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Long-term Debt | 9 Months Ended
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Sep. 30, 2023
Debt Disclosure [Abstract] |
Long-term Debt | (4) Long-term Debt The net carrying value of the Company’s long-term debt (in thousands) consisted of the following, as of:
|  | September 30, 2023 |  |  | December 31, 2022 |
2025 Convertible Notes |  | $ | 643,167 |  |  | $ | 640,888 |
2027 Convertible Notes |  |  | 1,036,298 |  |  |  | 1,033,277 |
2028 Secured Notes |  |  | 490,771 |  |  |  | 489,547 |
2025 Secured Term Loan |  |  | 0 |  |  |  | 204,688 |
Other long-term secured debt |  |  | 9,802 |  |  |  | 10,160 |
Total |  | $ | 2,180,038 |  |  | $ | 2,378,560 |
Convertible Senior Notes In December 2020, the Company issued $650.0 million aggregate principal amount of 0.750% Convertible Senior Notes due 2025 (the “2025 Convertible Notes”) in a private offering. The 2025 Convertible Notes are senior unsecured obligations of the Company and bear interest at a fixed rate of 0.750% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. Holders of the 2025 Convertible Notes may receive additional interest under specified circumstances as outlined in the indenture relating to the issuance of the 2025 Convertible Notes. The 2025 Convertible Notes will mature on December 15, 2025, unless earlier converted, redeemed, or repurchased in accordance with their terms. In February 2021, the Company issued $1.050 billion aggregate principal amount of 0% Convertible Senior Notes due 2027 (the “2027 Convertible Notes”) in a private offering. The 2027 Convertible Notes are senior unsecured obligations of the Company and do not bear regular interest. However, holders of the 2027 Convertible Notes may receive special interest under specified circumstances as outlined in the indenture relating to the issuance of the 2027 Convertible Notes. Any special interest is payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. The 2027 Convertible Notes will mature on February 15, 2027, unless earlier converted, redeemed, or repurchased in accordance with their terms. The terms of the 2025 Convertible Notes and 2027 Convertible Notes (collectively, the “Convertible Notes”) are discussed more fully in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no adjustments to the initial conversion rates for each of the Convertible Notes as of September 30, 2023. As of September 30, 2023, the maximum number of shares into which the Convertible Notes could be potentially converted if the conversion features are triggered are 1,633,190 and 733,005 shares for the 2025 Convertible Notes and 2027 Convertible Notes, respectively. During the nine months ended September 30, 2023, the 2025 Convertible Notes were not convertible at any time. During the nine months ended September 30, 2022, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes during the first quarter of 2022 only. During the nine months ended September 30, 2023 and 2022, the 2027 Convertible Notes were not convertible at any time. No conversions of the Convertible Notes occurred during the nine months ended September 30, 2023 or 2022. The Convertible Notes may be convertible in future periods if one or more of the conversion conditions is satisfied during future measurement periods. As of September 30, 2023 and December 31, 2022, the net carrying value of the Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets. The following is a summary of the Company’s convertible debt instruments as of September 30, 2023 (in thousands):
|  | September 30, 2023
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2025 Convertible Notes |  | $ | 650,000 |  |  | $ | (6,833 | ) |  | $ | 643,167 |  |  | $ | 695,500 |  |  | Level 2
2027 Convertible Notes |  |  | 1,050,000 |  |  |  | (13,702 | ) |  |  | 1,036,298 |  |  |  | 737,789 |  |  | Level 2
Total |  | $ | 1,700,000 |  |  | $ | (20,535 | ) |  | $ | 1,679,465 |  |  | $ | 1,433,289 |  |  |
The following is a summary of the Company’s convertible debt instruments as of December 31, 2022 (in thousands):
|  | December 31, 2022
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2025 Convertible Notes |  | $ | 650,000 |  |  | $ | (9,112 | ) |  | $ | 640,888 |  |  | $ | 364,000 |  |  | Level 2
2027 Convertible Notes |  |  | 1,050,000 |  |  |  | (16,723 | ) |  |  | 1,033,277 |  |  |  | 394,800 |  |  | Level 2
Total |  | $ | 1,700,000 |  |  | $ | (25,835 | ) |  | $ | 1,674,165 |  |  | $ | 758,800 |  |  |
The fair value of the Convertible Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2). For the three months ended September 30, 2023 and 2022, interest expense related to the Convertible Notes was as follows (in thousands):
|  | Three Months Ended September 30, 2023 |  |  | Three Months Ended September 30, 2022 |
|  | Contractual |  |  | Amortization of |  |  |  |  |  | Contractual |  |  | Amortization of |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |  |  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2025 Convertible Notes |  | $ | 1,218 |  |  | $ | 762 |  |  | $ | 1,980 |  |  | $ | 1,218 |  |  | $ | 753 |  |  | $ | 1,971 |
2027 Convertible Notes |  |  | 0 |  |  |  | 1,008 |  |  |  | 1,008 |  |  |  | 0 |  |  |  | 1,004 |  |  |  | 1,004 |
Total |  | $ | 1,218 |  |  | $ | 1,770 |  |  | $ | 2,988 |  |  | $ | 1,218 |  |  | $ | 1,757 |  |  | $ | 2,975 |
For the nine months ended September 30, 2023 and 2022, interest expense related to the Convertible Notes was as follows (in thousands):
|  | Nine Months Ended September 30, 2023 |  |  | Nine Months Ended September 30, 2022 |
|  | Contractual |  |  | Amortization of |  |  |  |  |  | Contractual |  |  | Amortization of |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |  |  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2025 Convertible Notes |  | $ | 3,656 |  |  | $ | 2,279 |  |  | $ | 5,935 |  |  | $ | 3,656 |  |  | $ | 2,251 |  |  | $ | 5,907 |
2027 Convertible Notes |  |  | 0 |  |  |  | 3,021 |  |  |  | 3,021 |  |  |  | 0 |  |  |  | 3,009 |  |  |  | 3,009 |
Total |  | $ | 3,656 |  |  | $ | 5,300 |  |  | $ | 8,956 |  |  | $ | 3,656 |  |  | $ | 5,260 |  |  | $ | 8,916 |
The Company did no t pay any interest related to the 2025 Convertible Notes during the three months ended September 30, 2023 and 2022. For each of the nine months ended September 30, 2023 and 2022, the Company paid $2.4 million in interest related to the 2025 Convertible Notes. The Company has no t paid any additional interest or special interest related to the 2025 Convertible Notes or the 2027 Convertible Notes, respectively, to date. Senior Secured Notes On June 14, 2021, the Company issued $500.0 million aggregate principal amount of 2028 Secured Notes in a private offering. The 2028 Secured Notes bear interest at a fixed rate of 6.125% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The 2028 Secured Notes have a stated maturity date of June 15, 2028, unless earlier redeemed or repurchased in accordance with their terms and subject to a springing maturity date of September 15, 2025 or November 16, 2026 as discussed further below. The 2028 Secured Notes include a springing maturity feature that will cause the stated maturity date to spring ahead to: (1) September 15, 2025 (the “First Springing Maturity Date”), unless on the First Springing Maturity Date (i) the Company has Liquidity (as defined in the 2028 Secured Notes Indenture) in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of, and accrued interest on, the 2025 Convertible Notes or (ii) less than $100,000,000 of the aggregate principal amount of the 2025 Convertible Notes remains outstanding, (2) November 16, 2026 (the “Second Springing Maturity Date”), unless on the Second Springing Maturity Date (i) the Company has Liquidity in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of, and accrued interest on, the 2027 Convertible Notes or (ii) less than $100,000,000 of the aggregate principal amount of the 2027 Convertible Notes remains outstanding, or (3) the date (such date, an “FCCR Springing Maturity Date”) that is 91 days prior to the maturity date of any future convertible debt that we may issue that is then outstanding (the “FCCR Convertible Indebtedness”), unless on the FCCR Springing Maturity Date (i) the Company has Liquidity in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of and accrued interest on such FCCR Convertible Indebtedness or (ii) less than $100,000,000 of the aggregate principal amount of such FCCR Convertible Indebtedness remains outstanding. “Liquidity” is defined in the 2028 Secured Notes Indenture and includes the Digital Asset Market Value (as defined in the 2028 Secured Notes Indenture) of the bitcoin owned by the Company and its Restricted Subsidiaries (as defined in the 2028 Secured Notes Indenture) immediately prior to the issuance of the 2028 Secured Notes (which are referred to as “Existing Digital Assets”). As of September 30, 2023, for purposes of calculating Liquidity, the Company and its Restricted Subsidiaries owned approximately 92,079 Existing Digital Assets, all of which were unencumbered. The terms of the 2028 Secured Notes are discussed more fully in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The 2028 Secured Notes are governed by an indenture containing certain covenants with which the Company must comply, including covenants with respect to limitations on (i) additional indebtedness, (ii) liens, (iii) certain payments and investments, (iv) the ability to merge or consolidate with another person, or sell or otherwise dispose of substantially all the Company’s assets, and (v) certain transactions with affiliates. The Company was in compliance with its debt covenants as of September 30, 2023. As of September 30, 2023 and December 31, 2022, the net carrying value of the 2028 Secured Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets. The following is a summary of the 2028 Secured Notes as of September 30, 2023 (in thousands):
|  | September 30, 2023
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2028 Secured Notes |  | $ | 500,000 |  |  | $ | (9,229 | ) |  | $ | 490,771 |  |  | $ | 444,850 |  |  | Level 2
The following is a summary of the 2028 Secured Notes as of December 31, 2022 (in thousands):
|  | December 31, 2022
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2028 Secured Notes |  | $ | 500,000 |  |  | $ | (10,453 | ) |  | $ | 489,547 |  |  | $ | 369,800 |  |  | Level 2
The fair value of the 2028 Secured Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2). For the three months ended September 30, 2023 and 2022, interest expense related to the 2028 Secured Notes was as follows (in thousands):
|  | Three Months Ended September 30, 2023 |  |  | Three Months Ended September 30, 2022 |
|  | Contractual |  |  | Amortization of |  |  |  |  |  | Contractual |  |  | Amortization of |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |  |  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2028 Secured Notes |  | $ | 7,657 |  |  | $ | 415 |  |  | $ | 8,072 |  |  | $ | 7,657 |  |  | $ | 388 |  |  | $ | 8,045 |
For the nine months ended September 30, 2023 and 2022, interest expense related to the 2028 Secured Notes was as follows (in thousands):
|  | Nine Months Ended September 30, 2023 |  |  | Nine Months Ended September 30, 2022 |
|  | Contractual |  |  | Amortization of |  |  |  |  |  | Contractual |  |  | Amortization of |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |  |  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2028 Secured Notes |  | $ | 22,969 |  |  | $ | 1,224 |  |  | $ | 24,193 |  |  | $ | 22,969 |  |  | $ | 1,146 |  |  | $ | 24,115 |
The Company did no t pay any interest related to the 2028 Secured Notes during the three months ended September 30, 2023 and 2022. For each of the nine months ended September 30, 2023 and 2022, the Company paid $15.3 million in interest related to the 2028 Secured Notes. Secured Term Loan On March 23, 2022, MacroStrategy, a wholly-owned subsidiary of the Company, entered into a Credit and Security Agreement (the “Credit and Security Agreement”) with Silvergate pursuant to which Silvergate issued the $205.0 million 2025 Secured Term Loan to MacroStrategy. The terms of the 2025 Secured Term Loan are discussed more fully in Note 8, Long-term Debt, to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. On March 24, 2023, MacroStrategy and Silvergate entered into a Prepayment, Waiver and Payoff to Credit and Security Agreement, pursuant to which MacroStrategy voluntarily prepaid Silvergate approximately $161.0 million (the “Payoff Amount”), in full repayment, satisfaction, and discharge of the 2025 Secured Term Loan and all other obligations under the Credit and Security Agreement. Upon Silvergate’s receipt of the Payoff Amount on March 24, 2023, the Credit and Security Agreement was terminated and Silvergate released its security interest in all of MacroStrategy’s assets collateralizing the 2025 Secured Term Loan, including the bitcoin that was serving as collateral. The Payoff Amount consisted of a $159.9 million payment to repay the full $205.0 million outstanding principal amount of the 2025 Secured Term Loan as of March 24, 2023 and a $1.1 million payment for accrued unpaid interest on the 2025 Secured Term Loan as of March 24, 2023. The Company also incurred $0.1 million in third party fees in connection with the repayment of the 2025 Secured Term Loan. The net carrying value of the 2025 Secured Term Loan as of March 24, 2023, immediately prior to the loan’s repayment, was $204.7 million, which resulted in a $44.7 million gain on debt extinguishment recognized in the Company’s Consolidated Statement of Operations in the first quarter of 2023. MacroStrategy previously maintained a $5.0 million cash reserve account (the “Reserve Account”) with Silvergate to serve as additional collateral for the 2025 Secured Term Loan. On March 24, 2023, the $5.0 million then held in the Reserve Account was applied against the Payoff Amount, reducing the amount of additional funds that were required to be paid by MacroStrategy to Silvergate in connection with the payoff of the 2025 Secured Term Loan. As of December 31, 2022, the net carrying value of the 2025 Secured Term Loan was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheet. The following is a summary of the 2025 Secured Term Loan as of December 31, 2022 (in thousands):
|  | December 31, 2022
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2025 Secured Term Loan |  | $ | 205,000 |  |  | $ | (312 | ) |  | $ | 204,688 |  |  | $ | 205,000 |  |  | Level 3
The outstanding principal amount of the 2025 Secured Term Loan approximated its fair value as of December 31, 2022 as the 2025 Secured Term Loan bore interest at a floating rate and was over-collateralized (the Company was required to maintain an LTV ratio of less than 50%). Additionally, the Company had approximately 82,991 unencumbered bitcoins that were available to be pledged as additional collateral at December 31, 2022. No interest expense related to the 2025 Secured Term Loan was recognized after the debt was repaid in full during the first quarter of 2023. For the nine months ended September 30, 2023, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):
|  | Nine Months Ended September 30, 2023 |
|  | Contractual |  |  | Amortization of |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2025 Secured Term Loan |  | $ | 3,781 |  |  | $ | 31 |  |  | $ | 3,812 |
For the three and nine months ended September 30, 2022, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):
|  | Three Months Ended September 30, 2022 |  |  | Nine Months Ended September 30, 2022 |
|  | Contractual |  |  | Amortization of |  |  |  |  |  | Contractual |  |  | Amortization of |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |  |  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2025 Secured Term Loan |  | $ | 2,931 |  |  | $ | 33 |  |  | $ | 2,964 |  |  | $ | 5,314 |  |  | $ | 69 |  |  | $ | 5,383 |
The Company paid a final $5.1 million in interest related to the 2025 Secured Term Loan during the first quarter of 2023, $1.1 million of which was included in the Payoff Amount. The Company paid $2.7 million and $4.3 million in interest related to the 2025 Secured Term Loan during the three and nine months ended September 30, 2022, respectively. Other long-term secured debt In June 2022, the Company, through a wholly-owned subsidiary, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027. The loan is secured by certain non-bitcoin assets of the Company that are not otherwise serving as collateral for any of the Company’s other indebtedness. As of September 30, 2023, the loan had a net carrying value of $10.3 million and an outstanding principal balance of $10.5 million, after monthly payments made under the terms of the agreement. As of September 30, 2023, $0.5 million of the net carrying value is short-term and is presented in “Current portion of long-term debt, net” in the Consolidated Balance Sheet. Maturities The following table shows the maturities of the Company’s debt instruments as of September 30, 2023 (in thousands). The principal payments related to the 2028 Secured Notes are included in the table below based on the First Springing Maturity Date of September 15, 2025, as if the springing maturity feature discussed above were triggered. As of September 30, 2023, the Company expects to be able to satisfy the requirements in the 2028 Secured Notes Indenture to avoid triggering the springing maturity feature of the 2028 Secured Notes.
Payments due by period ended September 30, |  | 2025 Convertible Notes |  |  | 2027 Convertible Notes |  |  | 2028 Secured Notes |  |  | Other long-term secured debt |  |  | Total |
2024 |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 532 |  |  | $ | 532 |
2025 |  |  | 0 |  |  |  | 0 |  |  |  | 500,000 |  |  |  | 562 |  |  |  | 500,562 |
2026 |  |  | 650,000 |  |  |  | 0 |  |  |  | 0 |  |  |  | 592 |  |  |  | 650,592 |
2027 |  |  | 0 |  |  |  | 1,050,000 |  |  |  | 0 |  |  |  | 8,787 |  |  |  | 1,058,787 |
2028 |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Thereafter |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  | $ | 650,000 |  |  | $ | 1,050,000 |  |  | $ | 500,000 |  |  | $ | 10,473 |  |  | $ | 2,210,473 |

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