Strategy (NASDAQ:MSTR) reported a second-quarter operating loss of $8.3 billion and net loss of $8.6 billion, driven primarily by a non-cash fair-value markdown on its Bitcoin holdings as the cryptocurrency’s price declined at quarter-end.
Chief Financial Officer Andrew Kang said the company held 846,000 Bitcoin at the end of the second quarter after acquiring a net 83,901 Bitcoin during the period at an average price of about $75,500. The quarter-end Bitcoin price of roughly $58,700 resulted in an unrealized fair-value loss of approximately $8.3 billion. Strategy reported earnings per share of negative $24.45.
Balance sheet changes and capital raising
Strategy said it raised $17 billion of capital year-to-date through common equity and digital credit offerings. The company uses that capital to acquire Bitcoin, manage its liabilities, meet dividend and interest obligations and expand its digital-credit platform.
Cash and short-term investments rose to $2.4 billion at the end of the second quarter and had increased further to $3.75 billion at the time of the call. Kang said the cash reserve represented more than two years of dividend and interest coverage.
Long-term debt fell to $6.7 billion from $8.2 billion after Strategy repurchased $1.5 billion of convertible debt at an 8% discount during the quarter. Preferred equity increased to $14.4 billion from $9 billion, largely due to issuance of its STRC preferred security.
Chief Executive Officer Phong Le said the company had moved from a model centered on issuing capital to buy Bitcoin toward “active capital management,” under which it may sell equity, preferred securities, cash or Bitcoin to manage the balance sheet and capital structure.
Strategy bought 174,895 Bitcoin year-to-date through July while selling 3,620 Bitcoin, according to Le. He said the company had issued $7.52 billion of digital credit during the same period and repurchased $25 million.
Bitcoin sales, reserve policy and debt management
The company disclosed sales of Bitcoin intended to support its cash reserve and preferred dividend payments. Strategy sold 32 Bitcoin during the week ended May 31, describing the transaction as a test of its processes. It later sold 3,588 Bitcoin during the week ended July 5, generating about $216 million in proceeds that Le said were used to fund preferred dividends due June 30.
Le said Strategy’s Bitcoin sales have represented a small percentage of the overall Bitcoin market’s trading volume. He also said selling higher-cost-basis Bitcoin at lower prices could generate realized losses that may offset future capital gains. The company estimated it held approximately $18.5 billion in unrealized Bitcoin losses that could represent a potential tax benefit of $5.4 billion, assuming a 29% corporate tax rate.
Strategy plans to maintain a cash reserve equal to between two and three years of dividend and interest expenses, while keeping at least one year of coverage. Le said the company could use Bitcoin sales to increase the cash reserve by up to $1.25 billion, fund annual dividend and interest obligations of approximately $1.76 billion, and support up to $2 billion in authorized security repurchases.
The company has authorized up to $1 billion in repurchases of digital-credit securities and up to $1 billion in common-stock repurchases. Le said Strategy had not used the common-stock authorization and would consider buying MSTR shares when they traded at a discount to net Bitcoin per share. The company said it would prioritize STRC repurchases while the security trades below par.
Focus on STRC and digital credit
Management repeatedly emphasized its effort to return STRC, which Strategy calls “Stretch,” to a trading range of $99 to $100. STRC was trading at about $89.50 during the call, according to Le, compared with its intended par value of $100.
Michael Saylor, Strategy’s executive chairman, said the company has allocated $1 billion to repurchase STRC and had approximately $975 million remaining under that program. He said Strategy had sufficient reserves to address the gap between STRC’s market value and its notional value, but described the company as being in a “discovery process” regarding the size and pace of any repurchases.
Saylor said Strategy would not issue STRC below par. “If we can’t create it such that it trades at par, and we can’t sell it at par, we’re not going to sell it at all,” he said.
STRC’s notional value grew to $10.5 billion at the end of the second quarter from $5.3 billion at the end of the first quarter, Saylor said. He added that institutional holdings rose to $3.1 billion as of July 1 from $1.1 billion on March 17, reaching 29% of STRC outstanding.
The company plans to concentrate on STRC rather than introduce additional credit products. Saylor said Strategy currently has 11 credit instruments, but may reduce that number over time to consolidate liquidity around its flagship short-duration product.
Bitcoin per share and market outlook
Strategy said Bitcoin per share was 203,683 satoshis as of July 26, up about 6% from a year earlier. Its BTC Yield, a company-defined metric measuring Bitcoin per share growth, was 4.5% year-to-date. During the second quarter, Bitcoin per share increased 5% from 201,170 satoshis at the end of the first quarter to 210,824 satoshis at quarter-end.
Saylor said the company expects to manage its mix of Bitcoin and U.S. dollars more actively. While Strategy historically directed nearly all capital raised toward Bitcoin purchases, he said management now recognizes the importance of holding cash to support digital-credit investors and preserve dividend coverage.
Management also said it did not plan to borrow against Bitcoin holdings at present. Le cited the size, pricing and counterparty considerations of the market for Bitcoin-backed borrowing, while Saylor said the company preferred to avoid instruments that could be characterized as margin debt or mark-to-market loans.
Strategy said it intends to equitize, repay or refinance its convertible debt over time. Its next convertible debt put date is in September 2027 for notes with a conversion price of $183, Saylor said. Management said there was no prescribed timeline for additional liability-management actions.
About Strategy (NASDAQ:MSTR)
Strategy, formerly known as MicroStrategy, Incorporated (NASDAQ: MSTR) is a global provider of enterprise analytics and mobility software. The company’s flagship platform offers business intelligence, data discovery, and advanced visualizations that enable organizations to analyze large volumes of data and deliver actionable insights. In addition to traditional on-premises deployments, Strategy provides a range of cloud-based services and managed offerings that allow customers to leverage the power of its analytics tools without managing complex infrastructure.
Founded in 1989 by Michael J.
