MicroStrategy (MSTR) 10-Q 2018 Q2 Quarterly report

Exhibit 99.1

Contact:

MicroStrategy Incorporated

Investor Relations

ir@microstrategy.com

(703) 848-8600

MicroStrategy Announces

Second Quarter 2018 Financial Results

TYSONS CORNER, Va., July 26, 2018 - 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:

o First in Governed Data Discovery, scoring a 4.22 (out of 5)

o First in Agile, Centralized BI Provisioning,scoring a 4.37

o First in Decentralized Analytics, scoring a 4.19

o 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 7^th 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, Twitterand 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,		March31,		December31,		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