Press release

MicroStrategy Announces First Quarter 2019 Financial Results

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MicroStrategy®
Incorporated (Nasdaq: MSTR), a leading worldwide provider of enterprise
analytics and mobility software, today announced financial results for
the three-month period ended March 31, 2019 (the first quarter of its
2019 fiscal year).

MicroStrategy adopted Accounting Standards Update No. 2016-02, Leases
(Topic 842), and its subsequent amendments (“ASU 2016-02”),
effective January 1, 2019. Comparative prior period consolidated
financial statements have not been restated and are not directly
comparable to the current period consolidated financial statements.

First quarter 2019 revenues were $115.4 million versus $123.0 million
for the first quarter of 2018, a 6.2% decrease. Product licenses and
subscription services revenues for the first quarter of 2019 were $25.4
million versus $25.0 million for the first quarter of 2018, a 1.9%
increase. Product support revenues for the first quarter of 2019 were
$71.5 million versus $74.4 million for the first quarter of 2018, a 4.0%
decrease. Other services revenues for the first quarter of 2019 were
$18.5 million versus $23.6 million for the first quarter of 2018, a
21.7% decrease. Foreign currency effects had an unfavorable impact on
revenues for the first quarter of 2019.

Operating expenses for the first quarter of 2019 were $99.6 million
versus $97.1 million for the first quarter of 2018, a 2.6% increase.

Loss from operations for the first quarter of 2019 was $10.4 million
versus income from operations of $0.7 million for the first quarter of
2018. Net loss for the first quarter of 2019 was $7.9 million, or $0.77
per share on a diluted basis, as compared to net income of $1.7 million,
or $0.15 per share on a diluted basis, for the first quarter of 2018.

Non-GAAP loss from operations, which excludes share-based compensation
expense, was $7.4 million for the first quarter of 2019 versus non-GAAP
income from operations of $5.5 million for the first quarter of 2018.
The tables at the end of this press release include a reconciliation of
(loss) income from operations to non-GAAP (loss) income from operations
for the three months ended March 31, 2019 and 2018. An explanation of
this non-GAAP financial measure is also included under the heading
“Non-GAAP Financial Measure” below.

As of March 31, 2019, MicroStrategy had cash and cash equivalents and
short-term investments of $551.1 million, as compared to $576.1 million
as of December 31, 2018, a decrease of $25.1 million. During the first
quarter of 2019, MicroStrategy repurchased 362,148 shares of its class A
common stock for an aggregate purchase price of approximately $48.2
million. As of March 31, 2019, MicroStrategy had 8.2 million shares of
class A common stock and 2.0 million shares of class B common stock
outstanding.

MicroStrategy uses its Intelligent Enterprise™ platform across the
enterprise 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 first quarter 2019 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 7634017. A
live and archived webcast will be available under the “Events” section
on MicroStrategy’s investor relations website at http://ir.microstrategy.com/events.cfm.
A replay of the conference call will be available beginning
approximately two hours after the call concludes until May 7, 2019 at
(855) 859-2056 (domestically) or (404) 537-3406 (internationally) using
the passcode 7634017.

Recent Business Highlights

  • MicroStrategy announced the general availability
    of MicroStrategy 2019™, the industry’s first and only enterprise
    platform for Federated Analytics, Transformational Mobility, and
    HyperIntelligence™. MicroStrategy 2019 delivers modern analytics on an
    enterprise platform that can be deployed on-premises or on multiple
    private and public cloud platforms. MicroStrategy customers on
    MicroStrategy 2019 platform can get started on HyperIntelligence by
    downloading the MicroStrategy HyperIntelligence extension at the Chrome
    Web Store    . Customers can provision MicroStrategy 2019 in the cloud
    with the MicroStrategy for AWS and MicroStrategy for Azure
    provisioning consoles. A 30-day free trial is available for MicroStrategy
    2019     on AWS and Microsoft Azure.
  • MicroStrategy was recognized by industry analysts in the following
    published research:

    • Recognized by Gartner, Inc. as the sole Challenger in the “2019
      Magic Quadrant for Analytics and Business Intelligence Platforms”
      (1)
    • Named a Technology Innovation Leader by Dresner Advisory Services
      for the second consecutive year
    • Ranked the #1 Overall Value Index Leader in Embedded Analytics and
      Business Intelligence by Ventana Research
    • Ranked the #1 Overall Value Index Leader in Mobile Analytics and
      Business Intelligence by Ventana Research
  • MicroStrategy held its 22nd annual user conference,
    MicroStrategy World™ 2019, which brought together thousands of product
    experts, thought leaders and MicroStrategy users for three days of
    inspirational keynotes, educational workshops, and customer
    presentations on how analytics can transform the way people use
    information to make each organization a more Intelligent Enterprise.
    Attendees also learned about MicroStrategy’s new platform, robust
    partner network, and services offerings as well as how they can employ
    new digital strategies to increase the adoption of analytics across
    the enterprise.

    • MicroStrategy announced the ability of customers to leverage
      MicroStrategy 2019 on Microsoft Azure and Amazon Web Services,
      which allows customers to launch fully-configured analytics,
      mobility, and HyperIntelligence projects on Azure and AWS.
    • MicroStrategy presented Customer Awards to American Express Global
      Business Travel, The Coca-Cola Company, Hilton, Ola, and TAP Air
      Portugal for their outstanding enterprise analytics and mobility
      applications.
    • MicroStrategy hosted its second annual Datathon at MicroStrategy
      World 2019, challenging participants to create innovative
      analytics, AI, big data, or mobile applications using
      MicroStrategy 2019 with aggregated data from CharityBase, a free,
      open source charity data portal with public information on the
      activities, locations, and finances of thousands of charities
      registered in England and Wales.

Non-GAAP Financial Measure

MicroStrategy is providing a supplemental financial measure for (loss)
income from operations that excludes the impact of share-based
compensation arrangements. This supplemental financial measure is not a
measurement of financial performance under generally accepted accounting
principles in the United States (“GAAP”) and, as a result, this
supplemental 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 leading worldwide provider of
enterprise analytics and mobility software and services. Our mission is
to make every enterprise a more Intelligent Enterprise. MicroStrategy
2019 delivers modern analytics on an open, comprehensive enterprise
platform designed to drive business results with Federated Analytics,
Transformational Mobility, and HyperIntelligence. To learn more, visit MicroStrategy
online, and follow us on LinkedIn,
Twitter
and Facebook.

MicroStrategy, Intelligent Enterprise, MicroStrategy Library,
MicroStrategy 2019, HyperIntelligence, and MicroStrategy World 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 2019; 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; currency
fluctuations; and other risks detailed in the Company’s registration
statements and periodic reports filed with the Securities and Exchange
Commission. The Company undertakes no obligation to update these
forward-looking statements for revisions or changes after the date of
this release.

MSTR-F

(1) Gartner, Magic Quadrant for Analytics and Business
Intelligence Platforms, Cindi Howson, James Richardson, Rita Sallam,
Austin Kronz, 11 February 2019. 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,
express or implied, with respect to this research, including any
warranties of merchantability or fitness for a particular purpose.

 
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
    Three Months Ended
March 31,
2019     2018
(unaudited) (unaudited)
Revenues
Product licenses $ 18,291 $ 17,301
Subscription services   7,144   7,662
Total product licenses and subscription services 25,435 24,963
Product support 71,450 74,415
Other services   18,481   23,589
Total revenues   115,366   122,967
 
Cost of revenues
Product licenses 519 2,211
Subscription services   3,598   3,249
Total product licenses and subscription services 4,117 5,460
Product support 7,067 4,796
Other services   14,989   14,929
Total cost of revenues   26,173   25,185
 
Gross profit   89,193   97,782
 
Operating expenses
Sales and marketing 48,760 51,335
Research and development 28,215 23,560
General and administrative   22,604   22,172
Total operating expenses   99,579   97,067
 
(Loss) income from operations (10,386 ) 715
Interest income, net 2,566 2,034
Other expense, net   (596 )   (1,594 )
(Loss) income before income taxes (8,416 ) 1,155
Benefit from income taxes   (510 )   (518 )
Net (loss) income $ (7,906 ) $ 1,673
 
Basic (loss) earnings per share (1): $ (0.77 ) $ 0.15
Weighted average shares outstanding used in computing basic (loss)
earnings per share 		  10,328   11,447
 
Diluted (loss) earnings per share (1): $ (0.77 ) $ 0.15
Weighted average shares outstanding used in computing diluted (loss)
earnings per share 		  10,328   11,488
 
(1)   Basic and fully diluted (loss) 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)
 
    March 31,     December 31,
2019 2018*
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 258,743 $ 109,924
Restricted cash 922 862
Short-term investments 292,314 466,186
Accounts receivable, net 133,922 171,359
Prepaid expenses and other current assets   32,511   30,068
Total current assets 718,412 778,399
 
Property and equipment, net 54,832 51,919
Right-of-use assets 87,743

0

Deposits and other assets 8,374 8,134
Deferred tax assets, net   18,983   17,316
Total Assets $ 888,344 $ 855,768
 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, accrued expenses, and operating lease liabilities $ 37,227 $ 33,684
Accrued compensation and employee benefits 36,713 48,045
Deferred revenue and advance payments   190,070   176,540
Total current liabilities 264,010 258,269
 
Deferred revenue and advance payments 4,539 6,469
Operating lease liabilities 106,661 0
Other long-term liabilities 34,793 61,262
Deferred tax liabilities   35   37
Total Liabilities   410,038   326,037
 
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;
15,850 shares issued and 8,202 shares outstanding, and 15,837 shares
issued and 8,552 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 581,429 576,957
Treasury stock, at cost; 7,648 shares and 7,285 shares, respectively (634,405 ) (586,161 )
Accumulated other comprehensive loss (9,964 ) (10,217 )
Retained earnings   541,228   549,134
Total Stockholders’ Equity   478,306   529,731
Total Liabilities and Stockholders’ Equity $ 888,344 $ 855,768
 
*   Derived from audited financial statements.
 
 
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
    Three Months Ended
March 31,
2019     2018
(unaudited) (unaudited)
Operating activities:
Net (loss) income $ (7,906 ) $ 1,673
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 3,664 3,298
Bad debt expense 827 165
Net realized loss on short-term investments 41

0

Deferred taxes (1,694 ) (2,662 )
Share-based compensation expense 3,017 4,743
Changes in operating assets and liabilities:
Accounts receivable 10,266 422
Prepaid expenses and other current assets (3,070 ) (3,783 )
Deposits and other assets (134 ) 228
Accounts payable and accrued expenses (3,108 ) (6,016 )
Accrued compensation and employee benefits (12,195 ) (8,085 )
Deferred revenue and advance payments 38,502 19,570
Operating lease liabilities (2,074 )

0

Other long-term liabilities   320   9,164
Net cash provided by operating activities   26,456   18,717
 
Investing activities:
Proceeds from redemption of short-term investments 314,403 195,820
Purchases of property and equipment (6,011 ) (1,294 )
Purchases of short-term investments   (138,099 )   (483,440 )
Net cash provided by (used in) investing activities   170,293   (288,914 )
 
Financing activities:
Proceeds from sale of class A common stock under exercise of
employee stock options 		1,507

0

Purchases of treasury stock (48,244 )

0

Payments on capital lease obligations and other financing
arrangements prior to the adoption of ASU 2016-02 		 

0

  (7 )
Net cash used in financing activities   (46,737 )   (7 )
 
Effect of foreign exchange rate changes on cash, cash
equivalents, and restricted cash 		  (1,133 )   2,202
Net increase (decrease) in cash, cash equivalents, and restricted
cash 		148,879 (268,002 )
Cash, cash equivalents, and restricted cash, beginning of period   110,786   421,182
Cash, cash equivalents, and restricted cash, end of period $ 259,665 $ 153,180
 
 
MICROSTRATEGY INCORPORATED
REVENUE AND COST OF REVENUE DETAIL
(in thousands)
 
    Three Months Ended
March 31,
2019       2018
(unaudited) (unaudited)
Revenues
Product licenses and subscription services:
Product licenses $ 18,291 $ 17,301
Subscription services   7,144   7,662
Total product licenses and subscription services   25,435   24,963
Product support 71,450 74,415
Other services:
Consulting 16,603 21,287
Education   1,878   2,302
Total other services   18,481   23,589
Total revenues   115,366   122,967
 
Cost of revenues
Product licenses and subscription services:
Product licenses 519 2,211
Subscription services   3,598   3,249
Total product licenses and subscription services   4,117   5,460
Product support 7,067 4,796
Other services:
Consulting 12,985 13,321
Education   2,004   1,608
Total other services   14,989   14,929
Total cost of revenues   26,173   25,185
 
Gross profit $ 89,193 $ 97,782
 
 
MICROSTRATEGY INCORPORATED
DEFERRED REVENUE DETAIL
(in thousands)
 
    March 31,     December 31,     March 31,
2019 2018* 2018
(unaudited) (unaudited)
Current:
Deferred product licenses revenue $ 555 $ 1,768 $ 3,064
Deferred subscription services revenue 15,641 13,508 16,742
Deferred product support revenue 166,306 152,501 173,156
Deferred other services revenue   7,568   8,763   8,756
Total current deferred revenue and advance payments $ 190,070 $ 176,540 $ 201,718
 
Non-current:
Deferred product licenses revenue $ 479 $ 542 $ 843
Deferred subscription services revenue 247 2,384 385
Deferred product support revenue 3,231 3,091 3,854
Deferred other services revenue   582   452   586
Total non-current deferred revenue and advance payments $ 4,539 $ 6,469 $ 5,668
 
Total current and non-current:
Deferred product licenses revenue $ 1,034 $ 2,310 $ 3,907
Deferred subscription services revenue 15,888 15,892 17,127
Deferred product support revenue 169,537 155,592 177,010
Deferred other services revenue   8,150   9,215   9,342
Total current and non-current deferred revenue and advance payments $ 194,609 $ 183,009 $ 207,386
 
*   Derived from audited financial statements.
 
 
MICROSTRATEGY INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP MEASURE
(in thousands)
 
    Three Months Ended
March 31,
2019     2018
(unaudited) (unaudited)
Reconciliation of non-GAAP (loss) income from operations:
(Loss) income from operations $ (10,386 ) $ 715
Share-based compensation expense   3,017   4,743
Non-GAAP (loss) income from operations $ (7,369 ) $ 5,458
 
 
MICROSTRATEGY INCORPORATED
WORLDWIDE EMPLOYEE HEADCOUNT
 
    March 31,     December 31,     September 30,     June 30,     March 31,
2019 2018 2018 2018 2018
Subscription services 54 56 55 54 57
Product support 224 202 194 184 182
Consulting 429 452 458 443 441
Education 50 47 44 39 42
Sales and marketing 675 707 699 687 667
Research and development 733 716 688 651 604
General and administrative 329 348 326 322 313
Total headcount 2,494 2,528 2,464 2,380 2,306