Palladyne AI Corp. Q2 FY2022 earnings call

• Strategic Review: MicroStrategy has two core strategies: operating/growing the enterprise analytics business and acquiring Bitcoin. Since embarking on the Bitcoin acquisition strategy in August 2020, the company has outperformed Bitcoin, gold, bonds, and major big tech stocks. - Operational Results Q2 2022: Despite macroeconomic challenges, achieved revenue growth on the strength of the cloud business. Subscription revenue and billings were strong, with MicroStrategy ranked #1 in the enterprise analytics use case in Gartner's 2022 Critical Capabilities report. Launched MicroStrategy Cloud for government in Q3 2022, a cloud offering with FedRAMP authorization. - Bitcoin Acquisition: Purchased 481 Bitcoins in Q2 2022, and as of June 30, 2022, owned approximately 129,699 Bitcoins with no plans to sell Bitcoin.

Software Segment: Revenues increased 2% year-over-year on a constant currency basis. Total software license revenues (product licenses + subscription services) increased 8% year-over-year on a constant currency basis. Subscription revenue was up 40% year-over-year on a constant currency basis, and current subscription billings grew 51% year-over-year, marking the ninth straight quarter of double-digit growth. Bitcoin Segment: Purchased 481 Bitcoins in Q2 2022 at an average price of $20,790 per Bitcoin. As of June 30, 2022, the company owned approximately 129,699 Bitcoins with a total cost of $4 billion, or $30,664 per Bitcoin net of fees and expenses.

• Expect to accelerate the transition to cloud-based intelligent services and grow Bitcoin holdings via more acquisitions financed by cash flows, debt, and equity. - Anticipate regulatory clarity in the crypto industry to benefit Bitcoin. - Positive outlook for the software business with continued transition to cloud and expected increase in subscription billings.

• Bitcoin price volatility leading to impairment charges. - Macroeconomic factors such as high inflation, weakening foreign currencies, and the ongoing war in Ukraine impacting business. - Regulatory uncertainties in the digital asset space.

Q: Is the CEO succession a recent development, or that is something that had been in works for a while?

A: The matter of CEO succession has been carefully considered and planned for at the Board level for many years. Phong Le was promoted to President over two years ago and was seen as the era parent. This is a decision seven years in the making.

Q: What changes do you plan to make as a CEO?

A: I think it's a business-as-usual transition. Andrew Kang's arrival two months ago allows more focus on corporate strategy, innovation, and the Bitcoin strategy for Michael Saylor, while I focus on running the company. No significant changes planned beyond clarifying roles.

Q: Do you anticipate any further capital markets activity and what is your long-term debt strategy?

A: The company has a prudent capital structure. Will continue to evaluate access to markets that are most accretive, and will obtain the most premium for dollars generated. Currently evaluating opportunities in a prudent manner.

Q: Can you talk about your growth outlook for the software business for the second half of this year?

A: We withstood macroeconomic challenges in Q2 by growing in the cloud. The second half may have more challenges, but cloud will help. We are optimistic about continuing growth while being prudent.

Q: Has the recent Bitcoin price volatility accompanied with large accounting adjustment impacted your view on your Bitcoin strategy going forward?

A: We anticipated bitcoin volatility and see it as a competitive advantage. Volatility attracts interest and makes the company more visible. The accounting treatment also benefits the firm as it has established a lead in the digital asset space.

Q: How should investors evaluate the new executive work structure? Are there any tangible benefits from it that will become evident over time, for example, a further development of the digital asset strategy beyond Bitcoin holding?

A: The executive structure is a benefit. Andrew Kang's addition provides a full-time finance executive. Phong Le as CEO will be more effective. I can focus more on Bitcoin advocacy and evangelism. It's a win-win-win.

Q: Given the macroeconomic risk, can you update us on how you think about balancing revenue growth versus margin expansion?

A: We're focused on growing revenue. The cost structure is right, and we don't need to sacrifice revenue growth by reducing costs. Growth will lead to margin expansion.

Q: Can you give us an idea on where we stand now in mix between license and SaaS? When might we expect to see SaaS growth begin to move the growth needle more materially?

A: On recognized revenue basis, cloud subscription revenue is about 15% of recurring revenue; on billings basis, about 20%. We're in the transition phase with full speed ahead on cloud transition, and will see SaaS grow over time as the transition progresses.

Q: Would you like to elaborate further on managing expenses in the second half of 2022?

A: Our cost structure is stable. We'll focus on accretive areas, be opportunistic in bringing in new talent, and scrutinize costs to be more efficient while spending in areas that help business grow.

Q: What are you seeing in the demand environment for BI software, on the uncertainty on macro? And what is your demand outlook for the rest of 2022?

A: Seeing choppier demand, elongated deal cycles. But we leverage our enterprise analytics expertise, cloud transition, and will work through challenges, expecting to grow in the second half with better execution.