long-term Debt, to the Consolidated Financial Statements. The trade credits allowed MacroStrategy to purchase bitcoin in advance of using cash funds in its trading account. The trade credits were due and payable within days after they were extended. Certain of MacroStrategy’s assets, including bitcoin, were subject to a first priority security interest and lien in order to secure the repayment of the trade credits. MacroStrategy only requested trade credits where cash funding was imminent from confirmed sales of stock under the Company’s Open Market Sale Agreement. As of September 30, 2021, MacroStrategy had 0 outstanding trade credits payable. MacroStrategy may request further such trade credits from Coinbase Credit, Inc.; however, Coinbase Credit, Inc. has no obligation to issue further trade credits. MacroStrategy has no intention to request trade credits in the future unless cash funding under the Company’s Open Market Sale Agreement is imminent.

~~During the three and nine months ended September 30, 2021, the Company incurred $65.2 million and $684.0 million, respectively, of impairment losses on its bitcoin, which were~~ recognized as “Digital asset impairment losses” in the Company’s Consolidated Statement of ~~Operations. During~~Operations in the ~~three and nine months ended September 30, 2020,~~period in which the ~~Company incurred $44.2 million of~~ impairment ~~losses on its bitcoin. As of September 30, 2021, the carrying value of~~occurs.

The following table summarizes the Company’s ~~approximately 114,042 bitcoins was $2.406 billion, which reflects cumulative impairments~~digital asset holdings (in thousands, except number of ~~$754.7 million. As of December 31, 2020, the carrying value of the Company’s approximately 70,469 bitcoins was $1.054 billion, which reflected cumulative impairments of $70.7 million.~~ bitcoins), as of:

The carrying value represents the lowest fair value (based on Level 1 inputs in the fair value hierarchy) of the bitcoins at any time since their acquisition. Therefore, these fair value measurements were made during the period from their acquisition through September 30, ~~2021~~2022 or December 31, ~~2020,~~2021, respectively, and not as of September 30, ~~2021~~2022 or December 31, ~~2020,~~2021, respectively.

The following table summarizes the Company’s digital asset purchases and digital asset impairment losses (in thousands, except number of bitcoins) for the periods indicated:

From time to time, the Company may be extended short-term credits from Coinbase to purchase bitcoin in advance of using cash funds in the Company’s trading account. The trade credits are due and payable in cash within days after they are extended. As of September 30, 2022, the Company had no outstanding trade credits payable. The Company did 0tnot sell any of its bitcoins during the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

As of September 30, ~~2021,~~2022, approximately ~~13,449~~14,890 of the bitcoins held by the Company serve as part of the collateral for the Company’s ~~senior secured notes~~6.125% Senior Secured Notes due 2028 (the “2028 Secured Notes”), as further described in Note 6,4, Long-term Debt, to the Consolidated Financial Statements and in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. As of September 30, 2022, approximately 30,051 of the bitcoins held by the Company serve as part of the collateral for a $205.0 million term loan (the “2025 Secured Term Loan”) issued to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of the Company, by Silvergate Bank (“Silvergate”), as further described in Note 4, Long-term Debt, to the Consolidated Financial Statements.

The Company invoices its customers in accordance with billing schedules established in each contract. The Company’s rights to consideration from customers are presented separately in the Company’s Consolidated Balance Sheets depending on whether those rights are conditional or unconditional.

The Company presents unconditional rights to consideration from customers within “Accounts receivable, net” in its Consolidated Balance Sheets. All of the Company’s contracts are generally non-cancellable and/or non-refundable, and therefore an unconditional right generally exists when the customer is billed or amounts are billable per the contract.

Changes in the allowance for credit losses were not material for the three and nine months ended September 30, 2021. In estimating its allowance for credit losses as of September 30, 2021, the Company considered the impact from the pandemic caused by a novel strain of coronavirus (“COVID-19”) and established additional risk pools and reserves relating to customers in certain geographic areas and industries, in addition to separately assessing the reserves for certain customers that have been granted extended payment terms.2022.

Rights to consideration that are subject to a condition other than the passage of time are considered contract assets and presented within “Prepaid expenses and other current assets” in the Consolidated Balance Sheets since the rights to consideration are expected to become unconditional and transfer to accounts receivable within one year. Contract assets generally consist of accrued sales and usage-based royalty revenue. In these arrangements, consideration is not billed or billable until the royalty reporting is received, generally in the subsequent quarter, at which time the contract asset transfers to accounts receivable and a true-up adjustment is recorded to revenue. These true-up adjustments are generally not material. During the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, there were 0no significant impairments to the Company’s contract assets, nor were there any significant changes in the timing of the Company’s contract assets being reclassified to accounts receivable. Contract assets included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheets consisted of ~~$1.2~~$0.7 million and $1.1 million in accrued sales and usage-based royalty revenue as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Contract liabilities are amounts received or due from customers in advance of the Company transferring the software or services to the customer. In the case of multi-year service ~~contracts~~contract arrangements, the Company generally does not invoice more than one year in advance of services and does not record deferred revenue for amounts that have not been invoiced. Revenue is subsequently recognized in the period(s) in which control of the software or services is transferred to the customer. The Company’s contract liabilities are

presented as either current or non-current “Deferred revenue and advance payments” in the Consolidated Balance Sheets, depending on whether the software or services are expected to be transferred to the customer within the next year.

The Company’s “Accounts receivable, net” and “Deferred revenue and advance payments” balances in the Consolidated Balance Sheets include unpaid amounts related to contracts under which the Company has an enforceable right to invoice the customer for non-cancellable and/or non-refundable software and services. Changes in accounts receivable and changes in deferred revenue and advance payments are presented net of these unpaid amounts in “Operating activities” in the Consolidated Statements of Cash Flows.

Deferred revenue and advance payments (in thousands) from customers consisted of the following, as of:

During the three and nine months ended September 30, 2022, the Company recognized revenues of $42.5 million and $176.3 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2022. During the three and nine months ended September 30, 2021, the Company recognized revenues of $38.9 million and $164.9 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2021. During the three and nine months ended September 30, 2020, the Company recognized revenues of $37.3 million and $160.5 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2020. For the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, there were no significant changes in the timing of revenue recognition on the Company’s deferred balances.

The Company’s remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancelable amounts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation excludes contracts that are billed in arrears, such as certain time and materials contracts. The portions of multi-year contracts that will be invoiced in the future are not presented on the balance sheet within contract balances and are instead included in the following remaining performance obligation disclosure. As of September 30, ~~2021,~~2022, the Company had an aggregate transaction price of ~~$198.9~~$255.9 million allocated to the remaining performance obligation related to product support, subscription services, product licenses, and other services ~~and, in limited cases, product licenses~~ contracts. The Company expects to recognize ~~$168.3~~$190.6 million within the next 12 months and the remainder thereafter.

The Company leases office space in the United States and foreign locations under operating lease agreements. Office space is the Company’s only material underlying asset class under operating lease agreements. The Company has no material finance leases.

Under the Company’s office space lease agreements, fixed payments and variable payments that depend on an index or rate are typically comprised of base rent and parking fees. Additionally, under these agreements the Company is generally responsible for certain variable payments that typically include certain taxes, utilities and maintenance costs, and other fees. These variable lease payments are generally based on the Company’s occupation or usage percentages and are subject to adjustments by the lessor.

As of September 30, 2021, the Company’s right-of-use (“ROU”) assets and total lease liabilities were $58.6 million and $77.6 million, respectively, for leases in the United States and $10.2 million and $11.1 million, respectively, for foreign leases. As of December 31, 2020, the Company’s ROU assets and total lease liabilities were $62.2 million and $82.9 million, respectively, for leases in the United States and $11.4 million and $12.2 million, respectively, for foreign leases. The Company’s most significant lease is for its corporate headquarters in Northern Virginia. The ROU asset and total lease liability related to the Company’s corporate headquarters lease were $56.2 million and $75.2 million, respectively, as of September 30, 2021, and $59.0 million and $79.7 million, respectively, as of December 31, 2020. During the nine months ended September 30, 2021, $2.4 million of ROU assets were obtained in exchange for new operating lease liabilities. During the nine months ended September 30, 2020, $0.7 million of ROU assets were obtained in exchange for new operating lease liabilities.

~~As of September 30, 2021, the~~The net carrying value of the Company’s long-term debt (in thousands) consisted of the following, ~~(in thousands):~~as of:

In December 2020, the Company issued $650.0 million aggregate principal amount of 0.750% Convertible Senior Notes due 2025 (the “2025 Convertible Notes”) in a private offering. The 2025 Convertible Notes are senior unsecured obligations of the Company and bear interest at a fixed rate of 0.750% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. Holders of the 2025 Convertible Notes may receive additional interest under specified circumstances as outlined in the indenture relating to the issuance of the 2025 Convertible ~~Notes (the “2025 Convertible Notes Indenture”).~~Notes. The 2025 Convertible Notes will mature on December 15, 2025, unless earlier converted, redeemed, or repurchased in accordance with their terms. The total net proceeds from the 2025 Convertible Notes offering, after deducting initial purchaser discounts and issuance costs, were approximately $634.7 million.

In February 2021, the Company issued $1.050 billion aggregate principal amount of 0%2027 Convertible ~~Senior~~ Notes ~~due 2027 (the “2027 Convertible Notes”)~~ in a private offering. The 2027 Convertible Notes are senior unsecured obligations of the Company and do not bear regular interest. However, holders of the 2027 Convertible Notes may receive special interest under specified circumstances as outlined in the indenture relating to the issuance of the 2027 Convertible ~~Notes (the “2027 Convertible Notes Indenture”).~~Notes. Any special interest is payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. The 2027 Convertible Notes will mature on February 15, 2027, unless earlier converted, redeemed, or repurchased in accordance with their terms. The total net proceeds from the 2027 Convertible Notes offering, after deducting initial purchaser discounts and issuance costs, were approximately $1.026 billion.

The terms of the 2025 Convertible Notes and 2027 Convertible Notes (collectively, the “Convertible Notes”) are ~~senior unsecured obligations and rank senior~~discussed more fully in ~~right of payment~~Note 8, Long-term Debt, to ~~any~~the Consolidated Financial Statements of the Company’s ~~indebtedness that is expressly subordinated in right of payment to~~Annual Report on Form 10-K for the Convertible Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.year ended December 31, 2021.

~~The Convertible Notes are convertible into shares of~~There have been no adjustments to the ~~Company’s class A common stock at~~ initial conversion rates for each of ~~2.5126 shares and 0.6981 shares per $1,000 principal amount of~~the Convertible Notes ~~for the 2025 Convertible Notes and 2027 Convertible Notes, respectively (equivalent to an initial conversion price~~as of approximately $397.99 per share and $1,432.46 per share of class A common stock for the 2025 Convertible Notes and 2027 Convertible Notes, respectively). The conversion rates are subject to customary anti-dilution adjustments. In addition, following certain events that may occur prior to the respective maturity dates or if the Company delivers a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption, as the case may be, in certain circumstances as provided in the 2025 Convertible Notes Indenture and the 2027 Convertible Notes Indenture (collectively, the “Convertible Notes Indentures”), respectively.September 30, 2022. As of September 30, ~~2021,~~2022, the maximum number of shares into which the Convertible Notes could be potentially converted if the conversion features are triggered are 1,633,190 and 733,005 shares for the 2025 Convertible Notes and 2027 Convertible Notes, respectively.

Prior to June 15, 2025 and August 15, 2026 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively, the Convertible Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 and June 30, 2021 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively (and only during such calendar quarter), if the last reported sale price of the Company’s class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Convertible Notes Indentures) per $1,000 principal amount of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s class A common stock and the applicable conversion rate on each such trading day; (3) if the Company calls any or all of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; and (4) upon occurrence of specified corporate events as described in the Convertible Notes Indentures.

On or after June 15, 2025 or August 15, 2026 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity dates of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, holders may convert the 2025 Convertible Notes or 2027 Convertible Notes, respectively, at any time. Upon conversion of the Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s class A common stock, or a combination of cash and shares of class A common stock, at the Company’s election.

Prior to December 20, 2023 or February 20, 2024 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively, the Company may not redeem the Convertible Notes. The Company may redeem for cash all or a portion of the 2025 Convertible Notes or 2027 Convertible Notes, at its option, on or after December 20, 2023 or February 20, 2024, respectively, if the last reported sale price of the Company’s class A common stock has been at least 130% of the conversion price of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a “fundamental change,” as defined in the Convertible Notes Indentures, prior to maturity, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Convertible Notes Indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding 2025 Convertible Notes or 2027 Convertible Notes, respectively, may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the 2025 Convertible Notes or 2027 Convertible Notes, respectively, to be due and payable.

During the nine months ended September 30, ~~2021,~~2022, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes during the first quarter of 2022 only. During the nine months ended September 30, 2021, the 2025 Convertible Notes were convertible during the second quarter of 2021 only. During the nine months ended September 30, 2022 and 2021, the 2027 Convertible Notes were not convertible at any time. No conversions of the Convertible Notes occurred during the ~~three and~~ nine months ended September 30, 2022 or 2021. The Convertible Notes may be convertible in future periods if one or more of the conversion conditions is satisfied during future measurement periods. As of September 30, 2021, the last reported sale price of the Company’s class A common stock for at least 20 trading days during the 30 consecutive trading days ending on, and including, September 30, 2021 was greater than or equal to 130% of the conversion price of the 2025 Convertible Notes on each applicable trading day. Therefore, the 2025 Convertible Notes are convertible at the option of the holders of the 2025 Convertible Notes during the fourth quarter of 2021.

As discussed in Note 2, Recent Accounting Standards, to the Consolidated Financial Statements, the Company adopted ASU 2020-06 effective January 1, 2021. Although the Convertible Notes each contain embedded conversion features, the Company accounts for each of the Convertible Notes in its entirety as a liability because the conversion features are indexed to the Company’s own stock and meet the criteria for classification in stockholders’ equity and therefore do not qualify for separate derivative accounting.

The Company incurred approximately $15.3 million and $24.2 million in customary offering expenses associated with the 2025 Convertible Notes and 2027 Convertible Notes, respectively (“issuance costs”). The Company accounts for these issuance costs as a reduction to the principal amount of the 2025 Convertible Notes and 2027 Convertible Notes, respectively, and amortizes the issuance costs to interest expense over the contractual term of the 2025 Convertible Notes and 2027 Convertible Notes, respectively, at an effective interest rate of 1.23% and 0.39%, respectively.

As of September 30, 2022 and December 31, 2021, the net carrying value of the Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance ~~Sheet.~~ Sheets.

The following is a summary of the Company’s convertible debt instruments as of September 30, 2022 (in thousands):

The following is a summary of the Company’s convertible debt instruments as of December 31, 2021 (in thousands):

The fair value of the Convertible Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2).

For the three ~~and nine~~ months ended September 30, 2022 and 2021,, interest expense related to the Convertible Notes was as follows (in thousands):

For the nine months ended September 30, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):

The Company did 0tnot pay any interest expense related to the 2025 Convertible Notes during the three months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022 and 2021, the Company paid $2.4 million and $2.5 million, respectively, in interest ~~expense~~ related to the 2025 Convertible Notes. The Company has 0tnot paid any special interest expense related to the 2027 Convertible Notes to date.

On June 14, 2021, the Company issued $500.0 million aggregate principal amount of ~~6.125% Senior Secured Notes due 2028 (the “2028 Secured Notes”). The~~ 2028 Secured Notes ~~were sold under~~in a purchase agreement, dated as of June 8, 2021, entered into by and among the Company, MicroStrategy Services Corporation, a wholly owned subsidiary of the Company (the “Guarantor”), and Jefferies LLC, for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act. The terms of the 2028 Secured Notes are governed by an indenture, dated as of June 14, 2021 (the “2028 Secured Notes Indenture”), among the Company, the Guarantor, and U.S. Bank National Association, as trustee and collateral agent.

The 2028 Secured Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis by the Guarantor and certain subsidiaries of the Company that may be formed or acquired on or after June 14, 2021 (collectively, the “Subsidiary Guarantors”).private offering. The 2028 Secured Notes bear interest at a fixed rate of 6.125% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The 2028 Secured Notes have a stated maturity date of June 15, 2028, unless earlier redeemed or repurchased in accordance with their terms and subject to a springing maturity date of September 15, 2025 or November 16, ~~2026 as discussed further below.~~2026. The total net proceeds from the 2028 Secured Notes, after deducting initial purchaser discounts and issuance costs, were approximately $487.2 million.

The 2028 Secured Notes and the related guarantees are secured, on a senior secured basis with the Company’s existing and future senior indebtedness, by a security interest in substantially all of the Company’s and the Subsidiary Guarantors’ assets (the “Collateral”). The Collateral includes any bitcoins or other digital assets acquired by the Company or a Subsidiary Guarantor on or after June 14, 2021, but excludes bitcoins held by MacroStrategy LLC and certain other excluded assets. MacroStrategy LLC is the Company’s subsidiary formed to hold bitcoins and digital assets that are not included in the Collateral, including bitcoins acquired before June 14, 2021 and bitcoins purchased by MacroStrategy LLC from contributions made to it by the Company with the proceeds from sales of the Company’s class A common stock under the Open Market Sale Agreement described in Note 11, Common Equity and Earnings per Share, to the Consolidated Financial Statements.

The 2028 Secured Notes and the related guarantees are the general senior secured obligations of the Company and the Subsidiary Guarantors and rank pari passu in right of payment with the Company’s and the Subsidiary Guarantors’ existing and future senior indebtedness, are senior in right of payment to all future subordinated indebtedness of the Company and the Subsidiary Guarantors, and are effectively senior to any existing and future unsecured indebtedness of the Company and the Subsidiary Guarantors (including the Convertible Notes) to the extent of the value of the Collateral (after giving effect to the sharing of such Collateral with holders of equal or prior ranking liens on the Collateral).

The 2028 Secured Notes and the guarantees are: (i) secured on a first priority basis by liens on the Collateral (subject to certain permitted liens and certain other exceptions, as provided in the 2028 Secured Notes Indenture) or to the extent there is outstanding ABL Indebtedness (as defined in the 2028 Secured Notes Indenture), secured on a first priority basis by the Notes Priority Collateral (as defined in the 2028 Secured Notes Indenture) and on a second priority basis by liens on the ABL Priority Collateral (as defined in the 2028 Secured Notes Indenture) (subject to certain permitted liens and certain other exceptions), (ii) effectively subordinated to any future ABL Indebtedness to the extent of the value of the ABL Priority Collateral securing such future ABL Indebtedness, (iii) effectively subordinated to any existing and future indebtedness of the Company or any Subsidiary Guarantor that is secured by liens on assets of the Company or any Subsidiary Guarantor that do not constitute a part of the Collateral, and (iv) structurally subordinated to any existing and future indebtedness and other liabilities of MacroStrategy LLC and any other Company subsidiaries that are not Subsidiary Guarantors, other than intercompany indebtedness and liabilities owed to the Company or a Subsidiary Guarantor.

At any time and from time to time prior to June 15, 2024, the Company may redeem some or all of the 2028 Secured Notes at a redemption price equal to 100% of the principal amount of the 2028 Secured Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a “make-whole” premium as set forth in the 2028 Secured Notes Indenture. At any time and from time to time on or after June 15, 2024, the Company may redeem some or all of the 2028 Secured Notes at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior to June 15, 2024, but not more than once during each consecutive twelve-month period, the Company may redeem up to 10% of the aggregate principal amount of the 2028 Secured Notes at a redemption price equal to 103% of the principal amount of the 2028 Secured Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior to June 15, 2024, the Company may redeem, on one or more occasions, up to 40% of the aggregate principal amount of the 2028 Secured Notes with the proceeds of certain equity offerings, at a redemption price equal to 106.125% of the principal amount of the 2028 Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

If the Company experiences a Change of Control or Fundamental Change (each as defined in the 2028 Secured Notes Indenture), the Company may be required to offer to repurchase the 2028 Secured Notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. In certain circumstances, the Company must use certain of the proceeds from a sale of assets to make an offer to repurchase 2028 Secured Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

The 2028 Secured Notes include a springing maturity feature that will cause the stated maturity date to spring ahead to: (1) September 15, 2025 (the “First Springing Maturity Date”), unless on the First Springing Maturity Date (i) the Company has liquidity (as defined in the 2028 Secured Notes Indenture) in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of, and accrued interest on, the 2025 Convertible Notes or (ii) less than $100,000,000 of the aggregate principal amount of the 2025 Convertible Notes remains outstanding, (2) November 16, 2026 (the “Second Springing Maturity Date”), unless on the Second Springing Maturity Date (i) the Company has liquidity in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of, and accrued interest on, the 2027 Convertible Notes or (ii) less than $100,000,000 of the aggregate principal amount of the 2027 Convertible Notes remains outstanding, or (3) the date (such date, an “FCCR Springing Maturity Date”) that is 91 days prior to the maturity date of any FCCR Convertible Indebtedness (as defined in the indenture for the 2028 Secured ~~Notes Indenture)~~Notes), unless on the FCCR Springing Maturity Date (i) the Company has liquidity in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of and accrued interest on such FCCR Convertible Indebtedness or (ii) less than $100,000,000 of the aggregate principal amount of such FCCR Convertible Indebtedness remains outstanding.

The terms of the 2028 Secured Notes ~~Indenture contains~~are discussed more fully in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The 2028 Secured Notes are governed by an indenture containing certain covenants with which the Company must comply, including covenants with respect to limitations on (i) additional indebtedness, (ii) liens, (iii) certain payments and investments, (iv) the ability to merge or consolidate with another person, or sell or otherwise dispose of substantially all the Company’s assets, and (v) certain transactions with affiliates. The Company was in compliance with its debt covenants as of September 30, ~~2021.~~2022.

The Company incurred approximately $12.8 million in customary offering expenses associated with the 2028 Secured Notes. The Company accounts for these issuance costs as a reduction to the principal amount of the 2028 Secured Notes and amortizes the issuance costs to interest expense over the contractual term of the 2028 Secured Notes at an effective interest rate of 6.58%. As of September 30, 2022 and December 31, 2021, the net carrying value of the 2028 Secured Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance ~~Sheet.~~ Sheets.

The following is a summary of the ~~Company’s~~ 2028 Secured Notes as of September 30, 2022 (in thousands):

The following is a summary of the 2028 Secured Notes as of December 31, 2021 (in thousands):

The fair value of the 2028 Secured Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2).

For the three ~~and nine~~ months ended September 30, 2022 and 2021,, interest expense related to the 2028 Secured Notes was as follows (in thousands):

For the nine months ended September 30, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):

The Company did 0tnot pay any interest expense related to the 2028 Secured Notes during the three months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022, the Company paid $15.3 million in interest expense related to the 2028 Secured Notes. The Company did not pay any interest expense related to the 2028 Secured Notes during the nine months ended September 30, 2021.

On March 23, 2022, MacroStrategy LLC, a wholly-owned subsidiary of the Company, entered into a Credit and Security Agreement (the “Credit and Security Agreement”) with Silvergate pursuant to which Silvergate issued the $205.0 million 2025 Secured Term Loan to MacroStrategy. The 2025 Secured Term Loan is a senior secured obligation of MacroStrategy and bears interest at a floating rate equal to the Secured Overnight Financing Rate 30 Day Average as published by the Federal Reserve Bank of New York’s website plus 3.70%, with a floor of 3.75%, and is payable monthly in arrears beginning May 2022. The 2025 Secured Term Loan will mature on March 23, 2025, unless earlier prepaid or repaid in accordance with the terms of the Credit and Security Agreement. The total net proceeds from the 2025 Secured Term Loan, after deducting lender fees and third-party costs, were approximately $204.6 million.

Under the terms of the Credit and Security Agreement, the 2025 Secured Term Loan proceeds may be used (i) by MacroStrategy to purchase bitcoins, (ii) by MacroStrategy to pay fees, interest, and expenses related to the 2025 Secured Term Loan transaction, or (iii) for MacroStrategy’s or the Company’s general corporate purposes. The 2025 Secured Term Loan may be prepaid at any time, subject to a prepayment premium of 0.50% or 0.25% of the principal balance being prepaid, if such prepayment is made during the first year or second year, respectively, of the 2025 Secured Term Loan. There is no premium or penalty for prepayments made after March 23, 2024.

~~Contractual Obligations~~In accordance with the terms of the Credit and Security Agreement, the 2025 Secured Term Loan was collateralized at closing by bitcoin with a value of approximately $820.0 million placed in a collateral account (the “Bitcoin Collateral Account”) with a custodian mutually authorized by Silvergate and MacroStrategy. While the 2025 Secured Term Loan is outstanding, MacroStrategy is required to maintain a loan to collateral value ratio (“LTV Ratio”) of less than 50% (the “Maximum LTV Ratio”). As a result, MacroStrategy is required to maintain more than $410.0 million of bitcoin in the Bitcoin Collateral Account, assuming the full $205.0 million of 2025 Secured Term Loan principal remains outstanding. If the price of bitcoin drops such that the LTV Ratio equals or exceeds the Maximum LTV Ratio, MacroStrategy will be required to either deposit additional bitcoin in the Bitcoin Collateral Account or prepay a portion of the 2025 Secured Term Loan such that the LTV Ratio is reduced to 25% or less (or 35% or less, provided that in such case the interest rate on the 2025 Secured Term Loan will be increased by 25 basis points until such time as the LTV Ratio is reduced to 25% or less). In June 2022, as the price of bitcoin declined causing the LTV Ratio to increase, MacroStrategy deposited 10,585 additional bitcoins into the Bitcoin Collateral Account to help ensure that the LTV Ratio remained below the Maximum LTV Ratio. If at any time the LTV Ratio is less than 25% as a result of excess collateral in the Bitcoin Collateral Account, MacroStrategy is entitled to a return of such excess collateral so long as the LTV Ratio would not exceed 25% after giving effect to such return.

Separate and apart from the requirements associated with the LTV Ratio, MacroStrategy established a $5.0 million cash reserve account (the “Reserve Account”) with Silvergate to serve as additional collateral for the 2025 Secured Term Loan. MacroStrategy is required to maintain at least $5.0 million in the Reserve Account until the last six months of the 2025 Secured Term Loan term, at which time funds in the Reserve Account may be used to make interest payments on the 2025 Secured Term Loan at MacroStrategy’s request, with the amount required to be held in the Reserve Account correspondingly reduced to the extent such payments are made. The collateral for the 2025 Secured Term Loan does not extend beyond assets in the Bitcoin Collateral Account and the Reserve Account. As of September 30, 2022, the Reserve Account is presented within “Restricted cash” in the Company’s Consolidated Balance Sheet and the Bitcoin Collateral Account is presented within “Digital assets” in the Company’s Consolidated Balance Sheet as further described in Note 2, Digital Assets, to the Consolidated Financial Statements.

The 2025 Secured Term Loan is not guaranteed by any party. The Credit and Security Agreement contains customary affirmative and negative covenants for credit facilities of this type, including, among others, limitations on MacroStrategy with respect to the sale of collateral and the incurrence of liens on the collateral. The Credit and Security Agreement, however, does not restrict MacroStrategy from incurring additional debt, incurring additional liens on assets not serving as collateral for the 2025 Secured Term Loan, or selling assets not serving as collateral for the 2025 Secured Term Loan. There are no restrictions in the Credit and Security Agreement on utilizing bitcoin that is not in the Bitcoin Collateral Account. The Credit and Security Agreement has customary change-of-control provisions, providing Silvergate with a right to accelerate the 2025 Secured Term Loan in full in connection with a change of control of the Company, including the sale of all or substantially all of the Company’s or MacroStrategy’s assets. The Credit and Security Agreement also contains customary events of default with customary grace periods, as applicable. Upon an event of default, Silvergate has the right to accelerate the 2025 Secured Term Loan in full, increase the interest accrual rate by an additional 2%, and liquidate the collateral to pay the 2025 Secured Term Loan.

MacroStrategy was in compliance with its debt covenants as of September 30, 2022.

The Company incurred approximately $0.4 million in lender fees and third-party costs (“issuance costs”) associated with the 2025 Secured Term Loan. The Company accounts for these issuance costs as a reduction to the principal amount of the 2025 Secured Term Loan and amortizes the issuance costs to interest expense over the contractual term of the 2025 Secured Term Loan at an effective interest rate of 3.87%. As of September 30, 2022, the net carrying value of the 2025 Secured Term Loan was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets.

The following is a summary of the 2025 Secured Term Loan as of September 30, 2022 (in thousands):

The principal or par value of the 2025 Secured Term Loan approximates its fair value as of September 30, 2022. The fair value of the 2025 Secured Term Loan is determined using unobservable inputs provided by the lender, specifically hypothetical lending terms attainable as of the end of the reporting period, which are comparable to the loan's original terms (Level 3).

For the three and nine months ended September 30, 2022, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):

The Company paid $2.7 million and $4.3 million in interest expense related to the 2025 Secured Term Loan during the three and nine months ended September 30, 2022, respectively.

In June 2022, the Company, through a wholly-owned subsidiary, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027. The loan is secured by certain non-bitcoin assets of the Company that are not otherwise serving as collateral for any of the Company’s other indebtedness. As of September 30, 2022, the loan had a net carrying value of $10.7 million and an outstanding principal balance of $11.0 million, after monthly payments made under the terms of the agreement.

The following table shows the ~~future contractual payments related to~~maturities of the Company’s debt instruments ~~(semi-annual interest payments and principal upon maturity), based on the expected due dates of the various installments~~ as of September 30, ~~2021~~2022 (in thousands). The ~~contractual~~ principal payments related to the 2028 Secured Notes are included in the table below based on ~~their stated~~the First Springing Maturity Date of September 15, 2025, as if the springing maturity ~~date of June 15, 2028 and the~~feature discussed above were triggered. The Company’s expectation is that the springing maturity feature of the 2028 Secured Notes will not be triggered.

From time to time, the Company enters into certain types of contracts that require it to indemnify parties against third-party claims. These contracts primarily relate to agreements under which the Company assumes indemnity obligations for intellectual property infringement, as well as other obligations from time to time depending on arrangements negotiated with customers and other third parties. The conditions of these obligations vary. Thus, the overall maximum amount of the Company’s indemnification obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations and does not currently expect to incur any material obligations in the future. Accordingly, the Company has not recorded an indemnification liability on its Balance Sheets as of September 30, ~~2021~~2022 or December 31, ~~2020.~~

~~See Note 5, Leases, to the Consolidated Financial Statements for information regarding the Company’s commitments that are related to lease agreements.~~

See Note 6, Long-term Debt, to the Consolidated Financial Statements for information regarding the Company’s commitments related to the Convertible Notes, which may be converted, redeemed, or repurchased prior to their respective maturity dates in accordance with their terms, and the 2028 Secured Notes, which may be redeemed or repurchased prior to their maturity date in accordance with their terms.

See Note 9, Income Taxes, to the Consolidated Financial Statements for information regarding the Company’s commitments that are related to a mandatory deemed repatriation transition tax (“Transition Tax”) imposed under the U.S. Tax Cuts and Jobs Act (the “Tax Act”).2021.

Following an internal review initiated in 2018, the Company believes that its Brazilian subsidiary failed or likely failed to comply with local procurement regulations in conducting business with certain Brazilian government entities.

On February 6, 2020, the Company learned that a Brazilian court authorized the Brazilian Federal Police to use certain investigative measures in its investigation into alleged corruption and procurement fraud involving certain government officials, pertaining to a particular transaction. Pursuant to this court authorization, numerous entities and individuals across Brazil were subject to the freezing of assets and other measures, including a former reseller and a former employee of the Company’s Brazilian subsidiary. On February 6, 2020, the bank accounts of the Company’s Brazilian subsidiary were also frozen up to an amount of BRL 10.0 million. On May 22, 2020, these bank accounts of the Company’s Brazilian subsidiary were unfrozen based on a court decision that found the evidence provided to support the alleged illicit origin of the relevant funds was insufficient. On October 19, 2021, an appeals court upheld the decision to unfreeze the accounts (which had remained unfrozen while the appeal was pending). This decision may be challenged within 15 days of its official publication. The transaction at issue is part of the basis of the previously reported failure or likely failure of the Brazilian subsidiary to comply with local procurement regulations. The Company is not aware of any allegations that ~~the~~any former employee or the Company made any payments to Brazilian government officials. The Brazilian Federal Police expanded the investigation to include other possible cases of procurement fraud involving Brazilian government entities. Criminal penalties may be

imposed against individuals; however, neither employees of the Company’s Brazilian subsidiary nor the subsidiary itself ~~were~~have been targets of the Federal Police investigation.

The Company has also learned that Brazil’s Federal Comptroller General filed an administrative action against the Company’s Brazilian subsidiary with respect to the alleged procurement violations.

These matters remain the subject of investigation by Brazilian authorities. The Company is taking measures to attempt to resolve these matters.

While the Company believes that it is probable that the resolution of these Brazilian matters will result in a loss, the amount or range of loss is not reasonably estimable at this time. Given the stage of these matters, the outcome may result in a material impact on the Company’s earnings and financial results for the period in which any such liability is accrued. However, the Company believes that the outcome of these matters will not have a material effect on the Company’s financial position.

On November 4, 2020, a complaint was filed against the Company in the U.S. District Court for the Eastern District of Virginia by a patent assertion entity called Daedalus Blue, LLC (“Daedalus”). In its complaint, Daedalus alleges that the Company has infringed U.S. Patent Nos. 8,341,172 ~~(“the ’172~~(the “’172 Patent”) and 9,032,076 ~~(“the ’076~~(the “’076 Patent”) based on specific functionality in the MicroStrategy platform. The ’172 Patent relates to a method for providing aggregate data access in response to a query, whereas the ’076 Patent relates to a role-based access control system.

On March 1, 2021, Daedalus provided its formal infringement contentions which included additional accused functionality as part of its infringement allegations from the complaint, materially expanding the scope of its case. The Company has filed a motion to dismiss the complaint with prejudice, asking the court to rule that the asserted claims are invalid as being directed to patent ineligible matter. This matter is in the latter stage of factual ~~discovery and the parties filed claim construction briefs with the court requesting the court construe the asserted claim terms of the patent.~~discovery. The court conducted a claim construction hearing on July 15, 2021. ~~On August 17, 2021, the case was stayed by the~~The court ~~pending the appointment of~~appointed a special master on October 28, 2021 and directed the special master to ~~provide assistance~~submit a Report and Recommendation as to the ~~court with its~~issue of claim construction ~~order~~ and ~~other outstanding matters including~~the pending motion to dismiss by February 1, 2022. On January 21, 2022, the special master issued two separate Reports and Recommendations. The first Report and Recommendation recommended constructions of certain patent claim terms and the second Report and Recommendation recommended, without reaching the merits, dismissing the Company’s motion to ~~dismiss.~~dismiss without prejudice to re-filing after discovery ends. The parties filed their respective objections to the special master’s Reports and Recommendations on February 4, 2022, and their oppositions to the other party’s objections on February 18, 2022. On March 9, 2022, the court issued an order overruling all parties’ objections and adopting the special master’s Reports and Recommendations in full. As per court order, the parties submitted a joint proposed schedule, which the court adopted on April 7, 2022, providing new deadlines for the close of fact discovery, expert reports, expert discovery, and dispositive motions. Fact discovery reopened on April 18, 2022 and closed on June 1, 2022. In July 2022, the case proceeded to expert discovery and the parties exchanged their opening expert reports on issues for which they bear the burden of proof on July 1, 2022, their rebuttal reports on July 29, 2022, and their reply reports on August 12, 2022. The parties engaged in expert depositions the weeks of August 22 and August 29, 2022 and on September 21, 2022, the parties filed their respective motions for summary judgment. The outcome of this matter is not presently determinable.

On August 31, 2022, the District of Columbia (the “District”), through its Office of the Attorney General, filed a civil complaint in the Superior Court of the District of Columbia naming as defendants (i) Michael J. Saylor, the Chairman of the Company’s Board of Directors and the Company’s Executive Chairman, in his personal capacity, and (ii) the Company. The District is seeking, among other relief, monetary damages under the District’s False Claims Act for the alleged failure of Mr. Saylor to pay personal income taxes to the District over a number of years together with penalties, interest, and treble damages. The complaint alleges that the amount of personal income taxes purportedly involved is more than $25 million. The complaint also alleges that the Company has violated the District’s False Claims Act by conspiring to assist Mr. Saylor’s alleged failure to pay personal income taxes. The Company believes that the District’s claims against the Company have no merit and is defending itself aggressively against these allegations. On October 26, 2022, the Company filed a motion to dismiss the District’s complaint. The Company filed a motion to stay discovery on September 28, 2022, and the court granted this motion on October 28, 2022. The outcome of this matter is not presently determinable.

The Company is also involved in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, management does not expect the resolution of these legal proceedings to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company has contingent liabilities that, in management’s judgment, are not probable of assertion. If such unasserted contingent liabilities were to be asserted, or become probable of assertion, the Company may be required to record significant expenses and liabilities in the period in which these liabilities are asserted or become probable of assertion.

The Board of Directors has authorized the Company’s repurchase of up to an aggregate of $800.0 million of its class A common stock from time to time on the open market through April 29, 2023 (the “Share Repurchase Program”), although the program may be suspended or discontinued by the Company at any time. The timing and amount of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions and other factors. The Share Repurchase Program may be funded using the Company’s working capital, as well as proceeds from any other funding arrangements that the Company may enter into in the future.

During the three and nine months ended September 30, 2022 and 2021, the Company did 0tnot repurchase any shares of its class A common stock pursuant to the Share Repurchase Program. During the three months ended September 30, 2020, the Company did 0t repurchase any shares of its class A common stock pursuant to the Share Repurchase Program. During the nine months ended September 30, 2020, the Company repurchased an aggregate of 444,769 shares of its class A common stock at an average price per share of $139.12 and an aggregate cost of $61.9 million pursuant to the Share Repurchase Program. As of September 30, ~~2021,~~2022, the Company had repurchased an aggregate of 5,674,226 shares of its class A common stock at an average price per share of $104.13 and an aggregate cost of $590.9 million pursuant to the Share Repurchase Program. As of September 30, ~~2021,~~2022, $209.1 million of the Company’s class A common stock remained available for repurchase pursuant to the Share Repurchase Program. The average price per share and aggregate cost amounts disclosed above include broker commissions.

During the three and nine months ended September 30, 2020, the Company repurchased an aggregate of 432,313 shares of its class A common stock through a “modified Dutch Auction” tender offer (the “Offer”) at a price of $140.00 per share for an aggregate cost of $61.3 million, inclusive of $0.8 million in certain fees and expenses related to the Offer. The Offer expired in September 2020.

The Company ~~and~~computes its subsidiaries conduct business in the United States and various foreign countries and are subject to taxation in numerous domestic and foreign jurisdictions. As a result of its business activities, the Company files tax returns that are subject to examination by various U.S. federal, state, and local, and foreign tax authorities. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authoritiesyear-to-date provision for years before 2017. However, due to the Company’s use of state net operating loss (“NOL”) carryovers in the United States, state tax authorities may attempt to reduce or fully offset the amount of state NOL carryovers from tax years ended 2011 and forward that the Company used in later tax years. The Company’s major foreign tax jurisdictions and tax years that remain subject to potential examination are Poland for tax years 2015 and forward, Germany and Italy for tax years 2016 and forward, and Spain and the United Kingdom for tax years 2017 and forward. To date there have been no material assessments related to audits in any of the applicable foreign jurisdictions.

As of September 30, 2021, the Company had unrecognized tax benefits of $4.3 million, of which $2.9 million was recorded in “Other long-term liabilities” and $1.4 million was recorded in “Deferred tax assets, net” in the Company’s Consolidated Balance Sheet. If recognized, $4.3 million of these unrecognized tax benefits would impact the Company’s effective tax rate. The Company recognizes estimated accrued interest related to unrecognized income tax benefits in its (benefit from) ~~provision for income taxes. Penalties relating to~~ income taxes ~~if incurred, would also be recognized as a component of~~by applying the Company’s (benefit from) provision for income taxes. Over the next 12 months, the amount of the Company’s liability for unrecognized tax benefits is not expected to change by a material amount. As of September 30, 2021, the amount of cumulative accrued interest expense on unrecognized income tax benefits was approximately $0.4 million.

~~The following table summarizes the Company’s deferred tax assets, net of deferred tax liabilities and valuation allowance (in thousands), as of:~~

The valuation allowances as of September 30, 2021 and December 31, 2020 primarily related to certain foreign tax credit carryforwards that, in the Company’s present estimation, more likely than not will not be realized.

~~In determining its tax provision or benefit from income taxes, the Company estimates its~~estimated annual effective tax rate ~~for the full fiscal year and applies that rate~~ to ~~its~~year-to-date pretax income or loss ~~before~~and adjusts the provision for (benefit from) income taxes for discrete tax items recorded in the ~~current reporting~~ period. ~~The Company also records discrete items in each respective period as appropriate.~~ The estimated effective tax rate is subject to fluctuation based on the level and mix of earnings and losses by tax jurisdiction, foreign tax rate differentials, and the relative impact of permanent book to tax ~~differences (e.g., non-deductible expenses).~~differences. Each quarter, a cumulative adjustment is recorded for any fluctuations in the estimated annual effective tax rate as compared to the prior quarter. As a result of these factors, and due to potential changes in the Company’s period-to-period results, fluctuations in the Company’s effective tax rate and respective tax provisions or benefits may occur.

For the nine months ended September 30, 2022, the Company recorded a provision for income taxes of $112.0 million on a pretax loss of $1.108 billion, which resulted in an effective tax rate of (10.1)%. For the nine months ended September 30, 2021, the Company recorded a benefit from income taxes of $217.4 million ~~that~~on a pretax loss of $662.9 million, which resulted in an effective tax rate of 32.8%~~, as compared to a benefit from income taxes of $5.7 million that resulted in an effective tax rate of 36.0% for the nine months ended September 30, 2020.~~. The change in the effective tax rate, as compared to the same period in ~~2021~~the prior year, is ~~mainly~~primarily due to ~~certain discrete items and~~ the ~~change in~~establishment of a valuation allowance on the ~~expected proportion of U.S. versus foreign income between periods.~~

~~In the United States, the Tax Act reduced the U.S. corporate~~Company’s deferred tax rate from 35% to 21%, effective January 1, 2018. Additionally, the Tax Act requires certain Global Intangible Low Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) to be included in the gross income of the CFCs’ U.S. shareholder. The Company has elected the “period cost method” and treats taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred. The Tax Act allows a U.S. corporation a deduction equal to a certain percentage of its foreign-derived intangible income (“FDII”). The Company estimated the impact of the GILTI tax and FDII deduction in determining its 2021 annual effective tax rate that is reflected in its benefit from income taxes for the nine months ended September 30, 2021.

The Tax Act also imposed a Transition Tax on previously untaxed accumulated and current earnings and profits of certain foreign subsidiaries of the Company. As a result of the Tax Act, the Company recorded a final tax expense of $37.2 millionasset related to the ~~Transition Tax, comprised~~impairment on its bitcoin holdings, attributable to the decrease in the market value of ~~a provisional Transition Tax obligation of $40.3 million in 2017 and a subsequent $(3.1) million measurement period adjustment in 2018. As~~bitcoin as of September 30, ~~2021, $25.1 million of the Transition Tax was unpaid, of which $22.1~~

~~million was recorded in “Other long-term liabilities” and $3.0~~ million was recorded in “Accounts payable, accrued expenses, and operating lease liabilities” in the Company’s Consolidated Balance Sheet. The Company has elected to pay the Transition Tax over an eight-year period beginning in 2018, as permitted under the Tax Act.2022.

As of September 30, 2021 and December 31, 2020, the amount of cash and cash equivalents held by the Company’s U.S. entities was $16.4 million and $13.7 million, respectively, and by the Company’s non-U.S. entities was $40.6 million and $46.0 million, respectively. The Company earns a significant amount of its revenues outside the United States. The Company repatriated foreign earnings and profits of $186.6 million during 2020 and $57.5 million during the nine months ended September 30, 2021. As of September 30, 2021, the accumulated undistributed foreign earnings and profits is estimated to be $109.5 million. Beginning in the third quarter of 2020,2022, the Company determined to no longer permanently reinvest its foreign earnings and profits. Therefore, the Company accrued for foreign withholding tax and U.S. state income taxes on undistributed foreign earnings in addition to the Transition Tax and GILTI tax described above.

~~In determining the Company’s (benefit from) provision for income taxes, net deferred tax assets, liabilities, and~~had a valuation ~~allowances, management is required to make estimates and judgments related to projections~~allowance of domestic and foreign profitability, the timing and extent of the utilization of NOL carryforwards, applicable tax rates, transfer pricing methods, and prudent and feasible tax planning strategies. As a multinational company, the Company is required to calculate and provide for estimated income tax liabilities for each of the tax jurisdictions in which it operates. This process involves estimating current tax obligations and exposures in each jurisdiction, as well as making judgments regarding the future recoverability of deferred tax assets. Changes in the estimated level of annual pre-tax income, changes in tax laws, particularly changes$411.8 million primarily related to the ~~utilization of NOLs in various jurisdictions, and changes resulting from~~Company’s deferred tax ~~audits can all affect the overall effective income tax rate, which, in turn, impacts the overall level of income tax expense or benefit and net income. According to the guidance under ASC 740,~~ ~~Income Taxes~~, certain items or events related to continuing operations are specifically excluded from the estimated annual effective tax rate, and their related tax effects are recognized discretely, because these items or events are not estimable. The Company’s digital asset impairment losses of $684.0 million incurred during the nine months ended September 30, 2021 were excluded on this basis from the Company’s estimated full year pre-tax book income in calculating the Company’s estimated annual effective tax rate. A tax benefit of $191.5 million related to the impairment losses was recorded as a discrete item during the nine months ended September 30, 2021. In addition, the Company had an excess tax benefit of $26.0 million from stock option exercises, which was also recorded as a discrete item during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company incurred digital asset impairment losses of $44.2 million, which resultedon its bitcoin holdings that, in ~~a discrete tax benefit of $12.8 million, and also recorded a discrete tax expense of $1.1 million from stock option cancellations.~~

~~Estimates and judgments related to~~ the Company’s projections and assumptions are inherently uncertain. Therefore, actual results could differ materially from projections. Currently, the Company expects to use its deferred tax assets, subject to Internal Revenue Code limitations, within the carryforward periods. Valuation allowances have been established where the Company has concluded that it ispresent estimation, more likely than not ~~that such deferred tax assets are~~will not ~~realizable.~~be realized. If the market value of bitcoin continues to decline or the Company is unable to regain ~~or increase~~ profitability in future periods, itthe Company may be required to increase further the valuation allowance against ~~the~~its deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred. To the extent the market value of bitcoin rises, the Company may decrease the valuation allowance against its deferred tax asset. The Company will continue to regularly assess the realizability of deferred tax assets.

The Company records liabilities related to its uncertain tax positions. As of September 30, 2022, the Company had gross unrecognized tax benefits of $6.3 million, which was recorded in “Other long-term liabilities” in the Company’s Consolidated Balance Sheet. As of December 31, 2021, the Company had gross unrecognized tax benefits of $6.2 million, of which $2.1 million was recorded in “Other long-term liabilities” and $4.1 million was recorded in “Deferred tax assets, net” in the Company’s Consolidated Balance Sheet.

The Company’s 2013 Stock Incentive Plan (as amended, the “2013 Equity ~~Plan~~Plan”) authorizes the issuance of various types of share-based awards to the Company’s employees, officers, directors, and other eligible participants. ~~In the second quarter~~As of ~~2021, the Board~~September 30, 2022, a total of ~~Directors authorized and the stockholders approved an amendment to the 2013 Equity Plan to increase the total number of~~2,750,000 shares of the Company’s class A common stock were authorized for issuance under the 2013 Equity ~~Plan from 2,300,000 shares to 2,750,000 shares.~~Plan. As of September 30, ~~2021,~~2022, there were ~~534,992~~121,221 shares of class A common stock reserved and available for future issuance under the 2013 Equity Plan.

As of September 30, ~~2021,~~2022, there were options to purchase ~~1,229,829~~1,539,279 shares of class A common stock outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended September 30, ~~2021:~~2022:

Stock options outstanding as of September 30, ~~2021~~2022 are comprised of the following range of exercise prices per share (in thousands, except per share data and years):

An aggregate of 15,625 stock options with an aggregate grant date fair value of ~~$0.8~~$0.7 million vested during the three months ended September 30, ~~2021.~~2022. The weighted average grant date fair value of stock option awards using the Black-Scholes ~~pricing~~valuation model was ~~$334.40~~$153.74 and ~~$48.20~~$334.40 for each share subject to a stock option granted during the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, based on the following assumptions:

For the three and nine months ended September 30, 2022, the Company recognized approximately $12.7 million and $35.4 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan. For the three and nine months ended September 30, 2021, the Company recognized approximately $8.9 million and $23.0 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan. For the three and nine months ended September 30, 2020, the Company recognized approximately $2.4 million and $7.8 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan. As of September 30, ~~2021,~~2022, there was approximately ~~$106.8~~$141.4 million of total unrecognized share-based compensation expense related to unvested stock ~~options. The~~options, which the Company expects to recognize ~~this remaining share-based compensation expense~~ over a weighted average vesting period of approximately ~~3.3~~2.9 years.

As of September 30, ~~2021,~~2022, there were ~~112,746~~129,969 share-settled restricted stock units outstanding under the 2013 Equity ~~Plan, which the Company intends to settle in shares.~~Plan. The following table summarizes the Company’s share-settled restricted stock unit activity (in thousands) for the periods indicated:

~~NaN restricted stock units vested during~~During the three months ended September 30, ~~2021.~~2022, 5,975 share-settled restricted stock units having an aggregate grant date fair value of $4.5 million vested, and 2,012 shares were withheld to satisfy tax obligations, resulting in 3,963 issued shares. The weighted average grant date fair value of share-settled restricted stock units granted during the three months ended September 30, 2022 and 2021 was $249.20 and $747.77, respectively, based on the fair value of the Company’s class A common stock. For the three and nine months ended September 30, 2022, the Company recognized approximately $3.6 million and $10.0 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan. For the three and nine months ended September 30, 2021, the Company recognized approximately $2.4 million and $5.0 million, respectively, in share-based compensation expense from share-settled restricted stock units granted under the 2013 Equity Plan. ~~NaN restricted stock units were granted under the 2013 Equity Plan prior to the fourth quarter of 2020.~~ As of September 30, ~~2021,~~2022, there was approximately ~~$40.0~~$41.7 million of total unrecognized share-based compensation expense related to unvested share-settled restricted stock ~~units. As of September 30, 2021,~~units, which the Company expects to recognize ~~this remaining share-based compensation expense~~ over a weighted average vesting period of approximately ~~3.6~~2.9 years.

~~During the three months ended September 30, 2021,~~From time to time the Company has granted 0 “other stock-based awards” and “cash-settled restricted stock units” under the 2013 Equity Plan. ~~As of September 30, 2021, there were a total of 10,250 other stock-based awards outstanding under the 2013 Equity Plan. These other~~Other stock-based awards are similar to stock options, and cash-settled restricted stock units are similar to the Company’s share-settled restricted stock units, except in each case these awards are settled in cash only and not in shares of the Company’s class A common stock.

During the three months ended September 30, 2021, the Company granted 0 cash-settled restricted stock units under the 2013 Equity Plan. As of September 30, 2021, there were a total of 900 cash-settled restricted stock units outstanding under the 2013 Equity Plan. These cash-settled restricted stock units are similarDue to ~~the Company’s other restricted stock units, except they are settled in~~their required cash ~~only and not in shares of the Company’s class A common stock.~~

~~Both the other stock-based~~settlement feature, these awards ~~and the cash-settled restricted stock units~~ are classified as liabilities in the Company’s Consolidated Balance Sheets ~~due to the required cash settlement feature~~ and the fair value of the awards is remeasured each quarterly reporting period. For the three and nine months ended September 30, 2022, the Company recognized approximately $0.2 million in share-based compensation expense and a reduction of approximately $0.4 million in share-based compensation expense, respectively, from other stock-based awards and cash-settled restricted stock units. For the three and nine months ended September 30, 2021, the Company recognized ~~approximately~~ $0.3 million and $1.2 million, respectively, in share-based compensation expense from other stock-based awards and cash-settled restricted stock units. For the three and nine months ended September 30, 2020, share-based compensation expense from other stock-based awards was not material. NaN cash-settled restricted stock units were granted under the 2013 Equity Plan prior to the first quarter of 2021. As of September 30, ~~2021,~~2022, there was approximately ~~$3.0~~$0.5 million of total unrecognized share-based compensation expense related to other stock-based awards and cash-settled restricted stock ~~units. The~~units, which the Company expects to recognize ~~this remaining share-based compensation expense~~ over a weighted average vesting period of approximately ~~3.0~~2.4 years, subject to additional fair value adjustments through the earlier of settlement or expiration.

~~During the first quarter of 2021, the~~The Company ~~adopted~~also maintains the 2021 ~~ESPP, and in the second quarter of 2021, the Company’s stockholders approved the 2021 ESPP.~~Employee Stock Purchase Plan (the “2021 ESPP”). The purpose of the 2021 ESPP is to provide eligible employees of the Company and certain of its subsidiaries with opportunities to purchase shares of the Company’s class A common stock, commencing at such time and on such dates as the Board of Directors of the Company shall determine. The first offering period under the 2021 ESPP commenced on February 16, 2021 and ended on August 15, 2021. After this first offering period, the Board of Directors of the Company determined to provide subsequent 6-month offering periods commencing on each March 1 and September 1 for the remaining term of the 2021 ESPP. An aggregate of 100,000 shares of the Company’s class A common stock has been authorized for issuance under the 2021 ESPP.

~~Unless otherwise determined by~~ During the ~~Board~~three months ended September 30, 2022, 8,475 shares of ~~Directors,~~class A common stock were issued in connection with the 2021 ESPP. As of September 30, 2022, 79,463 shares ~~are purchased at a price equal to 85% of the lesser of the closing price~~ of the Company’s class A common stock on the first or last business day of the offering period, respectively. Share-based compensation expense is based on the grant date fair value, which consists of the intrinsic value of the 15% discounted share purchase rights and the fair value of the look-back provision using the Black-Scholes valuation model, recognized on a straight-line basis over the offering period. The grant date is the offering period commencement date.

~~The first offering period~~remained available for issuance under the 2021 ~~ESPP commenced on February 16, 2021~~ESPP.

For the three and nine months ended ~~on August 15, 2021. A second offering period under~~September 30, 2022, the Company recognized approximately $0.5 million and $1.6 million, respectively, in share-based compensation expense related to the 2021 ~~ESPP commenced on September 1, 2021 and will end on February 28, 2022.~~ESPP. For the three and nine months ended September 30, 2021, the Company recognized approximately $0.6 million and $1.8 million, respectively, in share-based compensation expense related to the 2021 ESPP. As of September 30, ~~2021,~~2022, there was approximately $1.3 million of total unrecognized share-based compensation expense related to the 2021 ~~ESPP. The~~ESPP, which the Company expects to recognize ~~this remaining share-based compensation expense~~ over a period of approximately 0.4 ~~years. During~~years.

For the three and nine months ended September 30, 2022 and 2021, ~~4,612 shares of class A common stock were issued in connection with the 2021 ESPP. As of September 30, 2021, 95,388 shares of~~tax benefit related to the Company’s ~~class A common stock remained available for issuance under the 2021 ESPP.~~equity plans was as follows (in thousands):

The Company has two classes of common stock: class A common stock and class B common stock. Holders of class A common stock generally have the same rights, including rights to dividends, as holders of class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have 10 votes per share. Each share of class B common stock is convertible at any time, at the option of the holder, into one share of class A common stock. As such, basic and fully diluted earnings per share for class A common stock and for class B common stock are the same. The Company has never declared or paid any cash dividends on either class A or class B common stock. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 0no shares of preferred stock issued or outstanding.

Potential ~~shares of~~ common ~~stock~~shares are included in the diluted earnings per share calculation when dilutive. Potential common shares consisting of class A common stock issuable upon the exercise of outstanding stock options, the vesting of ~~outstanding~~ restricted stock units, and in connection with the 2021 ESPP are ~~calculated~~computed using the treasury stock method. Potential common shares consisting of class A common stock issuable upon conversion of the Convertible Notes are ~~calculated~~computed using the if-converted method. In computing diluted earnings per share, the Company first calculates the earnings per incremental share (“EPIS”) for each class of potential common shares and ranks the classes from the most dilutive (i.e., lowest EPIS) to the least dilutive (i.e., highest EPIS). Basic earnings per share is then adjusted for the effect of each class of shares, in sequence and cumulatively, until a particular class no longer produces further dilution.

For the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the following weighted average shares of potential class A common stock were excluded from the diluted loss per share calculation because their impact would have been anti-dilutive (in thousands):

On June 14, 2021, the Company entered into an Open Market Sale Agreement (the ~~“Sale~~“2021 Open Market Sale Agreement”) with Jefferies LLC, as agent (“Jefferies”), pursuant to which the Company ~~may issue~~issued and ~~sell~~sold shares of its class A common stock having an aggregate offering price of ~~up to~~approximately $1.0 billion from time to time through Jefferies (the ~~“Open~~“2021 Open Market Offering”).

Under the Sale Agreement, any sales of shares will be made by methods deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. Any sales of shares under the Sale Agreement will be made in amounts and at times to be determined by the Company from time to time subject to the terms and conditions of the Sale Agreement, but the Company has no obligation to sell any of the shares in an Open Market Offering.

The Company ~~or Jefferies may suspend or terminate the Open Market Offering upon notice to the other party and subject to other conditions. The Company has~~ agreed to pay Jefferies commissions for its services in acting as agent in the sale of the shares in the amount of up to 2.0% of gross proceeds from the sale of shares pursuant to the 2021 Open Market Sale Agreement. The Company ~~has~~ also agreed to provide Jefferies with customary indemnification and contribution rights.

During the three and nine months ended September 30, 2021 the Company issued and sold 555,179 shares of its class A common stock under the 2021 Open Market Sale Agreement, at an average gross price per share of approximately $727.64, for aggregate net proceeds (less $4.5 million in sales commissions and expenses) of approximately $399.5 million. The sales commissions and expenses related to the 2021 Open Market Sale Agreement ~~are~~were considered direct and incremental costs and ~~are~~were charged against “Additional paid-in capital” on the balance sheet in the period in which the related shares were issued and sold. As of December 31, 2021, the cumulative aggregate offering price of the shares of class A common stock sold under the 2021 Open Market Sale Agreement was approximately $1.0 billion, inclusive of sales commissions, constituting the maximum program amount under the 2021 Open Market Sale Agreement.

On September 9, 2022, the Company entered into a Sales Agreement (the “2022 Sales Agreement”) with Cowen and Company LLC and BTIG, LLC, as agents (collectively, the “2022 Sales Agents”), pursuant to which the Company may issue and sell shares of its class A common stock having an aggregate offering price of up to $500.0 million from time to time through the 2022 Sales Agents. The Company agreed to pay the 2022 Sales Agents commissions for their services in acting as agents in the sale of the shares in the amount of up to 2.0% of gross proceeds from the sale of shares pursuant to the 2022 Sales Agreement. The Company also agreed to provide the 2022 Sales Agents with customary indemnification and contribution rights.

As of September 30, 2022, the Company has not issued and sold any shares of class A common stock under the 2022 Sales Agreement. Expenses totaling $0.4 million related to the 2022 Sales Agreement were considered direct and incremental costs and have been deferred on the balance sheet in “Prepaid expenses and other current assets” and will be charged against “Additional paid-in-capital” in future periods in which related shares are issued and sold. ~~As of September 30, 2021, approximately $596.0 million of the Company’s class A common stock remained available for issuance and sale pursuant to the Sale Agreement.~~

The Company manages its business in 1one reportable operating segment. The Company’s one reportable operating segment is engaged in the design, development, marketing, and sales of its software platform through licensing arrangements and cloud subscriptions and related services. The following table presents total revenues, gross profit, and long-lived assets ~~excluding long-term deferred tax assets,~~ (in thousands) according to geographic ~~region:~~region. Long-lived assets are comprised of right-of-use assets and property and equipment, net.

The domestic region consists of the United States and Canada. The EMEA region includes operations in Europe, the Middle East, and Africa. The other regions include all other foreign countries, generally comprising Latin America and the Asia Pacific region. For the three and nine months ended September 30, 2022 and 2021, ~~and 2020, 0~~no individual foreign country accounted for 10% or more of total consolidated revenues.

For the three and nine months ended September 30, 2022 and 2021, ~~and 2020, 0~~no individual customer accounted for 10% or more of total consolidated revenues.

As of September 30, ~~2021~~2022 and December 31, ~~2020, 0~~2021, no individual foreign country accounted for 10% or more of total consolidated assets.

In June 2021, Michael J. Saylor, the Company’s Chairman of the Board of Directors &and Executive Chairman and, at that time, the Company’s Chief Executive Officer, entered into an indemnification agreement (the “Original Agreement”) with the Company for an initial term of 90 ~~days. The indemnification agreement provides~~days and subject to successive 90-day term extensions at the election of the Company. All term extensions were exercised, most recently in February 2022 for a final 90-day period that began in March 2022. Pursuant to the Original Agreement, Mr. Saylor ~~will provide~~provided during the term of the agreement, from his personal funds, ~~directors’ and officers’~~ indemnity coverage to the Company for the benefit of the directors and officers (“D&Os”) of the Company and its subsidiaries in the event such coverage iswas not indemnifiable by the Company, up to a total of $40 million. In return, the Company paid Mr. Saylor $388,945 for each of the initial and successive 90-day terms.

On June 12, 2022, Mr. Saylor and the Company entered into a renewed indemnification agreement (the “Renewed Agreement”) for an initial term of 90 days, which became effective upon the expiration of the final 90-day extension of the Original Agreement. In return, the Company paid Mr. Saylor a one-time fee of $388,945 for the initial 90-day term (the “Renewal Payment”).

On June 24, 2022, the Company bound D&O liability insurance policies (the “Initial Commercial Policies”) with several third-party carriers for $30 million in coverage. Concurrently, Mr. Saylor and the Company also entered into (i) an indemnification agreement (the “Excess Agreement”) for Mr. Saylor to provide $10 million in excess indemnity coverage payable only after the exhaustion of the Initial Commercial Policies, and (ii) an indemnification agreement (the “Tail Agreement”) for Mr. Saylor to provide $40 million in indemnity coverage for claims made at any time based on actions or omissions occurring prior to the inception date of the Initial Commercial Policies. The Company paid Mr. Saylor $600,000 for a one-year term under the Excess Agreement, and $150,000 for a 90-day term under the Tail Agreement. At the option of the Company, the Company may elect to extend the term under the Tail Agreement for up to a total of twenty-three additional 90-day periods, for $150,000 per additional 90-day term. In connection with the execution of the Initial Commercial Policies and the release of his obligations under the Renewed Agreement, Mr. Saylor refunded the Company $337,086, which is the pro rata portion of the Renewal Payment attributable to the period from the date of the Initial Commercial Policies through the end of the original term of the Renewed Agreement.

On August ~~2021,~~30, 2022, the Company bound additional D&O liability insurance policies (the “Excess Commercial Policies”) with third-party carriers for $10 million in excess coverage payable only after the exhaustion of the Initial Commercial Policies. Effective as of the same date, the Company and Mr. Saylor executed an amendment (the “Amendment”) to the Excess Agreement to limit Mr. Saylor’s obligation to provide indemnification under the Excess Agreement to claims made during the term of the Excess Agreement which arise from wrongful acts occurring upon or after the commencement of the Excess Agreement but prior to the effective date of the Amendment. In connection with the Amendment, Mr. Saylor refunded $489,863 to the Company, representing the pro rata portion of the $600,000 originally paid by the Company to Mr. Saylor under the Excess Agreement attributable to the period from the date of the Amendment through the end of the original term of the Excess Agreement. Also during the third quarter of 2022, pursuant to the terms of the ~~indemnification agreement,~~Tail Agreement, the Company elected to extend the term of the Tail Agreement for an additional 90-day period ~~which began in September 2021~~ and paid Mr. Saylor ~~an additional $388,945~~$150,000 for this extension. ~~The Company may elect to extend~~

Under the Excess Agreement and Tail Agreement, Mr. Saylor will provide, during the term ~~for up~~of each agreement, from his personal funds, indemnity coverage to ~~two additional 90-day periods. The Company will pay an additional amount of $388,945 to Mr. Saylor for each additional 90-day term that~~ the Company ~~exercises.~~for the benefit of the D&Os of the Company and its subsidiaries in the event such coverage is not provided by the Initial Commercial Policies, the Excess Commercial Policies or indemnifiable by the Company. The Excess Agreement and the Tail Agreement expressly supersede the Original Agreement and the Renewed Agreement.

Prior to entering into the ~~indemnification agreement~~Original Agreement, Renewed Agreement, Excess Agreement, and Tail Agreement with Mr. Saylor, the Company obtained and considered ~~binding~~ market quotes for ~~directors’ and officers’~~D&O liability insurance policies. The Company determined that ~~these~~the policies considered at such times would have provided insufficient coverage and would have required substantial ~~premiums.~~premiums to the extent coverage were available, and that obtaining indemnification coverage provided by Mr. Saylor was appropriate and in the best interests of the Company.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements regarding industry prospects and our results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. The important factors discussed under “Part II. Item 1A. Risk Factors,” among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations.

MicroStrategy^® pursues two corporate strategies in the operation of its business. One strategy is to acquire and hold bitcoin and the other strategy is to grow our enterprise analytics software business. We believe ~~a key differentiator of MicroStrategy is our~~that undertaking these two, interdependent corporate strategies inserves as a key differentiator for our business, as our bitcoin acquisition strategy has raised our profile with potential software customers while our enterprise analytics software business has provided stable cash flows that allow us to acquire and hold bitcoin for the ~~operation of our business.~~long-term.

~~In the first quarter of 2021, we determined to pursue as part of our overall corporate~~Our bitcoin acquisition strategy ~~a strategy of~~involves acquiring bitcoin with our liquid assets that exceed working capital requirements, and from time to time, subject to market conditions, issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin. ~~We believe that~~As part of our bitcoin is attractive because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy and can therefore serve as a hedge against inflation. We also believe that bitcoin offers additional opportunity for appreciation in value with increasing adoption due to its limited supply. Under this corporateacquisition strategy, we also periodically engage in activities to educate the market regarding bitcoin. We believe that our bitcoin acquisition strategy is complementary to our enterprise analytics software and services business, as we believe that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand and can provide opportunities to secure new customers for our analytics offerings. We are also exploring opportunities to apply bitcoin-related technologies such as blockchain analytics into our software offerings.

We view our bitcoin holdings as long-term holdings, and we do not plan to engage in regular trading of bitcoin and have not hedged or otherwise entered into derivative contracts with respect to our bitcoin holdings, though we may sell bitcoin in future periods as needed to generate cash for treasury management and other general corporate purposes. We may consider entering into additional capital raising transactions that may be collateralized by our bitcoin holdings and may consider strategies to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to creditworthy counterparties. We have not set any specific target for the amount of bitcoin we seek to hold, and we will continue to monitor market conditions in determining whether to ~~conduct debt or equity~~engage in additional financings to purchase additional bitcoin.

We believe that bitcoin is attractive because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy and can therefore serve as a hedge against inflation in the long term. We also believe that bitcoin offers additional opportunity for appreciation in value with increasing adoption due to its limited supply. In addition, we believe that our bitcoin acquisition strategy is complementary to our enterprise analytics software business, as we believe that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand and can provide opportunities to secure new customers for our analytics software offerings. We are also exploring opportunities to apply bitcoin-related technologies into our software offerings.

In September 2020, our Board of Directors adopted a Treasury Reserve Policy (as amended to date, the “Treasury Reserve Policy”) that updated our treasury management and capital allocation strategies, under which our treasury reserve assets will consist of:

In the first quarter of 2021, we adopted, in addition to and in conjunction with our Treasury Reserve Policy, a corporate strategy of acquiring and holding ~~bitcoin,~~bitcoin. Pursuant to this corporate strategy, and from time to time, subject to market conditions, ~~issuing~~we issue debt or equity securities or engage in other capital raising transactions with the objective of using the proceeds to purchase bitcoin.

~~On June 14,~~During 2021 and 2022, we ~~entered into~~used the proceeds of the following capital raising transactions to purchase bitcoin. The transactions are further described below under “—Liquidity and Capital Resources— Long-term Debt” and under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Open Market Sale ~~Agreement with Jefferies LLC, as agent, pursuant to which~~Agreement” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021:

As of September 30, 2022, we ~~may issue and sell shares of our class A common stock having~~held an aggregate offering price of up to $1.0 billion from time to time through Jefferies. During the three months ended September 30, 2021 we issued and sold 555,179 shares of our class A common stock under the Sale Agreement, at an average gross price per share of approximately ~~$727.64, for aggregate net proceeds (less $4.5 million in sales commissions~~130,000 bitcoins, with 14,890 bitcoins held directly by MicroStrategy Incorporated and ~~expenses)~~115,110 bitcoins held by MacroStrategy LLC, a wholly-owned subsidiary of MicroStrategy. The approximately ~~$399.5 million. We used~~14,890 bitcoins held directly by MicroStrategy Incorporated serve as part of the ~~net proceeds~~collateral securing our 2028 Secured Notes, and approximately 30,051 of ~~these sales to purchase additional bitcoin.~~the 115,110 bitcoins held by MacroStrategy serve as part of the collateral securing our 2025 Secured Term Loan.

The following table presents a rollforward of our bitcoin holdings, including additional information related to our bitcoin purchases and digital asset impairment losses within the respective periods. We have not sold any of our bitcoin as of the date of this Quarterly Report.

	Source of Capital Used to Purchase Bitcoin	Digital Asset Original Cost Basis (in thousands)		Digital Asset Impairment Losses (in thousands)			Digital Asset Carrying Value (in thousands)			Approximate Number of Bitcoins Held		Approximate Average Purchase Price Per Bitcoin		Source of Capital Used to Purchase Bitcoin	Digital Asset Original Cost Basis (in thousands)		Digital Asset Impairment Losses (in thousands)			Digital Asset Carrying Value (in thousands)			Approximate Number of Bitcoins Held		Approximate Average Purchase Price Per Bitcoin
Balance at June 30, 2020		$	0	$	0		$	0			0	n/a
Digital asset purchases	(a)		425,000					425,000			38,250		11,111
Digital asset impairment losses					(44,242	)		(44,242	)
Balance at September 30, 2020		$	425,000	$	(44,242	)	$	380,758			38,250	$	11,111
Digital asset purchases	(b)		700,000					700,000			32,219		21,726
Digital asset impairment losses					(26,456	)		(26,456	)
Balance at December 31, 2020		$	1,125,000	$	(70,698	)	$	1,054,302			70,469	$	15,964		$	1,125,000	$	(70,698	)	$	1,054,302			70,469	$	15,964
Digital asset purchases	(c)		1,086,375					1,086,375			20,857		52,087	(a)		1,086,375					1,086,375			20,857		52,087
Digital asset impairment losses					(194,095	)		(194,095	)									(194,095	)		(194,095	)
Balance at March 31, 2021		$	2,211,375	$	(264,793	)	$	1,946,582			91,326	$	24,214		$	2,211,375	$	(264,793	)	$	1,946,582			91,326	$	24,214
Digital asset purchases	(d)		529,231					529,231			13,759		38,464	(b)		529,231					529,231			13,759		38,464
Digital asset impairment losses					(424,774	)		(424,774	)									(424,774	)		(424,774	)
Balance at June 30, 2021		$	2,740,606	$	(689,567	)	$	2,051,039			105,085	$	26,080		$	2,740,606	$	(689,567	)	$	2,051,039			105,085	$	26,080
Digital asset purchases	(e)		419,865					419,865			8,957		46,876	(c)		419,865					419,865			8,957		46,876
Digital asset impairment losses					(65,165	)		(65,165	)									(65,165	)		(65,165	)
Balance at September 30, 2021		$	3,160,471	$	(754,732	)	$	2,405,739			114,042	$	27,713		$	3,160,471	$	(754,732	)	$	2,405,739			114,042	$	27,713
Digital asset purchases														(d)		591,058					591,058			10,349		57,113
Digital asset impairment losses																		(146,587	)		(146,587	)
Balance at December 31, 2021															$	3,751,529	$	(901,319	)	$	2,850,210			124,391	$	30,159
Digital asset purchases														(e)		215,500					215,500			4,827		44,645
Digital asset impairment losses																		(170,091	)		(170,091	)
Balance at March 31, 2022															$	3,967,029	$	(1,071,410	)	$	2,895,619			129,218	$	30,700
Digital asset purchases														(f)		10,000					10,000			481		20,790
Digital asset impairment losses																		(917,838	)		(917,838	)
Balance at June 30, 2022															$	3,977,029	$	(1,989,248	)	$	1,987,781			129,699	$	30,664
Digital asset purchases														(g)		5,978					5,978			301		19,860
Digital asset impairment losses																		(727	)		(727	)
Balance at September 30, 2022															$	3,983,007	$	(1,989,975	)	$	1,993,032			130,000	$	30,639

Excess Cash refers to cash in excess of the minimum Cash Assets that we are required to hold under our Treasury Reserve Policy, which may include cash generated by operating activities and cash from the proceeds of financing activities.

The following table shows the approximate number of bitcoins held at the end of each respective period, as well as market value calculations of our bitcoin holdings based on the lowest, highest, and ending market prices of one bitcoin on the Coinbase exchange (our principal ~~market)~~market for bitcoin) for each respective quarter, as further defined below:

The amounts reported as “Market Value” in the above table represent only a mathematical calculation consisting of the price for one bitcoin reported on the Coinbase exchange (our principal ~~market)~~market for bitcoin) in each scenario defined above multiplied by the number of bitcoins we held ~~by us~~ at the end of the applicable period. The Securities and Exchange Commission has previously stated that there has not been a demonstration that (i) bitcoin and bitcoin markets are inherently resistant to manipulation or that the spot price of bitcoin may not be subject to fraud and manipulation; and (ii) adequate surveillance-sharing agreements with bitcoin-related markets are in place, as bitcoin-related markets are either not significant, not regulated, or both. Accordingly, the Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of our bitcoin may be different from such amounts and such deviation may be material. Moreover, (i) the bitcoin market historically has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, and various other risks that are, or may be, inherent in its entirely electronic, virtual form and decentralized network and (ii) we may not be able to sell our bitcoins at the Market Value amounts indicated above, at the market price as reported on the Coinbase exchange (our principal ~~market)~~market for bitcoin) on the date of sale, or at all.

Our digital asset impairment losses have significantly contributed to our operating expenses and net loss. ~~For~~While digital asset impairment losses of $0.7 million were not significant for the three months ended September 30, 2022, digital asset impairment losses for the three months ended September 30, 2021 ~~digital asset impairment losses of~~were $65.2 million, ~~represented~~representing 42.0% of our operating expenses ~~compared to digital asset impairment losses of $44.2 million representing 35.1% of our operating expenses in the three months ended September 30, 2020,~~and contributing to our net loss of $36.1 million for the three months ended September 30, ~~2021 compared to net loss of $14.2 million for the three months ended September 30, 2020.~~ 2021. For the nine months ended September 30, ~~2021,~~2022, digital asset impairment losses of $1.089 billion represented 79.3% of our operating expenses, contributing to our net loss of $1.220 billion for the nine months ended September 30, 2022, compared to digital asset impairment losses of $684.0 million ~~represented 71.6% of our operating expenses, compared to $44.2 million in digital asset impairment losses representing 15.1% of our operating expenses~~ in the nine months ended September 30, ~~2020,~~2021, representing 71.6% of our operating expenses and contributing to our net loss of $445.5 million for the nine months ended September 30, ~~2021 compared to net loss of $10.2 million for the nine months ended September 30, 2020.~~2021.

As of October ~~27, 2021,~~31, 2022, we held approximately ~~114,042~~130,000 bitcoins that were acquired at an aggregate purchase price of ~~$3.160~~$3.983 billion and an average purchase price of approximately ~~$27,713~~$30,639 per bitcoin, inclusive of fees and expenses. As of October ~~27, 2021,~~31, 2022, at 4:00 p.m. Eastern Time, the market price of one bitcoin reported on the Coinbase exchange was ~~$59,111.02.~~$20,369.41.

As a global leader in enterprise analytics software and services, our vision is to enable Intelligence Everywhere. Our core offering, the MicroStrategy ~~2021~~^™,platform, helps achieve this vision ~~by delivering~~for our enterprise customers around the world. It delivers actionable intelligence and modern analytics on an open, comprehensive enterprise platform. The MicroStrategy ~~2021 allows~~platform empowers our customers to quickly build and deploy high-performance, governed, and secure applications that can scale across their enterprises.

Our core product offering is our software platform. In ~~December 2020,~~2021, we ~~released MicroStrategy 2021,~~moved to a monthly release cadence to enable the ~~newest release~~same functionality, security, and stability enhancements that we have historically delivered for our platform in annual releases, without the friction of ~~our flagship enterprise analytics~~a single, annual release. Our platform ~~which provides customers with~~features the ~~following features:~~following:

Our customers include leading global organizations from a wide range of industries, including retail, consulting, technology, manufacturing, banking, insurance, finance, healthcare, telecommunications, as well as the public sector.

To stand apart in a highly competitive market, we depend on the effectiveness with which we can differentiate our offerings from those of large software vendors that provide products across multiple lines of business, including one or more products that directly compete with our offerings, and other potential competitors across analytics implementation projects of varying sizes.

The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption despite progress made in the development and distribution of ~~vaccines.~~vaccines and therapeutic treatments. It has ~~already disrupted global travel and~~continued to disrupt supply chains and has adversely impacted global commercial activity. Although many jurisdictions, including the United States, have substantially lifted COVID-19 travel restrictions, some restrictions do remain. Considerable uncertainty ~~still surrounds~~continues to surround COVID-19, the evolution of its variants, its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses and of various efforts to inoculate the global ~~population. The travel restrictions, limits on hours of operations and/or closures of non-essential businesses,~~population and ~~other efforts to curb the spread of COVID-19 have significantly disrupted business activity globally and there is uncertainty as to when these disruptions will fully subside.~~develop effective treatments.

Significant uncertainty continues to exist concerning the impact of the COVID-19 pandemic on our customers’ and prospects’ business and operations in future periods. Although our total revenues for the three and nine months ended September 30, 2022 and 2021 were not materially impacted by COVID-19, ~~we believe~~ our revenues may be negatively impacted in future periods until the effects of the pandemic and the efforts to address it have fully subsided and the current macroeconomic environment has substantially recovered. The uncertainty related to COVID-19 may also result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements.

We ~~have~~ adapted our operations to meet the challenges of ~~this uncertain and rapidly evolving situation,~~the pandemic, including establishing ~~remote~~flexible working arrangements for our employees, ~~limiting non-essential~~reducing business travel, and ~~cancelling or~~ shifting certain of our customer, employee, and industry events to ~~a virtual-only format for the foreseeable future.~~

We have received, and may continue to receive, government assistance from various relief packages available in countries where we operate. For example, in the United States, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 to provide broad-based economic relief to various sectors of the U.S. economy through a variety of means, including payroll and income tax deferrals and employee retention credits.We deferred payment of $4.6 million of our employer portion of U.S. social security taxes accrued through December 31, 2020, half of which we expect to pay by December 31, 2021 and the remainder by December 31, 2022. Where taxes payable to government entities have been deferred to a later date, no reduction of expenses has been recorded.virtual formats.

Effects of the COVID-19 pandemic that may negatively impact our business in future periods include, but are not limited to: limitations on the ability of our customers to conduct their business, purchase our products and services, and make timely payments; curtailed consumer spending; deferred purchasing decisions; delayed consulting services implementations; ~~and~~ decreases in product licenses revenues driven by channel ~~partners.~~partners, and compliance costs and business disruptions associated with certain government requirements and recommendations adopted in response to the pandemic. We will continue to actively monitor the nature and extent of the impact to our business, operating results, and financial condition.

The following table sets forth certain operating highlights (in thousands) for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

We have incurred and may continue to incur significant impairment losses on our digital assets and we may recognize gains upon sale of our digital assets in the future, which would be presented net of any impairment losses within operating expenses. In addition, we base our internal operating expense forecasts on expected revenue trends and strategic objectives in our enterprise analytics software business. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed. Accordingly, any decrease in the price of bitcoin during any quarter, any sales by us of our bitcoin at prices above their then current carrying costs or any shortfall in revenue in our software business may cause significant variation in our operating results. We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance.

As of September 30, ~~2021,~~2022, we had a total of ~~2,057~~2,172 employees, of whom ~~787~~765 were based in the United States and ~~1,270~~1,407 were based internationally. The following table summarizes employee headcount as of the dates indicated:

As discussed in Note ~~10,~~8, Share-based Compensation, to the Consolidated Financial Statements, we have outstanding stock options to purchase shares of our class A common stock, restricted stock units, each of which represents a right to receive a share of our class A common stock upon the satisfaction of applicable vesting requirements, and certain other stock-based awards under our 2013 Equity Plan, as well as opportunities for eligible employees to purchase shares of our class A common stock under our 2021 ESPP. Share-based compensation expense (in thousands) from these awards was recognized in the following cost of revenues and operating expense line items in our Consolidated Statements of Operations for the periods indicated:

The $4.7 million and $15.6 million increases in share-based compensation expense during the three and nine months ended September 30, 2022, respectively, as compared to the same periods in the prior year, are primarily due to the continued expansion of our equity award programs worldwide. As of September 30, ~~2021,~~2022, we estimated that an aggregate of approximately ~~$151.1~~$184.9 million of additional share-based compensation expense associated with the 2013 Equity Plan and the 2021 ESPP will be recognized over a remaining weighted average period of ~~3.3~~2.9 years.

We are providing supplemental financial measures for (i) non-GAAP income (loss) from operations that excludes the impact of our share-based compensation expense, ~~and impairment losses and gains on sale from intangible assets, which include our digital assets,~~ (ii) non-GAAP net ~~income~~loss and non-GAAP diluted ~~earnings~~loss per share that exclude the ~~impact~~impacts of our share-based compensation expense, ~~impairment losses and gains on sale from intangible assets, which include our digital assets,~~ interest expense arising from the amortization of debt issuance costs on our long-term debt, and related income tax effects, and (iii) certain non-GAAP constant currency revenues, cost of revenues, and operating expenses that exclude foreign currency exchange rate fluctuations. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions.

We believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. The first supplemental financial measure excludes ~~(i)~~ a significant non-cash expense that we believe is not reflective of our general business performance, and for which the accounting requires management judgment and the resulting share-based compensation expense could vary significantly in comparison to other ~~companies and (ii) significant impairment losses and gains on sale from intangible assets, which include our bitcoin.~~companies. The second set of supplemental financial measures excludes the ~~impact~~impacts of (i) share-based compensation expense, (ii) ~~impairment losses and gains on sale from intangible assets, which include~~ ~~our bitcoin, (iii)~~ non-cash interest expense arising from the amortization of debt issuance costs related to our long-term debt, and ~~(iv)~~(iii) related income tax effects. The third set of supplemental financial measures excludes changes resulting from fluctuations in foreign currency exchange rates so that results may be compared to the same period in the prior year on a non-GAAP constant currency basis. We believe the use of these non-GAAP financial measures can also facilitate comparison of our operating results to those of our competitors.With respect to the exclusion of impairment losses on bitcoin in the first two supplemental financial measures, we also believe that adjusting our operating results to remove GAAP impairment losses aligns with our corporate strategy of acquiring and holding bitcoin because the impairment losses do not account for the subsequent increases in market value we have experienced while holding our bitcoin. In addition, in conjunction with other excluded items, the exclusion of impairment losses on bitcoin helps to provide greater transparency on the operating results from our enterprise analytics software business.

Non-GAAP financial measures are subject to material limitations as they are not ~~in accordance with, or a substitute for,~~ measurements prepared in accordance with ~~GAAP.~~GAAP, and are not a substitute for such measurements. For example, we expect that share-based compensation expense, which is excluded from the first two non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors. Similarly, we expect that interest expense arising from the amortization of debt issuance costs will continue to be a recurring expense over the term of the long-term debt. We have also excluded impairment losses and gains on sale from intangible assets from the first two non-GAAP financial measures, either of which may occur in future periods as a result of our continued holdings of significant amounts of bitcoin. Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP. We rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP financial measures only supplementally.

The following is a reconciliation of our non-GAAP income (loss) from operations, which excludes the impact of ~~(i)~~ share-based compensation expense, ~~and (ii) impairment losses and gains on sale from intangible assets, which include our digital assets,~~ to its most directly comparable GAAP measures (in thousands) for the periods indicated:

The following are reconciliations of our non-GAAP net ~~income~~loss and non-GAAP diluted ~~earnings~~loss per share, in each case excluding the ~~impact~~impacts of (i) share-based compensation expense, (ii) ~~impairment losses and gains on sale from intangible assets, which include our digital assets, (iii)~~ interest expense arising from the amortization of debt issuance costs on our long-term debt, and ~~(iv)~~(iii) related income tax effects to their most directly comparable GAAP measures (in thousands, except per share data) for the periods indicated:

The following are reconciliations of certain non-GAAP constant currency revenues, cost of revenues, and operating expenses to their most directly comparable GAAP measures (in thousands) for the periods indicated:

	Three Months Ended															Three Months Ended
	September 30,															September 30,
	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)			GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2021		2021			2021		2020		2021			2021			2022		2022			2022		2021		2022			2022
Product licenses revenues	$	25,830	$	(146	)	$	25,976	$	29,573		-12.7	%		-12.2	%	$	22,286	$	(1,219	)	$	23,505	$	25,830		-13.7	%		-9.0	%
Subscription services revenues		10,853		110			10,743		8,305		30.7	%		29.4	%		16,414		(828	)		17,242		10,853		51.2	%		58.9	%
Product support revenues		70,387		450			69,937		71,352		-1.4	%		-2.0	%		66,010		(3,848	)		69,858		70,387		-6.2	%		-0.8	%
Other services revenues		20,924		143			20,781		18,178		15.1	%		14.3	%		20,650		(1,747	)		22,397		20,924		-1.3	%		7.0	%
Cost of product support revenues		4,679		(18	)		4,697		5,679		-17.6	%		-17.3	%		5,224		(329	)		5,553		4,679		11.6	%		18.7	%
Cost of other services revenues		12,975		(53	)		13,028		11,856		9.4	%		9.9	%		13,360		(1,444	)		14,804		12,975		3.0	%		14.1	%
Sales and marketing expenses		38,209		(64	)		38,273		35,330		8.1	%		8.3	%		35,409		(1,833	)		37,242		38,209		-7.3	%		-2.5	%
Research and development expenses		28,211		399			27,812		26,638		5.9	%		4.4	%		30,498		(755	)		31,253		28,211		8.1	%		10.8	%
General and administrative expenses		23,751		60			23,691		19,733		20.4	%		20.1	%		27,283		(545	)		27,828		23,751		14.9	%		17.2	%

	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)			GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2020		2020			2020		2019		2020			2020			2021		2021			2021		2020		2021			2021
Product licenses revenues	$	29,573	$	(341	)	$	29,914	$	18,972		55.9	%		57.7	%	$	25,830	$	(146	)	$	25,976	$	29,573		-12.7	%		-12.2	%
Subscription services revenues		8,305		91			8,214		7,894		5.2	%		4.1	%		10,853		110			10,743		8,305		30.7	%		29.4	%
Product support revenues		71,352		670			70,682		72,885		-2.1	%		-3.0	%		70,387		450			69,937		71,352		-1.4	%		-2.0	%
Other services revenues		18,178		269			17,909		19,942		-8.8	%		-10.2	%		20,924		143			20,781		18,178		15.1	%		14.3	%
Cost of product support revenues		5,679		3			5,676		6,922		-18.0	%		-18.0	%		4,679		(18	)		4,697		5,679		-17.6	%		-17.3	%
Cost of other services revenues		11,856		88			11,768		12,478		-5.0	%		-5.7	%		12,975		(53	)		13,028		11,856		9.4	%		9.9	%
Sales and marketing expenses		35,330		(235	)		35,565		43,935		-19.6	%		-19.1	%		38,209		(64	)		38,273		35,330		8.1	%		8.3	%
Research and development expenses		26,638		95			26,543		27,457		-3.0	%		-3.3	%		28,211		399			27,812		26,638		5.9	%		4.4	%
General and administrative expenses		19,733		(69	)		19,802		19,900		-0.8	%		-0.5	%		23,751		60			23,691		19,733		20.4	%		20.1	%

	Nine Months Ended															Nine Months Ended
	September 30,															September 30,
	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)			GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2021		2021			2021		2020		2021			2021			2022		2022			2022		2021		2022			2022
Product licenses revenues	$	69,261	$	311		$	68,950	$	56,973		21.6	%		21.0	%	$	58,928	$	(2,315	)	$	61,243	$	69,261		-14.9	%		-11.6	%
Subscription services revenues		31,221		564			30,657		24,294		28.5	%		26.2	%		43,276		(1,516	)		44,792		31,221		38.6	%		43.5	%
Product support revenues		212,063		4,792			207,271		212,548		-0.2	%		-2.5	%		199,682		(8,547	)		208,229		212,063		-5.8	%		-1.8	%
Other services revenues		63,702		1,524			62,178		55,601		14.6	%		11.8	%		64,824		(3,914	)		68,738		63,702		1.8	%		7.9	%
Cost of product support revenues		14,353		123			14,230		19,234		-25.4	%		-26.0	%		15,542		(696	)		16,238		14,353		8.3	%		13.1	%
Cost of other services revenues		40,543		819			39,724		37,795		7.3	%		5.1	%		42,107		(3,260	)		45,367		40,543		3.9	%		11.9	%
Sales and marketing expenses		116,728		1,348			115,380		109,799		6.3	%		5.1	%		105,511		(4,150	)		109,661		116,728		-9.6	%		-6.1	%
Research and development expenses		86,242		1,502			84,740		78,606		9.7	%		7.8	%		95,811		(1,185	)		96,996		86,242		11.1	%		12.5	%
General and administrative expenses		68,397		406			67,991		60,514		13.0	%		12.4	%		82,491		(1,200	)		83,691		68,397		20.6	%		22.4	%

	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)			GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2020		2020			2020		2019		2020			2020			2021		2021			2021		2020		2021			2021
Product licenses revenues	$	56,973	$	(1,537	)	$	58,510	$	57,384		-0.7	%		2.0	%	$	69,261	$	311		$	68,950	$	56,973		21.6	%		21.0	%
Subscription services revenues		24,294		9			24,285		22,142		9.7	%		9.7	%		31,221		564			30,657		24,294		28.5	%		26.2	%
Product support revenues		212,548		(1,671	)		214,219		217,313		-2.2	%		-1.4	%		212,063		4,792			207,271		212,548		-0.2	%		-2.5	%
Other services revenues		55,601		(229	)		55,830		55,957		-0.6	%		-0.2	%		63,702		1,524			62,178		55,601		14.6	%		11.8	%
Cost of product support revenues		19,234		(175	)		19,409		21,710		-11.4	%		-10.6	%		14,353		123			14,230		19,234		-25.4	%		-26.0	%
Cost of other services revenues		37,795		(605	)		38,400		41,055		-7.9	%		-6.5	%		40,543		819			39,724		37,795		7.3	%		5.1	%
Sales and marketing expenses		109,799		(2,340	)		112,139		140,968		-22.1	%		-20.5	%		116,728		1,348			115,380		109,799		6.3	%		5.1	%
Research and development expenses		78,606		(370	)		78,976		83,436		-5.8	%		-5.3	%		86,242		1,502			84,740		78,606		9.7	%		7.8	%
General and administrative expenses		60,514		(492	)		61,006		63,684		-5.0	%		-4.2	%		68,397		406			67,991		60,514		13.0	%		12.4	%

Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and equity, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates, particularly estimates relating to revenue recognition and, in the prior year only, to our Convertible Notes prior to the adoption of ASU 2020-06, have a material impact on our Consolidated Financial Statements. Actual results and outcomes could differ from these estimates and assumptions.

~~The section “Critical~~Critical accounting estimates involve a significant level of estimation uncertainty and are estimates that have had or are reasonably likely to have a material impact on our financial condition or results of operations. We consider certain estimates and judgments related to revenue recognition to be critical accounting estimates for us, as discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting ~~Policies”~~Estimates” included in ~~Item 7 of~~ our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020 provides a more detailed explanation of the judgments made and a discussion of our accounting estimates and policies relating to revenue recognition.~~2021. There have been no significant changes in such estimates and ~~policies~~judgments since December 31, ~~2020.~~2021.

Comparison of the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021

Except as otherwise indicated herein, the term “domestic” refers to operations in the United States and Canada and the term “international” refers to operations outside of the United States and Canada.

Product licenses and subscription services revenues. The following table sets forth product licenses and subscription services revenues (in thousands) and related percentage changes for the periods indicated:

The following table sets forth a summary, grouped by size, of the number of recognized product licenses transactions for the periods indicated:

The following table sets forth the recognized revenue (in thousands) attributable to product licenses transactions, grouped by size, and related percentage changes for the periods indicated:

Product licenses revenues decreased ~~$3.7~~$3.5 million and ~~increased $12.3~~$10.3 million for the three and nine months ended September 30, ~~2021,~~2022, respectively, as compared to the same periods in the prior year. For the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, product licenses transactions with more than $0.5 million in recognized revenue represented ~~38.2%~~41.9% and ~~58.7%~~38.2%, respectively, of our product licenses revenues. For the nine months ended September 30, ~~2021,~~2022, our top three product licenses transactions totaled ~~$10.1~~$12.1 million in recognized revenue, or ~~14.6%~~20.5% of total product licenses revenues, compared to ~~$14.7~~$10.1 million, or ~~25.8%~~14.6% of total product licenses revenues, for the nine months ended September 30, ~~2020.~~2021.

Domestic product licenses revenues. Domestic product licenses revenues decreased ~~$6.2~~$1.1 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a decrease in the average deal size of transactions with more than $1.0 million in recognized revenue (in particular, from one deal in the third quarter of 2020 that resulted in $9.8 million in recognized revenue in the prior year period) and a decrease in the number of transactions, ~~with recognized revenue between $0.5 million and $1.0 million,~~ partially offset by an increase in the average deal size of transactions with ~~less~~more than ~~$0.5~~$1.0 million in recognized revenue. Domestic product licenses revenues increased ~~$4.4~~$0.6 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to an increase in the average deal size of transactions, ~~with less than $0.5 million in recognized revenue and an increase~~partially offset by a decrease in the number of ~~transactions with more than $0.5 million in recognized revenue.~~transactions.

International product licenses revenues. International product licenses revenues ~~increased $2.5~~decreased $2.4 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to ~~an increase~~a decrease in the number of transactions with less than $0.5 million in recognized revenue and more than $1.0 million in recognized revenue, and a $1.2 million unfavorable foreign currency exchange impact, partially offset by ~~a decrease~~an increase in the number of transactions with more than $0.5 million in recognized revenue ~~between $0.5~~and less than $1.0 million ~~and $1.0 million.~~in recognized revenue. International product licenses revenues ~~increased $7.9~~decreased $10.9 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to ~~an increase~~a decrease in the number of transactions ~~with less than $0.5~~and a $2.3 million ~~in recognized revenue.~~unfavorable foreign currency exchange impact.

Subscription services revenues. Subscription services revenues are derived from ~~the MicroStrategy Cloud Environment, a~~our MCE cloud subscription service and are recognized ratably over the service period in the contract. Subscription services revenues increased ~~$2.5~~$5.6 million for the three months ended September 30, 2021, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers and an increase in the use of subscription services by existing customers. Subscription services revenues increased $6.9 million for the nine months ended September 30, 2021,2022, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, an increase in the use of subscription services by existing customers, and sales contracts with new customers, partially offset by a ~~$0.6~~$0.8 million ~~favorable~~unfavorable foreign currency exchange impact. Subscription services revenues increased $12.1 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to conversions to cloud-based subscriptions from existing on-premises customers, an increase in the use of subscription services by existing customers, and sales contracts with new customers, partially offset by a $1.5 million unfavorable foreign currency exchange impact. We expect our subscription services revenues to continue to grow in future periods as we continue to promote our cloud offering to new and existing customers.

Product support revenues. The following table sets forth product support revenues (in thousands) and related percentage changes for the periods indicated:

Product support revenues are derived from providing technical software support and software updates and upgrades to customers. Product support revenues are recognized ratably over the term of the contract, which is generally one year. Product support revenues decreased ~~$1.0~~$4.4 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a $3.8 million unfavorable foreign currency exchange impact and certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses offerings. Product support revenues ~~did not materially change~~decreased $12.4 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to an $8.5 million unfavorable foreign currency exchange impact and certain existing customers converting from perpetual product licenses with separate support contracts to our subscription services or term product licenses ~~offerings, substantially offset by a $4.8 million favorable foreign currency exchange impact.~~offerings.

Other services revenues. The following table sets forth other services revenues (in thousands) and related percentage changes for the periods indicated:

Consulting revenues. Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues ~~increased $2.8 million~~did not materially change for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a $1.7 million unfavorable foreign currency exchange impact having been substantially offset by an increase in average bill rates and an increase in billable hours ~~worldwide, partially offset by a decrease in average bill rates and a decrease in billable travel and entertainment expenditures.~~worldwide. Consulting revenues increased ~~$8.1~~$1.2 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to an increase in billable hours worldwide and ~~a $1.4 million favorable foreign currency exchange impact,~~an increase in average bill rates, partially offset by a ~~decrease in average bill rates and a decrease in billable travel and entertainment expenditures.~~$3.8 million unfavorable foreign currency exchange impact.

Education revenues. Education revenues are derived from the education and training that we provide to our customers to enhance their ability to fully utilize the features and functionality of our software. These offerings include self-tutorials, custom course development, joint training with customers’ internal staff, and standard course offerings, with pricing dependent on the specific offering delivered. Education revenues did not materially change for the three and nine months ended September 30, ~~2021,~~2022, as compared to the same periods in the prior year.

Cost of revenues. The following table sets forth cost of revenues (in thousands) and related percentage changes for the periods indicated:

Cost of product licenses revenues. Cost of product licenses revenues consists of referral fees paid to channel partners, the costs of product manuals and media, and royalties paid to third-party software vendors. Cost of product licenses revenues did not materially change for the three and nine months ended September 30, ~~2021,~~2022, as compared to the same periods in the prior year.

Cost of subscription services revenues. Cost of subscription services revenues consists of equipment, facility and other related support costs, and personnel and related overhead costs. Subscription services headcount increased ~~31.5%~~33.8% to 95 at September 30, 2022 from 71 at September 30, ~~2021 from 54 at September 30, 2020.~~2021. Cost of subscription services revenues increased ~~$0.6~~$2.1 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$1.0~~$1.4 million increase in ~~technology~~cloud hosting infrastructure ~~costs.~~costs, which is a result of the increased usage by new and existing cloud subscription services customers, and a $0.5 million increase in employee salaries primarily attributable to an increase in average staffing levels and wage increases. Cost of subscription services revenues ~~did not materially change~~increased $5.6 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$1.6~~$3.6 million increase in ~~technology~~cloud hosting infrastructure costs, ~~partially offset~~which is a result of the increased usage by new and existing cloud subscription services customers, a ~~$1.3~~$1.4 million ~~decrease~~increase in ~~compensation and related costs due~~employee salaries primarily attributable to ~~a decrease~~an increase in average staffing ~~levels.~~levels and wage increases, and a $0.5 million increase in variable compensation.

Cost of product support revenues. Cost of product support revenues consists of personnel and related overhead costs, including those under our Enterprise Support program. Our Enterprise Support program utilizes primarily consulting personnel to provide product support to our customers at our discretion. Compensation related to personnel providing Enterprise Support services is reported as cost of product support revenues. Product support headcount ~~was 165 as of both~~increased 3.6% to 171 at September 30, ~~2021 and 2020.~~2022 from 165 at September 30, 2021. Cost of product support revenues ~~decreased $1.0~~increased $0.5 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year. Cost of product support revenues increased $1.2 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a ~~$1.0~~$0.8 million increase in employee salaries primarily attributable to wage increases, and a $0.7 million net increase in share-based compensation expense, partially offset by a $0.5 million decrease in compensation and related costs attributable to non-product support personnel providing a decreased level of Enterprise Support services. Cost of product support revenues decreased $4.9 million for the nine months ended September 30, 2021, as compared to the same period in the prior year, primarily due to a $3.0 million decrease in compensation and related costs due to a decrease in product support average staffing levels, a $1.9 million decrease in compensation and related costs attributable to non-product support personnel providing a decreased level of Enterprise Support services, and a $0.6 million decrease in facility and other related support costs, partially offset by a $0.7 million net increase in share-based compensation expense. The $0.7 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan. Included cost of product support revenues for the nine months ended September 30, 2022 is an aggregate $0.7 million favorable foreign currency exchange impact.

Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs, excluding those under our Enterprise Support program which are allocated to cost of product support revenues. Consulting headcount ~~decreased 1.0%~~increased 15.3% to 453 at September 30, 2022 from 393 at September 30, ~~2021 from 397 at September 30, 2020.~~2021. Cost of consulting revenues increased ~~$1.4~~$0.5 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year. Included in cost of consulting revenues for the three months ended September 30, 2022 is an aggregate $1.4 million favorable foreign currency exchange impact. Cost of consulting revenues increased $1.9 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a ~~$1.0 million increase in subcontractor costs and a~~ $0.9 million increase in ~~compensation and related costs~~employee salaries primarily attributable to ~~consulting personnel providing a decreased level of Enterprise Support services, partially offset by a $0.5 million decrease in compensation and related costs due to a decrease~~an increase in average staffing levels. Cost of consulting revenues increased $4.6 million for the nine months ended September 30, 2021, as compared to the same period in the prior year, primarily due to a $3.3 million increase in subcontractor costs, a $1.6 million increase in compensationlevels and ~~related costs attributable to~~ consulting personnel providing a decreased level of Enterprise Support services, and a ~~$0.4~~$0.9 million net increase in ~~variable~~share-based compensation ~~partially offset by a $1.0~~expense. The $0.9 million ~~decrease~~net increase in ~~travel and entertainment expenditures.~~share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan. Included in cost of consulting revenues for the nine months ended September 30, ~~2021~~2022 is an aggregate ~~$0.8~~$3.1 million ~~unfavorable~~favorable foreign currency exchange impact.

Cost of education revenues. Cost of education revenues consists of personnel and related overhead ~~costs and technology infrastructure~~ costs. Education headcount decreased ~~5.3%~~38.9% to 22 at September 30, 2022 from 36 at September 30, ~~2021 from 38 at September 30, 2020.~~2021. Cost of education revenues did not materially change for the three and nine months ended September 30, ~~2021,~~2022, as compared to the same ~~period~~periods in the prior year. ~~Cost of education revenues decreased $1.8 million for the nine months ended September 30, 2021, as compared to the same period in the prior~~

year, primarily due to a $0.8 million decrease in technology infrastructure costs associated with education offerings that we made available at no charge for a limited time period during the first half of 2020 in response to the COVID-19 pandemic and a $0.6 million decrease in compensation and related costs due to a decrease in average staffing levels.

Sales and marketing expenses. Sales and marketing expenses consist of personnel costs, commissions, office facilities, travel, advertising, public relations programs, and promotional events, such as trade shows, seminars, and technical conferences. Sales and marketing headcount decreased 4.4% to 452 at September 30, 2022 from 473 at September 30, ~~2021 from 495 at September 30, 2020.~~2021. The following table sets forth sales and marketing expenses (in thousands) and related percentage changes for the periods indicated:

Sales and marketing expenses ~~increased $2.9~~decreased $2.8 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$3.4~~$3.6 million decrease in variable compensation, which decrease was primarily attributable to a net increase in capitalized commissions and a decrease in other personnel costs, and a $0.5 million decrease in employee salaries, which decrease was primarily attributable to a decrease in average staffing levels, partially offset by wage increases. These decreases were partially offset by a $1.3 million net increase in share-based compensation expense and a $0.5 million increase in ~~marketing~~travel and ~~advertising costs, partially offset by a $1.0 million decrease in compensation and related costs due to a decrease in average staffing levels.~~entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted. The ~~$3.4~~$1.3 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan.Included in sales and marketing expenses for the three months ended September 30, 2022 is an aggregate $1.8 million favorable foreign currency exchange impact.

Sales and marketing expenses ~~increased $6.9~~decreased $11.2 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$10.1~~$14.8 million ~~increase~~decrease in variable compensation, ~~and an $8.2 million~~which decrease was primarily attributable to a net increase in ~~share-based compensation expense, partially offset by~~capitalized commissions and decreases in other personnel costs and employee relations expenses, a ~~$5.6~~$0.9 million decrease in employee salaries, ~~due~~which decrease was primarily attributable to a decrease in average staffing levels, partially offset by wage increases, and a ~~$3.1 million decrease in travel and entertainment expenditures, a $1.5~~$0.7 million decrease in facility and other related support costs, partially offset by a ~~$0.8~~$4.4 million ~~decrease~~net increase in ~~marketing and advertising costs,~~share-based compensation expense and a ~~$0.5~~$1.3 million ~~decrease~~increase in ~~subcontractor costs.~~travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted. The ~~$8.2~~$4.4 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by the forfeiture of certain awards and the ~~2021 ESPP.~~fair value remeasurement of certain liability-classified awards at the end of the reporting period. Included in sales and marketing expenses for the nine months ended September 30, ~~2021~~2022 is an aggregate ~~$1.3~~$4.2 million ~~unfavorable~~favorable foreign currency exchange impact.

Research and development expenses. Research and development expenses consist of the personnel costs for our software engineering personnel, depreciation of equipment, and other related costs. Research and development headcount ~~decreased 0.8%~~increased 7.7% to 712 at September 30, 2022 from 661 at September 30, ~~2021 from 666 at September 30, 2020.~~2021. The following table summarizes research and development expenses (in thousands) and related percentage changes for the periods indicated:

Research and development expenses increased ~~$1.6~~$2.3 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$2.3~~$1.7 million increase in employee salaries primarily attributable to wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, and a $0.8 million net increase in share-based compensation ~~expense, partially offset by a $0.5 million decrease in facility and other related support costs.~~expense. The ~~$2.3~~$0.8 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan. Included in research and development expenses for the three months ended September 30, 2022 is an aggregate $0.8 million favorable foreign currency exchange impact.

Research and development expenses increased ~~$7.6~~$9.6 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$5.7~~$6.7 million increase in employee salaries primarily attributable to wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, and a $2.7 million net increase in share-based compensation expense, a $2.1 million increase in variable compensation which, in the nine months ended September 30, 2020, included certain COVID-19-related employer payroll tax exemptions in the Asia Pacific region, and a $0.5 million increase in technology infrastructure costs, partially offset by a ~~$0.6~~$0.9 million decrease in facility and other related support costs. The ~~$5.7~~$2.7 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by certain awards that became fully vested and the ~~2021 ESPP.~~fair value remeasurement of certain liability-classified awards at the end of the

reporting period. Included in research and development expenses for the nine months ended September 30, ~~2021~~2022 is an aggregate ~~$1.5~~$1.2 million ~~unfavorable~~favorable foreign currency exchange impact.

General and administrative expenses. General and administrative expenses consist of personnel and related overhead costs, and other costs of our executive, finance, human resources, information systems, and administrative departments, as well as third-party consulting, legal, and other professional fees. General and administrative headcount ~~was 258 as of both~~increased 3.5% to 267 at September 30, ~~2021 and 2020.~~2022 from 258 at September 30, 2021. The following table sets forth general and administrative expenses (in thousands) and related percentage changes for the periods indicated:

General and administrative expenses increased ~~$4.0~~$3.5 million for the three months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$3.3~~$2.1 million net increase in share-based compensation expense, ~~and~~ a ~~$1.8~~$0.6 million increase in ~~legal, consulting,~~facility and other ~~advisory~~related support costs, and a $0.5 million increase in compensation and related costs, partially offset by a ~~$0.9~~$0.6 million decrease in ~~compensation and related costs due to a decrease in average staffing levels and a $0.8 million decrease in bad debt expense.~~custodial fees incurred on our bitcoin holdings. The ~~$3.3 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan.~~

General and administrative expenses increased $7.9 million for the nine months ended September 30, 2021, as compared to the same period in the prior year, primarily due to an $8.0 million net increase in share-based compensation expense and a $4.9 million increase in legal, consulting, and other advisory costs, partially offset by a $3.6 million decrease in compensation and related costs due to a decrease in average staffing levels, and a $1.3 million decrease in bad debt expense. The $8.0$2.1 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by certain awards ~~becoming~~that became fully vested. Included in general and administrative expenses for the three months ended September 30, 2022 is an aggregate $0.5 million favorable foreign currency exchange impact.

General and administrative expenses increased $14.1 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a $6.8 million net increase in share-based compensation expense, a $2.8 million increase in costs related to the maintenance and operations of our corporate aircraft, a $1.7 million increase in facility and other related support costs, a $1.4 million increase in legal, consulting, and other advisory costs which includes costs from executing our bitcoin acquisition strategy, a $1.0 million increase in employee salaries primarily attributable to wage increases and an increase in average staffing levels, partially offset by a shift in staffing levels to lower cost regions, a $0.8 million increase in travel and entertainment expenditures that were undertaken as various COVID-19-related restrictions were lifted, and a $0.6 million increase in bad debt expense, partially offset by a $1.7 million decrease in custodial fees incurred on our bitcoin holdings. The $6.8 million net increase in share-based compensation expense is primarily due to the grant of additional awards under the 2013 Equity Plan, partially offset by certain awards that became fully vested. Included in general and administrative expenses for the nine months ended September 30, 2022 is an aggregate $1.2 million favorable foreign currency exchange impact.

Digital asset impairment losses. Digital asset impairment losses are recognized when the carrying value of our digital assets exceeds their lowest fair value at any time since their acquisition. Impaired digital assets are written down to fair value at the time of impairment, and such impairment loss cannot be recovered for any subsequent increases in fair value. The following table sets forth digital asset impairment losses (in thousands) and related percentage changes for the periods indicated:

We did not sell any of our digital assets during the three and nine months ended September 30, 2022 and 2021.

We may continue to incur significant digital asset impairment losses in the future.

For the three and nine months ended September 30, 2022, interest expense, net, of $14.1 million and $38.3 million, respectively, was primarily related to the contractual interest expense and amortization of issuance costs related to our long-term debt arrangements. For the three and nine months ended September 30, 2021, interest expense, net, of $10.7 million and $17.5 million, respectively, ~~were~~was primarily related to the contractual interest expense and the amortization of issuance costs related to our long-term debt arrangements. Refer to Note 6,4, Long-term Debt, to the Consolidated Financial Statements for further information.

For the three ~~months ended September 30, 2020, interest income, net, was not material. For the~~and nine months ended September 30, ~~2020, interest~~2022, other income, net, of ~~$2.6~~$4.9 million ~~was~~and $12.2 million, respectively, were comprised primarily ~~related to interest earned on cash and cash equivalents balances and the amortization~~ of ~~the discount on our short-term investments.~~

foreign currency transaction net gains. For the three and nine months ended September 30, 2021, other income, net, of $1.3 million and $1.6 million, respectively, were comprised primarily of foreign currency transaction net gains. ~~For the three and nine months ended September 30, 2020 other expense, net, of $3.0 million and $4.5 million, respectively, were comprised primarily of foreign currency transaction net losses.~~

~~In determining our tax~~We recorded a provision ~~or benefit from~~for income taxes ~~we estimate an annual effective tax rate~~of $112.0 million on a pretax loss of $1.108 billion for the full fiscal year and apply that rate to our income or loss before income taxes. We also record discrete items in each respective period as appropriate. The estimated effective tax rate is subject to fluctuation based on the level and mix of earnings and losses by tax jurisdiction, foreign tax rate differentials, and the relative impact of permanent book to tax differences (e.g., non-deductible expenses). Each quarter, a cumulative adjustment is recorded for any fluctuations in the estimated annual effective tax rate as compared to the prior quarter. As a result of these factors, and due to potential changes in our period-to-period results, fluctuations in our effective tax rate and respective tax provisions or benefits may occur.

~~For~~ the nine months ended September 30, ~~2021, we recorded~~2022 and a benefit from income taxes of $217.4 million ~~that resulted in an effective tax rate~~on a pretax loss of ~~32.8%, as compared to a benefit from income taxes of $5.7~~$662.9 million ~~that resulted in an effective tax rate of 36.0%~~ for the nine months ended September 30, ~~2020. The change~~2021. Our provision for income taxes increased from the same period in the ~~effective tax rate in 2021 is mainly~~prior year primarily due to ~~certain discrete items and~~ the ~~change~~establishment of a valuation allowance on our deferred tax asset related to the impairment on our bitcoin holdings, attributable to the decrease in the ~~expected proportion~~market value of ~~U.S. versus foreign income between periods.~~bitcoin as of September 30, 2022.

As of September 30, 2021, we estimated that we had NOL carryforwards, other temporary differences and carryforwards, and credits that resulted in deferred tax assets, net of valuation allowances and deferred tax liabilities, of $259.3 million.

~~As of September 30, 2021,~~2022, we had a valuation allowance of ~~$1.3~~$411.8 million primarily related to ~~certain foreign~~our deferred tax ~~credit carryforwards~~asset related to the impairment on our bitcoin holdings that, in our present estimation, more likely than not will not be realized. If the market value of bitcoin continues to decline or we are unable to regain ~~or increase~~ profitability in future periods, we may be required to increase further the valuation allowance against our deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred. To the extent the market value of bitcoin rises we may decrease the valuation allowance against our deferred tax asset. We will continue to regularly assess the realizability of deferred tax assets.

Our effective tax rate may fluctuate due to changes in our domestic and foreign earnings and losses, material discrete tax items, or a combination of these factors resulting from transactions or events.

Deferred revenue and advance payments represent amounts received or due from our customers in advance of our transferring our software or services to the customer. In the case of multi-year service ~~contracts~~contract arrangements, ~~the Company~~we generally ~~does~~do not invoice more than one year in advance of services and ~~does~~do not record deferred revenue for amounts that have not been invoiced. Revenue is subsequently recognized in the period(s) in which control of the software or services is transferred to the customer.

The following table summarizes deferred revenue and advance payments (in thousands), as of:

Total deferred revenue and advance payments decreased $36.9 million as of September 30, 2021, as compared to December 31, 2020, primarily due to the timing of product support and subscription services renewals and the presentation of multi-year contracts. The portions of ~~such~~ multi-year contracts that will be invoiced in the future are not presented on the balance sheet in “Accounts receivable, net” and “Deferred revenue and advance payments” and instead are included in the remaining performance obligation disclosure below. Total deferred revenue and advance payments decreased $43.3 million as of September 30, 2022, as compared to December 31, 2021, primarily due to a decrease in deferred product support revenue from the timing of product support renewals and an increase in conversions from on-premises to subscription services contracts and revenue recognized on previously deferred other services revenue, partially offset by an increase in deferred revenue from new subscription services contracts. Total deferred revenue and advance payments increased $5.7 million as of September 30, 2022, as compared to September 30, 2021, primarily due to an increase in deferred revenue from new subscription services contracts, partially offset by a decrease in deferred product support revenue from an increase in conversions from on-premises to subscription services contracts and revenue recognized on previously deferred product licenses and other services revenues. Included in our international deferred revenue balances at September 30, ~~2021 is a $3.3~~2022 are $9.9 million and $11.0 million unfavorable foreign currency ~~impact~~impacts from the general strengthening of the U.S. dollar compared to ~~the fourth quarter of 2020. The decrease in total deferred revenue~~December 31, 2021 and ~~advance payments as of~~ September 30, 2021, ~~as compared to September 30, 2020 was not material.~~respectively.

Our remaining performance obligation represents all future revenue under contract and includes deferred revenue and advance payments and billable non-cancelable amounts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation excludes contracts that are billed in arrears, such as certain time and materials contracts. As of September 30, ~~2021,~~2022, we had an aggregate transaction price of ~~$198.9~~$255.9 million allocated to the remaining performance obligation related to product support, subscription services, product licenses, and other services ~~and in limited cases, product licenses~~ contracts. We expect to recognize approximately ~~$168.3~~$190.6 million of the remaining performance obligation over the next 12 months and the remainder thereafter. However, the timing and ultimate recognition of our deferred revenue and advance payments and other remaining performance obligations depend on our satisfaction of various performance obligations, and the amount of deferred revenue and advance payments and remaining performance obligations at any date should not be considered indicative of revenues for any succeeding period.

Liquidity. Our principal sources of liquidity are cash and cash equivalents and on-going collection of our accounts receivable. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments, certificates of deposit, and U.S. Treasury securities. Under our Treasury Reserve Policy and bitcoin acquisition strategy, we use a significant portion of our cash, including cash generated from capital raising transactions, to acquire bitcoins, which are classified as indefinite-lived intangible assets. In September 2022, we entered into a new at-the-market equity offering program, pursuant to which we may from time-to-time issue and sell shares of our class A common stock having an aggregate offering price of up to $500.0 million. For additional information, see “At-the-Market Equity Offerings” below.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the amount of cash and cash equivalents held by our U.S. entities was ~~$16.4~~$27.3 million and ~~$13.7~~$13.1 million, respectively, and by our non-U.S. entities was ~~$40.6~~$33.1 million and ~~$46.0~~$50.3 million, respectively. We earn a significant amount of our revenues outside the United States. We repatriated foreign earnings and profits of ~~$186.6~~$57.5 million during ~~2020~~2021 and ~~$57.5~~$34.7 million during the nine months ended September 30, ~~2021. As~~2022.

The above items are explained in further detail in Note 4, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report as well as under “Item 7. Management’s Discussion and Analysis of ~~September 30,~~Financial Condition and Results of Operations—Liquidity and Capital Resources” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ~~the accumulated undistributed foreign earnings~~ and ~~profits is estimated to be $109.5 million. Beginning~~ in the third quarter of 2020, we determined to no longer permanently reinvest our foreign earnings and profits. Therefore, we accrued for foreign withholding tax and U.S. state income taxes on undistributed foreign earnings in additionNotes to the ~~Transition Tax~~Consolidated Financial Statements included therein. There have been no changes to our material contractual obligations and ~~GILTI tax.~~cash requirements since December 31, 2021, except for the issuance of the 2025 Secured Term Loan and other long-term secured debt, as described in Note 4, Long-term Debt, to the Consolidated Financial Statements.

We believe that existing cash and cash equivalents held by us and cash and cash equivalents anticipated to be generated by us are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months. Beyond the next 12 months, our long-term cash requirements are primarily for obligations related to our long-term debt. We have principal due upon maturity of our long-term debt instruments in the aggregate of $2.413 billion in addition to $2.4 million in coupon interest due each semi-annual period for the 2025 Convertible Notes, $15.3 million in coupon interest due each semi-annual period for the 2028 Secured Notes, an estimated $1.1 million due monthly in variable coupon interest for the 2025 Secured Term Loan (based on the interest rate in effect at September 30, 2022), and $0.1 million due monthly in principal and interest related to our other long-term secured debt. We also have long-term cash requirements for obligations related to our operating leases, the Transition Tax, and our various purchase agreements. If cash and cash equivalents generated by future operating activities are not sufficient to enable us to satisfy these obligations, we may seek to generate cash and cash equivalents from other sources. The sources could include the

sale of bitcoins, additional borrowings collateralized by our bitcoins, as well as the issuance and sale of shares of our class A common stock. Furthermore, if certain conditions are met, we may have the right to elect to settle the Convertible Notes upon a conversion of such Convertible Notes in shares of our class A common stock, or a combination of cash and shares of class A common stock, which may enable us to reduce the amount of our cash obligations under the Convertible Notes.

As of September 30, ~~2021,~~2022, we held approximately ~~114,042 bitcoins.~~130,000 bitcoins, of which approximately 85,059 are unencumbered. We do not believe we will need to sell or engage in other transactions with respect to any of our bitcoins within the next twelve months to meet our working capital requirements, although we may from time to time sell or engage in other transactions with respect to our bitcoins as part of treasury management operations, ~~including to increase our cash balances.~~as noted above. The bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of instability in the bitcoin market, we may not be able to sell our bitcoins at reasonable prices or at all. As a result, our bitcoins are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. In addition, upon sale of our bitcoin, we may incur additional taxes related to any realized gains or we may incur capital losses as to which the tax deduction may be limited.

On June 14, 2021, we entered into the Sale Agreement with Jefferies pursuant to which we may issue and sell shares of our class A common stock having an aggregate offering price of up to $1.0 billion from time to time through Jefferies. During the three and nine months ended September 30, 2021, we sold 555,179 shares of our class A common stock under the Sale Agreement, at an average gross price per share of approximately $727.64, for aggregate net proceeds (less $4.5 million in sales commissions and expenses) of approximately $399.5 million. As of September 30, 2021, approximately $596.0 million of our class A common stock remained available for issuance and sale pursuant to the Sale Agreement.

The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated:

Net cash provided by operating activities. The primary source of our cash provided by operating activities is cash collections of our accounts receivable from customers following the sales and renewals of our product licenses and product support, as well as consulting, education, and subscription services. Our primary uses of cash in operating activities are for personnel-related expenditures for software development, personnel-related expenditures for providing consulting, education, and subscription services, and for sales and marketing costs, general and administrative costs, income taxes, and ~~income taxes.~~interest expense related to our long-term debt arrangements. Non-cash items to further reconcile net loss to net cash provided by operating activities consist primarily of depreciation and amortization, reduction in the carrying amount of ~~ROU~~operating lease right-of-use assets, credit losses and sales allowances, deferred taxes, release of liabilities for unrecognized tax benefits, share-based compensation expense, digital asset impairment losses, and amortization of debt issuance costs on our long-term debt.

Net cash provided by operating activities ~~increased $62.3~~decreased $69.2 million for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, due to a ~~$458.1~~$774.6 million increase ~~from changes~~ in ~~non-cash items~~net loss and a ~~$39.5~~$26.4 million ~~increase~~decrease from changes in operating assets and liabilities, partially offset by a ~~$435.3~~$731.8 million increase from changes in ~~net loss.~~ non-cash items.

Net cash used in investing activities. The changes in net cash ~~(used in) provided by~~used in investing activities primarily relate to purchases of digital assets ~~purchases and redemptions of short-term investments,~~ and expenditures on property and equipment. Net cash used in investing activities ~~increased $1.721~~decreased $1.804 billion for the nine months ended September 30, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to a ~~$1.610~~$1.804 billion ~~increase in purchases of bitcoins and a $119.9 million decrease in proceeds from the redemption of short-term investments, partially offset by a $9.9 million~~ decrease in purchases of ~~short-term investments.~~bitcoins. During the nine months ended September 30, 2022, we purchased bitcoin using $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan and Excess Cash. During the nine months ended September 30, 2021, we purchased bitcoin using the net proceeds from the issuance of our 2027 Convertible Notes and 2028 Secured Notes, the ~~issuance and~~ sale of class A common stock under the 2021 Open Market Sale Agreement, and ~~excess cash. During the nine months ended September 30, 2020, we purchased bitcoin using excess cash, including cash from the liquidation of short-term investments.~~Excess Cash.

Net cash provided by ~~(used in)~~ financing activities. The changes in net cash provided by (used in) financing activities primarily relate to ~~our~~the issuance of our long-term debt, the sale of class A common stock ~~offered~~ under the 2021 Open Market Sale Agreement, ~~the purchase of treasury stock,~~ the exercise of stock options under the 2013 Equity Plan, ~~and~~ the ~~issuance~~sales of class A common stock under the 2021 ~~ESPP.~~ESPP, the payment of withholding tax on vesting of restricted stock units, and the repayments of other long-term secured debt. Net cash provided by financing activities ~~was $1.946~~decreased $1.726 billion for the nine months ended September 30, ~~2021, while net cash used~~2022, as compared to the same period in ~~financing activities was $118.9 million for~~ the ~~nine months ended September 30, 2020. The change in net cash provided by (used in) financing activities was~~prior year, primarily due to $1.050 billion in gross proceeds from our 2027 Convertible Notes ~~$500.0~~during the nine months ended September 30, 2021, $500.0 million in gross proceeds from our 2028 Secured Notes during the nine months ended September 30, 2021, $404.0 million in gross proceeds from the sale of class A common stock offered under the 2021 Open Market Sale Agreement during the nine months ended September 30, 2021, a ~~$122.5~~$30.0 million decrease ~~in purchases of treasury stock, a $27.8 million increase~~ in proceeds from the exercise of stock options under the 2013 Equity Plan in the nine months ended September 30, 2022 compared to the same period in the prior year, and ~~$2.9~~$1.1 million of withholding tax paid on vesting of restricted stock units during the nine months ended September 30, 2022, partially offset by $204.7 million in gross proceeds, net of lender fees, from our 2025 Secured Term Loan during the nine months ended September 30, 2022, $24.7 million in issuance costs paid for our Convertible Notes during the nine months ended September 30, 2021, $12.8 million in issuance costs paid for our 2028 Secured Notes during the nine months ended September 30, 2021, $11.1 million in gross proceeds from the issuance of other long-term secured debt during the nine months ended September 30, 2022, $4.5 million of issuance costs paid related to the 2021 Open Market Sale Agreement during the nine months ended September 30, 2021, and a $1.6 million increase in proceeds from the ~~issuance~~sales of class A common stock under the 2021 ESPP ~~partially offset by $24.7 million of issuance costs paid for our Convertible Notes, $12.8 million of issuance costs paid for our 2028 Secured Notes, and $4.5 million of issuance costs paid related~~during the nine months ended September 30, 2022 compared to the ~~Sale Agreement.~~same period in the prior year.

In December 2020, ~~and February 2021,~~ we issued $650.0 million aggregate principal amount of the 2025 Convertible Notes and in February 2021, we issued $1.050 billion aggregate principal amount of the 2027 Convertible Notes. We used the net proceeds from the issuance of the Convertible Notes to acquire bitcoin. The terms of the Convertible Notes are discussed more fully in Note 6,4, Long-term Debt, to the Consolidated Financial ~~Statements. The Company~~Statements included in this Quarterly Report as well as Note 8, Long-term Debt, to the Consolidated Financial Statements of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. For the three months ended September 30, 2022 and 2021, we did not pay any interest to holders of the 2025 Convertible ~~Notes during the three months ended September 30, 2021.~~Notes. For the nine months ended September 30, 2022 and 2021, ~~the Company~~we paid $2.4 million and $2.5 million, respectively, in interest to holders of the 2025 Convertible Notes. The 2027 Convertible Notes do not bear regular interest and ~~the Company has~~we have not paid any special interest to holders of the 2027 Convertible Notes to date.

In June 2021, we issued $500.0 million aggregate principal amount of the 2028 Secured Notes. We used the net proceeds from the issuance of the 2028 Secured Notes to acquire bitcoin. As of September 30, 2022, approximately 14,890 of the bitcoins held by the Company serve as part of the collateral for the 2028 Secured Notes. The terms of the 2028 Secured Notes are discussed more fully in Note 6,4, Long-term Debt to the Consolidated Financial ~~Statements. The Company~~Statements included in this Quarterly Report as well as Note 8, Long-term Debt, to the Consolidated Financial Statements of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. For the three months ended September 30, 2022 and 2021, we did not pay any interest to holders of the 2028 Secured Notes. For the nine months ended September 30, 2022, we paid $15.3 million in interest to holders of the 2028 Secured Notes. We did not pay any interest to holders of the 2028 Secured Notes ~~during~~for the nine months ended September 30, 2021.

In March 2022, MacroStrategy, our wholly-owned subsidiary, entered into a Credit and Security Agreement with Silvergate Bank, pursuant to which Silvergate Bank issued the $205.0 million 2025 Secured Term Loan to MacroStrategy. We used $190.5 million of the net proceeds from the issuance of the 2025 Secured Term Loan to acquire bitcoin, used $5.0 million of the net proceeds to establish the Reserve Account which serves as collateral for the 2025 Secured Term Loan, and expect to use the remaining net proceeds to pay fees, interest, and expenses related to the 2025 Secured Term Loan or for general corporate purposes. As of September 30, 2022, approximately 30,051 of the bitcoins held by MacroStrategy serve as part of the collateral for the 2025 Secured Term Loan. Subject to certain conditions described in Note 4, Long-term Debt, to the Consolidated Financial Statements included in this Quarterly Report, MacroStrategy can withdraw excess collateral held in the Bitcoin Collateral Account. The terms of the 2025 Secured Term Loan are discussed more fully in Note 4, Long-term Debt, to the Consolidated Financial Statements. For the three and nine months ended September 30, ~~2021.~~2022, we paid $2.7 million and $4.3 million, respectively, in interest to Silvergate.

~~Share repurchases.~~ ~~See~~ “~~Part II. Item 2. Unregistered Sales~~In June 2022, we, through one of our wholly-owned subsidiaries, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027. For the three and nine months ended September 30, 2022, we paid $0.3 million in principal and interest to the lender.

On June 14, 2021, we entered into the 2021 Open Market Sale Agreement with Jefferies, pursuant to which we issued and ~~Use~~sold shares of ~~Proceeds”~~our class A common stock having an aggregate offering price of ~~this Quarterly Report and~~approximately $1.0 billion from time to time through Jefferies. The terms of the 2021 Open Market Sale Agreement are discussed more fully in Note ~~8, Treasury Stock,~~10, Open Market Offerings, to the Consolidated Financial ~~Statements for further information.~~

~~The following table shows future minimum rent payments under noncancellable operating leases with initial terms of greater than one year, payments related to our Convertible Notes~~Statements. During the three and 2028 Secured Notes (semi-annual interest payments and principal upon maturity), payments under purchase agreements with initial terms of greater than one year, and anticipated payments related to the Transition Tax resulting from the Tax Act, based on the expected due dates of the various installments as ofnine months ended September 30, 2021, ~~(in thousands).~~we issued and sold 555,179 shares of our class A common stock under the 2021 Open Market Sale Agreement, at an average gross price per share of approximately $727.64, for aggregate net proceeds (less $4.5 million in sales commissions and expenses) of approximately $399.5 million. As of December 31, 2021, the cumulative aggregate offering price of the shares of class A common stock sold under the 2021 Open Market Sale Agreement was approximately $1.0 billion, inclusive of sales commissions, constituting the maximum program amount under the 2021 Open Market Sale Agreement.

On September 9, 2022, we entered into a Sales Agreement (the “2022 Sales Agreement”) with Cowen and Company LLC and BTIG, LLC, as agents (collectively, the “2022 Sales Agents”), pursuant to which we may issue and sell shares of our class A common stock having an aggregate offering price of up to $500.0 million from time to time through the 2022 Sales Agents. The ~~contractual principal payments related~~terms of the 2022 Sales Agreement are discussed more fully in Note 10, At-the-Market Equity Offerings, to the 2028 Secured Notes are included in the table below based on their stated maturity date of June 15, 2028 and our expectation that the springing maturity feature of the 2028 Secured Notes will not be triggered.

~~Unrecognized tax benefits.~~Consolidated Financial Statements. As of September 30, ~~2021,~~2022, we had ~~$4.3 million~~not issued and sold any shares of total gross unrecognized tax benefits, including accrued interest, of which $2.9 million was recorded in “Other long-term liabilities” and $1.4 million was recorded in “Deferred tax assets, net.” The timing of any payments that could result from these unrecognized tax benefits will depend on a number of factors, and accordinglyclass A common stock under the ~~amount and period of any future payments cannot be estimated. We do not expect any significant tax payments related to these obligations during 2021.~~2022 Sales Agreement.

~~Off-balance sheet arrangements.~~ As of September 30, 2021, we did not have any off-balance sheet arrangements that had a material impact on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

~~See Note 2, Recent Accounting Standards, to the Consolidated Financial Statements for further information.~~

The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.

We are exposed to the impact of both market price changes in bitcoin and foreign currency fluctuations.

Market Price Risk of Bitcoin. We have used a significant portion of our cash, including ~~proceeds~~cash generated from ~~our issuance of long-term debt and proceeds from the sale of our class A common stock,~~capital raising transactions, to acquire bitcoin and, as of September 30, ~~2021,~~2022, we held approximately ~~114,042~~130,000 bitcoins. The carrying value of our bitcoins as of September 30, ~~2021~~2022 was ~~$2.406~~$1.993 billion, which reflects cumulative impairments of ~~$754.7 million,~~$1.990 billion, on our Consolidated Balance Sheet. We account for our bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our bitcoin decreases below their carrying value at any time since their acquisition. Impairment losses cannot be recovered for any subsequent increase in fair value. For example, the market price of one bitcoin ~~in our~~on the Coinbase exchange (our principal market for bitcoin) ranged from ~~$27,678.00 - $64,899.00~~$17,567.45 to $48,240.00 during the nine months ended September 30, ~~2021,~~2022, but the carrying value of each bitcoin we held at the end of the reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition. Therefore, negative swings in the market price of bitcoin could have a material impact on our earnings and on the carrying value of our digital assets. Positive swings in the market price of bitcoin are not reflected in the carrying value of our digital assets and impact earnings only when the bitcoin is sold at a gain. For the nine months ended September 30, ~~2021,~~2022, we incurred an impairment loss of ~~$684.0 million~~$1.089 billion on our bitcoin.

Foreign Currency Risk. We conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our Consolidated Financial Statements. International revenues accounted for ~~41.8%~~38.1% and ~~38.2%~~41.8% of our total revenues for the three months ended September 30, 2022 and 2021, respectively, and ~~2020, respectively,~~39.7% and 43.3% ~~and 41.0%~~ of our total revenues for the nine months ended September 30, 2022 and 2021, ~~and 2020, respectively.~~respectively. We anticipate that international revenues will continue to account for a significant portion of our total revenues. The functional currency of each of our foreign subsidiaries is generally the local currency.

Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the applicable Balance Sheet date and any resulting translation adjustments are included as an adjustment to stockholders’ equity. Revenues and expenses generated from these subsidiaries are translated at average monthly exchange rates during the quarter in which the transactions occur. Gains and losses from transactions in local currencies are included in net income (loss).

As a result of transacting in multiple currencies and reporting our Consolidated Financial Statements in U.S. dollars, our operating results may be adversely impacted by currency exchange rate fluctuations in the future. The impact of foreign currency exchange rate fluctuations on current and comparable periods is described in the “Non-GAAP Financial Measures” section under “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We cannot predict the effect of exchange rate fluctuations upon our future results. We attempt to minimize our foreign currency risk by converting our excess foreign currency held in foreign jurisdictions to U.S. dollar-denominated cash and investment accounts.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, a 10% adverse change in foreign currency exchange rates versus the U.S. dollar would have decreased our aggregate reported cash and cash equivalents by 3.3% and ~~short-term investments by 4.1% and 3.9%~~4.0%, respectively. If average exchange rates during the nine months ended September 30, ~~2021~~2022 had changed unfavorably by 10%, our revenues for the nine months ended September 30, ~~2021~~2022 would have decreased by ~~3.9%~~3.6%. During the nine months ended September 30, ~~2021,~~2022, our revenues were ~~higher~~lower by ~~1.9%~~4.3% as a result of a ~~5.2% favorable~~9.7% unfavorable change in weighted average exchange rates, as compared to the same period in the prior year.

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are continually monitoring and assessing the effect of the COVID-19 pandemic on our internal control over financial reporting to minimize the impact on the design and operating effectiveness of such internal control. We have not experienced any material impact on our internal control over financial reporting despite the fact that many of our employees ~~are working remotely as a result of the COVID-19 pandemic.~~continue to work remotely.

We are involved in various legal proceedings arising in the normal course of ~~business.~~business, including the matter described below. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows.

On August 31, 2022, the District of Columbia (the “District”), through its Office of the Attorney General, filed a civil complaint in the Superior Court of the District of Columbia naming as defendants (i) Michael J. Saylor, the Chairman of our Board of Directors and our Executive Chairman, in his personal capacity, and (ii) the Company. The District is seeking, among other relief, monetary damages under the District’s False Claims Act for the alleged failure of Mr. Saylor to pay personal income taxes to the District over a number of years together with penalties, interest, and treble damages. The complaint alleges that the amount of personal income taxes purportedly involved is more than $25 million. The complaint also alleges that we violated the District’s False Claims Act by conspiring to assist Mr. Saylor’s alleged failure to pay personal income taxes. We believe that the District’s claims against us have no merit and we are defending aggressively against these allegations. On October 26, 2022, we filed a motion to dismiss the District’s complaint. We filed a motion to stay discovery on September 28, 2022, and the court granted this motion on October 28, 2022. The outcome of this matter is not presently determinable.

You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

If any of the following risks ~~occurs,~~occur, our business, financial condition, or results of operations could be materially adversely affected. In such case, the market price of our class A common stock could decline, and you may lose all or part of your investment.

Our quarterly operating results, revenues, and expenses may fluctuate significantly, which could have an adverse effect on the market price of our stock

For many reasons, including those described below, our operating results, revenues, and expenses have varied in the past and may vary significantly in the future from quarter to quarter. These fluctuations could have an adverse effect on the market price of our class A common stock.

Fluctuations in Quarterly Operating Results. Our quarterly operating results may fluctuate, in part, as a result of:

Limited Ability to Adjust Expenses. We base our operating expense budgets on expected revenue trends and strategic objectives. Many of our expenses, such as interest expense on our long-term debt, office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall or impairment losses related to our digital assets. Accordingly, any shortfall in revenue from our enterprise analytics software business or impairment losses related to our digital assets may cause significant variation in operating results in any quarter.

Based on the above factors, we believe quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is possible that in one or more future quarters, our operating results may be below the expectations of public market analysts and investors. In that event, the market price of our class A common stock may fall.

We generated a net loss for the nine months ended September 30, ~~2021,~~2022, primarily due to digital asset impairment losses, and we may not be able to regain or increase profitability on a quarterly or annual basis in the future. If our revenues are not sufficient to offset our operating expenses, we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, or we incur significant impairment losses related to our digital assets, we may incur operating losses in future periods, our profitability may decrease, or we may cease to be profitable. As a result, our business, results of operations, and financial condition may be materially adversely affected.

As of September 30, ~~2021,~~2022, we had ~~$261.1~~$233.0 million of deferred tax assets, ~~net of~~which reflects a ~~$1.3~~$411.8 million valuation allowance. The largest deferred tax asset relates to the impairment on our bitcoin holdings. If the market value of bitcoin continues to decline, we may be required to increase further the valuation allowance against the deferred tax asset. Additionally, if we are unable to regain or increase profitability in the future, we may also be required to increase the valuation allowance against ~~these~~the remaining deferred tax ~~assets, which~~assets. A significant increase in the valuation allowance could result in a charge that would materially adversely affect net income in the period in which the charge is incurred.

We are subject to income taxes and non-income taxes in a variety of domestic and foreign jurisdictions. Our future income tax liability could be materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates, earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the amount of our unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations ~~thereof (including in response to the COVID-19 pandemic).~~thereof. In addition, if we sold any of our bitcoin at prices greater than the cost basis of the bitcoin sold, we would incur a tax liability with respect to any gain recognized, and such tax liability could be material.

Changes in the tax laws of foreign jurisdictions could arise, including as a result of the project undertaken by the Organisation for Economic Co-operation and Development (“OECD”) to combat base erosion and profit shifting (“BEPS”). The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, make substantial changes to numerous long-standing tax positions and principles. These changes, many of which have been adopted or are under active consideration by OECD members and/or other countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

In addition, in response to significant market volatility and disruptions to business operations resulting from the COVID-19 pandemic, legislatures and taxing authorities in many jurisdictions in which we operate have implemented, and in the future may implement additional changes to their tax rules. As part of the U.S. Congress’s response to the COVID-19 pandemic, the Families First Coronavirus Response Act (“FFCR Act”) and the ~~CARES~~Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were enacted in March 2020. Both contain numerous tax provisions. Regulatory guidance under the Tax Act, FFCR Act, and CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen the impact of these laws on our business and financial condition. Additional legislation may be enacted in connection with the COVID-19 pandemic, some of which could have tax provisions that impact us. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, FFCR Act, or CARES Act. These changes in law could include modifications that have temporary effect or more permanent changes. The impact of these changes on us, our long-term tax planning, and our effective tax rate could be material.

Our determination of our tax liability is subject to review by applicable domestic and foreign tax authorities. Any adverse outcome of such reviews could have an adverse effect on our operating results and financial condition. The determination of our worldwide

provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain.

We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion. If such unasserted contingent liabilities were to be asserted, or become probable of assertion, we may be required to record significant expenses and liabilities in the period in which these liabilities are asserted or become probable of assertion.

As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may materially affect our financial results in future periods in which we change our estimates of our tax obligations or in which the ultimate tax outcome is determined.

Our bitcoin acquisition strategy exposes us to various risks associated with bitcoin

InBitcoin is a highly volatile asset that has traded below $20,000 per bitcoin and above $65,000 per bitcoin on the Coinbase exchange (our principal market for bitcoin) in the 12 months preceding the date of this Quarterly Report. During the nine months ended September ~~2020, our Board~~30, 2022, the significant decrease in the trading price of ~~Directors adopted our Treasury Reserve Policy, under which our treasury reserve assets will consist of (i) Cash Assets held by us that exceed working capital requirements and (ii)~~ bitcoin ~~held by us, with bitcoin serving as~~significantly reduced the ~~primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs~~value of the ~~business for Cash Assets.~~

Inbitcoin we hold. Bitcoin does not pay interest or other returns and so our ability to generate cash from our bitcoin holdings depends on sales or implementing strategies that we may consider to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to counterparties. As of the ~~first quarter~~date of ~~2021,~~this Quarterly Report on Form 10-Q, we ~~determined~~have not sold any bitcoin or implemented any such revenue generating strategies. If we continue to ~~adopt,~~increase our overall holdings of bitcoin in ~~addition~~the future, our bitcoin holdings will have a greater impact on our financial results and the market price of our class A common stock. See “Risks Related to Our Bitcoin Acquisition Strategy and Holdings – Our historical financial statements do not reflect the potential variability in ~~conjunction with~~earnings that we may experience in the future relating to our ~~Treasury Reserve Policy, a corporate strategy of acquiring and holding~~ bitcoin ~~and from time to time, subject to market conditions, issuing debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase additional bitcoin.~~holdings.”

We ~~have only recently adopted this bitcoin acquisition strategy and~~ are continually examining the risks and rewards of ~~such a~~our bitcoin acquisition strategy. This strategy has not been tested over time or under various market conditions. For example, although we believe bitcoin can serve as a hedge against inflation in the long term, the short term price of bitcoin has been volatile in recent periods and has declined even as the inflation rate increased. Some investors and other market participants may disagree with ~~this~~our bitcoin acquisition strategy or actions we undertake to implement it. If bitcoin prices continue to fall or our bitcoin acquisition strategy otherwise proves unsuccessful, ~~it would adversely impact~~ our financial condition, results of operations, and the market price of our class A common ~~stock.~~stock would be adversely impacted.

AsAll of ~~October 27, 2021,~~the bitcoin we own is held ~~approximately 114,042 bitcoins~~in custody accounts at institutional grade digital asset custodians. We believe that ~~were acquired at an aggregate purchase price of $3.160 billion~~existing law and ~~an average purchase price of approximately $27,713 per bitcoin, inclusive of fees~~the terms and ~~expenses. These purchases included purchases of bitcoin using the net proceeds from our issuance of $650.0 million aggregate principal amount~~conditions of our ~~2025 Convertible Notes~~contractual arrangements with our custodians would not result in the ~~fourth quarter~~bitcoin held by our custodians being considered part of ~~2020,~~the custodian’s bankruptcy estate were the custodian to file for bankruptcy. However, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts and, if our ~~issuance~~custodially-held bitcoin were, in the event of ~~$1.050 billion aggregate principal amount~~a bankruptcy of any of our ~~2027 Convertible Notes in~~custodians, nevertheless considered to be the ~~first quarter~~property of ~~2021,~~a bankruptcy estate, the bitcoin custodially-held on our ~~issuance~~behalf could be subject to bankruptcy proceedings and we could be treated as a general unsecured creditor of ~~$500.0 million aggregate principal amount of~~the custodian, inhibiting our ~~2028 Secured Notes in~~ability to exercise ownership rights with respect to such bitcoin. Any such outcome could have a material adverse effect on our financial condition and the ~~second quarter of 2021, and our issuance and sale of 555,179 shares~~market price of our class A common stock pursuant to the Sale Agreement in the third quarter of 2021. As part of our overall corporate strategy, we expect to purchase additional bitcoin in future periods, though we may also sell bitcoin in future periods as needed to generate Cash Assets for treasury management purposes.stock.

While our bitcoin is currently owned directly by us or our wholly owned subsidiaries, we ~~are investigating~~may investigate other potential approaches to ~~holding~~owning bitcoin, including indirect ownership (for example, through ownership interests in a fund that owns bitcoin). If we were to own all or a portion of our bitcoin ~~assets. If we change the means by which we hold our bitcoin assets,~~indirectly, the accounting treatment for our bitcoin, as well as our ability to use our bitcoin as collateral for additional borrowings, may correspondingly change. A change in the accounting treatment of our bitcoin holdings could have a material impact on our results of operations in future periods and could increase the volatility of our reported results of operations as well as affect the carrying value of our bitcoin on our balance sheet, which in turn could have a material adverse effect on our financial results and the market price of our class A common stock.

Bitcoin is a highly volatile asset that has traded below $15,000 per bitcoin and above $65,000 per bitcoin on the Coinbase exchange (our principal market) in the 12 months preceding the date of this Quarterly Report.Bitcoin does not pay interest or other returns and so our ability to generate cash from our bitcoin holdings depends on sales. The impact of our bitcoin holdings on our financial results and the market price of our class A common stock will increase as we increase our overall holdings of bitcoin in the future. See “Risks Related to Our Bitcoin Acquisition Strategy and Holdings – Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our bitcoin holdings.”

The price of bitcoin may be influenced by ~~regulatory,~~legal, commercial, and technical factors that are highly uncertain, and fluctuations in the price of bitcoin are likely to influence our financial results and the market price of our class A common stock

Fluctuations in the price of bitcoin have in the past and are likely to continue to influence our financial results and the market price of our class A common stock. Our financial results and the market price of our class A common stock would be adversely affected, and our business and financial condition ~~could~~would be negatively impacted, if the price of bitcoin decreased substantially, including as a result of:

In addition, bitcoin and other digital assets are relatively novel and are subject to various risks and uncertainties that may adversely impact their price. The application of securities laws and other laws and regulations to such assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may ~~create new~~interpret or apply existing laws and regulations ~~or interpret laws~~ in a manner that adversely affects the price of bitcoin.

The U.S. federal government, states, regulatory agencies, and foreign countries may also enact new laws and regulations that could materially impact the price of bitcoin or the ability of individuals or institutions such as us to own or transfer bitcoin. For example, foreign government authorities have recently expanded their efforts to restrict certain activities related to bitcoin and other digital assets. In China, the People’s Bank of China and the National Development and Reform Commission have outlawed cryptocurrency mining and declared all cryptocurrency transactions illegal within the country. In India, it has been reported that the Ministry of Corporate Affairs has circulated draft legislation that would prohibit mining, holding, selling, trading, or using cryptocurrencies in the country. In Iran, President Hassan Rouhani ordered a ban on all licensed and unlicensed mining of cryptocurrencies throughout the summer of 2021 in response to an increasing number of electricity blackouts. example:

Moreover, the risks of engaging in a ~~bitcoin-focused business~~bitcoin acquisition strategy ~~also~~ are relatively novel and have created, and may create further, complications due to the lack of experience that third parties have with companies engaging in such a ~~business,~~strategy, such as the unavailability on acceptable terms, or increased cost, of director and officer liability ~~insurance on acceptable terms.~~insurance.

The growth of the digital assets industry in general, and the use and acceptance of bitcoin in particular, may also impact the price of bitcoin and is subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying and accessing bitcoin, institutional demand for bitcoin as an investment asset, consumer demand for bitcoin as a means of payment, and the availability and popularity of alternatives to bitcoin. Even if growth in bitcoin adoption occurs in the near or medium-term, there is no assurance that bitcoin usage will continue to grow over the long-term.

Because bitcoin has no physical existence beyond the record of transactions on the bitcoin blockchain, a variety of technical factors related to the bitcoin blockchain could also impact the price of bitcoin. For example, malicious attacks by miners, inadequate mining fees to incentivize validating of bitcoin transactions, hard “forks” of the bitcoin blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and quantum computing could undercut the integrity of the bitcoin blockchain and negatively affect the price of bitcoin. The liquidity of bitcoin may also be reduced and damage to the public perception of bitcoin may occur, if financial institutions were to deny banking services to businesses that hold bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin.

Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our bitcoin holdings

Our historical financial statements ~~including those for the nine months ended September 30, 2021,~~ do not fully reflect the potential variability in earnings that we may experience in the future from holding or selling significant amounts of bitcoin.

The price of bitcoin has historically been subject to dramatic price fluctuations and is highly volatile. We determine the fair value of our bitcoin based on quoted (unadjusted) prices on the ~~active~~Coinbase exchange ~~that we have determined is our~~(our principal market for ~~bitcoin.~~bitcoin). We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted (unadjusted) prices on the active exchange, indicate that it is more likely than not that any of our bitcoin assets are impaired. In determining if an impairment has occurred, we consider the lowest price of one bitcoin quoted on the active exchange at any time since acquiring the specific bitcoin held. If the carrying value of a bitcoin exceeds that lowest price at any time during the quarter, an impairment loss is deemed to have occurred with respect to that bitcoin in the amount equal to the difference between its carrying value and such lowest price, and subsequent increases in the price of bitcoin will not affect the carrying value of our bitcoin. Gains (if any) are not recorded until realized upon sale, at which point they would be presented net of any impairment losses. In determining the gain to be recognized upon sale, we calculate the difference between the sale price and carrying value of the specific bitcoin sold immediately prior to sale.

As a result, any decrease in the fair value of bitcoin below our carrying value for such assets at any time since their acquisition requires us to incur an impairment charge, and such charge could be material to our financial results for the applicable reporting period, which may create significant volatility in our reported earnings and decrease the carrying value of our digital assets, which in turn could have a material adverse effect on the market price of our class A common stock.

At September 30, ~~2021,~~2022, we carried ~~$2.406~~$1.993 billion of digital assets on our balance sheet, consisting of approximately ~~114,042~~130,000 bitcoins and reflecting ~~$754.7 million~~$1.990 billion in cumulative impairment losses attributable to bitcoin trading price fluctuations, and held ~~$57.0~~$60.4 million in cash and cash equivalents, compared to a carrying value of ~~$380.8 million~~$2.406 billion of digital assets, consisting of approximately 114,042 bitcoins, and ~~$52.7~~$57.0 million in cash and cash equivalents at September 30, ~~2020, reflecting the beginning of the shift in our liquid asset holdings following the adoptions of our Treasury Reserve Policy and our corporate strategy to acquire and hold bitcoin.~~2021. Digital asset impairment losses of ~~$684.0 million~~$1.089 billion incurred during the nine months ended September 30, ~~2021~~2022 represented ~~71.6%~~79.3% of our operating expenses, contributing to our net loss of $1.220 billion for the nine months ended September 30, 2022, compared to ~~$44.2~~$684.0 million in digital asset impairment losses ~~representing 15.1% of our operating expenses~~ in the nine months ended September 30, ~~2020,~~2021 representing 71.6% of our operating expenses and contributing to our net loss of $445.5 million for the nine months ended September 30, ~~2021 compared to net loss of $10.2 million for the nine months ended September 30, 2020.~~2021.

Because we intend to purchase additional bitcoin in future periods and increase our overall holdings of bitcoin, we expect that the proportion of our total assets represented by our bitcoin holdings will increase in the future. As a result, volatility in our earnings in future periods may be significantly more than what we experienced in prior periods.

Changes in securities regulation may adversely impact the market price of our class A common stock

Although bitcoin and other digital assets have experienced a surge of investor attention since bitcoin was invented in 2008, investors in the United States currently have limited means to gain exposure to bitcoin through traditional investment channels such as 401(k) retirement accounts, and instead generally must hold bitcoin through “hosted” wallets provided by digital asset service providers or through “unhosted” wallets that expose the investor to risks associated with loss or hacking of their private keys. Given the relative novelty of digital assets, general lack of familiarity with the processes needed to hold bitcoin directly, as well as the potential reluctance of financial planners and advisers to recommend direct bitcoin holdings to their retail customers because of the manner in which such holdings are custodied, some investors have sought exposure to bitcoin through investment vehicles that hold bitcoin and issue shares representing fractional undivided interests in their underlying bitcoin holdings. Although a number of investment vehicles currently offer this exposure to bitcoin, none of these investment vehicles currently offers its shares directly to the public in the United States, and such shares are offered only to “accredited investors” on a private placement basis. Investors who are not eligible to participate in these private placements may nevertheless purchase shares of these investment vehicles in the over-the-counter market, where such shares have historically traded at a premium to the net asset value (“NAV”) of the underlying bitcoin. These premiums have at times been substantial.

One reason for the substantial premium to NAV exhibited by the trading prices of shares of some bitcoin investment vehicles may be because of the relative scarcity of traditional investment vehicles providing investment exposure to bitcoin. To the extent investors view the value of our class A common stock as providing such exposure, it is possible that the value of our class A common stock also includes a premium over the value of our bitcoin.

Another reason for the substantial premium to NAV historically exhibited by the trading prices of shares of some bitcoin investment vehicles is that such vehicles operate in a manner similar to closed-end investment funds as opposed to exchange-traded funds (“ETFs”) and therefore do not continuously offer to create and redeem their shares at NAV in exchange for bitcoin. Although several bitcoin investment vehicles have attempted to list their shares on a U.S. national securities exchange to permit them to function in the manner of an ETF with continuous share creation and redemption at NAV, the SEC has generally declined to approve any such listing, citing concerns over the surveillance of trading in markets for the underlying bitcoin as well as concerns about fraud and manipulation in bitcoin trading markets. Most recently, in June 2022 the SEC denied proposals from NYSE Arca, Inc. to convert Grayscale Bitcoin Trust into a spot bitcoin ETF and to list and trade shares of the Bitwise Bitcoin ETF. However, in October 2021, the SEC permitted the listing of ~~the ProShares Bitcoin Strategy ETF (the “ProShares ETF”), an ETF~~ETFs that ~~invests~~invest primarily in bitcoin futures contracts. ~~Although this ETF allows investors to obtain managed exposure to bitcoin futures contracts, it does not invest directly in bitcoin. As a result, it~~It is unclear as to whether or to what extent the existence of ~~this ETF or other~~ ETFs that invest in bitcoin futures contracts ~~that may be listed in the future~~ will have on any premium over the value of our bitcoin holdings that may be included in the value of our class A common stock. Shortly after the listing of the ProShares ETF, the SEC permitted the listing of the Valkyrie Bitcoin Strategy ETF (the “Valkyrie ETF”) , another ETF that invests primarily in bitcoin futures contracts.

If the SEC were to further resolve its concerns regarding surveillance of and the existence of fraud and manipulation in the bitcoin trading markets, it is possible that the SEC would permit the listing of ETFs specializing in the direct acquisition and holding of bitcoin, allowing these funds to offer their shares directly to the public. In addition to greatly simplifying the task of gaining investment exposure to bitcoin, the listing of a bitcoin ETF with continuous share creation and redemption at NAV would be expected to eliminate the NAV premiums currently exhibited by shares of investment vehicles that trade in the over-the-counter market. To the extent that our class A common stock is viewed as an alternative-to-bitcoin investment vehicle and trades at a premium to the value of our bitcoin holdings, that premium may also be eliminated, causing the price of our class A common stock to decline.

In addition, the introduction of the ~~ProShares ETF, the Valkyrie ETF,~~bitcoin futures focused ETFs and any ~~additional~~future bitcoin focused ETFs on U.S. national securities exchanges may be viewed by investors as offering “pure play” exposure to bitcoin that would generally not be subject to federal income tax at the entity level as we are.

As a result of the foregoing factors, to the extent investors view our class A common stock as linked to the value of our bitcoin holdings, the introduction of bitcoin ETFs on U.S. national securities exchanges could have a material adverse effect on the market price of our class A common stock.

Our bitcoin ~~holdings could subject~~acquisition strategy subjects us to enhanced regulatory ~~scrutiny~~oversight

As noted above, several bitcoin investment vehicles have attempted to list their shares on a U.S. national securities exchange to permit them to function in the manner of an ETF with continuous share creation and redemption at NAV. To date the SEC has declined to approve any such listing, citing concerns over the surveillance of trading in markets for the underlying bitcoin as well as concerns about fraud and manipulation in bitcoin trading markets. Even though we do not function in the manner of an ETF and do not offer continuous share creation and redemption at NAV, it is possible that we nevertheless could face regulatory scrutiny from the SEC ~~as a company with a class of securities registered under the Exchange Act and traded on The Nasdaq Global Select Market.~~due to our bitcoin holdings.

In addition, ~~as digital assets, including bitcoin, have grown in popularity and market size,~~ there has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, or fund criminal or terrorist activities, or ~~entities subject~~circumvent sanctions regimes, including those sanctions recently imposed in response to ~~sanctions regimes.~~the ongoing conflict between Russia and Ukraine. While we have implemented and maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our bitcoin through entities subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in bitcoin by us may be restricted or prohibited.

We have entered into a bitcoin-collateralized loan and may consider issuing additional debt or other financial instruments that may be collateralized by our bitcoin holdings. We may also consider strategies to create income streams or otherwise generate funds using our bitcoin holdings, including lending bitcoin to counterparties. These types of bitcoin-related transactions are the subject of enhanced regulatory oversight. These and any other bitcoin-related transactions we may enter into, beyond simply acquiring and holding bitcoin, may subject us to additional regulatory compliance requirements and scrutiny, including under federal and state money services regulations, money transmitter licensing requirements and various commodity and securities laws and regulations.

In addition, private actors that are wary of bitcoin or the regulatory concerns associated with bitcoin have in the past and may take further actions that may have an adverse effect on our business or the market price of our class A common stock. For example, an affiliate of HSBC Holdings has prohibited customers of its HSBC InvestDirect retail investment platform from buying shares of our class A common stock after determining that the value of our stock is related to the performance of bitcoin, indicating that it did not want to facilitate exposure to virtual currencies.

Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, ~~they~~bitcoin trading venues may experience greater fraud, security failures or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in bitcoin trading venues and adversely affect the value of our bitcoin

Bitcoin trading venues are relatively new and, in ~~some~~many cases, unregulated. Furthermore, there are many bitcoin trading venues which do not provide the public with significant information regarding their ownership structure, management teams, corporate practices and regulatory compliance. As a result, the marketplace may lose confidence in bitcoin trading venues, including prominent exchanges that handle a significant volume of bitcoin trading and/or are subject to regulatory oversight, in the event one or more bitcoin trading venues experience fraud, security failures or operational problems.

For example, in 2019 there were reports claiming that 80-95% of bitcoin trading volume on trading venues was false or non-economic in nature, with specific focus on unregulated exchanges located outside of the United States. Such reports may indicate that the bitcoin market is significantly smaller than expected and that the United States makes up a significantly larger percentage of the bitcoin market than is commonly understood. Any actual or perceived false trading in the bitcoin market, and any other fraudulent or manipulative acts and practices, could adversely affect the value of our bitcoin.

Negative perception, a lack of stability in the broader bitcoin markets and the closure, or temporary shutdown or operational disruption of bitcoin trading venues due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in bitcoin and result in greater volatility in the prices of bitcoin. To the extent investors view our class A common stock as linked to the value of our bitcoin holdings, these potential consequences of a bitcoin trading venue’s failure could have a material adverse effect on the market price of our class A common stock.

The concentration of our bitcoin holdings enhances the risks inherent in our bitcoin acquisition strategy

As of October ~~27, 2021,~~31, 2022, we held approximately ~~114,042~~130,000 bitcoins that were acquired at an aggregate purchase price of ~~$3.160~~$3.983 billion and we intend to purchase additional bitcoin and increase our overall holdings of bitcoin in the future. The concentration of our bitcoin holdings limits the risk mitigation that we could take advantage of by purchasing a more diversified portfolio of treasury assets, and the absence of diversification enhances the risks inherent in our bitcoin acquisition strategy. ~~If there is~~The price of bitcoin has recently experienced a significant ~~decrease~~decline, and this has had, and any further significant declines in the price of bitcoin ~~we will experience~~would have, a more pronounced impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.

The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of Bitcoin and adversely affect our business

As a result of our bitcoin acquisition strategy, the majority of our assets are concentrated in our bitcoin holdings. Accordingly, a significant decrease in the market price of bitcoin may have a material adverse effect on our financial condition. As of the date of this Quarterly Report on Form 10-Q, bitcoin was the largest digital asset by market capitalization. However, there are numerous alternative digital assets and many entities, including consortiums and financial institutions, are researching and investing resources into private or permissioned blockchain platforms or digital assets that do not use proof-of-work mining like the bitcoin network. Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s cryptocurrencies backed by central banks (“CBDC”) project was made available to consumers in January 2022, and governments including the United States and the European Union have been discussing the potential creation of new digital currencies. Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could have an advantage in competing with, or replacing, bitcoin and other digital assets as a medium of exchange or store of value. As a result, the value of bitcoin could decrease, which could have a material adverse effect on our business, prospects, financial condition, and operating results.

Our bitcoin holdings are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents

In September 2020, we adopted bitcoin as our primary treasury reserve asset. Historically, the bitcoin markets have been characterized by more price volatility, less liquidity, and lower trading volumes compared to sovereign currencies markets, as well as relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of market instability, we may not be able to sell our bitcoin at reasonable prices or at all. For example, although the Coinbase exchange (our principal market for bitcoin) has, to date, not been impacted, a number of bitcoin trading venues recently have temporarily halted deposits and withdrawals. As a result, our bitcoin holdings may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. Additionally, during times of market instability, including in particular at times when the price of bitcoin has materially declined, we may be unable to enter into term loans or other financings collateralized by our unencumbered bitcoin or otherwise generate funds using our bitcoin holdings. If we are unable to sell our bitcoin, enter into additional financings using bitcoin as collateral, or otherwise generate funds using our bitcoin holdings, or if we are forced to sell our bitcoin at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.

If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our bitcoin, we may lose some or all of our bitcoin and our financial condition and results of operations could be materially adversely affected

Security breaches and cyberattacks are of particular concern with respect to our bitcoin. Bitcoin and other blockchain-based cryptocurrencies have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. For example, in October 2021 it was reported that hackers exploited a flaw in the account recovery process and stole from the accounts of at least 6,000 customers of the Coinbase exchange (our principal ~~market)~~market for bitcoin), although the flaw was subsequently fixed and Coinbase reimbursed affected customers. Similarly, in January 2022, hackers exploited weaknesses in the security architecture of the digital asset exchange Crypto.com and stole over $30 million in digital assets, including bitcoin, from the accounts of 483 customers, although the flaw was subsequently fixed and Crypto.com reimbursed affected customers. Nonetheless, a successful security breach or cyberattack could result in in:

Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks, whether or not we are directly impacted, could lead to a general loss of confidence in the broader bitcoin blockchain ecosystem or in the use of bitcoin networks to conduct financial transactions, which could negatively impact us.

Attacks upon systems across a variety of industries, including industries related to bitcoin, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data and digital assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service providers or partners. We may experience breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities or other irregularities. In particular, unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through various means, such as hacking, social engineering, phishing and fraud. In the past, hackers have successfully employed a social engineering attack against one of our service providers and misappropriated our digital assets, although, to date, such events have not been material to our financial condition or operating results. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. In addition, certain types of attacks could harm us even if our systems are left undisturbed. For example, certain threats are designed to remain dormant or undetectable, sometimes for extended periods of time, or until launched against a target and we may not be ~~covered by insurance or indemnity provisions~~able to implement adequate preventative measures. Further, there has been an increase in such activities as a result of the ~~custody agreement~~COVID-19 pandemic. The risk of cyberattacks could also be increased by cyberwarfare in connection with ~~a custodian who holds~~the ongoing conflict between Russia and Ukraine, including potential proliferation of malware from the conflict into systems unrelated to the conflict. Any future breach of our ~~bitcoin. Such a loss~~operations or those of others in the bitcoin industry, including third-party services on which we rely, could ~~have a material adverse effect on~~materially and adversely affect our ~~financial condition and results of operations.~~business.

The loss or destruction of a private key required to access our bitcoin may be irreversible. If we are unable to access our private keys or if we experience a cyberattack or other data loss relating to our bitcoin, our financial condition and results of operations could be materially adversely affected

Bitcoin is controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the bitcoin is held. While the bitcoin blockchain ledger requires a public key relating to a digital wallet to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the bitcoin held in such wallet. To the extent our private key is lost, destroyed, or otherwise compromised and no backup of the private key is accessible, we will be unable to access the bitcoin held in the related digital wallet. Furthermore, we cannot provide assurance that our digital wallets will not be compromised as a result of a cyberattack. The bitcoin and blockchain ledger, as well as other ~~cryptocurrencies~~digital assets and blockchain technologies, have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities.

We hold our bitcoin with regulated custodians that have duties to safeguard our private keys. In light of the significant amount of bitcoin we hold, we are continuing to seek a greater degree of diversification in the use of custodial services as the extent of potential risk of loss is dependent, in part, on the degree of diversification. As of September 30, ~~2021,~~2022, the insurance that covers losses of our bitcoin holdings covers only a small fraction of the value of the entirety of our bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we have or that such coverage will cover losses with respect to our bitcoin. Moreover, as noted above, the use of custodians to hold our bitcoin exposes us to the risk that the bitcoin custodially-held on our behalf could be subject to bankruptcy proceedings and we could be treated as a general unsecured creditor of the custodian, inhibiting our ability to exercise ownership rights with respect to such bitcoin. Any loss associated with such insolvency proceedings is unlikely to be covered by any insurance coverage we maintain related to our bitcoin.

Regulatory change reclassifying bitcoin as a security could lead to our classification as an “investment company” under the Investment Company Act of 1940 and could adversely affect the market price of bitcoin and the market price of our class A common stock

While senior SEC officials have stated their view that bitcoin is not a “security” for purposes of the federal securities laws, the SEC has so far refused to permit the listing of any bitcoin-based ETFs, citing, among other things, concerns regarding bitcoin market integrity and custodial protections. It is possible that the SEC could take a contrary position to the one taken by its senior officials or a federal court could conclude that bitcoin is a security. Such a determination could lead to our classification as an “investment company” under the Investment Company Act of 1940, which would subject us to significant additional regulatory controls that could have a material adverse effect on our business and operations and also may require us to substantially change the manner in which we conduct our business.

In addition, if bitcoin is determined to constitute a security for purposes of the federal securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of bitcoin and in turn adversely affect the market price of our class A common stock.

A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to service our indebtedness

As a result of our bitcoin acquisition strategy and our Treasury Reserve Policy, the majority of our assets are concentrated in our bitcoin ~~holdings, which~~holdings. The concentration of our assets in bitcoin limits our ability to mitigate risk that could otherwise be achieved by purchasing a more diversified portfolio of treasury assets. Accordingly, ~~if there is a significant decrease~~the recent decline in the market

price of bitcoin has significantly reduced the market value of our bitcoin holdings and any further decline in the market price of bitcoin will cause our bitcoin holdings to experience a ~~significant~~ decline, which, ~~may~~if significant, could have a material adverse effect on our financial condition. Any material adverse effect on our financial condition caused by a significant decline in the market value of our bitcoin holdings may create liquidity and credit risks for our business operations, as we would have limited means to obtain cash beyond the revenues generated by our enterprise analytics software business. To the extent that the cash generated by our enterprise analytics software business is insufficient to satisfy our debt service obligations, and to the extent that the liquidation of our bitcoin holdings would be insufficient to satisfy our debt service obligations, we may be unable to make scheduled payments on our current or future indebtedness, which could cause us to default on our debt obligations. Any default on our current or future indebtedness may have a material adverse effect on our financial condition. See “Risks Related to Our Outstanding and Potential Future Indebtedness” for additional details about the risks which may impact us if we are unable to service our indebtedness.

We depend on revenue from a single software platform and related services as well as revenue from our installed customer base

Our revenue is derived from sales of our analytics software platform and related services. Although demand for analytics software has continued to grow, the market for analytics offerings continues to evolve. Resistance from consumer and privacy groups to commercial collection, use, and sharing of personal data has grown in recent years and our customers, potential customers, or the general public may perceive that use of our analytics software could violate individual privacy rights. In addition, increasing government restrictions on the collection, use, and transfer of personal data could impair the further growth of the market for analytics software, especially in foreign markets. Because we depend on revenue from a single software platform and related services, our business could be harmed by a decline in demand for, or in the adoption or prices of, our platform and related services as a result of, among other factors, any change in our pricing or packaging model, increased competition, maturation in the markets for our platform, or other risks described in this Quarterly Report. In addition, the adoption of our bitcoin acquisition strategy and the recent increase in our indebtedness has caused and may in the future cause certain of our existing or prospective customers to form negative perceptions regarding our corporate risk profile or our financial viability as a commercial counterparty, and such negative perceptions could negatively impact sales of our analytics software platform and related services to current or prospective customers. Such risks can also be exacerbated if the price of bitcoin declines. We also depend on our installed customer base for a substantial portion of our revenue. If our existing customers cancel or fail to renew their service contracts or fail to make additional purchases from us for any reason, including due to the risks inherent in our bitcoin acquisition strategy, our revenue could decrease and our operating results could be materially adversely affected.

A substantial customer shift in the deployment of the MicroStrategy platform from a product license model to a cloud subscription model could result in higher future rates of attrition of customers from the MicroStrategy platform and could affect the timing of revenue recognition, reduce product licenses and product support revenues, and materially adversely affect our operating results, and our ability to accelerate our cloud strategy could be negatively impacted by any inability to provide necessary sales and engineering support

We offer our analytics platform in the form of a product license or a cloud subscription. ~~The~~Given that it is relatively easy for customers to migrate on and off our cloud subscription platform, a substantial shift among our customers toward our cloud platform could result in higher future rates of attrition among our customers. In addition, the payment streams and revenue recognition timing for our product licenses are different from those for our cloud subscriptions. For product licenses, customers typically pay us a lump sum soon after entering into a license agreement, and we typically recognize product licenses revenue when control of the license is transferred to the customer. For cloud subscriptions, customers typically make periodic payments over the subscription period and we recognize subscription services revenues ratably over the subscription period. As a result, if a substantial number of current customers shift to, or new customers purchase, cloud subscriptions instead of product licenses, the resulting change in payment terms and revenue recognition may result in our recognizing less revenue in the reporting period in which the sale transactions are consummated than has been the case in prior periods, with more revenue being recognized in future periods. This change in the timing of revenue recognition could materially adversely affect our operating results and cash flows for the periods during which such a shift or change in purchasing occurs. Accordingly, in any particular reporting period, cloud subscription sales could negatively impact product license sales to our existing and prospective customers, which could reduce product licenses and product support revenues. Finally, our ability to accelerate our cloud strategy could be negatively impacted by any inability to provide necessary sales and sales engineering support, including the support of channel partners, our internal sales team, and digital marketing.

We use channel partners and if we are unable to maintain successful relationships with them, our business, operating results, and financial condition could be materially adversely affected

In addition to our direct sales force, we use channel partners, such as system integrators, consulting firms, resellers, solution providers, managed service providers, OEMs, and technology companies, to license and support our offerings. For the nine months ended September 30, ~~2021,~~2022, transactions by channel partners for which we recognized revenue accounted for ~~34.6%~~25.2% of our total product licenses revenues, and our ability to achieve revenue growth in the future will depend in part on our ability to maintain these relationships. Our channel partners may offer customers the products and services of several different companies, including competing offerings, and we cannot be certain that they will prioritize or devote adequate resources to selling our offerings. If we are unable to maintain our relationships with our channel partners, or if we experience a reduction in sales by our channel partners, our business, operating results, and financial condition could be materially adversely affected.

In addition, we rely on our channel partners to operate in accordance with applicable laws and regulatory requirements. If they fail to do so, we may need to incur significant costs in responding to investigations or enforcement actions or paying penalties assessed by the applicable authorities. We also rely on our channel partners to operate in accordance with the terms of their contractual agreements with us. For example, some of our agreements with our channel partners prescribe the terms and conditions pursuant to which they are authorized to resell or distribute our software and offer technical support and related services. If our channel partners do not comply with their contractual obligations to us, our business, operating results, and financial condition may be materially adversely affected.

Our recognition of deferred revenue and advance payments is subject to future performance obligations and may not be representative of revenues for succeeding periods

Our deferred revenue and advance payments totaled ~~$169.0~~$174.7 million as of September 30, ~~2021.~~2022. The timing and ultimate recognition of our deferred revenue and advance payments depend on various factors, including our performance of various service obligations.

Because of the possibility of customer changes or delays in customer development or implementation schedules or budgets, and the need for us to satisfactorily perform product support and other services, deferred revenue and advance payments at any particular date may not be representative of actual revenue for any succeeding period.

In addition, we had ~~$29.9~~$81.2 million of other remaining performance obligations as of September 30, ~~2021,~~2022, consisting of the portions of multi-year contracts that will be invoiced in the future that are not reflected on our balance sheet. As with deferred revenue and ~~advanced~~advance payments, these other remaining performance obligations at any particular date may not be representative of actual revenue for any succeeding period.

We may lose sales, or sales may be delayed, due to the long sales and implementation cycles of certain of our offerings, which could materially adversely affect our revenues and operating results

The decision to purchase our offerings typically requires our customers to invest substantial time, money, personnel, and other resources, which can result in long sales cycles that can exceed nine months. These long sales cycles increase the risk that intervening events, such as the introduction of new offerings and changes in customer budgets and purchasing priorities, will affect the size, timing, and completion of an order. Even if an order is completed, the time and resources required to implement and integrate our offerings vary widely depending on customer needs and the complexity of deployment. If we lose sales or sales are delayed due to these long sales and implementation cycles, our revenues and operating results for that period may be materially adversely affected.

Our results in any particular period may depend on the number and volume of large transactions in that period and these transactions may involve lengthier, more complex, and more unpredictable sales cycles than other transactions

Larger, enterprise-level transactions often require considerably more resources, are often more complex to implement, and typically require additional management approval, which may result in a lengthier, more complex, and less predictable sales cycle and may increase the risk that an order is delayed or not brought to completion. We may also encounter greater competition and pricing pressure on these larger transactions, and our sales and delivery efforts may be more costly. The presence or absence of one or more large transactions in a particular period may have a material effect on our revenues and operating results for that period and may result in lower estimated revenues and earnings in future periods. For the nine months ended September 30, ~~2021,~~2022, our top three product licenses transactions with recognized revenue totaled ~~$10.1~~$12.1 million, or ~~14.6%~~20.5% of total product licenses revenues, compared to ~~$14.7~~$10.1 million, or ~~25.8%~~14.6% of total product licenses revenues, for the nine months ended September 30, ~~2020.~~2021.

Our offerings face intense competition, which may lead to lower prices for our offerings, reduced gross margins, loss of market share, and reduced revenue

The analytics market is highly competitive and subject to rapidly changing technology. Within the analytics space, we compete with many different software vendors, including IBM, Microsoft, Oracle, Qlik, Salesforce, and SAP. Our future success depends on our

ability to differentiate our offerings and successfully compete across analytics implementation projects of varying sizes. Our ability to compete successfully depends on a number of factors, both within and outside of our control. Some of these factors include software deployment options; analytical, mobility, data discovery, and visualization capabilities; performance and scalability; the quality and reliability of our customer service and support; and brand recognition. Failure to compete successfully in any one of these or other areas may reduce the demand for our offerings and materially adversely affect our revenue from both existing and prospective customers.

Some of our competitors have longer operating histories, more focused business strategies and significantly greater financial, technical, and marketing resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion, sale, and marketing of their offerings than we can, such as offering certain analytics products free of charge when bundled with other products. In addition, many of our competitors have strong relationships with current and potential customers, extensive industry and specialized business knowledge, and corresponding proprietary technologies that they can leverage. As a result, they may be able to prevent us from penetrating new accounts or expanding existing accounts.

Increased competition may lead to price cuts, reduced gross margins, and loss of market share. The failure to compete successfully and meet the competitive pressures we face may have a material adverse effect on our business, operating results, and financial condition.

Current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others. By doing so, these competitors may increase their ability to meet the needs of our potential customers by their expanded offerings

and rapidly gain significant market share, which could limit our ability to obtain revenues from new customers and to sustain software maintenance revenues from our installed customer base. In addition, basic office productivity software suites, such as Microsoft Office, could evolve to offer advanced analysis and reporting capabilities that may reduce the demand for our analytics offerings.

If we are unable to develop and release new offerings and software enhancements to respond to rapid technological change, new customer requirements, or evolving industry standards in a timely and cost-effective manner, our business, operating results, and financial condition could be materially adversely affected

The market for our offerings is characterized by frequent new offerings and software enhancements in response to rapid technological change, new customer requirements, and evolving industry standards. The introduction of new or enhanced offerings can quickly make existing ones obsolete. We believe our future success depends largely on our ability to continue to support popular operating systems and databases, maintain and improve our current offerings, rapidly develop new offerings and software enhancements that achieve market acceptance, maintain technological competitiveness, and meet an expanding range of customer requirements.

Analytics applications are inherently complex, and research and development can be costly and time consuming. In addition, customers may delay their purchasing decisions because they anticipate that new or enhanced versions of our offerings will soon become available or because of concerns regarding the complexity of migration or performance issues related to new offerings. We cannot be sure that we will succeed in developing, marketing, and delivering, on a timely and cost-effective basis, new or enhanced offerings that will achieve market acceptance. Moreover, even if our new offerings achieve market acceptance, we may experience a decline in revenues of our existing offerings that is not fully matched by the new offering’s revenue. This could result in a temporary or permanent revenue shortfall and materially adversely affect our business, operating results, and financial condition.

We depend on technology licensed to us by third parties, and changes in or discontinuances of such licenses could impair our software, delay implementation of our offerings, or force us to pay higher license fees

We license third-party technologies that are incorporated into or utilized by our existing offerings. These licenses may be terminated, or we may be unable to license third-party technologies for future offerings. In addition, we may be unable to renegotiate acceptable third-party license terms, or we may be subject to infringement liability if third-party technologies that we license are found to infringe intellectual property rights of others. Changes in or discontinuance of third-party licenses could lead to a material increase in our costs or to our offerings becoming inoperable or their performance being materially reduced. As a result, we may need to incur additional development costs to help ensure continued performance of our offerings, and we may experience a decreased demand for our offerings.

Changes in third-party software or systems or the emergence of new industry standards could materially adversely affect the operation of and demand for our existing software

The functionalities of our software depend in part on the ability of our software to interface with our customers’ information technology (“IT”) infrastructure and cloud environments, including software applications, network infrastructure, and end user devices, which are supplied to our customers by various other vendors. When new or updated versions of these third-party software or systems are introduced, or new industry standards in related fields emerge, we may be required to develop updated versions of or enhancements to

our software to help ensure that it continues to effectively interoperate with our customers’ IT infrastructure and cloud environments. If new or modified operating systems are introduced or new web standards and technologies or new standards in the field of database access technology emerge that are incompatible with our software, development efforts to maintain the interoperability of our software with our customers’ IT infrastructure and cloud environments could require substantial capital investment and employee resources. If we are unable to update our software in a timely manner, cost-effectively, or at all, the ability of our software to perform key functions could be impaired, which may impact our customers’ satisfaction with our software, potentially result in breach of warranty or other claims, and materially adversely affect demand for our software.

The nature of our software makes it particularly susceptible to undetected errors, bugs, or security vulnerabilities, which could cause problems with how the software performs and, in turn, reduce demand for our software, reduce our revenue, and lead to litigation claims against us

Despite extensive testing by us and our current and potential customers, we have in the past discovered software errors, bugs, or security vulnerabilities (including the log4j and SpringShell vulnerabilities which surfaced in December 2021 and March 2022, respectively, and affected companies worldwide) in our offerings after commercial shipments began and they may be found in future offerings or releases. This could result in lost revenue, damage to our reputation, or delays in market acceptance, which could have a material adverse effect on our business, operating results, and financial condition. We may also need to expend resources and capital to correct these defects if they occur.

Our customer agreements typically contain provisions designed to limit our exposure to product liability, warranty, and other claims. It is possible these provisions are unenforceable in certain domestic or international jurisdictions, and we may be exposed to such claims. A successful claim against us could have a material adverse effect on our business, operating results, and financial condition.

Our intellectual property is valuable, and any inability to protect it could reduce the value of our offerings and brand

Unauthorized third parties may try to copy or reverse engineer portions of our software or otherwise obtain and use our intellectual property. Copyrights, patents, trademarks, trade secrets, confidentiality procedures, and contractual commitments can only provide limited protection. Any intellectual property owned by us may be invalidated, circumvented, or challenged. Any of our pending or future intellectual property applications, whether or not currently being challenged, may not be issued with the scope we seek, if at all. Moreover, amendments to and developing jurisprudence regarding U.S. and international law may affect our ability to protect our intellectual property and defend against claims of infringement. In addition, although we generally enter into confidentiality agreements with our employees and contractors, the confidential nature of our intellectual property may not be maintained. Furthermore, the laws of some countries do not provide the same level of protection of our intellectual property as do the laws of the United States. If we cannot protect our intellectual property against unauthorized copying or use, we may not remain competitive.

We periodically receive notices from third parties claiming we are infringing their intellectual property rights. The number of such claims may increase as we expand our offerings and branding, the number of offerings and level of competition in our industry grow, the functionality of offerings overlaps, and the volume of issued patents, patent applications, and copyright and trademark registrations continues to increase. Responding to any infringement claim, regardless of its validity, could:

Additionally, while we monitor our use of third-party software, including open source software, our processes for controlling such use in our offerings may not be effective. If we fail to comply with the terms or conditions associated with third-party software that we use, if we inadvertently embed certain types of third-party software into one or more of our offerings, or if third-party software that we license is found to infringe the intellectual property rights of others, we could subject ourselves to infringement liability and be required to re-engineer our offerings, discontinue the sale of our offerings, or make available to certain third parties or generally available, in source code form, our proprietary code, any of which could materially adversely affect our business, operating results, and financial condition.

If a successful infringement claim is made against us and we fail to develop or license a substitute technology or brand name, as applicable, our business, results of operations, financial condition, or cash flows could be materially adversely affected.

We face risks related to the COVID-19 pandemic that could significantly disrupt or materially adversely affect our business and operating results

The COVID-19 pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets. Many governmental authorities have instituted quarantines, work-from-home directives, social distancing mandates, travel restrictions, border closures, limitations on public gatherings, and closures of or operational limitations on non-essential businesses, which are adversely impacting a number of industries such as travel, leisure, hospitality, and retail. Government recommendations and requirements are continuing to change, and we may not be able to immediately respond to, meet or enforce all required health and safety measures or other government requirements in all of our locations. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the global economy and consumer confidence. The COVID-19 pandemic could have a sustained adverse impact on economic and market conditions and trigger a period of prolonged global economic slowdown, which could decrease technology spending, adversely affect demand for our offerings, and harm our business and operating results.

Although our total revenues for the nine months ended September 30, ~~2021~~2022 were not materially impacted by COVID-19, ~~we believe~~ our revenues may be negatively impacted in future periods until the effects of the pandemic and the efforts to address it have fully subsided and the current macroeconomic environment has substantially recovered. The uncertainty related to COVID-19 may also result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements.

In light of the uncertain and rapidly evolving situation relating to COVID-19, we have taken precautionary measures intended to reduce the risk of the virus to our employees, customers, and communities in which we operate. We ~~have~~ established ~~remote~~flexible working arrangements for our employees, ~~limited non-essential~~reduced business travel, and ~~cancelled or~~ shifted certain of our customer, employee, and industry events to ~~a virtual-only format for the foreseeable future.~~virtual formats. As a result of these precautionary measures, there could be a negative impact on our sales, marketing, and customer success efforts, continued delays in our sales cycles, delays in the release or delivery of new or enhanced offerings or unexpected changes to such offerings, or operational or other challenges, any of which could significantly disrupt our business and operating results. For example, our shift to creating virtual customer and industry events may not be successful, and we may not be able to showcase our products as effectively or generate the same customer interest, opportunities, and leads through virtual events as we have historically done through in-person events. Additionally, while we have not experienced any material disruptions to date, our technological systems or infrastructure may not be equipped to facilitate effective remote working arrangements or operate in compliance with all laws and regulations for our employees in the short or long term.

Considerable uncertainty still surrounds COVID-19, the evolution of its variants, its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses and of various efforts to inoculate the global ~~population.~~population and develop effective treatments. Although we continue to actively monitor the situation and may take further actions as may be required or recommended by government authorities or as more information and public health guidance become available, we may not be able to immediately respond to, meet or enforce all required or recommended health and safety measures or other government requirements or recommendations in all of our locations, and the full extent to which COVID-19 impacts our business and operating results will depend on future developments, including the duration, spread, severity, and potential recurrence of the COVID-19 pandemic, impact on our customers and our sales cycles, our ability to generate new business leads, impact on our customer, employee, and industry events, and effect on our vendors, all of which are highly uncertain and cannot be predicted.

In addition, the effects of the COVID-19 pandemic may heighten many of the other risks described in this “Risk Factors” section.

Business disruptions, including interruptions, delays, or failures of our systems, third-party data center hosting facility, or other third-party services, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our stock

A significant portion of our research and development activities or certain other critical business operations are concentrated in facilities in Northern Virginia, China, Argentina, and Poland. In addition, we serve our customers and manage certain critical internal processes using a third-party data center hosting facility located in the United States and other third-party services, including AWS, Azure, and other cloud services. Any disruptions or failures of our systems or the third-party hosting facility or other services that we use, including as a result of a natural disaster, fire, cyberattack (including the potential increase in risk for such attacks due to cyberwarfare in connection with the ongoing conflict between Russia and Ukraine), act of terrorism, geopolitical conflict (including due to the ongoing conflict between Russia and Ukraine and any potential conflict involving China and Taiwan), pandemic (including the ongoing COVID-19 pandemic), the effects of climate change, or other catastrophic event, as well as power outages, telecommunications infrastructure outages, a decision by one of our third-party service providers to close facilities that we use without adequate notice or to materially change the pricing or terms of their services, host country restrictions on the conduct of our business operations or the availability of our offerings, or other unanticipated problems with our systems or the third-party services that we use, such as a failure to meet service

standards, could severely impact our ability to conduct our business operations or to attract new customers or maintain existing customers, or result in a material weakness in our internal control over financial reporting, any of which could materially adversely affect our future operating results.

Our international operations are complex and expose us to risks that could have a material adverse effect on our business, operating results, and financial condition

We receive a significant portion of our total revenues from international sales and conduct our business activities in various foreign countries, including some emerging markets where we have limited experience, where the challenges of conducting our business can be significantly different from those we have faced in more developed markets, and where business practices may create internal control risks. International revenues accounted for ~~41.8%~~38.1% and ~~38.2%~~41.8% of our total revenues for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~43.3%~~39.7% and ~~41.0%~~43.3% of our total revenues for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Our international operations require significant management attention and financial resources and expose us to additional risks, including:

Disruptions to trade, weakening of economic conditions, economic and legal uncertainties, or changes in currency rates may adversely affect our business, financial condition, operating results, and cash flows. For example, we may face heightened risks in connection with our international operations as a result of the withdrawal of the United Kingdom from the European Union, commonly referred to as “Brexit.” The future effects of Brexit are uncertain and will depend on the implementation of the Trade and Cooperation Agreement between the United Kingdom and the European Union and any other future agreements the United Kingdom may make ~~in the future~~ to retain access to European Union ~~markets post their separation.~~markets. Brexit could, among other outcomes, disrupt the free movement of goods, services, and people between the United Kingdom and the European Union. Brexit could also lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which EU laws to replace or replicate. ~~In addition, the Trump administration imposed greater restrictions on international trade and significant increases in tariffs on certain goods imported into~~Recently, the United States has put in place higher tariffs and other trade restrictions and signaled that it may additionally alter trade agreements and terms between the United States and China, the European Union, Canada, and Mexico, among others, including limiting trade and/or imposing tariffs on imports from ~~a number of foreign markets, following which~~such countries. In addition, China, the European Union, Canada, and Mexico, among others, have either threatened or put into place retaliatory tariffs ~~were imposed on exports~~ of ~~certain U.S. goods to those markets.~~their own. These tariffs and any further escalation of protectionist trade measures could adversely affect the markets in which we sell our offerings and, in turn, our business, financial condition, operating results, and cash ~~flows and~~flows. While the Biden administration has indicated that it may pursue temporary repeals of such measures, it is unclear whether and to what extent such measures will be reversed in the future or whether the Biden administration will ~~maintain the increased tariffs imposed by the prior administration or~~ make additional changes to U.S. trade policy that may result in further impacts on our business.

Changes to the U.S. taxation of our international income, or changes in foreign tax laws, could have a material effect on our future operating results. For example, the Tax Act led to corporate income tax rate changes, the modification or elimination of certain tax incentives, changes to the existing regime for taxing overseas earnings, and measures to prevent BEPS, and the United Kingdom adopted legislation imposing a tax related to offshore receipts in respect of intangible property held in low tax jurisdictions.

Moreover, compliance with foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions. Our failure to comply with these laws and regulations has exposed, and may in the future expose, us to fines and penalties. These laws and regulations include anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act, the ~~U.K.~~UK Bribery Act, local laws prohibiting corrupt payments to government officials, and local laws relating to

procurement, contracting, and antitrust. These laws and regulations also include import and export requirements and economic and trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce based on U.S. foreign policy and national security goals against targeted foreign states, organizations, and individuals. Although we have implemented policies and procedures designed to help ensure compliance with these laws, our employees, channel partners, and other persons with whom we do business may take actions in violation of our policies or these laws. For example, following an internal review initiated in 2018, we believe our Brazilian subsidiary failed or likely failed to comply with local procurement regulations in conducting business with certain Brazilian government entities. Any violation of these laws could subject us to civil or ~~criminal~~administrative penalties, including substantial fines, prohibitions, or ~~prohibitions~~other limitations on our ability to sell our offerings to one or more countries, and could also materially damage our reputation and our brand.

These factors may have a material adverse effect on our future sales, business, operating results, and financial condition.

We face a variety of risks in doing business with U.S. and foreign federal, state, and local governments and government agencies, including risks related to the procurement process, budget constraints and cycles, termination of contracts, and compliance with government contracting requirements

Our customers include the U.S. government, ~~and a number of~~ state and local governments and government agencies. There are a variety of risks in doing business with government entities, including:

Procurement. Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring us to incur significant up-front time and expense without any assurance that we will win a contract.

Budgetary Constraints and Cycles. Public sector funding reductions or delays adversely impact demand and payment for our offerings.

Termination of Contracts. Public sector customers often have contractual or other legal rights to terminate contracts for convenience or due to a default. If a contract is terminated for convenience, we may only be able to collect fees for software or services delivered prior to termination and settlement expenses. If a contract is terminated due to a default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative software or services.

Compliance with Government Contracting Requirements. Government contractors are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typical for commercial contracts. These may include rights regarding price protection, the accuracy of information provided to the government, contractor compliance with socio-economic policies, and other terms unique to government contracts. Governments and government agencies routinely investigate and audit contractors for compliance with these requirements. If, as a result of an audit or review, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties or administrative sanctions, including contract termination, forfeiture of profits, fines, and suspensions or debarment from future government business and we may suffer harm to our reputation.

Our customers also include ~~a number of~~ foreign governments and government agencies. Similar procurement, budgetary, contract, and audit risks also apply to these entities. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources. In certain jurisdictions, our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these difficulties could materially adversely affect our business and results of operations.

If we are unable to recruit or retain skilled personnel, or if we lose the services of ~~our Chairman of the Board of Directors & Chief Executive Officer,~~Michael J. Saylor, our business, operating results, and financial condition could be materially adversely affected

Our future success depends on our continuing ability to attract, train, assimilate, and retain highly skilled personnel. Competition for qualified employees in the technology industry has historically been high, and may be further amplified by evolving restrictions on immigration, travel, or availability of visas for skilled technology workers, including restrictions imposed in response to the COVID-19 pandemic. We may not be able to retain our current key employees or attract, train, assimilate, and retain other highly skilled personnel in the future. Our future success also depends in large part on the continued service of Michael J. Saylor, our Chairman of the Board of Directors ~~& Chief~~and Executive ~~Officer.~~Chairman. If we lose the services of Mr. Saylor, or if we are unable to attract, train, assimilate, and retain the highly skilled personnel we need, our business, operating results, and financial condition could be materially adversely affected.

Changes in laws or regulations relating to privacy or the collection, processing, disclosure, storage, localization, or transmission of personal data, or any actual or perceived failure by us or our third-party service providers to comply with such laws and regulations, contractual obligations, or applicable privacy policies, could materially adversely affect our business

Aspects of our business involve collecting, processing, disclosing, storing, and transmitting personal data, which are subject to certain privacy policies, contractual obligations, and U.S. and foreign laws, regulations, and directives relating to privacy and data protection. We store a substantial amount of customer and employee data, including personal data, on our networks and other systems and the cloud environments we manage. In addition, the types of data subject to protection as personal data in the European Union, China, the United States, and elsewhere have been expanding. In recent years, the collection and use of personal data by companies have come under

increased regulatory and public scrutiny, especially in relation to the collection and processing of sensitive data, such as healthcare, biometric, genetic, financial services, and children’s data, precise location data, and data regarding a person’s race or ethnic origins, political opinions, or religious beliefs. For example, in the United States, protected health information is subject to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which can provide for civil and criminal penalties for noncompliance. Entities (such as us) that engage in creating, receiving, maintaining, or transmitting protected health information provided by covered entities and other business associates are subject to enforcement under HIPAA. Our access to protected health information triggers obligations to comply with certain privacy rules and data security requirements under HIPAA.

Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us or our third-party service providers to comply with applicable privacy policies, contractual obligations, or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by domestic or foreign government entities or others, including private plaintiffs in litigation. Such proceedings could result in the imposition of sanctions, fines, penalties, liabilities, government orders, and/or orders requiring that we change our data practices, any of which could have a material adverse effect on our business, operating results, reputation, and financial condition.

Various U.S. and foreign government bodies may enact new or additional laws or regulations, or issue rulings that invalidate prior laws or regulations, concerning privacy, data storage, data protection, and cross-border transfer of data that could materially adversely impact our business. In the European Union, the General Data Protection Regulation (“GDPR”) took effect in May 2018. GDPR establishes requirements regarding the handling and security of personal data, requires disclosure of data breaches to individuals, customers, and data protection authorities in certain circumstances, requires companies to honor data subjects’ requests relating to their personal data, permits regulators to impose fines of up to €20,000,000 or 4% of global annual revenue, whichever is higher, and establishes a private right of action. Furthermore, a new ePrivacy Regulation, regulating electronic communications, was proposed in 2017 and is under consideration by the European Commission, the European Parliament, and the European Council. More recently, the Court of Justice of

the European Union (“CJEU”) invalidated the U.S.-EU Privacy Shield in July 2020. The U.S.-EU Privacy Shield provided a mechanism to lawfully transfer personal data from the European Union to the United States and certain other countries. In the wake of the invalidation of the U.S.-EU Privacy Shield, we have transitioned to reliance on the EU Standard Contractual Clauses (“SCCs”) to lawfully transfer certain personal data from the European Union to the United States. The rules involving this alternative data transfer option are also undergoing revision and this transfer mechanism may also be declared invalid (or require us to change our business practices) in the future, requiring us to provide an alternative means of data transfer. In addition, the required terms for contracts containing SCCs along with recommended supplemental provisions are changing and may require us to assume additional obligations, otherwise inhibit or restrict our ability to undertake certain activities, or incur additional costs related to data protection.

In addition, in June 2021, the European Data Protection Board (“EDPB”) issued a new set of SCCs and formal recommendations on measures to ensure compliance with the EU data protection requirements when transferring personal data outside of the European Economic Area (the “EDPB Recommendations”). The new SCCs place obligations on us in relation to government authorities’ access requests in respect of personal data transferred under the SCCs. The EDPB Recommendations are designed to be read in tandem with the new SCCs and set out new requirements for organizations to assess third countries and identify appropriate supplementary data protection and security measures to be implemented on a case-by-case basis where needed.

Moreover, due to Brexit, the SCCs issued by the European Commission are no longer automatically adopted in the United Kingdom post-Brexit. In response, the UK’s Information Commissioner’s Office (“ICO”) published a template Addendum to the new EU SCCS which adapts the new EU SCCs for UK use. In the alternative, the ICO also published the international data transfer agreement (“IDTA”). The IDTA replaces the current set of SCCs being used in the UK. The UK SCCs Addendum and IDTA, after having been put before UK parliament, have been in force as of March 2022 and UK-based organizations were required to start using the UK IDTA or Addendum for new data transfer arrangements starting in September 2022.

The rules involving these alternative SCC data transfer options are continually undergoing revision and these transfer mechanisms may also be declared invalid (or require us to change our business practices) in the future, requiring us to provide an alternative means of data transfer or implement significant changes in our data security and protection practices. In addition, the required terms for contracts containing SCCs along with recommended supplemental provisions are changing and may require us to assume additional obligations, otherwise inhibit or restrict our ability to undertake certain activities, or incur additional costs related to data protection.

Similar requirements are also coming into force in other countries. Brazil enacted the Lei Geral de Proteção de Dados (the ~~Brazilian~~“Brazilian General Data Protection ~~Law)~~Law”), which became effective in August 2020 and imposes requirements largely similar to GDPR on products and services offered to users in Brazil. In China, we may also be subject to the Cybersecurity Law that went into effect in June 2017 and the revision of the Personal Information Security Specification that went into effect in October 2020, which have broad but uncertain application and impose a number of new privacy and data security obligations. China is also ~~implementing~~adopted new legislation on the protection of privacy and personal data in November 2021, including athe Personal Information Protection Law and a Data Security Law that ~~is scheduled to become effective in September 2021 and may~~ impose new data processing obligations on us. Under these new regulations, if an entity operating in China violates the law, regulators may order it to take corrective actions, issue warnings, confiscate illegal income, suspend services, revoke operating permits or business

licenses, or issue a fine. The fine can be up to ¥50 million or 5 percent of an organization’s annual revenue for the prior financial year. Other countries are considering new or expanded laws governing privacy and data security that may impact our business practices. These developments, including in China, may impact our activities with our customers, other MicroStrategy entities and vendors, and require us to take appropriate steps in light of data transfers between the U.S. and the EU (and the UK), as well as transfers and onward transfers of personal data from the EU to other non-EU countries.

The state of California has also adopted a ~~new~~ comprehensive privacy law, the California Consumer Privacy Act (“CCPA”), which took effect in January 2020 and became enforceable in July 2020. We may be required to devote substantial resources to implement and maintain compliance with the CCPA, and noncompliance could result in regulatory investigations and fines or private litigation. Moreover, in November 2020, California voters approved a ~~new~~ privacy law, the California Privacy Rights Act (“CPRA”), which amends the CCPA to create ~~new~~ privacy rights and obligations in ~~California.~~California, and goes into effect in January 2023. Virginia, Colorado, Utah, and ~~Colorado~~Connecticut have passed laws similar to the CCPA, all of which go into effect in 2023, and several other states are considering bills similar to the CCPA or other generally applicable privacy laws that may impose additional costs and obligations on us. In March 2022, the U.S. federal government also passed the Cyber Incident Reporting for Critical Infrastructure Act of 2022, which will require companies deemed to be part of U.S. critical infrastructure to report any substantial cybersecurity incidents or ransom payments to the federal government within 72 and 24 hours, respectively. The implementing regulations are not expected for another two-to-three years.

Furthermore, the U.S. Congress is considering comprehensive privacy legislation. At this time, it is unclear whether Congress will pass such a law and if so, when and what it will require and prohibit. Moreover, it is not clear whether any such legislation would give the Federal Trade Commission (“FTC”) any new authority to impose civil penalties for violations of the Federal Trade Commission Act in the first instance, whether Congress will grant the FTC rulemaking authority over privacy and information security, or whether Congress will vest some or all privacy and data security regulatory authority and enforcement power in a new agency, akin to EU data protection authorities.

Complying with these and other changing requirements could cause us or our customers to incur substantial costs or pay substantial fines or penalties, require us to change our business practices, require us to take on more onerous obligations in our contracts, or limit our ability to provide certain offerings in certain jurisdictions, any of which could materially adversely affect our business and operating results. New laws or regulations restricting or limiting the collection or use of mobile data could also reduce demand for certain of our offerings or require changes to our business practices, which could materially adversely affect our business and operating results.

If we or our third-party service providers experience a disruption due to a cybersecurity attack or security breach and unauthorized parties obtain access to our customers’, prospects’, vendors’, or channel partners’ data, our data, our networks or other systems, or the cloud environments we manage, our offerings may be perceived as not being secure, our reputation may be harmed, demand for our offerings may be reduced, our operations may be disrupted, we may incur significant legal and financial liabilities, and our business could be materially adversely affected

As part of our business, we process, store, and transmit our customers’, prospects’, vendors’, and channel partners’ data as well as our own, including in our networks and other systems and the cloud environments we manage. Security breaches may occur due to technological error, computer viruses, or third-party action, including intentional misconduct by computer hackers or state actors, physical break-ins, industrial espionage, fraudulent inducement of employees, customers, or channel partners to disclose sensitive information such as user names or passwords, and employee, customer, or channel partner error or malfeasance. A security breach could result in unauthorized access to or disclosure, modification, misuse, loss, or destruction of our customers’, prospects’, vendors’, or channel partners’ data, our data (including our proprietary information, intellectual property, or trade secrets), our networks or other systems, or the cloud environments we manage. Third parties may also conduct attacks designed to prevent access to critical data or systems through ransomware or temporarily deny customers access to our cloud environments.

We, and our service providers, may experience and have experienced attempts by third parties to identify and exploit software and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized access to our or our customers’ or service providers’ cloud environments, networks, and other systems. Security measures that we or our third-party service providers have implemented may not be effective against all current or future security ~~threats.~~threats, including any potential threats from the exploitation of the log4j or SpringShell vulnerabilities. Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate, detect, or mitigate attempted security breaches and implement adequate preventative measures.

Any security breach, ransomware attack, or successful denial of service attack could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt our normal business operations, require us to spend material resources to investigate or correct the breach, require us to notify affected customers or individuals and/or applicable regulators and others, provide identity theft protection services to individuals, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and materially adversely affect our revenues and operating results. Our software operates in conjunction with and is dependent on third-party products and components across a broad ecosystem. If there is a security

vulnerability in one of these products or components, and if there is a security exploit targeting it, we could face increased costs, liability claims, customer dissatisfaction, reduced revenue, or harm to our reputation or competitive position.

These risks will increase as we continue to grow the number and scale of our cloud subscriptions and process, store, and transmit increasingly large amounts of our customers’, prospects’, vendors’, channel partners’, and our own data. In particular, in connection with the COVID-19 pandemic, there has been an increase in cyberattacks and other malicious activities as ~~shelter-in-place orders and~~ remote working conditions have led businesses to increasingly rely on virtual environments and communication systems.

Our having entered into an indemnification ~~agreement~~agreements with Michael J. Saylor, our Chairman of the Board of Directors ~~& Chief~~and Executive ~~Officer, in lieu of procuring~~Chairman, to supplement our conventional director and officer liability insurance ~~offered~~provided by a third-party insurance ~~carrier~~carriers could negatively affect our business and the market price of our class A common stock

Due to market trends toward higher premiums and the novelty of our bitcoin acquisition strategy, we ~~have been~~were unable to obtain our desired coverage level for director and officer liability insurance from commercial carriers on acceptable terms, and in lieu of such insurance from June 2021 through June 2022, and as a supplement to commercial carrier coverage we were able to obtain beginning in June 2022, we have entered into an indemnification ~~agreement~~agreements with Michael J. Saylor, our Chairman of the Board of Directors ~~& Chief~~and Executive ~~Officer,~~Chairman, pursuant to which Mr. Saylor has agreed to personally indemnify our directors and officers with respect to claims and expenses substantially similar to those typically covered under conventional director and officer insurance policies to the extent such claims and expenses are not covered by insurance provided by commercial carriers, for which we agreed to pay Mr. Saylor ~~a fee.~~applicable fees. Our having entered into such an indemnification ~~agreement~~agreements with Mr. Saylor ~~in lieu of procuring director and officer insurance offered by a third-party insurance carrier~~ could have adverse effects on our business, including making it more difficult to attract and retain qualified directors and officers due to the unconventional nature of the arrangement and potential concerns that the indemnification arrangement might not provide the same level of protection that might otherwise be provided by coverage obtained entirely through conventional director and officer insurance. In addition, ~~the arrangement~~our indemnity arrangements with Mr. Saylor may result in some investors perceiving that our independent directors are not sufficiently independent from Mr. Saylor due to their entitlement to personal indemnification from him, which may have an adverse effect on the market price of our class A common stock.

The market price of our class A common stock has been and may continue to be volatile

The market price of our class A common stock has historically been volatile and this volatility has been significant in recent periods. Since August 11, 2020, the date on which we announced our initial purchase of bitcoin, the closing price of our class A common stock has increased from $123.62 as of August 10, 2020, the last trading day before our announcement, to ~~$715.02~~$267.51 as of October ~~27, 2021.~~31, 2022. The market price of our class A common stock may fluctuate widely in response to various factors, some of which are beyond our control. These factors include, but are not limited to:

In addition, the stock market and the markets for both bitcoin-influenced and technology companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies in those markets. These market and industry factors may seriously harm the market price of our class A common stock, regardless of our actual operating performance.

Because of the rights of our two classes of common stock and because we are controlled by Michael J. Saylor, who beneficially owns the majority of our class B common stock, Mr. Saylor could transfer control of MicroStrategy to a third party without the approval of our Board of Directors or our other stockholders, prevent a third party from acquiring us, or limit the ability of our other stockholders to influence corporate matters

We have two classes of common stock: class A common stock and class B common stock. Holders of our class A common stock generally have the same rights as holders of our class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share. As of October ~~21, 2021,~~25, 2022, holders of our class B common stock owned 1,964,025 shares of class B common stock, or ~~70.1%~~67.7% of the total voting power. As of October ~~21, 2021,~~25, 2022, Mr. Saylor, our Chairman of the Board of Directors ~~& Chief~~and Executive ~~Officer,~~Chairman, beneficially owned 1,961,668 shares of class B common stock, or ~~70.0%~~67.7% of the total voting power. Accordingly, Mr. Saylor can control MicroStrategy through his ability to determine the outcome of elections of our directors, amend our certificate of incorporation and by-laws, and take other actions requiring the vote or consent of stockholders, including mergers, going-private transactions, and other extraordinary transactions and their terms.

Our certificate of incorporation allows holders of class B common stock to transfer shares of class B common stock, subject to the approval of stockholders holding a majority of the outstanding class B common stock. Mr. Saylor could, without the approval of our Board of Directors or our other stockholders, transfer voting control of MicroStrategy to a third party. Such a transfer of control could have a material adverse effect on our business, operating results, and financial condition. Mr. Saylor could also prevent a change of control of MicroStrategy, regardless of whether holders of class A common stock might otherwise receive a premium for their shares over the then current market price. In addition, this concentrated control limits stockholders’ ability to influence corporate matters and, as a result, we may take actions that our non-controlling stockholders do not view as beneficial or that conflict with their interests. As a result, the market price of our class A common stock could be materially adversely affected.

Our status as a “controlled company” could make our class A common stock less attractive to some investors or otherwise materially adversely affect our stock price

Because we qualify as a “controlled company” under Nasdaq corporate governance rules, we are not required to have independent directors comprise a majority of our Board of Directors. Additionally, our Board of Directors is not required to have an independent compensation or nominating committee or to have the independent directors exercise the nominating function. We are also not required to have the compensation of our executive officers be determined by a compensation committee of independent directors. In addition, we are not required to empower our Compensation Committee with the authority to engage the services of any compensation consultants, legal counsel, or other advisors, or to have the Compensation Committee assess the independence of compensation consultants, legal counsel, and other advisors that it engages.

In light of our status as a controlled company, our Board of Directors has determined not to establish an independent nominating committee or have its independent directors exercise the nominating function and has elected instead to have the Board of Directors be directly responsible for nominating members of the Board. A majority of our Board of Directors is currently comprised of independent directors, and our Board of Directors has established a Compensation Committee comprised entirely of independent directors. The Compensation Committee determines the compensation of our Chief Executive ~~Officer.~~Officer and will also determine the compensation of our Executive Chairman. However, our Board of Directors has authorized our Chief Executive Officer to determine the compensation of executive officers other than himself ~~rather than having such compensation determined by~~and the ~~Compensation Committee,~~Executive Chairman, except that certain performance-based executive officer compensation is determined by the Compensation Committee. Awards made to directors and officers subject to Section 16 of the Exchange Act under the 2013 Equity Plan are also approved by the Compensation Committee. Additionally, while our Compensation Committee is empowered with the authority to retain and terminate outside counsel, compensation consultants, and other experts or consultants, it is not required to assess their independence.

Although currently a majority of our Board of Directors is comprised of independent directors and the Compensation Committee is comprised entirely of independent directors, we may elect in the future not to have independent directors constitute a majority of the Board of Directors or the Compensation Committee, our Chief Executive Officer’s compensation determined by a compensation committee of independent directors, or a compensation committee of the Board of Directors at all.

Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections that are afforded to stockholders of companies that are required to follow all of the Nasdaq corporate governance rules. Our status as a controlled company could make our class A common stock less attractive to some investors or otherwise materially adversely affect our stock price.

Future sales, or the perception of future sales, of our class A common stock, convertible debt instruments or other convertible securities could depress the price of our class A common stock

We may issue and sell additional shares of class A common stock, convertible notes, or other securities in subsequent offerings to raise capital or issue shares for other purposes, including in connection with the acquisition of additional bitcoin. For example, we may sell shares of our class A common stock having an aggregate offering price of up to ~~approximately $596.0~~$500.0 million from time to time through ~~Jefferies, acting as our agent,~~the 2022 Sales Agents under the ~~Sale~~2022 Sales Agreement. We cannot predict:

Transactions involving newly issued class A common stock, convertible debt instruments, or other convertible securities could result in possibly substantial dilution to holders of our class A common stock.

Our amended and restated by-laws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, then any other state court located in the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for such disputes with us or our directors, officers or employees

Our amended and restated by-laws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, then any other state court located in the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or the Company’s certificate of incorporation or by-laws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act, which provides for exclusive jurisdiction of the federal courts. It could apply, however, to a suit that falls within one or more of the categories enumerated in the choice of forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. There is uncertainty as to whether a court would enforce such provision with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated by-laws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

Our level and terms of indebtedness could adversely affect our ability to raise additional capital to further execute on our bitcoin acquisition strategy, fund our enterprise analytics software operations, and take advantage of new business opportunities

As of September 30, ~~2021,~~2022, we had $1.7 billion aggregate principal amount of indebtedness under the Convertible Notes, ~~and~~ $500.0 million aggregate principal amount of indebtedness under the 2028 Secured ~~Notes.~~Notes, $205.0 million of outstanding borrowings under the 2025 Secured Term Loan, and $11.0 million of other long-term indebtedness.

Our substantial indebtedness and interest expense could have important consequences to us, including:

We may be unable to service our indebtedness, which could cause us to default on our debt obligations and could force us into bankruptcy or liquidation

Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance, which is influenced, in part, by general economic, financial, competitive, legislative, regulatory, counterparty business, and other risks that are beyond our control, including the availability of financing in the U.S. banking and capital markets. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital, or restructure or refinance our indebtedness. We cannot assure you that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness, to refinance our indebtedness, or to fund our other liquidity needs. Even if refinancing indebtedness is available, any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. In addition, our bitcoin acquisition strategy anticipates that we may issue additional debt in future periods to finance additional purchases of bitcoin, but if we are unable to generate sufficient cash flow to service our debt and make necessary capital expenditures, we may be required to sell bitcoin. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or our financial covenants, which could cause us to default on our debt obligations. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness.

In the event of an event of default under any of our indebtedness, the holders of the defaulted indebtedness could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest and, in the case of our 2028 Secured Notes, enforce their security interests on substantially all of our assets and the assets of our subsidiary guarantors, including any bitcoins or other digital assets acquired on or after the closing of our sale of the 2028 Secured Notes, but excluding our bitcoin acquired prior to that date (“Prior Bitcoins”), as well as bitcoins and digital assets acquired with the proceeds from the sale of Prior Bitcoins and bitcoins acquired from proceeds of debt secured by Prior Bitcoins. Similarly, in the event of an event of default under the Credit and Security Agreement, the lender thereunder could elect to declare all outstanding loan principal under the 2025 Secured Term Loan to be due and payable, together with accrued and unpaid interest, and enforce its security interest on the $5.0 million cash reserve account and the bitcoin held in the account securing the borrowings under the Credit and Security Agreement. Any of these events could in turn result in cross-defaults under our other indebtedness. We may not have sufficient funds available to pay the amounts due upon any such default, particularly in the event that there has been a decrease in the market value of our bitcoin holdings, and we may not be able to raise additional funds to pay such amounts on a timely basis, on terms we find acceptable, or at all. Any financing that we may undertake under such circumstances could result in substantial dilution of our existing stockholders, and in the absence of being able to obtain such financing, we could be forced into bankruptcy or liquidation.

The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain restricted subsidiaries of ours, which may prevent us from capitalizing on business opportunities

The indenture governing our 2028 Secured Notes imposes significant operating and financial restrictions on us and certain designated restricted subsidiaries of ours. These restrictions limit our ability, and the ability of such restricted subsidiaries, to, among other things:

As a result of these restrictions, we are limited as to how we conduct our business and we may be unable to raise additional indebtedness or conduct equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders or amend the covenants.

Our failure to comply with the restrictive covenants described above, as well as other terms of our indebtedness or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date and/or face insolvency proceedings. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.

We may be required to repay the 2028 Secured Notes prior to their stated maturity date, if the springing maturity feature is triggered

The 2028 Secured Notes have a stated maturity date of June 15, 2028, but include a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is (i) 91 days prior to the existing maturity date of the 2025 Convertible Notes (which is September 15, 2025), (ii) 91 days prior to the existing maturity date of the 2027 Convertible Notes (which is November 16, 2026), or (iii) the maturity date of any future convertible debt that we may issue that is then outstanding, unless on such dates we meet specified liquidity requirements or less than $100,000,000 of aggregate principal amount of the 2025 Convertible Notes, the 2027 Convertible Notes, or such future convertible debt, as applicable, remains outstanding. If such springing maturity feature is triggered, we will be required to pay all ~~amount~~amounts outstanding under the 2028 Secured Notes sooner than they would otherwise be due, we may not have sufficient funds available to pay such amounts at that time, and we may not be able to raise additional funds to pay such amounts on a timely basis, on terms we find acceptable, or at all.

Our MacroStrategy subsidiary has no independent operations other than holding bitcoin and financing activities and will depend on cash contributions from us and/or sales of bitcoin to meet its obligations under the Credit and Security Agreement under which the 2025 Secured Term Loan was issued

Our MacroStrategy subsidiary primarily holds bitcoin, a $5.0 million cash reserve account held as collateral for the 2025 Secured Term Loan, and certain cash proceeds retained from the 2025 Secured Term Loan. As of September 30, 2022, MacroStrategy had no operations other than purchasing and holding bitcoin and those related to the administration and repayment of the loan principal outstanding and interest due under the Credit and Security Agreement. MacroStrategy’s principal sources of funds to make payments pursuant to the Credit and Security Agreement are capital contributions, loans or other cash payments from us, which may be restricted by the covenants governing the 2028 Secured Notes, and sales of bitcoin, which in turn may be restricted due to the requirement in the Credit and Security Agreement requiring MacroStrategy to maintain the LTV Ratio below 50%. Accordingly, MacroStrategy may not have sufficient funds available to pay amounts due under the Credit and Security Agreement when they become due, and MacroStrategy and we may not be able to raise additional funds to pay such amounts on a timely basis, on terms we find acceptable, or at all.

MacroStrategy has contributed and may in the future be required to contribute additional bitcoin to the collateral package securing the Credit and Security Agreement or repay certain amounts outstanding thereunder prior to its stated maturity date, if the value of bitcoin declines

The Credit and Security Agreement has a stated maturity date of March 23, 2025, but includes a requirement that MacroStrategy maintain an LTV Ratio of less than 50%. As a result, MacroStrategy is required to maintain more than $410.0 million of bitcoin in the account securing the borrowings under the Credit and Security Agreement, assuming the full $205.0 million aggregate principal amount of the 2025 Secured Term Loan remains outstanding. If the price of bitcoin drops such that the LTV Ratio equals or exceeds the Maximum LTV Ratio of 50%, MacroStrategy will be required to either deposit additional bitcoin into such account or prepay a portion of the outstanding borrowings under the Credit and Security Agreement such that the LTV Ratio is reduced to 25% or less (or 35% or less, provided that in such case the interest rate on the outstanding borrowings will be increased by 25 basis points until such time as the LTV Ratio is reduced to 25% or less). In June 2022, as the price of bitcoin declined causing the LTV Ratio to increase, MacroStrategy deposited 10,585 additional bitcoins into the account securing the borrowing under the Credit and Security Agreement to help ensure that the LTV Ratio remained below the Maximum LTV Ratio. If MacroStrategy is not able to maintain an LTV Ratio of less than 50% at any time prior to the maturity date of the Credit and Security Agreement, MacroStrategy may be required to repay some of the principal outstanding under the Credit and Security Agreement sooner than such amounts would otherwise be due, MacroStrategy may not have sufficient funds available to pay such amounts at that time or the ability to sell bitcoin to generate additional funds, and MacroStrategy and we may not be able to raise additional funds to pay such amounts on a timely basis, on terms we find acceptable, or at all.

We may not be able to finance required repurchases of the 2028 Secured Notes or the Convertible Notes upon a change of control or a fundamental change or the repayment of amounts due under the 2025 Secured Term Loan upon a change of control

Upon a change of control or a fundamental change as defined in the indentures governing the 2028 Secured Notes and the Convertible Notes, the holders of such notes will have the right to require us to offer to purchase all of the applicable notes then outstanding at a price equal to 101% of the principal amount of the 2028 Secured Notes and 100% of the principal amount of the Convertible Notes, respectively, plus, in each case, accrued and unpaid interest, if any, to, but excluding, the repurchase date. In order to obtain sufficient funds to pay the purchase price of such notes, we expect that we would have to refinance the notes and we may not be able to refinance the notes on reasonable terms, if at all. Our failure to offer to purchase all applicable notes or to purchase all validly tendered notes would be an event of default under the indentures governing the 2028 Secured Notes and the Convertible Notes.

If a change of control or a fundamental change occurs, we may not have enough assets to satisfy all obligations under the indentures governing the 2028 Secured Notes and the Convertible Notes. Upon the occurrence of a change of control or a fundamental change we could seek to refinance the indebtedness under the 2028 Secured Notes or the Convertible Notes or obtain a waiver from the applicable note holders. However, we may not be able to obtain a waiver or refinance the applicable notes on commercially reasonable terms, if at all. Moreover, the exercise by holders of the 2028 Secured Notes or the Convertible Notes of their right to require us to repurchase such notes could cause a default under future debt agreements, even if the change of control or fundamental change itself does not, due to the financial effect of such repurchase on us.

Similarly, the Credit and Security Agreement under which the 2025 Secured Term Loan was issued includes customary change-of-control provisions, providing the lender with a right to declare all outstanding loan principal to be immediately due and payable, together with accrued and unpaid interest, in connection with a change of control (as such term is defined therein), including the sale of all or substantially all of our or MacroStrategy’s assets. In order to obtain sufficient funds to repay the amounts due under the Credit and Security Agreement, we expect that we or MacroStrategy would need to refinance the amount due and may not be able do so on reasonable terms, if at all.

We may not have the ability to raise the funds necessary to settle for cash conversions of the Convertible Notes

Upon conversion of the 2025 Convertible Notes or the 2027 Convertible Notes, unless we elect (or have previously irrevocably elected) to deliver solely shares of our class A common stock to settle such conversion of such Convertible Notes (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the applicable Convertible Notes being converted as described in the applicable indenture. However, we may not have enough available cash or be able to obtain financing at the time we are required to pay cash with respect to such notes being converted. In addition, our ability to pay cash upon conversions of the Convertible Notes may be limited by law, regulatory authority, the covenants contained in the indenture governing the 2028 Secured Notes, or agreements governing any future indebtedness. Our failure to pay any cash payable on future conversions of the Convertible Notes as required by the respective indentures would constitute a default under the indenture for that series of Convertible Notes and could also lead to a default under the indenture for the other series of Convertible Notes or the 2028 Secured Notes. A default under any indenture could also lead to a default under agreements governing any future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results

In the event the conditional conversion feature of either the 2025 Convertible Notes or the 2027 Convertible Notes is triggered, holders of the applicable Convertible Notes will be entitled to convert such notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the

outstanding principal of the applicable Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

We rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the 2028 Secured Notes, ~~and~~ the Convertible Notes, and our other long-term indebtedness, and certain of our subsidiaries holding digital assets may not provide any dividends, distributions, or other payments to us to fund our obligations and meet our cash needs

We depend on dividends, distributions, and other payments from our subsidiaries to fund our obligations, including those arising under the 2028 Secured Notes, ~~and~~ the Convertible Notes, and our other long-term indebtedness, and meet our cash needs. The operating results of our subsidiaries at any given time may not be sufficient to make dividends, distributions, or other payments to us in order to allow us to make payments on the 2028 Secured Notes, ~~and~~ the Convertible ~~Notes.~~Notes, and our other long-term indebtedness. Our wholly-owned subsidiary, MacroStrategy, ~~LLC subsidiary that~~which holds the bitcoin that we owned prior to the issuance of the 2028 Secured Notes and the bitcoin that we acquired from the proceeds of the sale of our class A shares pursuant to the 2021 Open Market ~~Offering~~Sales Agreement or may acquire from proceeds we may generate from the 2022 Sales Agreement, is not obligated to provide and may in the future be prohibited from providing any dividends, distributions, or other payments to us to fund our obligations and meet our cash ~~needs.~~needs under such indebtedness. MacroStrategy ~~LLC~~ holds ~~digital assets~~approximately 115,110 bitcoins that, as of September 30, ~~2021~~2022, had a carrying value of ~~$2.014~~$1.731 billion on our Consolidated Balance Sheet, representing ~~67.4%~~68.0% of our consolidated total assets at such date. As of September 30, 2022, approximately 30,051 bitcoins held by MacroStrategy are pledged as collateral under the Credit and Security Agreement that secures MacroStrategy’s obligations under the 2025 Secured Term Loan. In addition, dividends, distributions, or other payments, as well as other transfers of assets, between our subsidiaries and from our subsidiaries to us may be subject to legal, regulatory, or contractual restrictions, which may materially adversely affect our ability to transfer cash within our consolidated companies and our ability to meet our cash needs and service our indebtedness.

Despite our current level of indebtedness, we may be able to incur substantially more indebtedness and enter into other transactions in the future which could further exacerbate the risks related to our indebtedness

Although the indenture governing our 2028 Secured Notes contains, and future debt instruments may contain, restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions and we may be able to incur significant additional indebtedness in the future. For example, these restrictions do not prevent us from incurring obligations, such as certain trade payables and operating leases, that do not constitute indebtedness as defined under our debt instruments. To the extent we incur additional indebtedness or other obligations, the risks described herein with respect to our indebtedness may increase significantly.

During the three and nine months ended September 30, ~~2021,~~2022, we did not repurchase any equity securities registered by us pursuant to Section 12 of the Exchange Act. See Note 8,6, Treasury Stock, to the Consolidated Financial Statements in “Part I. Item 1. Financial Statements” for further information regarding our Share Repurchase Program.

On ~~October 28, 2021,~~November 1, 2022, we issued a press release announcing the Company’s financial results for the quarter ended September 30, ~~2021.~~2022. A copy of this press release is attached as Exhibit 99.1 to this Quarterly Report. The information regarding this press release in this Item 5 (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of Each Class		Trading Symbol		Name of Each Exchange on which Registered
Class A common stock, par value $0.001 per share		MSTR		The Nasdaq Global Select Market

		Page
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (unaudited)	1

	Consolidated Balance Sheets as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021	1

	Consolidated Statements of Operations for the Three Months Ended September 30, ~~2021~~2022 and ~~2020~~2021	2

	Consolidated Statements of Operations for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021	3

	Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021	4

	Consolidated Statements of Stockholders’ (Deficit) Equity as of September 30, ~~2021~~2022	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2422

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4342

Item 4.	Controls and Procedures	4442

PART II.	OTHER INFORMATION	4543

Item 1.	Legal Proceedings	4543

Item 1A.	Risk Factors	4543

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6667

Item 5.	Other Information	6667

Item 6.	Exhibits	6667

	September 30,			December 31,			September 30,			December 31,
	2021			2020			2022			2021
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	56,975		$	59,675		$	60,390		$	63,356
Restricted cash		1,149			1,084			6,578			1,078
Accounts receivable, net		123,748			197,461			109,926			189,280
Prepaid expenses and other current assets		15,750			14,400			25,399			14,251
Total current assets		197,622			272,620			202,293			267,965
Digital assets		2,405,739			1,054,302			1,993,032			2,850,210
Property and equipment, net		38,133			42,975			33,033			36,587
Right-of-use assets		68,755			73,597			62,902			66,760
Deposits and other assets		14,857			15,615			20,992			15,820
Deferred tax assets, net		261,138			6,503			233,034			319,782
Total assets	$	2,986,244		$	1,465,612		$	2,545,286		$	3,557,124
Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable, accrued expenses, and operating lease liabilities	$	45,454		$	45,119		$	36,846		$	46,084
Accrued compensation and employee benefits		47,759			49,249			46,346			54,548
Accrued interest								11,394			1,493
Deferred revenue and advance payments		160,697			191,250			165,934			209,860
Total current liabilities		253,910			285,618			260,520			311,985
Long-term debt, net		2,153,034			486,366			2,376,935			2,155,151
Deferred revenue and advance payments		8,302			14,662			8,754			8,089
Operating lease liabilities		78,939			84,328			69,278			76,608
Other long-term liabilities		28,934			33,382			30,088			26,224
Deferred tax liabilities		1,811			8,211			0			109
Total liabilities		2,524,930			912,567			2,745,575			2,578,166
Commitments and Contingencies
Stockholders’ Equity
Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; 0 shares issued or outstanding		0			0
Class A common stock, $0.001 par value; 330,000 shares authorized; 17,078 shares issued and 8,394 shares outstanding, and 16,307 shares issued and 7,623 shares outstanding, respectively		17			16
Stockholders’ (Deficit) Equity
Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding								0			0
Class A common stock, $0.001 par value; 330,000 shares authorized; 18,038 shares issued and 9,354 shares outstanding, and 18,006 shares issued and 9,322 shares outstanding, respectively								18			18
Class B convertible common stock, $0.001 par value; 165,000 shares authorized; 1,964 shares issued and outstanding, and 1,964 shares issued and outstanding, respectively		2			2			2			2
Additional paid-in capital		1,118,761			763,051			1,778,660			1,727,143
Treasury stock, at cost; 8,684 shares and 8,684 shares, respectively		(782,104	)		(782,104	)
Treasury stock, at cost; 8,684 shares								(782,104	)		(782,104	)
Accumulated other comprehensive loss		(6,781	)		(3,885	)		(18,179	)		(7,543	)
Retained earnings		131,419			575,965
Total stockholders’ equity		461,314			553,045
Total liabilities and stockholders’ equity	$	2,986,244		$	1,465,612
(Accumulated deficit) retained earnings								(1,178,686	)		41,442
Total stockholders’ (deficit) equity								(200,289	)		978,958
Total liabilities and stockholders’ (deficit) equity							$	2,545,286		$	3,557,124

	Three Months Ended						Three Months Ended
	September 30,						September 30,
	2021			2020			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues:
Product licenses	$	25,830		$	29,573		$	22,286		$	25,830
Subscription services		10,853			8,305			16,414			10,853
Total product licenses and subscription services		36,683			37,878			38,700			36,683
Product support		70,387			71,352			66,010			70,387
Other services		20,924			18,178			20,650			20,924
Total revenues		127,994			127,408			125,360			127,994
Cost of revenues:
Product licenses		383			545			406			383
Subscription services		4,282			3,656			6,395			4,282
Total product licenses and subscription services		4,665			4,201			6,801			4,665
Product support		4,679			5,679			5,224			4,679
Other services		12,975			11,856			13,360			12,975
Total cost of revenues		22,319			21,736			25,385			22,319
Gross profit		105,675			105,672			99,975			105,675
Operating expenses:
Sales and marketing		38,209			35,330			35,409			38,209
Research and development		28,211			26,638			30,498			28,211
General and administrative		23,751			19,733			27,283			23,751
Digital asset impairment losses		65,165			44,242			727			65,165
Total operating expenses		155,336			125,943			93,917			155,336
Loss from operations		(49,661	)		(20,271	)
Interest (expense) income, net		(10,723	)		209
Other income (expense), net		1,264			(2,971	)
Income (loss) from operations								6,058			(49,661	)
Interest expense, net								(14,073	)		(10,723	)
Other income, net								4,897			1,264
Loss before income taxes		(59,120	)		(23,033	)		(3,118	)		(59,120	)
Benefit from income taxes		(22,984	)		(8,804	)
Provision for (benefit from) income taxes								23,961			(22,984	)
Net loss	$	(36,136	)	$	(14,229	)	$	(27,079	)	$	(36,136	)
Basic loss per share (1)	$	(3.61	)	$	(1.48	)	$	(2.39	)	$	(3.61	)
Weighted average shares outstanding used in computing basic loss per share		9,999			9,616			11,308			9,999
Diluted loss per share (1)	$	(3.61	)	$	(1.48	)	$	(2.39	)	$	(3.61	)
Weighted average shares outstanding used in computing diluted loss per share		9,999			9,616			11,308			9,999

	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues:
Product licenses	$	69,261		$	56,973		$	58,928		$	69,261
Subscription services		31,221			24,294			43,276			31,221
Total product licenses and subscription services		100,482			81,267			102,204			100,482
Product support		212,063			212,548			199,682			212,063
Other services		63,702			55,601			64,824			63,702
Total revenues		376,247			349,416			366,710			376,247
Cost of revenues:
Product licenses		1,290			1,729			1,314			1,290
Subscription services		11,720			11,512			17,303			11,720
Total product licenses and subscription services		13,010			13,241			18,617			13,010
Product support		14,353			19,234			15,542			14,353
Other services		40,543			37,795			42,107			40,543
Total cost of revenues		67,906			70,270			76,266			67,906
Gross profit		308,341			279,146			290,444			308,341
Operating expenses:
Sales and marketing		116,728			109,799			105,511			116,728
Research and development		86,242			78,606			95,811			86,242
General and administrative		68,397			60,514			82,491			68,397
Digital asset impairment losses		684,034			44,242			1,088,656			684,034
Total operating expenses		955,401			293,161			1,372,469			955,401
Loss from operations		(647,060	)		(14,015	)		(1,082,025	)		(647,060	)
Interest (expense) income, net		(17,520	)		2,627
Other income (expense), net		1,631			(4,532	)
Interest expense, net								(38,299	)		(17,520	)
Other income, net								12,242			1,631
Loss before income taxes		(662,949	)		(15,920	)		(1,108,082	)		(662,949	)
Benefit from income taxes		(217,446	)		(5,735	)
Provision for (benefit from) income taxes								112,046			(217,446	)
Net loss	$	(445,503	)	$	(10,185	)	$	(1,220,128	)	$	(445,503	)
Basic loss per share (1)	$	(45.47	)	$	(1.04	)	$	(107.99	)	$	(45.47	)
Weighted average shares outstanding used in computing basic loss per share		9,798			9,777			11,299			9,798
Diluted loss per share (1)	$	(45.47	)	$	(1.04	)	$	(107.99	)	$	(45.47	)
Weighted average shares outstanding used in computing diluted loss per share		9,798			9,777			11,299			9,798

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

	December 31, 2020		Effect of the Adoption			January 1, 2021
Consolidated Balance Sheet	As Reported		of ASU 2020-06			As Adjusted
Deferred tax liabilities (assets)	$	8,211	$	(41,693	)	$	(33,482	)
Convertible senior notes, net		486,366		148,546			634,912
Additional paid-in-capital		763,051		(107,810	)		655,241
Retained earnings		575,965		957			576,922

	September 30, 2021		September 30, 2022		December 31, 2021
2025 Convertible Notes	$	637,136	$	640,133	$	637,882
2027 Convertible Notes		1,028,262		1,032,272		1,029,263
2028 Secured Notes		487,636		489,152		488,006
2025 Secured Term Loan				204,654		0
Other long-term secured debt				10,724		0
Total	$	2,153,034	$	2,376,935	$	2,155,151

	Outstanding		Unamortized			Net Carrying		Fair Value
	Principal Amount		Issuance Costs			Value		Amount		Leveling
2025 Convertible Notes	$	650,000	$	(9,867	)	$	640,133	$	485,141	Level 2
2027 Convertible Notes		1,050,000		(17,728	)		1,032,272		480,648	Level 2
Total	$	1,700,000	$	(27,595	)	$	1,672,405	$	965,789

	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021						Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	Contractual		Amortization of				Contractual		Amortization of				Contractual		Amortization of				Contractual		Amortization of
	Interest Expense		Issuance Costs		Total		Interest Expense		Issuance Costs		Total		Interest Expense		Issuance Costs		Total		Interest Expense		Issuance Costs		Total
2025 Convertible Notes	$	1,218	$	744	$	1,962	$	3,656	$	2,224	$	5,880	$	1,218	$	753	$	1,971	$	1,218	$	744	$	1,962
2027 Convertible Notes		0		1,000		1,000		0		2,432		2,432		0		1,004		1,004		0		1,000		1,000
Total	$	1,218	$	1,744	$	2,962	$	3,656	$	4,656	$	8,312	$	1,218	$	1,757	$	2,975	$	1,218	$	1,744	$	2,962

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	Contractual		Amortization of				Contractual		Amortization of
	Interest Expense		Issuance Costs		Total		Interest Expense		Issuance Costs		Total
2025 Convertible Notes	$	3,656	$	2,251	$	5,907	$	3,656	$	2,224	$	5,880
2027 Convertible Notes		0		3,009		3,009		0		2,432		2,432
Total	$	3,656	$	5,260	$	8,916	$	3,656	$	4,656	$	8,312

Payments due by period ended September 30,	2025 Convertible Notes		2027 Convertible Notes		2028 Secured Notes		Total		2025 Convertible Notes		2027 Convertible Notes		2028 Secured Notes		2025 Secured Term Loan		Other long-term secured debt		Total
2022	$	4,875	$	0	$	30,710	$	35,585
2023		4,875		0		30,625		35,500	$	0	$	0	$	0	$	0	$	506	$	506
2024		4,875		0		30,625		35,500		0		0		0		0		532		532
2025		4,875		0		30,625		35,500		0		0		500,000		205,000		562		705,562
2026		652,451		0		30,625		683,076		650,000		0		0		0		592		650,592
2027										0		1,050,000		0		0		8,787		1,058,787
Thereafter		0		1,050,000		561,250		1,611,250		0		0		0		0		0		0
Total	$	671,951	$	1,050,000	$	714,460	$	2,436,411	$	650,000	$	1,050,000	$	500,000	$	205,000	$	10,979	$	2,415,979

	Stock Options Outstanding									Stock Options Outstanding
				Weighted Average		Aggregate		Weighted Average					Weighted Average		Aggregate		Weighted Average
				Exercise Price		Intrinsic		Remaining Contractual					Exercise Price		Intrinsic		Remaining Contractual
	Shares			Per Share		Value		Term (Years)		Shares			Per Share		Value		Term (Years)
Balance as of July 1, 2021		1,280		$	260.71
Balance as of July 1, 2022											1,489		$	294.42
Granted		5		$	615.57						60		$	231.25
Exercised		(50	)	$	144.64	$	27,633				(4	)	$	141.84	$	491
Forfeited/Expired		(5	)	$	730.42						(6	)	$	381.84
Balance as of September 30, 2021		1,230		$	265.00
Exercisable as of September 30, 2021		552		$	131.41	$	246,831		3.4
Expected to vest as of September 30, 2021		678		$	373.86	$	168,911		8.6
Balance as of September 30, 2022											1,539		$	292.07
Exercisable as of September 30, 2022											727		$	183.43	$	53,146		3.6
Expected to vest as of September 30, 2022											812		$	389.31	$	13,107		8.7
Total		1,230		$	265.00	$	415,742		6.3		1,539		$	292.07	$	66,253		6.3

	Stock Options Outstanding at September 30, 2021						Stock Options Outstanding at September 30, 2022
			Weighted Average		Weighted Average				Weighted Average		Weighted Average
			Exercise Price		Remaining Contractual				Exercise Price		Remaining Contractual
Range of Exercise Prices per Share	Shares		Per Share		Term (Years)		Shares		Per Share		Term (Years)
$121.43 - $200.00		938	$	137.41		5.3		879	$	136.87		4.2
$200.01 - $300.00								80	$	239.61		9.9
$400.01 - $500.00		20	$	470.00		9.7		322	$	408.66		9.3
$600.01 - $691.23		272	$	689.84		9.4		258	$	691.23		8.4
Total		1,230	$	265.00		6.3		1,539	$	292.07		6.3

	Restricted Stock Units Outstanding					Share-Settled Restricted Stock Units Outstanding
				Aggregate					Aggregate
				Intrinsic					Intrinsic
	Units			Value		Units			Value
Balance as of July 1, 2021		86
Balance as of July 1, 2022							132
Granted		28					7
Vested		0		$	0		(6	)	$	1,907
Forfeited		(1	)				(3	)
Balance as of September 30, 2021		113
Expected to vest as of September 30, 2021		113		$	65,212
Balance as of September 30, 2022							130
Expected to vest as of September 30, 2022							130		$	27,587

Geographic regions:	Domestic		EMEA		Other Regions		Consolidated		Domestic		EMEA		Other Regions		Consolidated
Three months ended September 30, 2022
Total revenues									$	77,629	$	36,065	$	11,666	$	125,360
Gross profit									$	62,908	$	28,798	$	8,269	$	99,975
Three months ended September 30, 2021
Total revenues	$	74,530	$	40,886	$	12,578	$	127,994	$	74,530	$	40,886	$	12,578	$	127,994
Gross profit	$	62,526	$	33,571	$	9,578	$	105,675	$	62,526	$	33,571	$	9,578	$	105,675
Three months ended September 30, 2020
Nine months ended September 30, 2022
Total revenues	$	78,763	$	36,884	$	11,761	$	127,408	$	221,060	$	110,931	$	34,719	$	366,710
Gross profit	$	67,055	$	29,728	$	8,889	$	105,672	$	178,979	$	86,835	$	24,630	$	290,444
Nine months ended September 30, 2021
Total revenues	$	213,507	$	122,537	$	40,203	$	376,247	$	213,507	$	122,537	$	40,203	$	376,247
Gross profit	$	178,485	$	99,246	$	30,610	$	308,341	$	178,485	$	99,246	$	30,610	$	308,341
Nine months ended September 30, 2020
Total revenues	$	206,318	$	109,835	$	33,263	$	349,416
Gross profit	$	166,566	$	86,760	$	25,820	$	279,146
As of September 30, 2021
As of September 30, 2022
Long-lived assets	$	2,508,985	$	11,202	$	7,297	$	2,527,484	$	85,716	$	6,172	$	4,047	$	95,935
As of December 31, 2020
As of December 31, 2021
Long-lived assets	$	1,165,283	$	11,441	$	9,765	$	1,186,489	$	89,817	$	7,874	$	5,656	$	103,347

	Approximate Number of Bitcoins Held at End of Quarter		Lowest Market Price Per Bitcoin During Quarter (f)		Market Value of Bitcoin Held at End of Quarter Using Lowest Market Price (in thousands) (g)		Highest Market Price Per Bitcoin During Quarter (h)		Market Value of Bitcoin Held at End of Quarter Using Highest Market Price (in thousands) (i)		Market Price Per Bitcoin at End of Quarter (j)		Market Value of Bitcoin Held at End of Quarter Using Ending Market Price (in thousands) (k)		Approximate Number of Bitcoins Held at End of Quarter		Lowest Market Price Per Bitcoin During Quarter (a)		Market Value of Bitcoin Held at End of Quarter Using Lowest Market Price (in thousands) (b)		Highest Market Price Per Bitcoin During Quarter (c)		Market Value of Bitcoin Held at End of Quarter Using Highest Market Price (in thousands) (d)		Market Price Per Bitcoin at End of Quarter (e)		Market Value of Bitcoin Held at End of Quarter Using Ending Market Price (in thousands) (f)
June 30, 2020		0	n/a		n/a		n/a		n/a		n/a		n/a
September 30, 2020		38,250	$	8,905.84	$	340,648	$	12,486.61	$	477,613	$	10,706.00	$	409,505
December 31, 2020		70,469	$	10,363.76	$	730,324	$	29,321.90	$	2,066,285	$	29,181.00	$	2,056,356		70,469	$	10,363.76	$	730,324	$	29,321.90	$	2,066,285	$	29,181.00	$	2,056,356
March 31, 2021		91,326	$	27,678.00	$	2,527,721	$	61,788.45	$	5,642,892	$	58,601.28	$	5,351,820		91,326	$	27,678.00	$	2,527,721	$	61,788.45	$	5,642,892	$	58,601.28	$	5,351,820
June 30, 2021		105,085	$	28,800.00	$	3,026,448	$	64,899.00	$	6,819,911	$	34,763.47	$	3,653,119		105,085	$	28,800.00	$	3,026,448	$	64,899.00	$	6,819,911	$	34,763.47	$	3,653,119
September 30, 2021		114,042	$	29,301.56	$	3,341,609	$	52,944.96	$	6,037,949	$	43,534.56	$	4,964,768		114,042	$	29,301.56	$	3,341,609	$	52,944.96	$	6,037,949	$	43,534.56	$	4,964,768
December 31, 2021																124,391	$	42,333.00	$	5,265,844	$	69,000.00	$	8,582,979	$	45,879.97	$	5,707,055
March 31, 2022																129,218	$	32,933.33	$	4,255,579	$	48,240.00	$	6,233,476	$	45,602.79	$	5,892,701
June 30, 2022																129,699	$	17,567.45	$	2,278,481	$	47,469.40	$	6,156,734	$	18,895.02	$	2,450,665
September 30, 2022																130,000	$	18,153.13	$	2,359,907	$	25,214.57	$	3,277,894	$	19,480.51	$	2,532,466

	Nine Months Ended September 30,						%			Nine Months Ended September 30,						%
	2021			2020			Change			2022			2021			Change
Net cash provided by operating activities	$	90,586		$	28,297			220.1	%	$	21,409		$	90,586			-76.4	%
Net cash used in investing activities	$	(2,037,353	)	$	(316,204	)		544.3	%	$	(233,329	)	$	(2,037,353	)		-88.5	%
Net cash provided by (used in) financing activities	$	1,946,169		$	(118,864	)		1,737.3	%
Net cash provided by financing activities										$	220,051		$	1,946,169			-88.7	%

Exhibit Number		Description

3.1		Second Restated Certificate of Incorporation of the registrant (incorporated herein by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003 (File No. 000-24435)).

3.2		Amended and Restated By-Laws of the registrant (incorporated herein by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the SEC on January 30, 2015 (File No. 000-24435)).

4.1		Form of Certificate of Class A Common Stock of the registrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2003 (File No. 000-24435)).

4.2		Indenture, dated as of December 11, 2020, by and between the registrant and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on December 11, 2020 (File No. 000-24435)).

4.3		Form of 0.750% Convertible Senior Note due 2025 (included within Exhibit 4.2 incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on December 11, 2020 (File No. 000-24435)).

4.4		Indenture, dated as of February 19, 2021, by and between the registrant and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on February 19, 2021 (File No. 000-24435)).

4.5		Form of 0% Convertible Senior Note due 2027 (included within Exhibit 4.4 incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on February 19, 2021 (File No. 000-24435)).

4.6		Indenture, dated as of June 14, 2021, by and among the registrant, as issuer, MicroStrategy Services Corporation, as a guarantor, and U.S. Bank National Association, as trustee and notes collateral agent (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on June 14, 2021 (File No. 000-24435)).

4.7		Form of 6.125% Senior Secured Note due 2028 (included within Exhibit 4.6 incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on June 14, 2021 (File No. 000-24435)).

10.1†*		Amendment No. 1 to Indemnification Agreement (Excess Agreement), effective as of August 30, 2022, by and between the registrant and Michael J. Saylor.

10.2		Sales Agreement, dated as of September 9, 2022, by and among the Company, Cowen and Company, LLC and BTIG, LLC (incorporated herein by reference to Exhibit 1.1 to the registrant’s Current Report on Form 8-K filed with the SEC on September 9, 2022 (File No. 000-24435)).

31.1		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the ~~Chairman of the Board of Directors & Chief~~Principal Executive Officer.

31.2		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the ~~President & Chief~~Principal Financial Officer.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Press release, dated ~~October 28, 2021,~~November 1, 2022, regarding the Company’s financial results for the quarter ended September 30, ~~2021.~~2022.

101.INS		Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase.

104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).


†	Management contracts and compensatory plans or arrangements.

		MICROSTRATEGY INCORPORATED

		By:	/s/ ~~Phong Le~~Andrew Kang
			~~Phong Le~~Andrew Kang
			Senior Executive Vice President & Chief Financial Officer


		By:	/s/ Jeanine Montgomery
			Jeanine Montgomery
			Senior Vice President & Chief Accounting Officer