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Hello, everyone, and good evening. I'm Shirish Jajodia, Vice President of Investor Relations and Treasury at MicroStrategy. I'll be your moderator for MicroStrategy's 2023 Second Quarter Earnings Webinar.
Before we proceed, I will read the Safe-Harbor statement. Some of the information we provide during today's call regarding our future expectations, plans and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-Q filed with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today.
Also, during today's call, we will refer to certain non-GAAP financial measures. Reconciliations showing GAAP versus non-GAAP results are available in our earnings release and presentation, which were issued today and are available on our website at microstrategy.com.
I would like to now welcome you all to today's webinar and let you know that we will be taking questions during the Q&A using the Q&A feature at the bottom of your screen. You can submit questions throughout the webinar, and Michael, Phong or Andrew will answer questions at the end of the session. Please be sure to provide your name and your company's name when submitting your questions.
Now, I will walk you through the agenda for today's call. First, Phong Le will cover the business results for the second quarter of 2023. Second, Andrew Kang will cover the financial results for the second quarter of 2023. Then, Michael Saylor will provide a strategic review and discuss the recent bitcoin market updates. And lastly, we will open up to Q&A.
With that, I'll turn the call over to Phong Le, President and CEO of MicroStrategy. Phong?
Thank you, Shirish. Hello, everyone. I'd like to welcome all of you to today's webinar, and I'll start with the highlights of our software business. Our total revenue results in the second quarter of 2023 were mixed with challenges in product license revenue, balanced by strength in our cloud business. Revenues were primarily impacted by an uncertain macroeconomic environment leading to longer and delayed sales cycles. Growth in our recurring revenue illustrates the durability of our enterprise-grade platform and continued traction in cloud. We also saw continued strong profitability as we thoughtfully manage our cost structure.
Total revenue was $120.4 million, representing a decrease of 1% year-over-year or flat on a constant-currency basis. Total software license revenues, which consist of total product licenses and subscription services revenues were $35.4 million, representing an increase of 4% year-over-year or 7% on a constant-currency basis.
Total software license revenue performance benefited from increased adoption of our cloud platform, which was partially offset by a decrease in product license revenues. Total subscription services revenue was $19.9 million, an increase of 42% year-over-year or 44% on a constant-currency basis. And our Q2 subscription billings growth was 15% year-over-year.
Even though difficult macroeconomic conditions continue to persist and may continue to impact our revenue in the coming quarters, MicroStrategy continues to invest in and focus on innovation, and I'm excited to tell you more about our product developments. At our MicroStrategy World User Conference held in person in May 2023, we highlighted and introduced MicroStrategy1, our enterprise AI/BI platform. In our keynote address, we highlighted how some of the biggest brands in the world, including organizations like Hilton Hotels, Amica Insurance, and Sony Interactive Entertainment leverage the power and unified capabilities of MicroStrategy to transform how they operate and succeed amidst fierce competition.
With an eye to the future, we unveiled our vision of Intelligence Everywhere in the age of artificial intelligence and what our engineering team is building today. We also announced the development of our Lightning Rewards product, an innovative approach to monetizing interactions, which leverages the Lightning Network, the bitcoin Layer 2 payment protocol. And we've heard from industry experts across the bitcoin and Lightning Network ecosystems about the practical application of the Lightning Network for business today and tomorrow.
Our new MicroStrategy ONE platform is the most important product innovation in the history of our company because it represents a fundamental shift in our industry to harness the power of business intelligence and artificial intelligence together to upgrade the way organizations do business. Said plainly, AI and BI are better together, and MicroStrategy has unique advantages for developing an AI/BI platform.
Let me explain. This next-generation product suite is built to unleash new levels of efficiency and creativity. Organizations are looking to consolidate vendors to save costs, simplify deployment and maximize impact. They are looking to deploy AI-enabled applications to drive efficiency, productivity and impact to their operations. MicroStrategy ONE offers a comprehensive solution of flexibility and scale to address all types of use cases. We're extremely proud of the work done to build MicroStrategy ONE and are excited for customers and prospects alike to experience how it changes the way they think about the feature of AI and BI.
MicroStrategy is well-positions how our organizations build and deploy AI applications to users by leveraging the core capabilities of our leading BI platform. In our experience, 80% of the complexity in building AI applications and solutions is procuring, transforming, organizing, securing and maintaining data. The challenges with scale, governance and trust with AI are amplified by an order of magnitude compared to traditional BI, and security and access control is paramount. All these are very similar to large-scale massive analytics deployments, something we believe we do best. By leveraging an open cloud-native compostable architecture, access to structured and unstructured inputs in a semantic graph connected to advanced deep learning and large language models we believe we have a proven framework for success.
With the launch of the MicroStrategy ONE platform, we are now able to increasingly focus on MicroStrategy's hallmark, product innovation. Our innovation is focused on native cloud, artificial Intelligence and the Lightning Network. Building on the launch of MicroStrategy ONE in May, we'll be sharing details online and in-person around the globe starting in September.
MicroStrategy Cloud is the foundation of MicroStrategy ONE and a key area of our research and development investments. The flexibility and scalability and security required to embrace AI further underscore the importance we have seen in this area in the more traditional analytics space. The power of multi-cloud deployment and containerized microservices architecture, enterprise-grade security, proactive cloud management from experts, seamless migration and backups, and single-click updates and upgrades allow cloud customers to appreciate immediate benefits of our platform. The comprehensive set of tools on our platform and scalable data governance ensures customers benefit from the ability to make fast, accurate and informed decisions, while accelerating access to the technology of the feature. These needs necessitate a cloud-first cloud-native approach that will be transformative for customers, and as such, will be an area of continued focus for us.
Talking further about our AI innovation, the Q3 upgrade to our AI/BI platform planned for release this September will bring advanced AI capabilities in a new dimension. MicroStrategy AI empowering organizations to rapidly deploy, secure, govern and trusted AI applications. We brought the same care and expertise around data definitions [indiscernible], multi-source data access and governance from the traditional BI world and our approach to AI. The MicroStrategy semantic graph combined with generative AI and deep learning will enable organizations to better understand their data and their relationships, resulting in more accurate predictions, better data quality, improved model training and output and faster actionable insights.
MicroStrategy's AI innovation focuses on productivity to empower each type of user within an organization to become more intelligent. As an example, MicroStrategy data whisperer supports the business user, providing access to an AI-powered Chatbot, that surfaces answers and self-service insights that understand the why behind the data. Companies can make every consumer a data scientist by extending these experience through MicroStrategy Insights. By asking questions via chat, users can unlock advanced algorithms that detect data patterns, outliers, anomalies, key drivers and more. Insights uses AI models and evaluates incoming data to surface insights immediately to the user via web and email alerts. For the analysts and authors simply ask your point, our AI assistant at your dataset of choice and once you build a Dossier that provides a 360-degree analysis of the data in seconds.
Looking forward holistically, we're developing further capabilities to extend how our line of business owners can accelerate business results across industries and departments as well as the composability of the platform to embed AI workflows and productivity into applications.
As we look to expand our customer base and drive revenue growth, strategic alliances will become increasingly important. In Q2, we expanded our relationship with Microsoft, announcing a multiyear partnership that integrates the Azure OpenAI service and Microsoft 365 with MicroStrategy's advanced analytics capabilities and makes MicroStrategy available on the Azure Marketplace. Open AI has emerged as the leader in generative AI and we're excited about the Azure service and our further marketplace offering that enhances the access, speed and capabilities of MicroStrategy ONE for all our customers', current and future.
The partnership between MicroStrategy and Microsoft will empower business users to make faster, more informed decisions and accelerate the development and deployment of new AI applications. Additionally, as discussed at the MicroStrategy World conference, we're actively working on our Google Cloud platform relationship and we expect to share further updates in Q4.
Turning to our development of MicroStrategy Lightning, which utilizes the second layer of Lightning Network sitting on top of the bitcoin network, we envision MicroStrategy Lightning as an enterprise platform designed to leverage the power of the Bitcoin Lightning Network to enable new e-commerce use cases and tackle modern cybersecurity challenges. The first use case of the MicroStrategy Lightning platform is Lightning Rewards, which is intended to allow any enterprise to reward their employees, customers, partners and prospects for their engagement.
Companies spend vast amounts of time and money in digital marketing, driving engagement with their brand and their customer, and for some, monetizing online content. We believe a platform like MicroStrategy Lightning can enable them to drive that engagement and reward their customers with that engagement directly rather than aligning the pockets of marketing or financial intermediaries. We expect future capabilities of Lightning platform will provide opportunities for new business models to monetize online content or minimize threats and the nuisance of bots and other malicious actors.
While we envision Lightning as an independent product offering, it builds on our core strengths and deep expertise building highly available, easy-to-use enterprise software delivered in the cloud. While our focus remains on BI innovation, we believe we are uniquely positioned to bring value here. These incremental areas of product focus and innovation will drive MicroStrategy's strategy of being at the forefront of analytics.
Turning to our Bitcoin strategy, we continue increasing our Bitcoin holdings in the second quarter. In Q2, we acquired 12,333 bitcoins, the most in a single quarter since the second quarter of 2021. After the end of Q2, we purchased an additional 467 bitcoins using cash from our operations. As of July 31, 2023, the company held 152,800 bitcoins acquired for a total cost of $4.53 billion or $29,672 per bitcoin. As you know, our strategy is to acquire and hold bitcoin and we plan to continue to accumulate bitcoin over time using excess cash and with the net proceeds of capital markets transactions.
Our core business is not impacted by near-term bitcoin price fluctuations. MicroStrategy is the largest publicly traded corporate holder of bitcoin in the world and we remain committed to our bitcoin acquisition strategy with a high degree of conviction, long-term focus and a risk-managed approach.
Finally, before I hand it over to Andrew, I like to take a moment to discuss personnel changes this quarter. Our Chief Revenue Officer, Kevin Adkisson announced his resignation earlier in July. It's been my privilege to work with Kevin for nearly seven years and we wish him luck with his future endeavors. With Kevin's departure, I've assumed his responsibilities of head of the sales organization and sales function. I enjoy working directly with our field leaders and team as well as meeting with customers, and this will give me an opportunity to spend more time in this area.
Additionally, we're excited to welcome back Saurabh Abhyankar, back to MicroStrategy as our Chief Product Officer. Saurabh brings more than 20 years of industry experience to the role and has previously served at MicroStrategy as the Senior Vice President of Product Management and also Executive Vice President of Marketing. Thus, we continue to opportunistically hire top talent worldwide. In addition, we started to return to the office to enable our employees to make the best of the convenience offered by the hybrid work model, while also benefiting from in-person interactions.
I'll now turn the call over to Andrew to discuss our financials for the quarter in further detail.
Thank you, Phong. I'll start by recapping some of the key GAAP financial results for the quarter. GAAP total revenues for Q2 were $120.4 million, down $1.7 million or 1% year-over-year and flat year-over-year at constant currency. Total software license revenues, which consist of product license revenues and subscription services revenues were $35.4 million, up 4% year-over-year and up 7% at constant currency. Subscription service revenues which reflect recurring revenues from our cloud business were $19.9 million, an increase of 42% year-over-year or an increase of 44% at constant currency.
Product license revenues were $15.5 million for the quarter, down 23% year-over-year or down 20% at constant currency. While we saw some ongoing headwinds from the overall challenging macroenvironment this past quarter, our results continue to reflect the expected decline in product license revenues as we transition our BI business to the cloud. We expect the mix of this revenue will continue to shift from product license to subscription services as we transition the platform over time.
Product support revenues were $66.1 million, down 1% year-over-year and down 1% in constant currency. Customer renewal rates were 93% for the quarter and remained above 90% for the sixth consecutive quarter continuing to demonstrate the durability of our customer base even with a tough macroeconomic backdrop.
Lastly, other services revenues were $18.9 million or 12% decrease year-over-year or 11% at constant currency, primarily due to lower consulting revenues. While we have seen higher average build rates worldwide, we did experience lower customer demand for consulting services in the quarter. However, we do expect consulting engagements to normalize in the second half of the year.
On Slide 16, total current software license billings were $39.1 million in the second quarter, a slight decrease of 2% year-over-year. Current subscription billings were $23.1 million, an increase of 15% year-over-year, our 13th straight quarter of double-digit growth. We continue to focus our efforts on transitioning customers to our cloud solution and selling new cloud deployments to new and existing customers.
In Q2, we enhanced our go-to-market capabilities through a partnership with Microsoft, which makes MicroStrategy available on the Azure Marketplace. This partnership allows existing customers to transition to our cloud solution on Azure and provides us with the opportunity to sell into new net accounts, which we believe have the potential to drive significant incremental subscription revenue in the future. We intend to continue to enhance our go-to-market capabilities through hyper-scaler partnerships in the coming year.
In 2022, approximately two-thirds of our total revenue was recurring and we continue to focus and improve in this area as 70% of total revenue from the first half of 2023 was recurring in nature. The ongoing transition to a subscription model will help establish high-quality annual recurring revenues in to the future.
Shifting to costs on Slide 17. Total non-GAAP expenses were $132 million in the second quarter compared to approximately $1 billion in the second quarter of 2022. The most notable difference overall year-over-year was the much lower bitcoin impairment charge this past quarter of $24 million in contrast to $918 million in Q2 of last year. Non-GAAP cost of revenues was $26 million in the second quarter, an increase of $1.9 million or 8% year-over-year. However, as a percentage of total revenues, non-GAAP cost of revenues were up approximately 2% year-over-year, primarily due to increasing cloud hosting costs consistent with prior quarters and in conjunction to the year-over-year increase in our cloud subscription services revenue.
Non-GAAP sales and marketing expenses increased $1 million or 3% year-over-year to $33 million. As a percentage of total revenues, non-GAAP sales and marketing costs were higher by 1% year-over-year. Sales and marketing costs continued to normalize compared to the last few years due to higher demand for in-person customer meetings and events, such as our successful MicroStrategy World event in Q2. Non-GAAP research and development expenses were $27 million, a decrease of $1.5 million or 5% year-over-year, which reflects continuing cost efficiencies from our global tech delivery centers. Non-GAAP G&A costs were $21 million, a decrease of $1 million or 4% year-over-year or a slight decrease of 1% as a percentage of revenue.
Our cost focus is on growing our cloud business, prioritizing revenue-generating and customer-facing activities and optimizing tech R&D globally, while prioritizing strategic innovation in our platform and we remain disciplined in overall cost controls, including closely managing our headcount and salary costs to minimize our controllable expenses.
Turning to Slide 18, we reported a total non-GAAP operating loss in the second quarter of 2023 of $11 million, of which, the loss on the digital asset impairment charge, as mentioned a moment ago, was $24 million for the quarter. The digital asset impairment charge continues to be the primary driver impacting the comparison of our operating results year-over-year, and it's worth noting that in the first two quarters of 2023, the bitcoin impairment charges have been some of the lowest charges since launching our strategy in Q3 of 2020, which we believe reflects the continuing maturity of the overall bitcoin asset class.
Part of the volatility in our reported earnings has been due to current GAAP accounting as you know, which treats our bitcoin holdings as indefinite intangible assets, which in turn results in recognizing impairments each quarter if there is any decrease in the fair value below our carrying value at any point during the quarter. At the end of 2022, the FASB unanimously voted to recommend a change to the adoption of fair value accounting for measuring certain digital assets including bitcoin. If finalized and we are able to recognize both decreases and increases in the fair value of bitcoin, we believe our reported earnings will be far more transparent to investors and far more relevant in reflecting changes in market prices.
This past May, MicroStrategy submitted our response letter to the FASB on the proposed change, so we noted there was an overwhelming response from interested parties, which included support from sophisticated institutional asset managers, large accounting and audit firms, crypto exchanges and banks. As the largest publicly traded corporate holder of bitcoin in the world, MicroStrategy remains fully supportive of the proposed rules and the improved investor transparency we hope it brings.
On Slide 19, as of June 30, 2023, the carrying value of our Bitcoin holdings was approximately $2.3 billion compared to approximately $4.6 billion in market value based on the bitcoin price at the end of Q2. The $2.3 billion difference between the carrying value and the fair market value of our total bitcoin would be recognized under a fair value model. And as of market close on Friday, July 28th, the market value of our 152,800 bitcoins was approximately $4.5 billion.
Now turning to Slide 20. In Q2, we continued to execute on our at-the-market or ATM equity offering and raised $335 million in gross proceeds through the sale of Class-A common stock. We issued an aggregate of approximately $1.1 million shares at an average gross price per share of approximately $310. We have since terminated the prior $625 million ATM, of which approximately $290 million of the capacity remained. And today, we announced a new $750 million at-the-market program, establishing a net incremental issuance capacity of $460 million. As with prior programs, we may use the proceeds for general corporate purposes, which include the purchase of bitcoin as well as the repurchase or repayment of our outstanding debt.
MicroStrategy stock outperformed the bitcoin in Q2 reflecting a high demand for institutional bitcoin exposure, especially following the additional positive momentum from increasing institutional interest and potentially new bitcoin ATS and exchanges. The incremental ATM capacity will allow us to benefit from this increased demand and will allow us to opportunistically raise capital based on market conditions.
Our outstanding debt and convertible notes remain unchanged at a total of $2.2 billion with a bundled weighted average interest rate of approximately 1.6%. This is compared to the blended weighted average interest rate of 2.1% at the end of 2022, which equates to a decrease of over $15 million in annualized interest expense, strengthening our overall liquidity position. And at the end of the second quarter, we held $66 million in cash on our balance sheet which is more than enough overall liquidity to manage our ongoing working capital needs and the debt service obligations.
Since the third quarter of 2021, we have raised a total of $1.7 billion in gross proceeds through our ATM programs with the average price of all issuances of approximately $424 per share. The primary use of prior ATM proceeds has been to acquire additional bitcoin, increasing bitcoin per share for our shareholders. In Q1 2023, we also used ATM proceeds to deleverage our balance sheet by repaying our bitcoin-backed secured term loan at an attractive discount.
On Slide 22. In Q2, we increased our net Bitcoin position by 12,333 bitcoin using net proceeds from ATM issuances as well as excess cash from operations. Subsequent to the end of the quarter, we acquired an additional 467 bitcoins or $14.4 million, again using excess cash from our operations. And as of July 31st, we now hold a total of 152,800 bitcoins on our balance sheet, of which 15,731 bitcoins are held at MicroStrategy, the parent, and are pledged as collateral securing our 2028 secured notes. The remaining 137,069 Bitcoins are held at the macro strategy subsidiary, all of which are fully unpledged and unencumbered, representing 90% of our total bitcoin holdings or $4 billion in current market value.
Despite the recent macro headwinds, we continue to remain optimistic for the remainder of the year. We anticipate total revenue this year similar to last year. We will continue to focus on innovation in cloud and artificial intelligence as we innovate our products and increase demand from our customers. We expect to grow cloud subscription revenue and strengthen recurring revenue continuing to transform our platform to the cloud. We will remain disciplined and continue to manage costs and headcount effectively and we will continue to execute on our dual strategy of growing our BI software business and acquiring and holding bitcoin.
With that, thank you for your time today and for your continued support of MicroStrategy. I'll now turn the call over to Michael for his remarks. Thank you.
Thank you, Andrew. I'd like to take this time to review our corporate strategy with regard to bitcoin and then talk about our going forward strategy. So first, I thought it would be appropriate to do a review of the results of our strategy since August 10, 2020. We're nine days away from the three-year anniversary of us embarking on a bitcoin strategy. And I think it's very significant because August was the doldrums of the summer in 2020 when we were just a few months post-COVID and the entire world was thinking about how to react to these unprecedented times.
We started out with a thought how does one preserve wealth in the face of what is likely to be monetary inflation? And as you all recall, interest rates were 0% there, lots of stocks had adjusted, lots of assets were moving around. If we look at the chart in front of us, what you'll see is, the S&P 500 appreciated 37% since then. So, call it, on average about 12% a year for the three years and Nasdaq underperformed the S&P, but 37% is really the hurdle rate for wealth preservation. If you underperform 37%, then presumably you're destroying shareholder value and you're destroying wealth, and if you can outperform the 37%, you're creating wealth.
So as we look at these various asset classes, we can see that bitcoin is the winner of the asset class, almost 4 times what the S&P 500 did. So bitcoin performed 100 -- returned 145% in that three-year timeframe. So that's a pretty stunning performance really, in fact, bitcoin's performance outdoes every other asset class and every big tech stock and every enterprise software stock. And so, of course, bitcoin is the most thermodynamically sound asset and our thesis has always been that bitcoin is perfected gold and has all of the attributes of gold, but none of the liabilities of gold, but bitcoin is also a dominant big tech network with all of the attributes or assets of a big tech company, but none of the liabilities of a big tech company.
And you can see on the chart, bitcoin is performing like that. Gold is down 3% in those three years. So of all the money that was created -- and you could make the argument that the monetary supply worldwide or at least in the Western world expanded by 37% over that time period. If so, the S&P captured its pro rata fair share of that monetary inflation then Nasdaq fell a bit behind, but gold didn't capture any of it, gold is down 3% and we had a decision to make as company should we actually convert $250 million worth of our cash into gold or $250 million of our cash into bitcoin.
And of course, for those of you who have followed us on this entire journey and you play it out, what you can see is that, if we had actually chosen the path of gold, we would have less than $250 million in tangible assets in our treasury right now, and it seems very, very unlikely we would have been able to raise any more capital or develop any shareholder consensus or investor consensus to continue with the strategy.
So gold is not bitcoin. Bitcoin is digital gold, but as you can see the difference between the digital thing and the analog thing is plus 145% versus minus 3%. Silver has underperformed gold because silver is less scarce than gold, more of a manufacturable commodity. And bonds have been the worst investment in this asset class, and of course, there's a simple reason why, right? Interest rates were zero and the thinking was they would stay very, very low for a long time and long-term interest rates were very low. And of course, as the interest rates increased over the last three years that undermined the performance of bond portfolios. We all know the story from the insolvent banks that have been under pressure earlier this year.
So key assets and indexes tell a story and the story is bitcoin is the winning strategy, S&P is status quo, S&P has a strategy to not lose. Every other strategy with assets is a losing strategy. We see the big tech companies, you would have been better off to invest it in a very tight portfolio, a big tech stocks like Google, Apple and Microsoft than invest in the S&P, that's because they are digital, global monopolies and they're just as powerful today as they were three years ago and they just keep getting more powerful. But it's not always risk free to be in big tech as the results of Meta and Netflix and Amazon indicate that you can underperform the S&P because they're companies.
The big winner in the enterprise software space is Oracle, and Oracle is very -- is the primary enterprise software company, always has been the most powerful and dominant one. As you can see IBM, Salesforce.com and SAP have all suffered or underperformed the S&P. So against all of those is the comps, as a business intelligence company, we're an enterprise software company so we compare ourselves to enterprise software stocks, and of course, the best companies in the world, the big tech companies, so we compare ourselves to the big tech stocks. And the question is, how does the mid-sized enterprise software company manage to outperform them all? And the idea was bitcoin, but as you can see and I'm delighted to announce MicroStrategy's not only outperformed all assets, all big tech and all enterprise software stocks, MicroStrategy over that three years has actually outperformed bitcoin itself.
Now, that's despite the fact that on August 10th we bought $250 million worth of bitcoin and bitcoin was a small or a fraction of our enterprise value, 20%, 25% probably a 20% of enterprise value is bitcoin at that time. And somehow we've managed to get more than 100% performance. The way we do that is via intelligent active management of our balance sheet by taking on intelligent leverage. And so the conclusion here is, the bitcoin strategy is working, there really isn't any strategy conceivable that could have worked better for us. And of course on a risk-adjusted basis, given all the possible other strategies and the risk they would imply, then bitcoin actually appears to be the least risky strategy to outperform the S&P.
There are certain number of characteristics of MicroStrategy that have allowed us to outperform bitcoin and I'd like to delve into those a little bit more in the next slide. The question that pops up a lot is, well if MicroStrategy is going to own bitcoin or so much of it, then why don't I just buy bitcoin, why do I need to buy MicroStrategy? And so that's the first question to ask yourself and I could give an analogy, the analogy is, compare buying a house in the best neighborhood that you can find, that you can purchase today with no money down, have all the cash advance to you by the bank and then you can rent it out as an investment property for investment income versus buying the identical house that might be priced 20% cheaper, but it's located in a scary neighborhood, it's going to take more than a year to purchase and it's going to have to be paid for in cash, you can't finance it. And if you think about those two propositions, you can see the houses are identical, but a 20% discount doesn't adjust for all of the other headaches in acquiring the house and given a choice between the two, 98% or some overwhelming number of homebuyers would buy the house that's easy to buy, that they can finance at the bank.
So, MicroStrategy is a security. And so, when I say a good neighborhood what we mean is, you can buy it on -- buy it from your broker, your big bulge bracket bank, maybe it's a Morgan Stanley or JPMorgan or Goldman Sachs. So, an investor can work through the banking relationship they've had for 20 years. And the second thing is, the bank will allow them to finance it so they can buy it for no money down, they can't buy it in a matter of minutes. And with bitcoin, you would have to establish a whole new set of relationships, new custodian relationships, new processes for custody, you have to find a new exchange, it's a little bit of a scary process and it takes a lot of work, it'll take you a year and you have to pay for it all in cash upfront because you can't finance the purchase.
So when we talk about ease of access, MicroStrategy versus Bitcoin, you can see that for an investor that just wanted to make an investment quickly, one of them is a quick compliant process that takes a minute with no cash or just very, very convenient routine, all their compliance procedures are the same, all of their compensation structure is the same, their accounting is the same, their charter allows it, it's very easy, whereas buying the bitcoin means you have to rethink all those things and it's going to take a long time and it's going to be difficult.
So the second element of this situation is stability downside protection, bitcoin is simply linear up and down, but MicroStrategy has a non Bitcoin business, the Business Intelligence business. So it's an enterprise software company and that means the revenues of the software company and the cash flows of the enterprise software company and the ability to sell equity or to finance things via equity and debt financing against the enterprise software company, they are not correlated to bitcoin. So you've got an uncorrelated business to provide some stability and downside protection if you're an investor.
I mean, the third element is, can you actually take on intelligent leverage? With bitcoin, of course, it's just one-to-one, you invest $1 million, you get a $1 million of bitcoin. But with MicroStrategy, we're actually carrying leverage, we have $2.2 billion of leverage against $4.6 billion of bitcoin assets, so call it a loan-to-value that's approaching 50%, but -- of the underlying assets, but the difference is intelligent leverage would be defined as I pay a very low interest rate 1.6%, whereas the federal funds rate is 5% right now and long-term interest rates for junk bonds could be 8%. So 1.6% is good interest rate, the mortgage rate on a 30-year mortgage is something like 7%, so we like low interest.
The second element of intelligent leverage is no mark-to-market or margins called potential. You could say that we had to Silvergate loan, we decided it wasn't optimal to keep it so we repaid it and retired it because we didn't want to have that mark-to-market question. And so, all of the debt that we have, the senior secured debt or the convertible debt, it's and assets not marked to market and we don't have to worry about margin call, right, and with regard to the converts, it's junior and unsecured debt. So that's the second really nice element to intelligent leverage. And so, there really isn't any easy way to go and get unsecured low-interest non-mark-to-market debt against bitcoin. It used to be -- you could get mark-to-market expensive margin loans against bitcoin, but the great majority of all the companies that offered mark-to-market margin loans against bitcoin have all gone out of business or been bankrupted.
So right now MicroStrategy is fairly unique and the ability that we can very efficiently and safely borrow against this asset and then use that financing in order to buy more bitcoin. I think any consumer, if they had $100,000 a bitcoin and someone said, would you like to be able to borrow $50,000 against it and pay 1% interest with no margin call and have it come due in five years. They would say, well, yes, sign me up, how do I get that loan, right? And so, MicroStrategy offers people the ability to get that kind of intelligent leverage on a bitcoin strategy that you can't get just by buying the bitcoin.
You can see in my next column on Generate Yield, MicroStrategy actively manages its business, we're an operating company and so we generate cash flow just like we were able to take $14.4 million of organic cash flow in July and use it to buy bitcoin. Our objective is to find ways to generate incremental bitcoin for our shareholders and do that with either cash flow from the business or do it through intelligent accretive financings of equity or debt or other intelligent operations, and of course, if you just buy the bitcoin you can't generate yield.
If we go to risk management, the thing about risk management is MicroStrategy has two different convertible bonds and a senior secured bond, and those are different ways that you can actually get bitcoin exposure without actually having direct linear upside, downside, and so there are risk management options. And then, of course, MicroStrategy has a set of options that trade against our stock puts and calls in a pretty deep option tree and a lot of open interest in those options. And for the most part, people that own the bitcoin itself, they don't have those risk management options to trade in the derivatives, it's tricky to find that and you certainly can't find it easily in the United States. It is true there are some bitcoin derivatives on the CME, but the market is not nearly so well-developed as the market in stock options for well understood NASDAQ traded software companies. And so that's another advantage to our investors.
And of course, the last thing you want is you want for performance to track the price and of course, yes, bitcoin obviously track the price of bitcoin and MicroStrategy has been able to outperform the price of bitcoin, but generally at least perform at that level or better. Now, the question that people next to ask us is, well, how does MicroStrategy compare to bitcoin ETF? And so you've got to start with the futures ETF, while the futures ETF is available or they are available right now, but as you can see, they don't have an uncorrelated operating business attached to them for downside protection. They can't use intelligent leverage, they can't issue junk bonds or they can't issue convertible bonds in order to lever up intelligently and cheaply without a mark-to-market risk. They don't generate yield and, in fact, they charge a fee and so MicroStrategy doesn't charge a fee to our investors to manage the $4.6 billion of bitcoin, but at a 100 basis point fee $4.6 billion generates $46 million a year of cost. And so the fees can be expensive and our goal is don't charge the fee, generate the yield.
And then, of course, if you go to risk management, there are some options that you can trade on the futures ETF, but you don't have nearly the depth of the derivatives market or open interest and you don't have all the converts. So they don't quite have that kind of risk management opportunity. And then in terms of the performance, the challenge and the open secret in this industry right now is futures ETFs aren't tracking bitcoin, in fact, they're underperforming bitcoin performance this year, I think 30% year-to-date, right. So the futures ETFs have underperformed the bitcoin index 30% year-to-date, bitcoin is up 76%, as I'm speaking to you right now and these futures were up 44%. So, that's a challenge if you're an institutional investor. No one's going to want underperform the index by 10% or 15%.
The spot ETF is clearly in demand, right, and you can see that -- you can see why you would want to spot ETF, but they're not available yet. If they do become available, then presumably, they'll be able to track performance much better and they'll still have the other challenges of downside protection intelligent leverage and they won't generate yield or charge a fee. And they are on the horizon, but as you can see, the spot ETFs when they come along, they won't offer the same kind of leverage yield that MicroStrategy offers or the other options that are listening to institutional investors.
Gray scale is very famous, but it's an over the counter only instrument and fairly unique. And of course, they're not an operating company so they can't actively manage the business to generate yield and they don't have a healthy open interest and derivatives and they can't take on leverage. And that just leaves you bitcoin miners. Bitcoin miners give your exposure, they're just extremely highly levered exposure on the upside and the downside because their revenues on the upside and their cost, all are very, very volatile and very highly levered. So they are a way for institutions to get involved in the business but they don't have the same mixture of options that MicroStrategy has because we're an operating company.
And so, you can see when you look at this chart, how it's possible for MicroStrategy to outperform bitcoin, but I think you can also see by looking at this chart that MicroStrategy's unique investment option for any institutional investor that wants bitcoin exposure that's different than a spot Bitcoin ETF, and so, we expect that we will be a differentiated investment option for bitcoin going forward when or if the spot ETFs are approved. And I think generally, if we look at the outlook for bitcoin, it's never been better, the environment is providing clarity that bitcoin is a global asset that's in demand from institutions all around the world and it's fully decentralized. And so, I think that the next 12 months will bring a good set of milestones for bitcoin adoption, and one of them would be the spot ETF approvals. If those are approved, I think generally, that will be good for the entire asset class and bitcoiners will benefit. There are a whole class of institutional investors that will need our spot ETF to get involved with bitcoin and MicroStrategy wouldn't be the right option for them because they really just need to be able to buy an unlimited amount of bitcoin without worrying about not tracking the bitcoin price and with clarity and transparency.
So I think that will expand the pie, I think all of these options generally expand the pie, and MicroStrategy is going to continue to be thoughtful and responsible about managing our business in order to find ways to get incremental bitcoin for our investors.
And so, thank you for your support. I guess, I'll pass the floor back to Shirish for questions now.
Great. Thank you, Michael. We're going to jump right into questions and the first question is for Michael. Bow would a spot ETF impact your strategy of serving as a vehicle to gain exposure to bitcoin? And how would an approval or rejection of a spot ETF impact MicroStrategy?
I think the big milestones for institutional adoption of bitcoin over the next year will be: one, fair value accounting; two, the spot ETF; three, the having; four, any particular regulatory rules that come out of Washington DC. So we're waiting for all of those. The spot ETF isn't -- approval isn't necessary for us to continue to be successful. I think in general, there is a class of investors like, let's say, a sovereign wealth fund. If they want to buy $1 billion of bitcoin in a week or billions of dollars of bitcoin and win 10 or 100 of them all want to do it, they're going to need the spot ETFs because MicroStrategy doesn't have the room in our capital structure for someone to buy that much of our stock.
So, I think that the spot ETFs will expand the entire asset class dramatically, it will be -- it will create a very convenient path for mass adoption of retail and mass adoption of institutional investors and mass adoption of sovereign wealth and the like. It solves the -- I think Larry Fink made the point on CNBC, he said, it will drive the fees down by a factor of 10 to 100 like the trade -- the acquisition fees. It solves the problem of, do I need to start a new account with the crypto exchange or can I just call up my existing banker -- banking relationship my existing wealth manager or existing broker.
So it's going to smooth access to many, many types of investors. It's going to democratize access, it's going to allow size that now, currently the market doesn't allow this kind of size, because the futures ETFs and the futures market is not an effective vehicle, it's not deep enough and broad enough to allow someone to take on many, many billions of dollars of exposure without paying a 10% or 20% annualized fee or more and no rational investor is going to do that for any material amount of time.
So I think, it will be good. I do believe at some point, we'll have spot ETFs. I just can't tell you when they will arrive. And when they do arrive, MicroStrategy will still be differentiated as a particular bitcoin operating strategy. But the spot ETFs will serve another set of customers in a synergistic fashion to grow the entire asset class.
Thanks, Mike. So we might be having some technical difficulties from Shirish. So I'll maybe ask the next question for Phong. Phong, how should we be thinking about the AI partnership with Microsoft and its monetization? Are you expecting any kind of incremental boost from that in 2023 or is it more of a 2024 growth driver.
Thanks, Andrew. First, I'm pretty excited about our AI capabilities that we're bringing to market in Q3, so in September. And part of the capabilities will include a new product or a new skew, if you will, that will sell separately from our existing BI platform and sort of on-top of that. So I do anticipate some incremental revenue, whether it comes in Q4, whether it comes in 2024, I think time will tell as to how quickly the market is willing to adopt and pay for AI capabilities.
I do think there's a couple of things that we're doing that's pretty unique from the rest of the BI market, if you will. One is, we're directly embedding open AI into the MicroStrategy Platform, which means you do not need to go and have a separate Microsoft agreement or separate open AI agreement, it will be fully embedded in the MicroStrategy Platform. And second, as you mentioned, we're going to [indiscernible] and partnering in directly with Microsoft, which there are lot of companies who are trying to build their own AI capabilities or use a different platform that's inferior at this point in time to open AI. So I think what we're going to rollout is quite differentiated. And I'm excited about the revenue opportunity that will bring.
Thanks Phong. Next question is for Andrew. We are projecting the company to improve its cash position in 2023 and beyond. Bearing in mind the company's strategy to purchase bitcoins with excess cash above working capital needs, is there a minimum cash balance that the company targets and what is a reasonable number to anchor to?
I'd say just to comment on kind of our treasury reserve policy or how we think about cash. Our goal is to always be as efficient as possible with our cash and then really minimize any excess cash in the business. This since we operate globally we ensure we maintain adequate cash in each region and country. We operate in and we manage cash and in the U.S., primarily to take into account, meaning, working capital needs, as well as our debt interest payments needs as well.
I'd say, probably anywhere between $40 million based on the calendar to maybe as high as $50 million probably is a little bit high, but I think about those ranges being kind of where we think working capital needs are. That being said, sometimes you will see cash balances that are slightly higher as we build towards working capital needs and sometimes you will see them lower when we're operating efficiently as possible. So, hopefully that answers the question.
Thanks, Andrew. So thanks everyone for your questions. We received a lot of good questions. But [indiscernible] the top of our time for today. So we will be available offline for any other questions, but this concludes the Q&A portion of the webinar and I will now turn the call over to Phong for final closing remarks.
Thanks. Shirish, and. I want to thank everyone for being with us today and we appreciate your support. We're as enthusiastic as ever with both of our strategies, our enterprise software strategy and our bitcoin strategy and we wish everyone a good quarter and good rest of your summer and look-forward to seeing you again in 12 weeks. Thank you.