Market Overview

MicroStrategy Announces Second Quarter 2018 Financial Results

Share:

MicroStrategy®
Incorporated (NASDAQ:MSTR), a leading worldwide provider of enterprise
analytics and mobility software, today announced financial results for
the three-month period ended June 30, 2018 (the second quarter of its
2018 fiscal year).

MicroStrategy adopted Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers (Topic 606)
and its subsequent
amendments ("ASU 2014-09"), effective January 1, 2018, and has adjusted
its prior period consolidated financial statements to reflect full
retrospective adoption.

Second quarter 2018 revenues were $120.6 million versus $119.2 million
for the second quarter of 2017, a 1.2% increase. Product licenses and
subscription services revenues for the second quarter of 2018 were $26.9
million versus $26.1 million for the second quarter of 2017, a 3.1%
increase. Product support revenues for the second quarter of 2018 were
$73.7 million versus $70.8 million for the second quarter of 2017, a
4.1% increase. Other services revenues for the second quarter of 2018
were $20.1 million versus $22.4 million for the second quarter of 2017,
a 10.4% decrease. Foreign currency effects had a favorable impact on
revenues for the second quarter of 2018.

Operating expenses for the second quarter of 2018 were $97.4 million
versus $80.8 million for the second quarter of 2017, a 20.5% increase,
reflecting MicroStrategy's previously announced strategy to seek to take
greater advantage of the opportunities in the market by increasing its
sales and marketing expenditures and increasing its research and
development expenditures as it invests in its technology products and
personnel. MicroStrategy did not capitalize any software development
costs during the second quarter of 2018 or 2017.

Loss from operations for the second quarter of 2018 was $1.8 million
versus income from operations of $14.1 million for the second quarter of
2017. Net income for the second quarter of 2018 was $4.8 million, or
$0.42 per share on a diluted basis, as compared to net income of $10.0
million, or $0.86 per share on a diluted basis, for the second quarter
of 2017. Contributing to net income for the second quarter of 2018 was
$4.5 million in other income, net, comprised primarily of foreign
currency transaction gains, and $3.2 million in interest income, net.

Non-GAAP income from operations, which excludes share-based compensation
expense, was $1.6 million for the second quarter of 2018 versus $17.9
million for the second quarter of 2017. The tables at the end of this
press release include a reconciliation of (loss) income from operations
to non-GAAP income from operations for the three months ended June 30,
2018 and 2017. An explanation of this non-GAAP measure is also included
under the heading "Non-GAAP Financial Measure" below.

As of June 30, 2018, MicroStrategy had cash and cash equivalents and
short-term investments of $699.6 million, as compared to $675.2 million
as of December 31, 2017, an increase of $24.4 million. As of June 30,
2018, MicroStrategy had 9.4 million shares of class A common stock and
2.0 million shares of class B common stock outstanding.

MicroStrategy uses its own software across the Company and has created
an interactive dossier with quarterly financial performance data. Anyone
can access the MSTR
Financials dossier
via a web browser, or by downloading the
MicroStrategy Library™ app on an iOS or Android device. To download the
native apps, visit MicroStrategy
Library for iPad
, MicroStrategy
Library for iPhone
, or MicroStrategy
Library for Android tablet and smartphone
.

Conference Call

MicroStrategy will be discussing its second quarter 2018 financial
results on a conference call today beginning at approximately 5:00 p.m.
EDT. To access the conference call, dial (844) 824-7425 (domestically)
or (716) 220-9429 (internationally) and use conference ID 8369038. A
live webcast and replay of the conference call will be available under
the "Events" section on MicroStrategy's investor relations website at http://ir.microstrategy.com/events.cfm.
The replay will be available beginning approximately two hours after the
call concludes until August 2, 2018 at (855) 859-2056 (domestically) or
(404) 537-3406 (internationally) using the passcode 8369038. An archived
webcast will also be available under the "Events" section on
MicroStrategy's investor relations website at http://ir.microstrategy.com/events.cfm.

Recent Business Highlights:

  • MicroStrategy received the highest product scores for 3 of 5 use cases
    in the "Critical Capabilities for Analytics and Business Intelligence
    Platforms" report1 by Gartner, Inc., the leading provider
    of research and analysis on the global information technology
    industry. According to the findings, the Gartner report has scored
    MicroStrategy:
    • First in Governed Data Discovery, scoring a 4.22 (out of 5)
    • First in Agile, Centralized BI Provisioning, scoring a 4.37
    • First in Decentralized Analytics, scoring a 4.19
    • Second in Extranet Deployment, scoring a 4.16
  • MicroStrategy introduced three new gateways with its MicroStrategy
    10.11™ release that enable MicroStrategy users to easily visualize,
    analyze and distribute data using Microsoft Azure. Built in
    collaboration with Microsoft, these gateways establish integrations
    and workflows between the MicroStrategy 10™ platform and Azure data
    and analytics services. These gateways expand on MicroStrategy's
    existing integrations with other Microsoft solutions, including Azure
    IoT, Machine Learning and Power BI.
  • MicroStrategy won a 2018 NetworkWorld Asia Information Management
    award in the Advanced Analytics Solution category. After a review of
    numerous analytics vendors in the market, MicroStrategy was selected
    the winner by a panel of Questex Media editors and regional CIOs,
    CISOs, IT directors, and data center heads representing organizations
    across a variety of industries. MicroStrategy, which secured the top
    spot for the only award related to analytics, was honored at the 7th
    annual NetworkWorld Asia Information Management Awards in Singapore.
  • MicroStrategy announced that Kasasa, an Austin, Texas-based fintech
    and martech provider, integrated MicroStrategy 10 into Insight, its BI
    platform, enabling an even higher performing analytics solution for
    its customers. In addition, MicroStrategy announced that Vibes, a
    leading mobile engagement platform for enterprises, integrated the
    MicroStrategy 10 platform into its new product, Advanced Analytics, a
    performance management solution.
  • MicroStrategy announced that The University of Auckland's ICT Graduate
    School and the University of Colorado Denver School of Business are
    providing its students and faculty with free MicroStrategy software
    licenses, technical support and training through the MicroStrategy
    Academic Program.
 

1

Gartner, Critical Capabilities for Analytics and Business
Intelligence Platforms, James Laurence Richardson, Joao Tapadinhas,
et al., May 7, 2018. Gartner does not endorse any vendor, product or
service depicted in its research publications, and does not advise
technology users to select only those vendors with the highest
ratings or other designation. Gartner research publications consist
of the opinions of Gartner's research organization and should not be
construed as statements of fact. Gartner disclaims all warranties,
expressed or implied, with respect to this research, including any
warranties of merchantability or fitness for a particular purpose.
 

Non-GAAP Financial Measure

MicroStrategy is providing a supplemental financial measure for income
from operations that excludes the impact of share-based compensation
arrangements. This financial measure is not a measurement of financial
performance under generally accepted accounting principles in the United
States ("GAAP") and, as a result, this financial measure may not be
comparable to similarly titled measures of other companies. Management
uses this non-GAAP financial measure internally to help understand,
manage and evaluate business performance and to help make operating
decisions. MicroStrategy believes that this non-GAAP financial measure
is also useful to investors and analysts in comparing its performance
across reporting periods on a consistent basis because it excludes a
significant non-cash expense that MicroStrategy believes is not
reflective of its general business performance. In addition, accounting
for share-based compensation arrangements requires significant
management judgment and the resulting expense could vary significantly
in comparison to other companies. Therefore, MicroStrategy believes the
use of this non-GAAP financial measure can also facilitate comparison of
MicroStrategy's operating results to those of its competitors.

About MicroStrategy Incorporated

MicroStrategy (NASDAQ:MSTR) is a worldwide leader in enterprise
analytics and mobility software. A pioneer in the BI and analytics
space, MicroStrategy delivers innovative software that empowers people
to make better decisions and transform the way they do business. We
provide our enterprise customers with world-class software and expert
services so they can deploy unique intelligence applications. To learn
more, visit MicroStrategy
online, and follow us on LinkedIn,
Twitter
and Facebook.

MicroStrategy, MicroStrategy 10, MicroStrategy 10.11, and MicroStrategy
Library are either trademarks or registered trademarks of MicroStrategy
Incorporated in the United States and certain other countries. Other
product and company names mentioned herein may be the trademarks of
their respective owners.

This press release may include statements that may constitute
"forward-looking statements," including estimates of future business
prospects or financial results and statements containing the words
"believe," "estimate," "project," "expect" or similar expressions.
Forward-looking statements inherently involve risks and uncertainties
that could cause actual results of MicroStrategy Incorporated and its
subsidiaries (collectively, the "Company") to differ materially from the
forward-looking statements. Factors that could contribute to such
differences include: the extent and timing of market acceptance of
MicroStrategy's new offerings, including MicroStrategy 10.11; the
Company's ability to recognize revenue or deferred revenue through
delivery of products or satisfactory performance of services; continued
acceptance of the Company's other products in the marketplace;
fluctuations in tax benefits or provisions, including as a result of
changes to U.S. federal tax laws; the timing of significant orders;
delays in or the inability of the Company to develop or ship new
products; competitive factors; general economic conditions, including
economic uncertainty in the retail industry, in which the Company has a
significant number of customers; currency fluctuations; and other risks
detailed in the Company's registration statements and periodic reports
filed with the Securities and Exchange Commission. By making these
forward-looking statements, the Company undertakes no obligation to
update these statements for revisions or changes after the date of this
release.

MSTR-F

 

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 
      Three Months Ended     Six Months Ended
June 30, June 30,
2018   2017 2018   2017
(unaudited)

(as adjusted,
unaudited)

(unaudited)

(as adjusted,
unaudited)

Revenues
Product licenses $ 19,292 $ 17,728 $ 36,593 $ 40,374
Subscription services   7,584   8,346   15,246   16,118
Total product licenses and subscription services 26,876 26,074 51,839 56,492
Product support 73,676 70,766 148,091 141,278
Other services   20,050   22,380   43,639   43,682
Total revenues   120,602   119,220   243,569   241,452
 
Cost of revenues
Product licenses 1,667 1,747 3,878 3,419
Subscription services   3,445   3,400   6,694   6,439
Total product licenses and subscription services 5,112 5,147 10,572 9,858
Product support 4,810 4,542 9,606 8,876
Other services   15,118   14,686   30,047   28,773
Total cost of revenues   25,040   24,375   50,225   47,507
 
Gross profit   95,562   94,845   193,344   193,945
 
Operating expenses
Sales and marketing 50,978 41,626 102,313 81,208
Research and development 25,082 19,561 48,642 37,987
General and administrative   21,299   19,582   43,471   39,839
Total operating expenses   97,359   80,769   194,426   159,034
 
(Loss) income from operations (1,797 ) 14,076 (1,082 ) 34,911
Interest income, net 3,223 1,163 5,257 2,000
Other income (expense), net   4,461   (2,618 )   2,867   (4,474 )
Income before income taxes 5,887 12,621 7,042 32,437
Provision for income taxes   1,059   2,668   541   6,927
Net income $ 4,828 $ 9,953 $ 6,501 $ 25,510
 
Basic earnings per share (1): $ 0.42 $ 0.87 $ 0.57 $ 2.23
Weighted average shares outstanding used in computing basic earnings
per share
  11,459   11,444   11,453   11,441
 
Diluted earnings per share (1): $ 0.42 $ 0.86 $ 0.57 $ 2.20
Weighted average shares outstanding used in computing diluted
earnings per share
  11,493   11,592   11,488   11,593
 
(1)       Basic and fully diluted earnings per share for class A and class B
common stock are the same.
 
 

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 
      June 30,   December 31,
2018 2017
(unaudited)

(as adjusted,
unaudited)

Assets
Current assets
Cash and cash equivalents $ 90,427 $ 420,244
Restricted cash 964 938
Short-term investments 609,167 254,927
Accounts receivable, net 125,115 165,364
Prepaid expenses and other current assets   27,863   19,180
Total current assets 853,536 860,653
 
Property and equipment, net 51,918 53,359
Capitalized software development costs, net 0 2,499
Deposits and other assets 7,112 7,411
Deferred tax assets, net   14,761   9,297
Total Assets $ 927,327 $ 933,219
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 22,670 $ 30,711
Accrued compensation and employee benefits 38,617 41,498
Deferred revenue and advance payments   175,358   198,734
Total current liabilities 236,645 270,943
 
Deferred revenue and advance payments 5,816 6,400
Other long-term liabilities 64,503 50,146
Deferred tax liabilities   4   4
Total Liabilities   306,968   327,493
 
Stockholders' Equity
Preferred stock undesignated, $0.001 par value; 5,000 shares
authorized; no shares issued or outstanding
0 0
Class A common stock, $0.001 par value; 330,000 shares authorized;
15,837 shares issued and 9,432 shares outstanding, and 15,817 shares
issued and 9,412 shares outstanding, respectively
16 16
Class B convertible common stock, $0.001 par value; 165,000 shares
authorized; 2,035 shares issued and outstanding, and 2,035 shares
issued and outstanding, respectively
2 2
Additional paid-in capital 570,502 559,918
Treasury stock, at cost; 6,405 shares (475,184 ) (475,184 )
Accumulated other comprehensive loss (8,111 ) (5,659 )
Retained earnings   533,134   526,633
Total Stockholders' Equity   620,359   605,726
Total Liabilities and Stockholders' Equity $ 927,327 $ 933,219
 
 

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
      Six Months Ended
June 30,
2018   2017
(unaudited)

(as adjusted,
unaudited)

Operating activities:
Net income $ 6,501 $ 25,510
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,870 8,540
Bad debt expense 948 1,835
Deferred taxes (5,758 ) (3,654 )
Share-based compensation expense 8,121 6,889
Changes in operating assets and liabilities:
Accounts receivable 5,044 16,033
Prepaid expenses and other current assets 453 (992 )
Deposits and other assets (344 ) (275 )
Accounts payable and accrued expenses (7,775 ) (15,472 )
Accrued compensation and employee benefits (3,015 ) (10,712 )
Deferred revenue and advance payments 10,502 11,058
Other long-term liabilities   4,780   (1,647 )
Net cash provided by operating activities   23,327   37,113
 
Investing activities:
Proceeds from redemption of short-term investments 245,680 151,860
Purchases of property and equipment (2,644 ) (1,467 )
Purchases of short-term investments   (596,376 )   (216,602 )
Net cash used in investing activities   (353,340 )   (66,209 )
 
Financing activities:
Proceeds from sale of class A common stock under exercise of
employee stock options
2,471 1,677
Payments on capital lease obligations and other financing
arrangements
  (9 )   (12 )
Net cash provided by financing activities   2,462   1,665
 
Effect of foreign exchange rate changes on cash, cash
equivalents, and restricted cash
  (2,240 )   5,246
Net decrease in cash, cash equivalents, and restricted cash (329,791 ) (22,185 )
Cash, cash equivalents, and restricted cash, beginning of period   421,182   402,712
Cash, cash equivalents, and restricted cash, end of period $ 91,391 $ 380,527
 
 

MICROSTRATEGY INCORPORATED

REVENUE AND COST OF REVENUE DETAIL

(in thousands)

 
      Three Months Ended     Six Months Ended
June 30, June 30,
2018     2017 2018     2017
(unaudited)

(as adjusted,
unaudited)

(unaudited)

(as adjusted,
unaudited)

Revenues
Product licenses and subscription services:
Product licenses $ 19,292 $ 17,728 $ 36,593 $ 40,374
Subscription services   7,584   8,346   15,246   16,118
Total product licenses and subscription services   26,876   26,074   51,839   56,492
Product support 73,676 70,766 148,091 141,278
Other services:
Consulting 17,710 19,791 38,997 38,837
Education   2,340   2,589   4,642   4,845
Total other services   20,050   22,380   43,639   43,682
Total revenues   120,602   119,220   243,569   241,452
 
Cost of revenues
Product licenses and subscription services:
Product licenses 1,667 1,747 3,878 3,419
Subscription services   3,445   3,400   6,694   6,439
Total product licenses and subscription services   5,112   5,147   10,572   9,858
Product support 4,810 4,542 9,606 8,876
Other services:
Consulting 13,542 12,867 26,863 25,284
Education   1,576   1,819   3,184   3,489
Total other services   15,118   14,686   30,047   28,773
Total cost of revenues   25,040   24,375   50,225   47,507
 
Gross profit $ 95,562 $ 94,845 $ 193,344 $ 193,945
 
 

MICROSTRATEGY INCORPORATED

DEFERRED REVENUE DETAIL

(in thousands)

 
      June 30,     December 31,     June 30,
2018 2017 2017
(unaudited)

(as adjusted,
unaudited)

(as adjusted,
unaudited)

Current:
Deferred product licenses revenue $ 1,819 $ 3,760 $ 2,320
Deferred subscription services revenue 13,847 17,324 17,741
Deferred product support revenue 151,909 168,185 156,984
Deferred other services revenue   7,783   9,465   8,681
Total current deferred revenue and advance payments $ 175,358 $ 198,734 $ 185,726
 
Non-current:
Deferred product licenses revenue $ 794 $ 820 $ 620
Deferred subscription services revenue 9 126 784
Deferred product support revenue 3,950 4,826 7,211
Deferred other services revenue   1,063   628   856
Total non-current deferred revenue and advance payments $ 5,816 $ 6,400 $ 9,471
 
Total current and non-current:
Deferred product licenses revenue $ 2,613 $ 4,580 $ 2,940
Deferred subscription services revenue 13,856 17,450 18,525
Deferred product support revenue 155,859 173,011 164,195
Deferred other services revenue   8,846   10,093   9,537
Total current and non-current deferred revenue and advance payments $ 181,174 $ 205,134 $ 195,197
 
 

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(in thousands)

 
      Three Months Ended     Six Months Ended
June 30, June 30,
2018   2017 2018   2017
(unaudited)

(as adjusted,
unaudited)

(unaudited)

(as adjusted,
unaudited)

Reconciliation of non-GAAP income from operations:
(Loss) income from operations $ (1,797 ) $ 14,076 $ (1,082 ) $ 34,911
Share-based compensation expense   3,378   3,774   8,121   6,889
Non-GAAP income from operations $ 1,581 $ 17,850 $ 7,039 $ 41,800
 
 

MICROSTRATEGY INCORPORATED

WORLDWIDE EMPLOYEE HEADCOUNT

 
      June 30,     March 31,     December 31,     September 30,     June 30,
2018 2018 2017 2017 2017
Subscription services   54   57   53   50   49
Product support 184 182 172 163 176
Consulting 443 441 441 447 448
Education 39 42 41 41 42
Sales and marketing 687 667 652 635 642
Research and development 651 604 559 539 526
General and administrative   322   313   298   303   301
Total headcount   2,380   2,306   2,216   2,178   2,184
 

View Comments and Join the Discussion!