MicroStrategy : Announces Fourth Quarter 2019 Financial Results

MicroStrategy^® (Nasdaq: MSTR), a global leader in enterprise analytics software and services, today announced financial results for the three-month period ended December 31, 2019 (the fourth quarter of its 2019 fiscal year).

“Our fourth quarter performance highlights increased customer adoption of our cloud offerings and our breakthrough HyperIntelligence^®product. We’re seeing customers deploy an impressive variety and scale of HyperIntelligence use cases, reflecting the product’s ability to bring intelligence to more users, making them significantly faster and smarter,” said Michael J. Saylor, CEO, MicroStrategy Incorporated.

Mr. Saylor continued, “Optimized for the cloud, our open, comprehensive enterprise analytics platform, combined with our expert services, has been resonating in the market. As we look at the year ahead, we will remain focused on driving new and existing customer adoption of our latest platform – MicroStrategy 2020^™ – leading with our HyperIntelligence and cloud offerings.”

Fourth Quarter 2019 Financial Highlights

• Revenues: Total revenues for the fourth quarter of 2019 were $133.5 million, a 1.2% increase, or a 2.7% increase on a non-GAAP constant currency basis, compared to the fourth quarter of 2018. Product licenses and subscription services revenues for the fourth quarter of 2019 were $37.3 million, a 2.5% decrease, or a 0.4% decrease on a non-GAAP constant currency basis, compared to the fourth quarter of 2018. Product support revenues for the fourth quarter of 2019 were $74.7 million, a 1.4% increase, or a 2.7% increase on a non-GAAP constant currency basis, compared to the fourth quarter of 2018. Other services revenues for the fourth quarter of 2019 were $21.5 million, a 7.5% increase, or an 8.6% increase on a non-GAAP constant currency basis, compared to the fourth quarter of 2018.
• Gross Profit: Gross profit for the fourth quarter of 2019 was $108.9 million, representing an 81.6% gross margin, compared to a gross margin of 80.4% in the fourth quarter of 2018.
• Operating Expenses: Operating expenses for the fourth quarter of 2019 were $99.3 million, an 8.2% decrease compared to the fourth quarter of 2018.
• Income (Loss) from Operations: Income from operations for the fourth quarter of 2019 was $9.6 million versus loss from operations of $2.2 million for the fourth quarter of 2018. Non-GAAP income from operations, which excludes share-based compensation expense, was $12.0 million for the fourth quarter of 2019 versus $1.3 million for the fourth quarter of 2018.
• Net Income: Net income for the fourth quarter of 2019 was $12.2 million, or $1.18 per share on a diluted basis, as compared to net income of $3.3 million, or $0.30 per share on a diluted basis, for the fourth quarter of 2018.
• Cash and Short-term Investments: As of December 31, 2019, MicroStrategy had cash and cash equivalents and short-term investments of $565.6 million, as compared to $576.1 million as of December 31, 2018, a decrease of $10.5 million. During the fourth quarter of 2019, MicroStrategy repurchased 159,695 shares of its class A common stock for an aggregate purchase price of approximately $24.5 million. As of December 31, 2019, MicroStrategy had 8.1 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 twelve months ended December 31, 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 fourth quarter of 2019:

• A number of Fortune Global 500 companies, as well as numerous leading brands such as The Co-operators, Saint-Gobain, and Swiss Medical, purchased HyperIntelligence and are moving to empower their front-line employees with actionable insights.
• MicroStrategy announced that it will host its 23rd annual user conference, MicroStrategy World^™ 2020, from February 4 to February 6, 2020 in Orlando, Fla. Attendees will get a first look at the newest features and capabilities of MicroStrategy 2020, including new ways to experience HyperIntelligence, try new Dossier^® authoring tools for content creators, learn about the federated analytics connectors to Jupyter and RStudio for data scientists, and more. Attendees will learn how MicroStrategy 2020 together with innovative uses of artificial intelligence (“AI”), mobility, and cloud technologies can be deployed to significantly boost productivity and drive greater analytics adoption across the enterprise.
• MicroStrategy released the results of its “2020 Global State of Enterprise Analytics” report revealing that, despite 94% of organizations believing data and analytics is important to their digital transformation and business growth, most are not enabling a data-driven culture. Among the many findings, the report revealed that for 60% of employees, it takes hours or days to get the information they need, while only 3% can find information in seconds.
• MicroStrategy published its “10 Enterprise Analytics Trends to Watch in 2020” report. In collaboration with leading analysts and influencers from Forrester, IDC, Constellation Research, Ventana Research and others, the annual MicroStrategy compilation highlights trends and insights that range from AI and mobile intelligence, to the explosion of data and data sources, to some very human factors including a predicted shortage of data and analytics talent.
• MicroStrategy launched a new technology partnership with DataRobot, a leader in enterprise AI, designed to make it easier for businesses to integrate AI into their most popular applications and core processes by leveraging HyperIntelligence cards to deliver AI-driven insights and recommendations. HyperIntelligence seamlessly injects trusted and predictive analytics directly into popular business applications on both web and mobile – including Google’s G Suite, Microsoft Office 365, and SaaS applications such as Salesforce, Workday, and Confluence – making it possible to instantly reveal insights to users without interrupting their existing workflows.
• MicroStrategy introduced innovations that aim to significantly boost productivity and drive analytics adoption to 100%. HyperIntelligence for Mobile is designed to provide the speed and agility that users need to make important decisions and take action quickly outside of the office.
• MicroStrategy announced that 94% of survey respondents in The BI Survey 19, the industry’s largest independent global survey of BI users, recommend MicroStrategy. Conducted by the Business Application Research Center, The BI Survey 19 ranked MicroStrategy first in self-service, visual analysis, and location intelligence among the large global enterprise BI platforms peer group. In addition, MicroStrategy was rated a leader in its peer groups for business value, business benefits, mobile BI, innovation, functionality, dashboards, query performance, and distribution of reports.

Conference Call

MicroStrategy will be discussing its fourth quarter 2019 financial results on a conference call today beginning at approximately 5:00 p.m. EST. To access the conference call, dial [phone] (domestically) or [phone] (internationally) and use conference ID 6574498. 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 February 4, 2020 at [phone] (domestically) or [phone] (internationally) using the passcode 6574498.

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 and non-GAAP diluted earnings per share that exclude the impact from the U.S. Tax Cuts and Jobs Act (the “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) 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 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 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 a global leader in enterprise analytics software and services. 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, HyperIntelligence, MicroStrategy 2020, Intelligent Enterprise, MicroStrategy Library, MicroStrategy World, 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; 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; a substantial customer shift from a product license model to a cloud-based 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								Twelve Months Ended
		December 31,								December 31,
		2019				2018				2019				2018*
		(unaudited)				(unaudited)				(unaudited)
Revenues
Product licenses		$	30,087			$	31,200			$	87,471			$	88,057
Subscription services			7,252				7,084				29,394				29,570
Total product licenses and subscription services			37,339				38,284				116,865				117,627
Product support			74,722				73,662				292,035				296,216
Other services			21,470				19,971				77,427				83,795
Total revenues			133,531				131,917				486,327				497,638
Cost of revenues
Product licenses			534				609				2,131				4,864
Subscription services			4,185				3,667				15,161				13,620
Total product licenses and subscription services			4,719				4,276				17,292				18,484
Product support			6,607				5,557				28,317				20,242
Other services			13,310				16,052				54,365				60,773
Total cost of revenues			24,636				25,885				99,974				99,499
Gross profit			108,895				106,032				386,353				398,139
Operating expenses
Sales and marketing			50,267				57,783				191,235				205,525
Research and development			25,987				28,028				109,423				102,499
General and administrative			23,013				22,378				86,697				86,134
Total operating expenses			99,267				108,189				387,355				394,158
Income (loss) from operations			9,628				(2,157	)			(1,002	)			3,981
Interest income, net			2,389				3,157				10,909				11,855
Other (expense) income, net			(2,361	)			981				28,356				4,646
Income before income taxes			9,656				1,981				38,263				20,482
(Benefit from) provision for income taxes			(2,511	)			(1,320	)			3,908				(2,019	)
Net income		$	12,167			$	3,301			$	34,355			$	22,501
Basic earnings per share (1):		$	1.19			$	0.30			$	3.35			$	1.98
Weighted average shares outstanding used in computing basic earnings per share			10,208				11,129				10,256				11,375
Diluted earnings per share (1):		$	1.18			$	0.30			$	3.33			$	1.97
Weighted average shares outstanding used in computing diluted earnings per share			10,301				11,151				10,328				11,412

(1) Basic and fully diluted earnings per share for class A and class B common stock are the same.

* Derived from audited financial statements.

 

MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
		December 31,				December 31,
		2019				2018*
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	456,727			$	109,924
Restricted cash			1,089				862
Short-term investments			108,919				466,186
Accounts receivable, net			163,516				171,359
Prepaid expenses and other current assets			23,195				30,068
Total current assets			753,446				778,399
Property and equipment, net			50,154				51,919
Right-of-use assets			85,538				0
Deposits and other assets			8,024				8,134
Deferred tax assets, net			19,409				17,316
Total Assets		$	916,571			$	855,768
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, accrued expenses, and operating lease liabilities		$	33,919			$	33,684
Accrued compensation and employee benefits			48,792				48,045
Deferred revenue and advance payments			187,107				176,540
Total current liabilities			269,818				258,269
Deferred revenue and advance payments			4,344				6,469
Operating lease liabilities			103,424				0
Other long-term liabilities			30,400				61,262
Deferred tax liabilities			26				37
Total Liabilities			408,012				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; 15,888 shares issued and 8,081 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			593,583				576,957
Treasury stock, at cost; 7,807 shares and 7,285 shares, respectively			(658,880	)			(586,161	)
Accumulated other comprehensive loss			(9,651	)			(10,217	)
Retained earnings			583,489				549,134
Total Stockholders’ Equity			508,559				529,731
Total Liabilities and Stockholders’ Equity		$	916,571			$	855,768

* Derived from audited financial statements.

 

MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
		Twelve Months Ended
		December 31,
		2019				2018*
		(unaudited)
Operating activities:
Net income		$	34,355			$	22,501
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			16,699				3,701
Sales allowances and bad debt			124				1,912
Net realized loss on short-term investments			41				153
Deferred taxes			(2,614	)			(8,274	)
Release of liabilities for unrecognized tax benefits			(2,837	)			0
Share-based compensation expense			10,209				14,636
Changes in operating assets and liabilities:
Accounts receivable			(3,672	)			(8,357	)
Prepaid expenses and other current assets			6,415				(6,561	)
Deposits and other assets			761				(1,201	)
Accounts payable and accrued expenses			(7,321	)			3,378
Accrued compensation and employee benefits			(2,658	)			5,116
Deferred revenue and advance payments			20,836				(22,126	)
Operating lease liabilities			(8,620	)			0
Other long-term liabilities			(851	)			5,749
Net cash provided by operating activities			60,867				10,627
Investing activities:
Proceeds from redemption of short-term investments			684,356				491,800
Purchases of property and equipment			(10,182	)			(6,846	)
Purchases of short-term investments			(320,487	)			(694,018	)
Net cash provided by (used in) investing activities			353,687				(209,064	)
Financing activities:
Proceeds from sale of class A common stock under exercise of employee stock options			6,569				2,471
Purchases of treasury stock			(72,719	)			(110,977	)
Payments on capital lease obligations and other financing arrangements prior to the adoption of ASU 2016-02			0				(9	)
Net cash used in financing activities			(66,150	)			(108,515	)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash			(1,374	)			(3,444	)
Net increase (decrease) in cash, cash equivalents, and restricted cash			347,030				(310,396	)
Cash, cash equivalents, and restricted cash, beginning of period			110,786				421,182
Cash, cash equivalents, and restricted cash, end of period		$	457,816			$	110,786

* Derived from audited financial statements.

 

MICROSTRATEGY INCORPORATED
REVENUE AND COST OF REVENUE DETAIL
(in thousands)
		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2019				2018				2019				2018*
		(unaudited)				(unaudited)				(unaudited)
Revenues
Product licenses and subscription services:
Product licenses		$	30,087			$	31,200			$	87,471			$	88,057
Subscription services			7,252				7,084				29,394				29,570
Total product licenses and subscription services			37,339				38,284				116,865				117,627
Product support			74,722				73,662				292,035				296,216
Other services:
Consulting			19,524				17,611				69,659				74,609
Education			1,946				2,360				7,768				9,186
Total other services			21,470				19,971				77,427				83,795
Total revenues			133,531				131,917				486,327				497,638
Cost of revenues
Product licenses and subscription services:
Product licenses			534				609				2,131				4,864
Subscription services			4,185				3,667				15,161				13,620
Total product licenses and subscription services			4,719				4,276				17,292				18,484
Product support			6,607				5,557				28,317				20,242
Other services:
Consulting			11,668				13,746				47,664				53,605
Education			1,642				2,306				6,701				7,168
Total other services			13,310				16,052				54,365				60,773
Total cost of revenues			24,636				25,885				99,974				99,499
Gross profit		$	108,895			$	106,032			$	386,353			$	398,139

* Derived from audited financial statements.

 

MICROSTRATEGY INCORPORATED
DEFERRED REVENUE DETAIL
(in thousands)
		December 31,				December 31,
		2019				2018*
		(unaudited)
Current:
Deferred product licenses revenue		$	481			$	1,768
Deferred subscription services revenue			16,561				13,508
Deferred product support revenue			161,670				152,501
Deferred other services revenue			8,395				8,763
Total current deferred revenue and advance payments		$	187,107			$	176,540
Non-current:
Deferred product licenses revenue		$	293			$	542
Deferred subscription services revenue			97				2,384
Deferred product support revenue			3,417				3,091
Deferred other services revenue			537				452
Total non-current deferred revenue and advance payments		$	4,344			$	6,469
Total current and non-current:
Deferred product licenses revenue		$	774			$	2,310
Deferred subscription services revenue			16,658				15,892
Deferred product support revenue			165,087				155,592
Deferred other services revenue			8,932				9,215
Total current and non-current deferred revenue and advance payments		$	191,451			$	183,009

* 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								Twelve Months Ended
		December 31,								December 31,
		2019				2018				2019				2018
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Reconciliation of non-GAAP income (loss) from operations:
Income (loss) from operations		$	9,628			$	(2,157	)		$	(1,002	)		$	3,981
Share-based compensation expense			2,322				3,504				10,209				14,636
Non-GAAP income from operations		$	11,950			$	1,347			$	9,207			$	18,617

 

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								Twelve Months Ended
		December 31,								December 31,
		2019				2018				2019				2018
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Reconciliation of non-GAAP net income:
Net income		$	12,167			$	3,301			$	34,355			$	22,501
Measurement period adjustment related to U.S. tax reform			0				0				0				(3,106	)
Gain from Domain Name Sale, net of tax			0				0				(21,778	)			0
Non-GAAP net income		$	12,167			$	3,301			$	12,577			$	19,395
Reconciliation of non-GAAP diluted earnings per share:
Diluted earnings per share		$	1.18			$	0.30			$	3.33			$	1.97
Measurement period adjustment related to U.S. tax reform (per diluted share)			0.00				0.00				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		$	1.18			$	0.30			$	1.22			$	1.70

 

MICROSTRATEGY INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
CONSTANT CURRENCY
(in thousands)
		Three Months Ended
		December 31,
		(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		$	30,087			$	(781	)		$	30,868			$	31,200				-3.6	%			-1.1	%
Subscription services			7,252				(15	)			7,267				7,084				2.4	%			2.6	%
Total product licenses and subscription services			37,339				(796	)			38,135				38,284				-2.5	%			-0.4	%
Product support			74,722				(924	)			75,646				73,662				1.4	%			2.7	%
Other services			21,470				(221	)			21,691				19,971				7.5	%			8.6	%
Total revenues			133,531				(1,941	)			135,472				131,917				1.2	%			2.7	%
		Twelve Months Ended
		December 31,
		(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		$	87,471			$	(3,642	)		$	91,113			$	88,057				-0.7	%			3.5	%
Subscription services			29,394				(333	)			29,727				29,570				-0.6	%			0.5	%
Total product licenses and subscription services			116,865				(3,975	)			120,840				117,627				-0.6	%			2.7	%
Product support			292,035				(7,110	)			299,145				296,216				-1.4	%			1.0	%
Other services			77,427				(2,091	)			79,518				83,795				-7.6	%			-5.1	%
Total revenues			486,327				(13,176	)			499,503				497,638				-2.3	%			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
		December 31,				September 30,				June 30,				March 31,				December 31,
		2019				2019				2019				2019				2018
Subscription services			69				66				62				54				56
Product support			219				231				234				224				202
Consulting			392				390				404				429				452
Education			38				38				40				50				47
Sales and marketing			597				616				637				675				707
Research and development			743				775				764				733				716
General and administrative			338				337				336				329				348
Total headcount			2,396				2,453				2,477				2,494				2,528

 

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