MicroStrategy Announces Second Quarter 2020 Financial Results

TYSONS CORNER, Va.--(BUSINESS WIRE)--MicroStrategy^® (Nasdaq: MSTR), the largest independent publicly-traded business intelligence company, today announced financial results for the three-month period ended June 30, 2020 (the second quarter of its 2020 fiscal year).

“MicroStrategy’s second quarter results were solid in the context of the challenging global economic environment and highlighted by double-digit subscription services revenue growth and significant improvements in profitability. We are encouraged by the adoption of the MicroStrategy Cloud^™ and HyperIntelligence^® as customers look for the best way to make fast, data-driven decisions,” said Michael J. Saylor, CEO, MicroStrategy Incorporated.

“We continue to make significant progress streamlining our cost structure and improving our operating efficiency. We now believe we are in a position to drive consistent and meaningful profitability going forward while also continuing to invest in revenue growth. This has given us the confidence to more actively utilize our strong balance sheet, which together with our improved operational performance provides multiple opportunities to generate substantial long-term value for our shareholders,” continued Mr. Saylor.

Capital Allocation Strategy

MicroStrategy today announced a new capital allocation strategy. With more than $500 million in cash and cash equivalents and short-term investments and an operating plan that anticipates generating material free cash flow going forward, MicroStrategy intends to return up to $250 million to its shareholders over the next 12 months. In addition, under this capital allocation strategy, MicroStrategy will seek to invest up to another $250 million over the next 12 months in one or more alternative investments or assets, which may include stocks, bonds, commodities such as gold, digital assets such as bitcoin, or other asset types. Both of these strategies will depend on market conditions.

Phong Le, President & CFO, MicroStrategy Incorporated, said, “MicroStrategy is announcing a capital allocation strategy that reflects a new direction in its commitment to capital stewardship. We believe the business will be able to generate material excess cash going forward and are confident that we can manage our day-to-day business and achieve reasonable growth objectives with approximately $50 million of operating cash. Accordingly, we believe it is appropriate to return a portion of this excess cash to our shareholders and invest a portion in assets with potentially higher returns than holding cash.”

Second Quarter 2020 Financial Highlights

• Revenues: Total revenues for the second quarter of 2020 were $110.6 million, a 6.1% decrease, or a 4.3% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2019. Product licenses and subscription services revenues for the second quarter of 2020 were $22.8 million, a 16.1% decrease, or a 13.5% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2019. Product support revenues for the second quarter of 2020 were $70.0 million, a 4.0% decrease, or a 2.4% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2019. Other services revenues for the second quarter of 2020 were $17.7 million, a 1.0% increase, or a 2.4% increase on a non-GAAP constant currency basis, compared to the second quarter of 2019.
• Gross Profit: Gross profit for the second quarter of 2020 was $86.6 million, representing a 78.3% gross margin, compared to a gross margin of 78.5% in the second quarter of 2019.
• Operating Expenses: Operating expenses for the second quarter of 2020 were $80.3 million, a 17.4% decrease compared to the second quarter of 2019.
• Income from Operations: Income from operations for the second quarter of 2020 was $6.3 million versus loss from operations of $4.8 million for the second quarter of 2019. Non-GAAP income from operations, which excludes share-based compensation expense, was $8.6 million for the second quarter of 2020 versus non-GAAP loss from operations of $1.8 million for the second quarter of 2019.
• Net Income: Net income for the second quarter of 2020 was $3.4 million, or $0.35 per share on a diluted basis, as compared to net income of $20.4 million, or $1.98 per share on a diluted basis, for the second quarter of 2019. In the second quarter of 2019, MicroStrategy completed the sale of its Voice.com domain name for a gain of $21.8 million, net of tax (the “Domain Name Sale”). Excluding the impact of the Domain Name Sale, non-GAAP net loss for the second quarter of 2019 was $1.4 million, or $0.14 per share on a diluted basis.
• Cash and Short-term Investments: As of June 30, 2020, MicroStrategy had cash and cash equivalents and short-term investments of $530.9 million, as compared to $565.6 million as of December 31, 2019, a decrease of $34.8 million. During the second quarter of 2020, MicroStrategy repurchased 90,136 shares of its class A common stock for an aggregate purchase price of approximately $11.1 million. As of June 30, 2020, MicroStrategy had 7.7 million shares of class A common stock and 2.0 million shares of class B common stock outstanding.

The tables at the end of this press release include a reconciliation of GAAP to non-GAAP financial measures for the three and six months ended June 30, 2020 and 2019. An explanation of non-GAAP financial measures is also included under the heading “Non-GAAP Financial Measures” below. Additional non-GAAP financial measures are included in our “2Q 2020 Financial Results” presentation, which will be available under the “Events” section on MicroStrategy’s investor relations website at https://ir.microstrategy.com/events-presentations.

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 second quarter of 2020:

• Numerous leading organizations, such as the Industrial and Commercial Bank of China, SEVEN-ELEVEN JAPAN CO., LTD., and Dubai Health Authority, purchased HyperIntelligence.
• MicroStrategy 2020^™ Update 1 provided modern, consumer-grade experiences to every role across the enterprise, improving usability of multiple workflows such as dossier authoring, exporting, mobile linking, and more.
• MicroStrategy 2020 Update 2 delivered new capabilities for business users, analysts, and architects via a new MicroStrategy application, enhancements to Dossier^® and HyperIntelligence, and improvements to data connectors and Workstation.
• MicroStrategy introduced Expert.Now, a new service for its customers and partners to connect immediately and face-to-face with MicroStrategy’s best and brightest experts. Subscribers in need of instant help or advice can connect with MicroStrategy’s team of analysts, architects, developers, and data scientists to build reports or dossiers, design HyperIntelligence cards or mobile apps, integrate new data sources, upgrade their platform, migrate to the cloud, or receive general support.

Conference Call

MicroStrategy will be discussing its second quarter 2020 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 7154964. A live and archived webcast and accompanying presentation materials 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 August 4, 2020 at [phone] (domestically) or [phone] (internationally) using the passcode 7154964.

Non-GAAP Financial Measures

MicroStrategy is providing supplemental financial measures for (i) non-GAAP income (loss) from operations that excludes the impact of share-based compensation arrangements, (ii) non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share that exclude the impact from the Domain Name Sale in the second quarter of 2019, and (iii) non-GAAP constant currency 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 the Domain Name Sale, which is outside of our 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 non-GAAP 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 the largest independent publicly-traded business intelligence company, with the leading enterprise analytics platform. Our vision is to enable Intelligence Everywhere^™. MicroStrategy provides modern analytics on an open, comprehensive enterprise platform used by many of the world’s most admired brands in the Fortune Global 500. Optimized for cloud and on-premises deployments, the platform features HyperIntelligence, a breakthrough technology that overlays actionable enterprise data on popular business applications to help users make smarter, faster decisions. For more information about MicroStrategy, visit www.microstrategy.com.

MicroStrategy, MicroStrategy Cloud, HyperIntelligence, Intelligent Enterprise, MicroStrategy Library, MicroStrategy 2020, Dossier, and Intelligence Everywhere 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 2020; impacts of the COVID-19 pandemic; 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; customers shifting from a product license model to a cloud subscription model; 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						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues
Product licenses	$	14,816		$	20,121		$	27,400		$	38,412
Subscription services		8,021			7,104			15,989			14,248
Total product licenses and subscription services		22,837			27,225			43,389			52,660
Product support		70,038			72,978			141,196			144,428
Other services		17,709			17,534			37,423			36,015
Total revenues		110,584			117,737			222,008			233,103
Cost of revenues
Product licenses		514			552			1,184			1,071
Subscription services		3,792			3,489			7,856			7,087
Total product licenses and subscription services		4,306			4,041			9,040			8,158
Product support		6,837			7,721			13,555			14,788
Other services		12,846			13,588			25,939			28,577
Total cost of revenues		23,989			25,350			48,534			51,523
Gross profit		86,595			92,387			173,474			181,580
Operating expenses
Sales and marketing		34,951			48,273			74,469			97,033
Research and development		25,867			27,764			51,968			55,979
General and administrative		19,449			21,180			40,781			43,784
Total operating expenses		80,267			97,217			167,218			196,796
Income (loss) from operations		6,328			(4,830	)		6,256			(15,216	)
Interest income, net		563			3,013			2,418			5,579
Other (expense) income, net		(1,995	)		29,431			(1,561	)		28,835
Income before income taxes		4,896			27,614			7,113			19,198
Provision for income taxes		1,509			7,220			3,069			6,710
Net income	$	3,387		$	20,394		$	4,044		$	12,488
Basic earnings per share (1):	$	0.35		$	1.99		$	0.41		$	1.21
Weighted average shares outstanding used in computing basic earnings per share		9,739			10,240			9,858			10,283
Diluted earnings per share (1):	$	0.35		$	1.98		$	0.41		$	1.21
Weighted average shares outstanding used in computing diluted earnings per share		9,741			10,310			9,886			10,350

(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,
	2020			2019*
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	420,899		$	456,727
Restricted cash		1,221			1,089
Short-term investments		109,972			108,919
Accounts receivable, net		123,794			163,516
Prepaid expenses and other current assets		16,887			23,195
Total current assets		672,773			753,446
Property and equipment, net		45,300			50,154
Right-of-use assets		81,543			85,538
Deposits and other assets		14,596			8,024
Deferred tax assets, net		18,834			19,409
Total Assets	$	833,046		$	916,571
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, accrued expenses, and operating lease liabilities	$	31,468		$	33,919
Accrued compensation and employee benefits		40,806			48,792
Deferred revenue and advance payments		167,643			187,107
Total current liabilities		239,917			269,818
Deferred revenue and advance payments		5,910			4,344
Operating lease liabilities		98,283			103,424
Other long-term liabilities		30,452			30,400
Deferred tax liabilities		24			26
Total Liabilities		374,586			408,012
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; 15,903 shares issued and 7,651 shares outstanding, and 15,888 shares issued and 8,081 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		600,851			593,583
Treasury stock, at cost; 8,252 shares and 7,807 shares, respectively		(720,755	)		(658,880	)
Accumulated other comprehensive loss		(9,187	)		(9,651	)
Retained earnings		587,533			583,489
Total Stockholders’ Equity		458,460			508,559
Total Liabilities and Stockholders’ Equity	$	833,046		$	916,571

*	Derived from audited financial statements.

MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Six Months Ended
	June 30,
	2020			2019
	(unaudited)			(unaudited)
Operating activities:
Net income	$	4,044		$	12,488
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,828			3,623
Reduction in carrying amount of right-of-use assets		4,085			4,064
Credit losses and sales allowances		990			796
Net realized loss on short-term investments		0			41
Deferred taxes		273			(3,219	)
Share-based compensation expense		5,337			6,053
Changes in operating assets and liabilities:
Accounts receivable		21,022			5,985
Prepaid expenses and other current assets		(493	)		7,089
Deposits and other assets		195			96
Accounts payable and accrued expenses		(1,823	)		(8,396	)
Accrued compensation and employee benefits		(8,708	)		(8,082	)
Deferred revenue and advance payments		347			33,489
Operating lease liabilities		(4,662	)		(4,316	)
Other long-term liabilities		86			(509	)
Net cash provided by operating activities		26,521			49,202
Investing activities:
Proceeds from redemption of short-term investments		10,000			369,603
Purchases of property and equipment		(1,162	)		(8,432	)
Purchases of short-term investments		(9,928	)		(212,248	)
Net cash (used in) provided by investing activities		(1,090	)		148,923
Financing activities:
Proceeds from sale of class A common stock under exercise of employee stock options		1,902			1,836
Purchases of treasury stock		(61,875	)		(48,244	)
Net cash used in financing activities		(59,973	)		(46,408	)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		(1,154	)		33
Net (decrease) increase in cash, cash equivalents, and restricted cash		(35,696	)		151,750
Cash, cash equivalents, and restricted cash, beginning of period		457,816			110,786
Cash, cash equivalents, and restricted cash, end of period	$	422,120		$	262,536

MICROSTRATEGY INCORPORATED
REVENUE AND COST OF REVENUE DETAIL
(in thousands)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues
Product licenses and subscription services:
Product licenses	$	14,816	$	20,121	$	27,400	$	38,412
Subscription services		8,021		7,104		15,989		14,248
Total product licenses and subscription services		22,837		27,225		43,389		52,660
Product support		70,038		72,978		141,196		144,428
Other services:
Consulting		16,578		15,494		35,019		32,097
Education		1,131		2,040		2,404		3,918
Total other services		17,709		17,534		37,423		36,015
Total revenues		110,584		117,737		222,008		233,103
Cost of revenues
Product licenses and subscription services:
Product licenses		514		552		1,184		1,071
Subscription services		3,792		3,489		7,856		7,087
Total product licenses and subscription services		4,306		4,041		9,040		8,158
Product support		6,837		7,721		13,555		14,788
Other services:
Consulting		10,168		11,909		21,596		24,894
Education		2,678		1,679		4,343		3,683
Total other services		12,846		13,588		25,939		28,577
Total cost of revenues		23,989		25,350		48,534		51,523
Gross profit	$	86,595	$	92,387	$	173,474	$	181,580

MICROSTRATEGY INCORPORATED
DEFERRED REVENUE DETAIL
(in thousands)
	June 30,		December 31,		June 30,
	2020		2019*		2019
	(unaudited)				(unaudited)
Current:
Deferred product licenses revenue	$	100	$	481	$	633
Deferred subscription services revenue		17,934		16,561		15,393
Deferred product support revenue		142,543		161,670		152,866
Deferred other services revenue		7,066		8,395		7,894
Total current deferred revenue and advance payments	$	167,643	$	187,107	$	176,786
Non-current:
Deferred product licenses revenue	$	168	$	293	$	405
Deferred subscription services revenue		90		97		116
Deferred product support revenue		5,152		3,417		3,083
Deferred other services revenue		500		537		571
Total non-current deferred revenue and advance payments	$	5,910	$	4,344	$	4,175
Total current and non-current:
Deferred product licenses revenue	$	268	$	774	$	1,038
Deferred subscription services revenue		18,024		16,658		15,509
Deferred product support revenue		147,695		165,087		155,949
Deferred other services revenue		7,566		8,932		8,465
Total current and non-current deferred revenue and advance payments	$	173,553	$	191,451	$	180,961

*	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					Six Months Ended
	June 30,					June 30,
	2020		2019			2020		2019
	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Reconciliation of non-GAAP income (loss) from operations:
Income (loss) from operations	$	6,328	$	(4,830	)	$	6,256	$	(15,216	)
Share-based compensation expense		2,226		3,036			5,337		6,053
Non-GAAP income (loss) from operations	$	8,554	$	(1,794	)	$	11,593	$	(9,163	)

MICROSTRATEGY INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
EXCLUSION OF DOMAIN NAME SALE
(in thousands, except per share data)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020		2019			2020		2019
	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Reconciliation of non-GAAP net income (loss):
Net income	$	3,387	$	20,394		$	4,044	$	12,488
Gain from Domain Name Sale, net of tax		0		(21,778	)		0		(21,778	)
Non-GAAP net income (loss)	$	3,387	$	(1,384	)	$	4,044	$	(9,290	)
Reconciliation of non-GAAP diluted earnings (loss) per share:
Diluted earnings per share	$	0.35	$	1.98		$	0.41	$	1.21
Gain from Domain Name Sale, net of tax (per diluted share)		0.00		(2.12	)		0.00		(2.11	)
Non-GAAP diluted earnings (loss) per share	$	0.35	$	(0.14	)	$	0.41	$	(0.90	)

MICROSTRATEGY INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
CONSTANT CURRENCY
(in thousands)
	Three Months Ended
	June 30,
	(unaudited)
	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2020		2020			2020		2019		2020			2020
Revenues
Product licenses	$	14,816	$	(655	)	$	15,471	$	20,121		-26.4	%		-23.1	%
Subscription services		8,021		(46	)		8,067		7,104		12.9	%		13.6	%
Total product licenses and subscription services		22,837		(701	)		23,538		27,225		-16.1	%		-13.5	%
Product support		70,038		(1,165	)		71,203		72,978		-4.0	%		-2.4	%
Other services		17,709		(243	)		17,952		17,534		1.0	%		2.4	%
Total revenues		110,584		(2,109	)		112,693		117,737		-6.1	%		-4.3	%

	Six Months Ended
	June 30,
	(unaudited)
	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2020		2020			2020		2019		2020			2020
Revenues
Product licenses	$	27,400	$	(1,196	)	$	28,596	$	38,412		-28.7	%		-25.6	%
Subscription services		15,989		(82	)		16,071		14,248		12.2	%		12.8	%
Total product licenses and subscription services		43,389		(1,278	)		44,667		52,660		-17.6	%		-15.2	%
Product support		141,196		(2,341	)		143,537		144,428		-2.2	%		-0.6	%
Other services		37,423		(498	)		37,921		36,015		3.9	%		5.3	%
Total revenues		222,008		(4,117	)		226,125		233,103		-4.8	%		-3.0	%

(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
	June 30,		March 31,		December 31,		September 30,		June 30,
	2020		2020		2019		2019		2019
Subscription services		64		63		69		66		62
Product support		189		204		219		231		234
Consulting		421		425		392		390		404
Education		43		42		38		38		40
Sales and marketing		573		594		597		616		637
Research and development		684		721		743		775		764
General and administrative		285		314		338		337		336
Total headcount		2,259		2,363		2,396		2,453		2,477