MSTRStrategy

To the extent material, please tell us how recent bankruptcies in the crypto industry and failures of certain financial institutions, and the downstream effects of such events, have impacted or may impact your business, financial condition, customers, counterparties and custodians, either directly or indirectly.

Rest of the question

Clarify and disclose whether you have material assets that may not be recovered due to these events or may otherwise be lost or misappropriated.

Recent bankruptcies in the crypto industry and failures of certain financial institutions have not materially directly impacted the business or financial condition of MicroStrategy (together with its subsidiaries, “we,” “us,” “our” and the “Company”). We do not have any material exposure to companies in the crypto industry in our enterprise analytics business, and our customers include leading companies from a wide range of industries.

As disclosed in our 2022 10-K, our primary counterparty risk exposure with respect to our bitcoin is performance obligations under the various custody

Rest of the answer

arrangements into which we have entered. None of our bitcoin was at the time of filing of our 2022 10-K, nor as of the date of the submission of this response, custodied with any entity that has entered bankruptcy or announced an intention to file for bankruptcy protection or to liquidate. The recent bankruptcies in the crypto industry and failures of certain financial institutions have not resulted in any loss or misappropriation of any of our bitcoin nor have such events materially impacted our access to any of our bitcoin.

Other than as addressed in our filings with the Commission, the recent bankruptcies in the crypto industry and failures of certain financial institutions also have not materially indirectly impacted our business or financial condition, nor do we believe that any of these events have materially affected the ability of our counterparties and custodians to do business with us to date.

However, as disclosed in the 2022 Form 10-K—Item 1A. Risk Factors, such events could in the future have other indirect or downstream impacts on the digital assets industry generally, although we also do not believe any of these potential downstream impacts have had a material effect on the ability of our counterparties and custodians to do business with us to date.

Read in the reply ↗

Please tell us the names of your custodians and the amount of bitcoin held at each. Also, tell us and disclose any direct custodians or other participants in the crypto asset markets known to: • Have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for the benefit of creditors, or have had a receiver appointed for them.

Rest of the question

• Have experienced excessive redemptions or suspended redemptions or withdrawals of crypto assets. • Have the crypto assets of their customers unaccounted for. • Have experienced material corporate compliance failures.

As disclosed in our 2022 10-K, we hold substantially all of our bitcoin in custody accounts at U.S.-based, institutional-grade custodians that have demonstrated records of regulatory compliance and information security, and all of our custodians are New York Department of Financial Services (“NYDFS”)-regulated custodians. To our knowledge, none of our custodians have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for the benefit of creditors, or have had a receiver appointed for them.

Rest of the answer

We are not aware of any of our custodians experiencing excessive redemptions or suspensions of redemptions or withdrawals of crypto assets, nor of any of our custodians having the crypto assets of their customers unaccounted for, in each case in a manner or to an extent that would be material to us.

For the names of our custodians and the amount of bitcoin custodied with each, please see

Appendix A.

Rule 83 Confidential Treatment Request by MicroStrategy Incorporated Request #1

[**].

respectfully requests that the information contained in Request #1 be treated as confidential information and that the Commission provide timely notice to W. Ming Shao, Esq., Senior Executive Vice President & General Counsel, MicroStrategy

Incorporated, 1850 Towers Crescent Plaza, Tysons Corner, VA 22182, phone 703-848-8600, before it permits any disclosure of the bracketed information contained in Request

#1.

Item 15. Exhibits, Financial Statement Schedules

Notes to Consolidated Financial Statements

Note 4.

Read in the reply ↗

We note that both the 2025 and 2028 Secured Notes are secured by bitcoin collateral. Please address the following: • Tell us the name of the custodian that held the Bitcoin Collateral Account for the 2025 Secured Notes, and whether they are a third-party, institutional-grade, US-based entity similar to your other bitcoin custodians.

Rest of the question

• Tell us, and revise to disclose as appropriate, whether the bitcoin being held as collateral for the 2028 Secured Notes is also held in a separate custodial account and, if so, provide us with the information requested in the previous bullet point. • Tell us whether the lender of either loan has any rights or access to the bitcoin, such as the right to pledge, rehypothecate, assign, commingle or otherwise use the assets pledged as collateral. Alternatively, clarify whether you retain sole custody legal ownership and control over the bitcoin. Explain how either parties' rights might be impacted in the event of a default. • Provide us with your analysis of the accounting for the bitcoin pledged as collateral. In this regard, explain how the terms of the custodian account(s) and/or loan agreements support the inclusion of such bitcoin as an asset on your balance sheet. In addition, address your consideration to classify such bitcoin as a restricted asset separate from your other digital assets. Cite the accounting guidance you relied on to reach your conclusions. • Tell us, and consider revising to disclose, the dollar amount of bitcoin used as collateral for each loan as of each period end presented.

The following responses address each of the specific comments outlined in Comment 3:

We respectfully advise the Staff that we understand the reference to the “2025 Secured Notes” to be a reference to the

$205.0 million term loan (“2025 Secured Term Loan”) issued by Silvergate Bank (“Silvergate”) to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of MicroStrategy.

Rest of the answer

As disclosed in our Form 8-K filed on March 27, 2023, on March 23, 2023, we voluntarily prepaid the 2025 Secured Term Loan and all obligations thereunder, including with respect to the Bitcoin Collateral Account, have been terminated. For additional information about the custody of the bitcoin in the Bitcoin Collateral Account, please see Appendix A.

Secured Notes is also held in a separate custodial account and, if so, provide us with the information requested in the previous bullet point.

As of March 31, 2023, MicroStrategy directly owned 14,890 bitcoins (the “MicroStrategy Bitcoins”), and our subsidiary

MacroStrategy directly owned 125,110 bitcoins (“MacroStrategy Bitcoins”). As of March 31, 2023, all MicroStrategy Bitcoins were pledged as collateral in respect of our 6.125% Senior Secured Notes due 2028 (the “2028 Secured

Notes”) to U.S. Bank National Association (“US Bank”), as collateral agent on behalf of the holders of the 2028 Secured Notes, while all MacroStrategy Bitcoins were unencumbered and not pledged as collateral. MicroStrategy and

MacroStrategy maintain separate custodial accounts and MicroStrategy Bitcoins are not commingled with MacroStrategy Bitcoins. For additional information about the custody of the bitcoin pledged as collateral in respect of the 2028 Secured Notes, please see Appendix A.

We respectfully advise the Staff that we have previously disclosed in our 2022 10-K the number of bitcoins owned by each of MicroStrategy and MacroStrategy, and that all of the MicroStrategy Bitcoins are pledged as collateral in respect of our 2028 Secured Notes. We have also disclosed in our

2022 10-K that substantially all of our bitcoin is custodied with third-party custodians, including the MicroStrategy Bitcoins.

pledge, rehypothecate, assign, commingle or otherwise use the assets pledged as collateral. Alternatively, clarify whether you retain sole custody legal ownership and control over the bitcoin. Explain how either parties’ rights might be

Under the 2025 Secured Term Loan, MacroStrategy granted a security interest and lien to Silvergate on certain of MacroStrategy’s bitcoin, which were custodied in the Bitcoin Collateral Account (the “Silvergate Security Interest”), and under the collateral agreement governing the 2028 Secured Notes,

MicroStrategy granted a security interest and lien on the MicroStrategy Bitcoins to US Bank (the “US Bank Security Interest” and, together with the Silvergate Security Interest, the “Security Interests”).

Under the Uniform Commercial Code as in effect in the State of New York (the

“UCC”), a security interest in digital assets that are treated by the parties as “financial assets” under the UCC is perfected by conferring “control” over the digital assets to the secured party via a tri-party account control agreement among the borrower, secured party and custodian. “Control” for purposes of the UCC requires that the custodian comply with instructions from the secured party, but upon agreement of the parties, the right to deliver such instructions can be made subject to the occurrence and continuance of an event of default under underlying debt instruments.

Accordingly, in order to perfect the Security Interests, each of the secured parties and borrowers entered into tri-party account control agreements with the applicable custodians (the “Account Control Agreements”), which provide the secured parties with the right to deliver an instruction of exclusive control to the custodian, but only upon the occurrence and during the continuance of an event of default under the underlying debt instruments. These Security Interests and the Account Control Agreements conferred upon Silvergate and US Bank certain rights as secured parties, particularly the right to exercise remedies such as taking over the collateralized bitcoin upon the occurrence and continuance of an event of default; however, except upon the occurrence and continuance of such an event of default, the terms of the underlying debt instruments did not permit Silvergate and do not permit US Bank, as applicable, to pledge, rehypothecate, assign, commingle or otherwise use or direct the disposition of bitcoin pledged as collateral without the consent of MacroStrategy or MicroStrategy, as applicable.

Conferring “control” to the secured parties under the UCC and entering into the Account Control Agreements does not change the legal ownership of the pledged bitcoin prior to the secured party exercising exclusive control over the pledged bitcoin. Under the Account Control Agreements, the secured parties could only exercise exclusive control over the pledged bitcoin upon the occurrence and during the continuance of an event of default, and upon a submission of a notice to this effect by the applicable secured party to the applicable custodian. Only upon exercising exclusive control over the pledged bitcoin could the secured parties sell or otherwise transfer legal ownership of the pledged bitcoin. As there has not been an occurrence of an event of default under these debt instruments, we have at all times maintained legal ownership of our pledged bitcoin, subject to the security interest and liens on such bitcoin.

how the terms of the custodian account(s) and/or loan agreements support the inclusion of such bitcoin as an asset on your balance sheet. In addition, address your consideration to classify such bitcoin as a restricted asset separate from your other

We do not believe the Account Control Agreements limit our ability to present our pledged bitcoin as assets on our balance sheet. Although MicroStrategy can, and MacroStrategy could, only withdraw, transfer, or release the collateral in accordance with and subject to the Account Control Agreements and underlying debt instruments, this does not, in the case of the 2028 Secured Notes, and did not, in the case of the 2025 Secured Term Loan, result in the secured parties having rights to our digital assets in such a manner that we would not be able to present them as assets on our balance sheets. The secured party under the 2028 Secured Notes can only exercise, and the secured party under the 2025 Secured Term Loan could have only exercised, sole or exclusive control of the collateral upon submitting to the custodian a notice of sole or exclusive control (in the form designated under each underlying debt instrument and/or applicable Account Control Agreement), which in each case can only be submitted upon the occurrence and continuance of an event of default. Until such notice is received, US Bank is not, and Silvergate was not, able to unilaterally withdraw, transfer, substitute, or release from custody the collateral and such collateral remains, in the case of the 2028 Secured Notes, and remained, in the case of the 2025 Secured Term Loan, the property of MicroStrategy and MacroStrategy, respectively.

In considering the impact of the Account

Control Agreements on the presentation of the collateral on our balance sheet, we considered the guidance for non-cash collateral under ASC 860-30, Transfers and

Servicing – Secured Borrowing and Collateral. Per ASC 860-30-45-1, “If the secured party (transferee) has the right by contract or custom to sell or repledge the collateral, then the obligor (transferor) shall reclassify that asset and report that asset in its statement of financial position separately (for example, as security pledged to creditors) from other assets not so encumbered.” Further, ASC 860-30-40-1 states, “In circumstances where an obligor (transferor) transfers noncash collateral in a secured borrowing and the obligor (transferor) defaults under the terms of the secured contract and is no longer entitled to redeem the pledged asset, the obligor shall derecognize the pledged asset.”

The secured parties did not and do not have the right to sell or repledge the collateral until such time a notice of sole or exclusive control is submitted to the custodian. Accordingly, the Company concluded that the requirement to segregate the pledged asset as outlined under ASC

860-30-45-1 was not applicable as of December 31, 2022. Further, upon the occurrence and continuance of an event of default, where the Company is no longer able to redeem the collateral, the pledged assets would be derecognized from the balance sheet. Since the notice of sole or exclusive control can only be provided upon the occurrence and continuance of an event of default, it is not expected that the Company would be required to report the collateral as a separate restricted asset in the balance sheet.

The dollar amount of bitcoin used as collateral for each loan as of each period-end presented was as follows:

December 31,

2021

2022

March 31, 2023

Bitcoin Held as Collateral under Debt Instruments

2028 Secured Notes

13,449

14,890

2025 Secured Term Loan

—

34,619

Market Price per Bitcoin at

Period-End

$

45,879.97

16,556.32

28,468.44

Fair Market Value of Bitcoin Held as Collateral under Debt

Instruments

617,039,717

246,523,605

423,895,072

573,163,242

The closing market price of bitcoin is determined using the market price of one bitcoin on the Coinbase exchange (our principal market) at 4:00 p.m. Eastern Time on the last day of the respective period.

We will revise our disclosure in future filings to indicate the dollar amount of bitcoin pledged as collateral as of the end of the current reporting period in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Read in the reply ↗

Please revise to disclose revenue earned and long-lived assets held in your country of domicile, the U.S., separately from all foreign countries. Refer to ASC 280-10-50-41.

The amounts for Canada that have historically been presented with the U.S. under the “Domestic” geographical region header represented less than 0.1% of Domestic long-lived assets as of December 31, 2022 and 2021 and approximately 1% of Domestic revenues for each of the years ending December 31, 2022, 2021, and 2020.

Rest of the answer

We presented Canada and US amounts under a singular header due to management’s aggregation of the two jurisdictions when making operating decisions and assessing performance and the overall immaterial nature of our Canadian operations.

However, we will revise our disclosure in future filings to exclude this Domestic geographical region and instead separately state the amounts related to the U.S., our country of domicile, in accordance with ASC

280-10-50-41. In future filings, we will include Canada’s long-lived assets, revenues, and gross profits under “Other

Regions” with our Latin America and Asia Pacific regions.

* * * * *

The Company plans to incorporate the new disclosures noted throughout this response letter beginning with its upcoming Form 10-Q for the Quarterly Period Ended March 31, 2023, to be filed with the Commission on or around May 1, 2023.

In connection with responding to the staff’s comments, the Company acknowledges that (i) it is responsible for the adequacy and accuracy of the disclosure in its filing; (ii) staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and (iii) it may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

We hope you find that these responses answer the staff’s questions, but please contact the undersigned at (571) 491-5247 if you have any further questions or would like to discuss our responses.

Read in the reply ↗

We note your response to prior comment 3 and your revised disclosures in your recent Form 10-Q filing where you included the market value at quarter end of bitcoin pledged as collateral. Please also revise your financial statement footnotes disclosures to provide the dollar amount of bitcoin included in your digital asset balance sheet line item at period end that is is pledged as collateral.

MicroStrategy will revise its digital assets footnote disclosure in future filings to include disclosure of the dollar amount (i.e., the carrying value) of bitcoin included in the “Digital assets” balance sheet line item at period end that is pledged as collateral.

* * * * *

In connection with responding to the staff’s comment, MicroStrategy acknowledges that (i) it is responsible for the adequacy and accuracy of the disclosure in its filing; (ii) staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the

Rest of the answer

filing; and (iii) it may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United

States.

We hope you find that this response answers the staff’s questions, but please contact the undersigned at

(571) 491-5247 if you have any further questions or would like to discuss our response.

Read in the reply ↗

To provide greater transparency in future filings for your bitcoin acquisition strategy line of business, please include a tabular presentation in MD&A with the following entries (as of the end of the period covered by the periodic report): number of bitcoins held, number of bitcoins purchased during the period covered by the report, number of bitcoins sold during the period covered by the report, average purchase

Rest of the question

price per bitcoin purchased during the period, average sales price per bitcoin sold during the period, source of capital used to purchase bitcoins during the period, high and low value of bitcoin holdings during the period and value of bitcoin holdings at the end of the period.

We will expand our existing disclosures in future filings to include the information requested by the Commission. The new tabular disclosures will be included in MD&A within the “Our Bitcoin Acquisition Strategy” section, and will set forth information in the following format as appropriately updated for the reporting period in question:

“Our Bitcoin Acquisition Strategy

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

Rest of the answer

treasury reserve assets will consist of:

• cash and cash equivalents and short-term investments (“Cash Assets”) held by us that exceed working capital requirements; and bitcoin held by us, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets.

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, 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 bitcoin.

The following table presents a rollforward of our bitcoin holdings, including relevant details 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

Digital Asset Carrying

Value

Approximate Number of

Bitcoins Held

Approximate Average

Purchase Price

Per Bitcoin

Balance at June 30, 2020

$ n/a

Digital asset purchases

(a

)

425,000

38,250

11,111

Digital asset impairment losses

(44,242

Balance at September 30, 2020

380,758

(b

700,000

32,219

21,726

(26,456

Balance at December 31, 2020

1,125,000

(70,698

1,054,302

70,469

15,964

(c

1,086,375

20,857

52,087

(194,095

Balance at March 31, 2021

2,211,375

(264,793

1,946,582

91,326

24,214

(d

529,231

13,759

38,464

(424,774

Balance at June 30, 2021

2,740,606

(689,567

2,051,039

105,085

26,080

(a)

In the third quarter of 2020, we purchased bitcoin using excess cash, including cash from the liquidation of short-term investments.

(b)

In the fourth quarter of 2020, we purchased bitcoin using $634.7 million in net proceeds from our issuance of the 2025 Convertible Notes and excess cash.

(c)

In the first quarter of 2021, we purchased bitcoin using $1.026 billion in net proceeds from our issuance of the 2027 Convertible Notes and excess cash.

(d)

In the second quarter of 2021, we purchased bitcoin using $487.2 million in net proceeds from our issuance of the 2028 Secured Notes and excess cash.

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) for each respective quarter, as further defined below:

Approximate

Number of 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

Quarter (h)

Using Highest Market thousands) (i)

Market Price Per Bitcoin at End of Quarter (j)

Using Ending Market

(k)

June 30, 2020

September 30, 2020

8,905.84

340,648

12,486.61

477,613

10,706.00

409,505

December 31, 2020

10,363.76

730,324

29,321.90

2,066,285

29,181.00

2,056,356

March 31, 2021

27,678.00

2,527,721

61,788.45

5,642,892

58,601.28

5,351,820

June 30, 2021

28,800.00

3,026,448

64,899.00

6,819,911

34,763.47

3,653,119

(f)

The “Lowest Market Price Per Bitcoin During Quarter” represents the lowest market price for one bitcoin reported on the Coinbase exchange during the respective quarter, without regard to when we purchased any of our bitcoin.

(g)

The “Market Value of Bitcoin Held Using Lowest Market Price” represents a mathematical calculation consisting of the lowest market price for one bitcoin reported on the Coinbase exchange during the respective quarter multiplied by the number of bitcoins held by us at the end of the applicable period.

(h)

The “Highest Market Price Per Bitcoin During Quarter” represents the highest market price for one bitcoin reported on the Coinbase exchange during the respective quarter, without regard to when we purchased any of our bitcoin.

(i)

The “Market Value of Bitcoin Held Using Highest Market Price” represents a mathematical calculation consisting of the highest market price for one bitcoin reported on the Coinbase exchange during the respective quarter multiplied by the number of bitcoins held by us at the end of the applicable period.

(j)

The “Market Price Per Bitcoin at End of Quarter” represents the market price of one bitcoin on the

Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective quarter.

The “Market Value of Bitcoin Held at End of Quarter Using Ending Market Price” represents a mathematical calculation consisting of the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the respective quarter multiplied by the number of bitcoins held by us at the end of the applicable period.

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) in each scenario defined above multiplied by the number of bitcoins 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) on the date of sale, or at all.”

Read in the reply ↗

In future filings, please include a discussion of how the shares repurchased pursuant to your share repurchase program impacted performance targets used to determine executive compensation.

In future filings, the Company will include a discussion of how shares repurchased pursuant to its share repurchase program impacted performance targets used to determine executive compensation to the extent applicable. Read in the reply ↗

We note that your forum selection provision in your bylaws identifies 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) as the exclusive forum

Rest of the question

for certain litigation, including any “derivative action.” Please disclose whether this provision applies to actions arising under the Securities Act or Exchange Act. If the provision applies to Securities Act claims, in future filings, please clearly describe the provision in your disclosure including any risks to investors related to the provision. Please also state that there is uncertainty as to whether a court would enforce such provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. If the provision does not apply to actions arising under the Securities Act or Exchange Act, please tell us how you will inform investors in future filings that the provision does not apply to any actions arising under the Securities Act or Exchange Act.

The Company will include disclosure in the risk factor sections of its future quarterly and annual reports noting that although the choice of forum provision in its amended and restated by-laws does not apply to actions arising under the Exchange Act, such provision could potentially apply to claims arising under the Securities Act and the uncertainty relating to the enforceability of such provision and the inability of investors to waive compliance with the federal securities laws and the rules and regulations thereunder, as follows:

“Our amended and restated by-laws provide that the Court

Rest of the answer

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.”

Read in the reply ↗

We note that since altering your business model to include the purchase of bitcoin you have generally filed a Form 8-K concurrent with your purchases. However, we note that you purchased approximately $1.026 billion in bitcoin on February 24, 2021 and 13,005 bitcoin on June 21, 2021 and did not file Form 8-Ks.

Rest of the question

Please advise as to your process for determining whether a bitcoin purchase triggers the need to file a Form 8-K, including why Item 2.01 of Form 8-K has not been triggered for any of your bitcoin purchases.

In July 2020, the Company announced a capital allocation strategy to invest up $250 million in one or more alternative investments or assets, including digital assets such as bitcoin. In September 2020, the Company adopted a new Treasury Reserve Policy that updated its treasury management and capital allocation strategies, under which bitcoin would serve as the

Company’s primary treasury reserve asset on an ongoing basis.

Rest of the answer

In the first quarter of 2021, the Company determined to pursue as part of its overall corporate strategy, a strategy of acquiring bitcoin with its liquid assets that exceed working capital requirements and, from time to time, subject to market conditions, by issuing debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase bitcoin. As a result, since July 2020, purchases of bitcoin by the Company have been effected in each case in the ordinary course of the Company’s business.

The Company determined to file Forms 8-K voluntarily reporting bitcoin acquisitions under Item 8.01 of Form 8-K as a means to help keep investors apprised of the level of bitcoin purchases it has undertaken as part of its bitcoin acquisition strategy. The purchases of $1.026 billion in bitcoin in February 2021 and approximately 13,005 bitcoins in June 2021 were effected using the proceeds from the Company’s issuance of $1.05 billion aggregate principal amount of 0% convertible senior notes due 2027 that was reported on a Form 8-K filed on February 19, 2021 and proceeds from the Company’s issuance of $500 million aggregate principal amount of 6.125% senior secured notes due

2028 that was reported on a Form 8-K filed on June 14, 2021, respectively. In both such Form 8-K filings, the Company disclosed that the intended use of net proceeds from the sale of the applicable notes was to acquire additional bitcoin. As a result, the Company did not file an additional Form 8-K under Item 8.01 reporting those bitcoin purchases as investors had previously been informed that the proceeds of such offerings would be used to purchase bitcoin. The Company’s periodic reports on Form 10-Q and 10-K disclose and reflect all bitcoin acquisitions during the applicable reporting periods covered, and in some cases, reflect bitcoin acquisitions after the covered reporting periods and prior to the filing of the related periodic reports.

As the acquisition of bitcoin is part of the Company’s ordinary business operations, the Company does not believe that bitcoin purchases trigger a mandatory filing obligation under Form 8-K (in contrast to its reporting obligations under Forms 10-Q and 10-K pursuant to which it discloses its bitcoin holdings and the respective acquisition and carrying costs of such bitcoins as part of the financial statement and Management’s Discussion and Analysis of Financial Condition and Results of Operations requirements of such forms). In particular, a filing under Item 2.01 of Form 8-K is required only to the extent that a registrant “… has completed the acquisition or disposition of a significant amount of assets, otherwise than in the ordinary course of business…”[emphasis added]. As the Company has expressly adopted and disclosed a principal business strategy of acquiring and holding bitcoin, including by issuing debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase bitcoin, the Company submits that its purchase of bitcoin, both using cash flows from operating activities and proceeds from the sale of debt or equity securities, constitutes part of its ordinary course of business and therefore does not trigger a filing under Item 2.01 of Form 8-K.

The Company may from time to time file additional Forms 8-K updating investors as to future bitcoin transactions, but does not intend to file a Form 8-K each time it undertakes any bitcoin transaction, subject of course to any disclosure requirement that may apply due to the nature of the particular transaction. The Company will provide additional information about its bitcoin transactions in its future periodic reports on Form 10-Q and Form 10-K as indicated in the response to Comment #1 above.

Read in the reply ↗

Please tell us and expand your discussion to explain why you believe that adjusting for bitcoin impairment charges provides useful information to investors in light of your strategy and business purpose for purchasing and holding bitcoin. Refer to Item 10(e)(1)(i)(C) of Regulation S-K.

As discussed in our periodic filings, our digital assets (specifically, our bitcoin holdings) are accounted for as indefinite lived intangible assets under the provisions of Accounting Standards Codification Topic 350, Intangibles – Goodwill and Other (“ASC 350”). Pursuant to ASC 350, indefinite-lived intangible assets are initially recorded at their historical cost and subsequently tested for impairment at least annually, or more frequently if events or circumstances exist that indicate impairment has more likely than not occurred.

Rest of the answer

Such events or circumstances include when the fair value of the asset declines below its recorded carrying value. Applied to digital assets, we are required to evaluate transactions where the same digital asset is bought and sold by third parties on a market at a price below its current carrying value as recorded on our financial statements. Given the volatility of digital assets, we continuously assess our bitcoin holdings for impairment, writing each bitcoin’s carrying value down to the lowest reported price, since its acquisition, on the Coinbase exchange, which serves as our principal bitcoin market. Impairment charges, including intra-reporting period impairment charges, cannot be reversed once recorded under ASC 350. As a result, subsequent increases in the market price of bitcoin are not reflected in the asset’s reported carrying value on our balance sheet, nor are they reflected in our statement of operations. Reflecting cumulative impairment charges on our financial statements without regard to current market value gains would result in an incomplete assessment of our bitcoin holdings and is less meaningful to management or investors in light of our strategy to acquire and hold bitcoin.

Further, under ASC 350, impairment losses are required to be presented within continuing operations on an entity’s income statement.

Although we segregate the impairment losses from other operating expenses on our income statement to maximize transparency, these non-cash impairment losses continue to be included in the calculation of

“income (loss) from operations”, which is a key operating metric used by investors. We have reported significant losses from operations since we began acquiring bitcoin in the third quarter of 2020, as a result of the impairment losses we have been required to record on our bitcoin holdings under ASC 350, even as the fair market value of our overall bitcoin holdings has risen substantially.

As a result of these significant reported losses, beginning in the third quarter of 2020, we have provided non-GAAP income from operations and non-GAAP net income that exclude bitcoin impairment losses to better enable a comparison of our performance across reporting periods and to also provide more meaningful information to our investors, who may not consider bitcoin non-cash impairment losses to be valuable information without equal consideration of subsequent increases in market value. We further believe that the inclusion of bitcoin non-cash impairment losses may otherwise distract from our investors’ analysis of the operating results of our enterprise software analytics business. In fact, in the second quarter of 2021, at the specific request of some of our larger investors, we provided (and will further supplement with the information requested by the Commission in Comment #1) additional information with respect to the historical cost basis and current market value of our bitcoin holdings.

To further comply with the requirement in Item

10(e)(1)(i)(C) of Regulation S-K to provide “a statement disclosing the reasons why the registrant’s management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the registrant’s financial condition and results of operations”, we will expand our existing disclosures in our future filings as follows:

“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…. With respect to the exclusion of impairment losses on bitcoin, 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.”

Read in the reply ↗

Please tell us whether you use GAAP diluted shares as reflected on your income statement to calculate non-GAAP diluted earnings per share for fiscal year 2021 periods. If so, tell us why you do not include an adjustment to your weighted average shares to include dilutive instruments outstanding considering that you had non-GAAP net income.

We have used GAAP diluted weighted average shares outstanding as reflected on our income statement to calculate non-GAAP diluted earnings per share, including for fiscal year 2021 periods where we achieved non-GAAP net income in comparison to GAAP net losses.

Pursuant to Accounting Standards Codification Topic 260, Earnings per share (“ASC 260”), in comparison to the computation of basic earnings per share, “the denominator used in the computation of diluted earnings per share is increased to include the number of additional common shares that would have been outstanding if the dilutive

Rest of the answer

potential common shares had been issued” (ASC 260-10-45-16). ASC 260 further states, “The computation of diluted EPS shall not assume conversion, exercise, or contingent issuance of securities that would have an antidilutive effect on EPS” (ASC 260-10-45-17)…. “Including potential common shares in the denominator of a diluted per-share computation for continuing operations always will result in an antidilutive per-share amount when an entity has a loss from continuing operations or a loss from continuing operations available to common stockholders…” (ASC

260-10-45-19). Therefore, in periods of net loss (as was the case for each of the periods in fiscal year 2021 covered by this letter), the weighted average shares outstanding used in the computation of our GAAP diluted loss per share excluded any dilutive potential common shares had the Company been in a net income position and was the same as the weighted average shares outstanding used in the computation of our GAAP basic loss per share.

In our quarterly and annual filings, we present supplemental non-GAAP financial measures for net income and resulting diluted earnings per share. Our non-GAAP net income excludes the impact 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. Given the significant impairment losses on our digital assets, we generally have achieved non-GAAP net income in periods where we otherwise have GAAP net losses. Had we achieved GAAP net income, we would have adjusted the weighted average shares outstanding in our GAAP diluted earnings per share calculation to include dilutive potential common shares in accordance with ASC 260. However, for purposes of computing non-GAAP diluted earnings per share, we elected not to adjust the weighted average shares outstanding in order to preserve the per share impact of each reconciling item on our actual GAAP loss per share, with less focus on the ending non-GAAP diluted earnings per share figure, which management understands may be further impacted by dilutive potential common shares when applying the provisions of ASC 260.

Although we have included a reconciliation of non-GAAP diluted earnings per share in our periodic filings and earnings releases, our primary focus is on non-GAAP income from operations and non-GAAP net income. Our non-GAAP diluted earnings per share has historically been provided simply as a natural extension of the first two metrics for completeness and to simplify the reconciliation presentation. Further including a reconciliation of non-GAAP weighted average shares outstanding to GAAP weighted average shares outstanding in order to mechanically comply with ASC 260 would require an additional reconciliation and distract from the non-GAAP metrics that management is using to provide investors with additional insights into our business.

To provide further clarity, we will include the following disclosure in future filings and other public documents to note that our non-GAAP diluted earnings per share calculation retains the same weighted average shares outstanding as used in our GAAP diluted earnings or loss per share calculation:

“For reconciliation purposes, the non-GAAP diluted earnings (loss) per share calculations use the same weighted average shares outstanding as that used in the GAAP diluted earnings (loss) per share calculations for the same period. For example, in periods of GAAP net loss, otherwise dilutive potential shares of common stock from our share-based compensation arrangements and Convertible Notes are excluded from the GAAP diluted loss per share calculation as they would be antidilutive, and therefore are also excluded from the non-GAAP diluted earnings or loss per share calculation.”

Read in the reply ↗

In future filings, please disclose the source of the fair value per bitcoin used to present the market value of your bitcoin at the reporting period end.

Although we have disclosed in our filings that our calculation of market value of our bitcoin holdings is based on the market price of one bitcoin in our principal market at 4:00 p.m. Eastern Time on the last day of each period reported, we will expand such disclosure to specifically name the Coinbase exchange, which is our principal market.

* * * * *

The Company plans to incorporate the new disclosures noted throughout this response letter beginning with its upcoming Form 10-Q for the Quarterly Period Ended September 30, 2021, to be filed with the Commission on or around

October 28,

Rest of the answer

2021.

In connection with responding to the staff’s comments, the Company acknowledges that (i) it is responsible for the adequacy and accuracy of the disclosure in its filing; (ii) staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

(iii) it may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

We hope you find that these responses answer the staff’s questions, but please contact the undersigned at (703) 744-3084 if you have any further questions or would like to discuss our responses.

Read in the reply ↗

We note your response to prior comment 5 and we object to your adjustment for bitcoin impairment charges in your non-GAAP measures. Please revise to remove this adjustment in future filings. Refer to Rule 100 of Regulation G.

The Company will revise its disclosures of non-GAAP measures in future filings to remove the adjustment for impairment losses and gains on sale related to bitcoin, as requested by the Commission.

* * * * *

In connection with responding to the staff’s comment, the Company acknowledges that (i) it is responsible for the adequacy and accuracy of the disclosure in its filing; (ii) staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and (iii) it may not assert staff comments as a defense in any

Rest of the answer

proceeding initiated by the Commission or any person under the federal securities laws of the United

States.

We hope you find that this response answers the staff’s questions, but please contact the undersigned at phle@microstrategy.com if you have any further questions or would like to discuss our response.

Read in the reply ↗