MicroStrategy Announces Third Quarter 2019 Financial Results

TYSONS CORNER, Va.--(BUSINESS WIRE)--MicroStrategy^® Incorporated (Nasdaq: MSTR), a leading worldwide provider of enterprise analytics and mobility software, today announced financial results for the three-month period ended September 30, 2019 (the third quarter of its 2019 fiscal year).

Third Quarter 2019 Financial Highlights

• Revenues: Total revenues for the third quarter of 2019 were $119.7 million, a 2.0% decrease, or a 0.4% increase on a non-GAAP constant currency basis, compared to the third quarter of 2018. Product licenses and subscription services revenues for the third quarter of 2019 were $26.9 million, a 2.3% decrease, or a 1.4% increase on a constant currency basis, compared to the third quarter of 2018. Product support revenues for the third quarter of 2019 were $72.9 million, a 2.1% decrease, or a 0.2% decrease on a constant currency basis, compared to the third quarter of 2018. Other services revenues for the third quarter of 2019 were $19.9 million, a 1.2% decrease, or a 1.1% increase on a constant currency basis, compared to the third quarter of 2018.
• Gross Profit: Gross profit for the third quarter of 2019 was $95.9 million, representing an 80.1% gross margin, compared to a gross margin of 80.9% in the third quarter of 2018.
• Operating Expenses: Operating expenses for the third quarter of 2019 were $91.3 million, a 0.3% decrease compared to the third quarter of 2018.
• Income from Operations: Income from operations for the third quarter of 2019 was $4.6 million versus $7.2 million for the third quarter of 2018. Non-GAAP income from operations, which excludes share-based compensation expense, was $6.4 million for the third quarter of 2019 versus non-GAAP income from operations of $10.2 million for the third quarter of 2018.
• Net Income: Net income for the third quarter of 2019 was $9.7 million, or $0.94 per share on a diluted basis, as compared to net income of $12.7 million, or $1.10 per share on a diluted basis, for the third quarter of 2018.
• Cash and Short-term Investments: As of September 30, 2019, MicroStrategy had cash and cash equivalents and short-term investments of $578.3 million, as compared to $576.1 million as of December 31, 2018, an increase of $2.2 million.

“Our solid third quarter results reflect growing interest in MicroStrategy 2019^™ and increased adoption of HyperIntelligence^™.  Our customers continue to choose our award-winning platform to deliver timely insights to employees who may have previously struggled to find the insights they need,” said Michael J. Saylor, CEO, MicroStrategy Incorporated.  “Additionally, we are seeing increased customer interest in our cloud offerings for their simplicity, scalability, and speed.”

The tables at the end of this press release include a reconciliation of GAAP to non-GAAP financial measures for the three and nine months ended September 30, 2019 and 2018. An explanation of non-GAAP financial measures is also included under the heading “Non-GAAP Financial Measures” below.

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.

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.

Recent Business Highlights

The following are some key business highlights from the third quarter of 2019:

• Organizations worldwide such as Clarín, Dallas Fort Worth International Airport, Freddie Mac, Gilbane Building Company, and Skechers are deploying HyperIntelligence to their front-line employees. HyperIntelligence reveals insights to users within their favorite business applications on the web or mobile device, or on screens as they pass by, without interrupting existing workflows.
• Enhancements in MicroStrategy 2019 Update 2 and Update 3 make it easier for organizations faced with growing system demands to seamlessly move their MicroStrategy analytics and mobility deployments to the cloud.
  • Onyx CenterSource moved their on-premises analytics environment to MicroStrategy Cloud^™ Platform on Amazon Web Services (AWS) to streamline costs, reduce data discrepancies, and address security and scalability. Onyx CenterSource can scale its Amazon S3 storage services and two environments up or down to save costs, and its platform upgrades are 75% faster on AWS cloud.
  • Fanatics reports that it uses MicroStrategy on AWS to run thousands of analytical queries and share dossiers with hundreds of employees in an instant, giving its users the intelligence they need to make critical sales and inventory adjustments on the fly, especially during big sports moments.
  • RAC Insurance will move its analytics environment to MicroStrategy Cloud Platform on Microsoft Azure to help reduce costs and allow employees to focus more on creating value for their members. Moving to the cloud forms part of RAC Insurance’s strategic business plan to transition its entire data analytics environment onto the Microsoft Azure platform.
• MicroStrategy announced that it is providing analytics technology for Freddie Mac’s web-based mortgage insights tool, Evaluate|Compare|Optimize^SM (ECO), designed to help mortgage lenders with advanced evaluation tools. The ECO dashboard uses the MicroStrategy 2019 platform, interactive dossiers, and application program interfaces that, combined with market intelligence data, provide lenders with a valuable, near real time informational resource to help them deliver a better mortgage experience for borrowers.
• MicroStrategy signed a public sector distribution agreement with immixGroup, an Arrow company. The agreement with immixGroup, the leading value-added distributor of enterprise IT for the U.S. public sector, allows MicroStrategy to grow its public sector business, accelerate sales cycles, and operate more efficiently in the government market. Federal agencies are able to deploy MicroStrategy 2019 on-premises, into their existing cloud infrastructure, or through the FedRAMP marketplace.
• Ventana Research named MicroStrategy’s HyperIntelligence offering the 2019 Overall Digital Innovation Award winner. The Ventana Research Digital Innovation Awards recognize vendors pioneering new technology innovations and advancements in their respective markets, driving change and increasing value for organizations around the world.
• Forrester Research, Inc. named MicroStrategy as a leader in “The Forrester Wave^™: Enterprise BI Platforms (Client-Managed), Q3 2019” report. MicroStrategy 2019 earned the maximum scores in eight out of 10 current offering criteria: Systems of insight, Architecture, Big data, Mobile, App building/customization, GUI, Data prep, and Deployment options.

MicroStrategy Names Lisa Mayr Chief Financial Officer

MicroStrategy also announced today that it has appointed Lisa Mayr as its new Senior Executive Vice President & Chief Financial Officer, effective as of her start date with the Company, which is expected to be on or about November 4, 2019. Ms. Mayr will succeed Phong Le, who has served as Chief Financial Officer of the Company since 2015. Mr. Le will continue serving as MicroStrategy’s Senior Executive Vice President & Chief Operating Officer.

Ms. Mayr previously served as chief financial officer of EverFi, Inc., a digital and interactive educational software company. Prior to EverFi, Ms. Mayr was vice president, finance and later chief financial officer of Blackboard, Inc., a global education technology company, where she helped with the transition from an on-premises license model to cloud. She also previously held senior finance positions at LivingSocial, Inc., GeoEye, Inc., and Celtic Capital, a financial advisory services firm she co-founded. Ms. Mayr holds a Bachelor of Arts in Economics and International Relations from American University and an M.B.A. from Georgetown University.

“We are thrilled to welcome Lisa to our management team. Lisa brings extensive financial management experience and impressive leadership capabilities, making her an excellent choice as MicroStrategy’s next Chief Financial Officer,” said Mr. Saylor. “I believe she will make significant contributions to MicroStrategy’s operational and strategic goals.”

Conference Call

MicroStrategy will be discussing its third quarter 2019 financial results on a conference call today beginning at approximately 5:00 p.m. EDT. To access the conference call, dial [phone] (domestically) or [phone] (internationally) and use conference ID 6998558. A live and archived webcast will be available under the “Events” section on MicroStrategy’s investor relations website at https://ir.microstrategy.com/events-presentations. A replay of the conference call will be available beginning approximately two hours after the call concludes until November 5, 2019 at [phone] (domestically) or [phone] (internationally) using the passcode 6998558.

Non-GAAP Financial Measures

MicroStrategy is providing supplemental financial measures for (i) income (loss) from operations that excludes the impact of share-based compensation arrangements, (ii) net income and diluted earnings per share that exclude the impact from the U.S. Tax Cuts and Jobs Act (“U.S. tax reform”) in the third quarter of 2018 and the sale of the Voice.com domain name (the “Domain Name Sale”) in the second quarter of 2019, and (iii) revenues that exclude foreign currency exchange rate fluctuations. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate business performance and to help make operating decisions.

MicroStrategy believes that these non-GAAP financial measures are also useful to investors and analysts in comparing its performance across reporting periods on a consistent basis. The first supplemental financial measure excludes a significant non-cash expense that MicroStrategy believes is not reflective of its general business performance, and for which the accounting requires management judgment and the resulting share-based compensation expense could vary significantly in comparison to other companies. The second set of supplemental financial measures excludes the impact from U.S. tax reform, which was a one-time tax charge, and the Domain Name Sale, which is outside of MicroStrategy’s normal business operations. The third set of supplemental financial measures excludes changes resulting from fluctuations in foreign currency exchange rates so that results may be compared to the same period in the prior year on a “constant currency” basis. MicroStrategy believes the use of these non-GAAP financial measures 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, MicroStrategy 2019, HyperIntelligence, Intelligent Enterprise, MicroStrategy Cloud, 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 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; 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

MICROSTRATEGY INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues
Product licenses	$	18,972		$	20,264		$	57,384		$	56,857
Subscription services		7,894			7,240			22,142			22,486
Total product licenses and subscription services		26,866			27,504			79,526			79,343
Product support		72,885			74,463			217,313			222,554
Other services		19,942			20,185			55,957			63,824
Total revenues		119,693			122,152			352,796			365,721
Cost of revenues
Product licenses		526			377			1,597			4,255
Subscription services		3,889			3,259			10,976			9,953
Total product licenses and subscription services		4,415			3,636			12,573			14,208
Product support		6,922			5,079			21,710			14,685
Other services		12,478			14,674			41,055			44,721
Total cost of revenues		23,815			23,389			75,338			73,614
Gross profit		95,878			98,763			277,458			292,107
Operating expenses
Sales and marketing		43,935			45,429			140,968			147,742
Research and development		27,457			25,829			83,436			74,471
General and administrative		19,900			20,285			63,684			63,756
Total operating expenses		91,292			91,543			288,088			285,969
Income (loss) from operations		4,586			7,220			(10,630	)		6,138
Interest income, net		2,941			3,441			8,520			8,698
Other income, net		1,882			798			30,717			3,665
Income before income taxes		9,409			11,459			28,607			18,501
(Benefit from) provision for income taxes		(291	)		(1,240	)		6,419			(699	)
Net income	$	9,700		$	12,699		$	22,188		$	19,200
Basic earnings per share (1):	$	0.95		$	1.11		$	2.16		$	1.68
Weighted average shares outstanding used in computing basic earnings per share		10,251			11,467			10,273			11,458
Diluted earnings per share (1):	$	0.94		$	1.10		$	2.15		$	1.67
Weighted average shares outstanding used in computing diluted earnings per share		10,309			11,538			10,336			11,502

(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)
	September 30,			December 31,
	2019			2018*
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	375,071		$	109,924
Restricted cash		798			862
Short-term investments		203,218			466,186
Accounts receivable, net		118,002			171,359
Prepaid expenses and other current assets		24,665			30,068
Total current assets		721,754			778,399
Property and equipment, net		51,993			51,919
Right-of-use assets		86,994			0
Deposits and other assets		7,455			8,134
Deferred tax assets, net		20,520			17,316
Total Assets	$	888,716		$	855,768
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, accrued expenses, and operating lease liabilities	$	28,626		$	33,684
Accrued compensation and employee benefits		41,829			48,045
Deferred revenue and advance payments		160,244			176,540
Total current liabilities		230,699			258,269
Deferred revenue and advance payments		4,487			6,469
Operating lease liabilities		105,291			0
Other long-term liabilities		32,786			61,262
Deferred tax liabilities		34			37
Total Liabilities		373,297			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; 15,880 shares issued and 8,232 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		590,158			576,957
Treasury stock, at cost; 7,648 shares and 7,285 shares, respectively		(634,405	)		(586,161	)
Accumulated other comprehensive loss		(11,674	)		(10,217	)
Retained earnings		571,322			549,134
Total Stockholders’ Equity		515,419			529,731
Total Liabilities and Stockholders’ Equity	$	888,716		$	855,768

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	Nine Months Ended
	September 30,
	2019			2018
	(unaudited)			(unaudited)
Operating activities:
Net income	$	22,188		$	19,200
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,543			3,483
Write-offs and sales allowances		892			1,053
Net realized loss on short-term investments		41			0
Deferred taxes		(3,352	)		(6,667	)
Release of liabilities for unrecognized tax benefits		(1,077	)		0
Share-based compensation expense		7,887			11,132
Changes in operating assets and liabilities:
Accounts receivable		11,781			9,300
Prepaid expenses and other current assets		4,513			(1,075	)
Deposits and other assets		349			(956	)
Accounts payable and accrued expenses		(11,618	)		(5,816	)
Accrued compensation and employee benefits		(7,368	)		(3,901	)
Deferred revenue and advance payments		23,612			(4,032	)
Operating lease liabilities		(6,394	)		0
Other long-term liabilities		(674	)		1,527
Net cash provided by operating activities		52,323			23,248
Investing activities:
Proceeds from redemption of short-term investments		589,357			348,980
Purchases of property and equipment		(9,382	)		(4,457	)
Purchases of short-term investments		(320,487	)		(674,528	)
Net cash provided by (used in) investing activities		259,488			(330,005	)
Financing activities:
Proceeds from sale of class A common stock under exercise of employee stock options		5,442			2,471
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			(9	)
Net cash (used in) provided by financing activities		(42,802	)		2,462
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		(3,926	)		(3,904	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		265,083			(308,199	)
Cash, cash equivalents, and restricted cash, beginning of period		110,786			421,182
Cash, cash equivalents, and restricted cash, end of period	$	375,869		$	112,983

MICROSTRATEGY INCORPORATED REVENUE AND COST OF REVENUE DETAIL (in thousands)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues
Product licenses and subscription services:
Product licenses	$	18,972	$	20,264	$	57,384	$	56,857
Subscription services		7,894		7,240		22,142		22,486
Total product licenses and subscription services		26,866		27,504		79,526		79,343
Product support		72,885		74,463		217,313		222,554
Other services:
Consulting		18,038		18,001		50,135		56,998
Education		1,904		2,184		5,822		6,826
Total other services		19,942		20,185		55,957		63,824
Total revenues		119,693		122,152		352,796		365,721
Cost of revenues
Product licenses and subscription services:
Product licenses		526		377		1,597		4,255
Subscription services		3,889		3,259		10,976		9,953
Total product licenses and subscription services		4,415		3,636		12,573		14,208
Product support		6,922		5,079		21,710		14,685
Other services:
Consulting		11,102		12,996		35,996		39,859
Education		1,376		1,678		5,059		4,862
Total other services		12,478		14,674		41,055		44,721
Total cost of revenues		23,815		23,389		75,338		73,614
Gross profit	$	95,878	$	98,763	$	277,458	$	292,107

MICROSTRATEGY INCORPORATED DEFERRED REVENUE DETAIL (in thousands)
	September 30,		December 31,		September 30,
	2019		2018*		2018
	(unaudited)				(unaudited)
Current:
Deferred product licenses revenue	$	470	$	1,768	$	584
Deferred subscription services revenue		12,812		13,508		11,736
Deferred product support revenue		139,402		152,501		131,185
Deferred other services revenue		7,560		8,763		7,538
Total current deferred revenue and advance payments	$	160,244	$	176,540	$	151,043
Non-current:
Deferred product licenses revenue	$	368	$	542	$	730
Deferred subscription services revenue		142		2,384		0
Deferred product support revenue		3,440		3,091		3,701
Deferred other services revenue		537		452		492
Total non-current deferred revenue and advance payments	$	4,487	$	6,469	$	4,923
Total current and non-current:
Deferred product licenses revenue	$	838	$	2,310	$	1,314
Deferred subscription services revenue		12,954		15,892		11,736
Deferred product support revenue		142,842		155,592		134,886
Deferred other services revenue		8,097		9,215		8,030
Total current and non-current deferred revenue and advance payments	$	164,731	$	183,009	$	155,966

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED RECONCILIATION OF GAAP TO NON-GAAP MEASURES EXCLUSION OF SHARE-BASED COMPENSATION EXPENSE (in thousands)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019			2018
	(unaudited)		(unaudited)		(unaudited)			(unaudited)
Reconciliation of non-GAAP income (loss) from operations:
Income (loss) from operations	$	4,586	$	7,220	$	(10,630	)	$	6,138
Share-based compensation expense		1,834		3,011		7,887			11,132
Non-GAAP income (loss) from operations	$	6,420	$	10,231	$	(2,743	)	$	17,270

MICROSTRATEGY INCORPORATED RECONCILIATION OF GAAP TO NON-GAAP MEASURES EXCLUSION OF U.S. TAX REFORM AND DOMAIN NAME SALE (in thousands, except per share data)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019		2018			2019			2018
	(unaudited)		(unaudited)			(unaudited)			(unaudited)
Reconciliation of non-GAAP net income:
Net income	$	9,700	$	12,699		$	22,188		$	19,200
Measurement-period adjustment related to U.S. tax reform		0		(3,106	)		0			(3,106	)
Gain from Domain Name Sale, net of tax		0		0			(21,778	)		0
Non-GAAP net income	$	9,700	$	9,593		$	410		$	16,094
Reconciliation of non-GAAP diluted earnings per share:
Diluted earnings per share	$	0.94	$	1.10		$	2.15		$	1.67
Measurement-period adjustment related to U.S. tax reform (per diluted share)		0.00		(0.27	)		0.00			(0.27	)
Gain from Domain Name Sale, net of tax (per diluted share)		0.00		0.00			(2.11	)		0.00
Non-GAAP diluted earnings per share	$	0.94	$	0.83		$	0.04		$	1.40

MICROSTRATEGY INCORPORATED RECONCILIATION OF GAAP TO NON-GAAP MEASURES CONSTANT CURRENCY (in thousands)
	Three Months Ended
	September 30,
	(unaudited)
	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2019		2019			2019		2018		2019			2019
Revenues
Product licenses	$	18,972	$	(921	)	$	19,893	$	20,264		-6.4	%		-1.8	%
Subscription services		7,894		(112	)		8,006		7,240		9.0	%		10.6	%
Total product licenses and subscription services		26,866		(1,033	)		27,899		27,504		-2.3	%		1.4	%
Product support		72,885		(1,400	)		74,285		74,463		-2.1	%		-0.2	%
Other services		19,942		(455	)		20,397		20,185		-1.2	%		1.1	%
Total revenues		119,693		(2,888	)		122,581		122,152		-2.0	%		0.4	%

(1)	The “Foreign Currency Exchange Rate Impact” reflects the estimated impact from fluctuations in foreign currency exchange rates on international revenues. It shows the increase (decrease) in international revenues from the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates. The term “international” refers to operations outside of the United States and Canada.
(2)	The “Non-GAAP Constant Currency” reflects the current period GAAP amount, less the Foreign Currency Exchange Rate Impact.
(3)	The “Non-GAAP Constant Currency % Change” reflects the percentage change between the current period Non-GAAP Constant Currency amount and the GAAP amount for the same period in the prior year.

MICROSTRATEGY INCORPORATED WORLDWIDE EMPLOYEE HEADCOUNT
	September 30,		June 30,		March 31,		December 31,		September 30,
	2019		2019		2019		2018		2018
Subscription services		66		62		54		56		55
Product support		231		234		224		202		194
Consulting		390		404		429		452		458
Education		38		40		50		47		44
Sales and marketing		616		637		675		707		699
Research and development		775		764		733		716		688
General and administrative		337		336		329		348		326
Total headcount		2,453		2,477		2,494		2,528		2,464