MicroStrategy Incorporated
01-31-17

MicroStrategy Announces Fourth Quarter 2016 Financial Results

TYSONS CORNER, Va.--(BUSINESS WIRE)-- MicroStrategy® Incorporated (Nasdaq: MSTR), a leading worldwide provider of enterprise software platforms, today announced financial results for the three-month period ended December 31, 2016 (the fourth quarter of its 2016 fiscal year).

Fourth quarter 2016 revenues were $140.1 million versus $143.5 million for the fourth quarter of 2015, a 2% decrease. Product licenses and subscription services revenues for the fourth quarter of 2016 were $45.8 million versus $49.1 million for the fourth quarter of 2015, a 7% decrease. Product support revenues for the fourth quarter of 2016 were $72.7 million versus $70.3 million for the fourth quarter of 2015, a 3% increase. Other services revenues for the fourth quarter of 2016 were $21.6 million versus $24.2 million for the fourth quarter of 2015, an 11% decrease. Foreign currency headwinds continued to have a negative impact on revenues for the fourth quarter of 2016.

Operating expenses for the fourth quarter of 2016 were $80.1 million versus $74.2 million for the fourth quarter of 2015, an 8% increase. MicroStrategy did not capitalize any software development costs during the fourth quarter of 2016 or 2015.

Income from operations for the fourth quarter of 2016 was $36.7 million versus $45.9 million for the fourth quarter of 2015. Net income for the fourth quarter of 2016 was $31.1 million, or $2.69 per share on a diluted basis, as compared to net income of $39.1 million, or $3.38 per share on a diluted basis, for the fourth quarter of 2015.

Non-GAAP income from operations, which excludes share-based compensation expense and restructuring costs, was $40.1 million for the fourth quarter of 2016 versus $50.7 million for the fourth quarter of 2015. The tables at the end of this press release include a reconciliation of income from operations to non-GAAP income from operations for the three months ended December 31, 2016 and 2015. An explanation of this non-GAAP measure is also included under the heading "Non-GAAP Financial Measure" below.

As of December 31, 2016, MicroStrategy had cash and cash equivalents and short-term investments of $589.4 million, as compared to $485.7 million as of December 31, 2015, an increase of $103.7 million. As of December 31, 2016, MicroStrategy had 9.4 million shares of class A common stock and 2.0 million shares of class B common stock outstanding.

Conference Call

MicroStrategy will be discussing its fourth quarter 2016 financial results on a conference call today beginning at approximately 5:00 p.m. EST. To access the conference call, dial (844) 824-7425 (domestically) or (716) 220-9429 (internationally) and use conference ID 33594816. 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 February 7, 2017 at (855) 859-2056 (domestically) or (404) 537-3406 (internationally) using the passcode 33594816. An archived webcast will also be available under the "Events" section on MicroStrategy's investor relations website at http://ir.microstrategy.com/events.cfm.

MicroStrategy Unveiled MicroStrategy 10.6™

In December 2016, MicroStrategy announced the general availability of MicroStrategy 10.6, the latest feature release to the Company's MicroStrategy 10™ platform. This update offered new options to distribute dashboards with offline interactivity and introduced an export engine that enhances the formatting and delivery of personalized dashboards to end users across the enterprise. This feature release also added certification for new data sources and offered new mapping visualization capabilities for MicroStrategy Web™ and MicroStrategy Mobile™. The release of MicroStrategy 10.6 followed the Company's announcement that MicroStrategy Desktop™ is available for anyone to download, free of charge.

"Thousands of users are trying MicroStrategy Desktop for the first time, and with the ability to access, visualize and analyze a wide array of data, there are countless possibilities to transform business outcomes," said Michael J. Saylor, CEO of MicroStrategy Incorporated. "Organizations can now leverage MicroStrategy 10.6 to schedule and distribute personalized dashboards to MicroStrategy Desktop users, empowering each user to make proactive, data-driven business decisions."

MicroStrategy 10.6 provides several features that make it easier to deliver and consume analytics across MicroStrategy Desktop, MicroStrategy Web, MicroStrategy Mobile and Usher™. Version 10.6 allows users to easily distribute and share MicroStrategy files. These files, which are dashboard files formatted for offline interactivity, can be combined with MicroStrategy Server™'s distribution services to enable users to:

MicroStrategy files bundle the design components that define a dashboard, such as filters, visualizations, selectors, color themes and logos, as well as the underlying data or database connection information. Users can open, interact and edit MicroStrategy files using MicroStrategy Desktop, even when offline.

In addition, MicroStrategy 10.6 delivers a revamped export engine with new capabilities that enhance the ability to share dashboards in PDF format. The new export engine is a separate micro-service and is installed along with MicroStrategy Server, providing flexible deployment options and improved product stability to MicroStrategy customers.

This feature gives MicroStrategy Web users the ability to generate formatted PDF files with support for maps, D3 and other custom visualizations, HTML containers and HTML-tag based content. Smart pagination capabilities translate dashboard content within the PDF into separate pages, making it incredibly easy to deliver large grid reports that clearly display rows and columns in a highly formatted manner. Additional highlights include support for dashboards with multiple sheets and panels, PDF bookmarks for enhanced organization and easy navigation, and embedded images.

The MicroStrategy 10.6 feature release also offers enhanced mapping capabilities for MicroStrategy Desktop, MicroStrategy Web and MicroStrategy Mobile. Version 10.6 offers a unified map visualization that allows users to seamlessly share geospatial information on both Google™ and ESRI®-based maps. Additionally, the new map visualizations let users plot multiple layers of information simultaneously on a single map. Dashboard designers and analysts can choose from multiple graphic styles, such as markers, bubbles, colored areas or polygons, and density maps. Users can also include pie or ring charts on map visualizations, making it easier to visualize dimensional data on a map.

MicroStrategy 10.6 offers several new features across MicroStrategy Desktop, MicroStrategy Web and MicroStrategy Mobile. The latest release extends the functionality of the RESTful JSON data API with added support for multiple form attributes, offers certifications for new data sources (IBM® DB2 11, Teradata® 16 and Microsoft® Azure® SQL database), includes new Usher gateways (Office 365 and AWS Directory Services), and delivers native AirWatch® SDK integration for MicroStrategy Mobile apps on Android™ devices.

Version 10.6 also supports SMS badge distribution for Usher users. Usher administrators can now distribute badges using SMS in addition to the existing email delivery option. To learn more about Usher, click here.

MicroStrategy Collaborates with AMAG Technology

In November 2016, MicroStrategy and AMAG Technology (a G4S Company), a security solution provider specializing in access control, video management, policy-based identity solutions and visitor management, announced a modern, next-generation physical access control solution combining MicroStrategy's Usher and AMAG Technology's Symmetry™ Access Control. The integration delivers:

To learn more about how MicroStrategy 10 helps enterprises digitize access to facilities, download a copy of the white paper Digital Transformation of Facilities with MicroStrategy 10.

MicroStrategy Customer Stuller, Inc. Uses MicroStrategy 10 to Empower Sales Directors

In October 2016, MicroStrategy announced that Stuller, a leading fine jewelry manufacturer and distributor, uses MicroStrategy 10 to create a mobile, self-service analytics environment that helps its sales team offer a rich, immediate and personalized customer experience. Lafayette, Louisiana-based Stuller provides next-day delivery of approximately 200,000 different items to over 40,000 jewelry professionals worldwide, from mom-and-pop stores to large chains. Stuller manages millions of product SKUs, which creates a wealth of big data and an excellent environment for analytics. To learn more about how Stuller is using MicroStrategy, visit MicroStrategy's blog here.

"At Stuller, we pride ourselves on ensuring our customers get the jewelry of their dreams," said David Oliver, Executive Director of Systems Development for Stuller. "We realized that by centralizing our analytics through a single platform for both IT and business users, we could do great things to better serve our customers. The jewelry industry is driven by fashion, and MicroStrategy's platform will enable us to stay ahead of trends, understand our business and the popularity of products, and deliver what customers are looking for today."

MicroStrategy Held its October 2016 Symposium Series

In October 2016, MicroStrategy's Symposium Series took place in 24 cities across North America, Europe, the Middle East and Asia. MicroStrategy's Symposium Series offered IT and business users an opportunity to network, attend workshops, and learn about real-world MicroStrategy 10 applications from customers, including Ahold, Bell Canada, City of Austin Public Works, The Coca Cola Company, Comcast, Freddie Mac, Guadalupe Valley Telephone Cooperative, Inc., Merck & Co., Pearson VUE, PetSmart, RaceTrac, Sonic Automotive, TrialCard, and Whole Foods Market. It also featured topics on analytics and mobile applications in retail, banking, higher education, healthcare and other sectors being transformed by big data.

MicroStrategy Customer Weiler Abrasives Group Won Ventana Research's 2016 Leadership Award

In December 2016, MicroStrategy customer Weiler Abrasives Group, a global manufacturer based in Cresco, PA, won the 2016 Ventana Research Leadership Award in the Mobile Technology category. Weiler Corporation is a world-class industry leader and global manufacturer of surface conditioning solutions. The Ventana Research Leadership Awards honor individuals, organizations, supporting vendors and consulting firms for their accomplishments using technology to drive exceptional results in achieving their goals and objectives, and for going the extra mile to advance the use of technology through best practices and leadership.

"At Weiler, we are focused on informing our decisions with real-time data," said Bill Dwyre, Managing Director, Americas, Weiler Abrasives Group. "With MicroStrategy, we're able to look at our dashboards and see how we're performing against KPIs. This kind of insight is vital for us to uncover the highest value opportunities that grow our business. MicroStrategy has enabled us to do things that are differentiated, more efficient, and more profitable than our competitors."

To learn more about how Weiler Abrasives Group is leveraging MicroStrategy Mobile to enhance operational efficiencies and grow its business, watch this video or visit MicroStrategy's customer page to watch more customer stories.

Non-GAAP Financial Measure

MicroStrategy is providing a supplemental financial measure for income from continuing operations that excludes the impact of share-based compensation arrangements and restructuring activities. 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 and restructuring charges that we believe are not reflective of ongoing operating results. 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

Founded in 1989, MicroStrategy (Nasdaq: MSTR) is a leading worldwide provider of enterprise software platforms. The Company's mission is to provide enterprise customers with a world-class software platform and expert services so they can deploy unique intelligence applications. To learn more, visit MicroStrategy online, and follow us on Facebook and Twitter.

MicroStrategy, MicroStrategy 10.6, MicroStrategy 10, MicroStrategy Web, MicroStrategy Mobile, MicroStrategy Desktop, MicroStrategy Server and Usher 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 10.6; 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, 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 Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015*
(unaudited) (unaudited) (unaudited)
Revenues
Product licenses $ 38,013 $ 41,509 $ 113,503 $ 119,143
Subscription services   7,799   7,554   30,574   27,839
Total product licenses and subscription services 45,812 49,063 144,077 146,982
Product support 72,671 70,296 285,079 281,740
Other services   21,625   24,163   83,005   101,147
Total revenues   140,108   143,522   512,161   529,869
 
Cost of revenues
Product licenses 1,745 2,223 8,573 8,118
Subscription services   3,098   3,251   12,765   13,051
Total product licenses and subscription services 4,843 5,474 21,338 21,169
Product support 4,082 3,014 15,001 12,748
Other services   14,363   14,926   56,808   67,191
Total cost of revenues   23,288   23,414   93,147   101,108
 
Gross profit   116,820   120,108   419,014   428,761
 
Operating expenses
Sales and marketing 45,292 39,380 158,740 148,522
Research and development 18,338 17,155 73,142 65,206
General and administrative 16,448 17,661 79,462 80,732
Restructuring costs   -   18   45   279
Total operating expenses   80,078   74,214   311,389   294,739
 
Income from operations 36,742 45,894 107,625 134,022
Interest income, net 754 155 2,203 284
Other income, net   3,604   957   3,218   3,558
Income before income taxes 41,100 47,006 113,046 137,864
Provision for income taxes   9,976   7,895   22,138   31,933
Net income $ 31,124 $ 39,111 $ 90,908 $ 105,931
 
Basic earnings per share (1): $ 2.72 $ 3.44 $ 7.96 $ 9.33
Weighted average shares outstanding used in computing basic earnings per share   11,433   11,386   11,425   11,355
 
Diluted earnings per share (1): $ 2.69 $ 3.38 $ 7.89 $ 9.18
Weighted average shares outstanding used in computing diluted earnings per share   11,558   11,577   11,516   11,539
(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,
2016 2015*
Assets (unaudited)
Current assets
Cash and cash equivalents $ 401,975 $ 292,341
Restricted cash 737 618
Short-term investments 187,408 193,320
Accounts receivable, net 83,319 68,154
Prepaid expenses and other current assets   11,548     10,881  
Total current assets 684,987 565,314
 
Property and equipment, net 57,436 65,664
Capitalized software development costs, net 8,497 15,855
Deposits and other assets 5,695 2,072
Deferred tax assets, net   11,704     7,989  
Total Assets $ 768,319   $ 656,894  
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 36,628 $ 31,840
Accrued compensation and employee benefits 43,323 40,067
Accrued restructuring costs - 56
Deferred revenue and advance payments, net   105,535     100,695  
Total current liabilities 185,486 172,658
 
Deferred revenue and advance payments, net 13,915 8,995
Other long-term liabilities 16,447 19,943
Deferred tax liabilities   294     17  
Total Liabilities   216,142     201,613  
 
Stockholders' Equity

Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding

- -

Class A common stock, $0.001 par value; 330,000 shares authorized; 15,805 shares issued and 9,400 shares outstanding, and 15,771 shares issued and 9,366 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 543,974 534,651
Treasury stock, at cost; 6,405 shares (475,184 ) (475,184 )
Accumulated other comprehensive loss (10,743 ) (7,408 )
Retained earnings   494,112     403,204  
Total Stockholders' Equity   552,177     455,281  
Total Liabilities and Stockholders' Equity $ 768,319   $ 656,894  
* Derived from audited financial statements.
 
   
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
     
Twelve Months Ended
December 31,
2016 2015*
(unaudited)
Operating activities:
Net income $ 90,908 $ 105,931
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 17,195 21,214
Bad debt expense 224 884
Unrealized net loss on foreign currency forward contracts - 1,641
Non-cash restructuring costs and adjustments - (136 )
Deferred taxes (4,983 ) 9,666
Release of liabilities for unrecognized tax benefits (394 ) (899 )
Share-based compensation expense 11,817 17,299
Excess tax benefits from share-based compensation arrangements (1,244 ) (1,096 )
Reclassification of foreign currency translation adjustment from other comprehensive income - (280 )
Changes in operating assets and liabilities:
Accounts receivable (16,878 ) 5,003
Prepaid expenses and other current assets (880 ) 4,446
Deposits and other assets (4,059 ) 1,631
Accounts payable and accrued expenses 6,981 1,904
Accrued compensation and employee benefits 3,787 (8,387 )
Accrued restructuring costs (58 ) (1,922 )
Deferred revenue and advance payments 11,238 (4,176 )
Other long-term liabilities   (3,065 )   (3,024 )
Net cash provided by operating activities 110,589 149,699
 
Investing activities:
Proceeds from redemption of short-term investments 361,680 479,200
Purchases of property and equipment (2,337 ) (3,484 )
Purchases of short-term investments (354,999 ) (473,779 )
Capitalized software development costs - (9,598 )
Increase in restricted cash   (135 )   (20 )
Net cash provided by (used in) investing activities 4,209 (7,681 )
 
Financing activities:
Proceeds from sale of class A common stock under exercise of employee stock options 1,663 9,529
Payment of taxes relating to net exercise of employee stock options (3,739 ) -
Excess tax benefits from share-based compensation arrangements 1,244 1,096
Payments on capital lease obligations and other financing arrangements   (172 )   (1,447 )
Net cash (used in) provided by financing activities (1,004 ) 9,178
 
Effect of foreign exchange rate changes on cash and cash equivalents   (4,160 )   (5,774 )
Net increase in cash and cash equivalents 109,634 145,422
Cash and cash equivalents, beginning of period   292,341     146,919  
Cash and cash equivalents, end of period $ 401,975   $ 292,341  
 
* 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,
2016 2015 2016 2015*
(unaudited) (unaudited) (unaudited)
Revenues
Product licenses and subscription services:
Product licenses $ 38,013 $ 41,509 $ 113,503 $ 119,143
Subscription services   7,799   7,554   30,574   27,839
Total product licenses and subscription services   45,812   49,063   144,077   146,982
Product support 72,671 70,296 285,079 281,740
Other services:
Consulting 19,103 21,590 73,400 92,065
Education   2,522   2,573   9,605   9,082
Total other services   21,625   24,163   83,005   101,147
Total revenues   140,108   143,522   512,161   529,869
 
Cost of revenues
Product licenses and subscription services:
Product licenses 1,745 2,223 8,573 8,118
Subscription services   3,098   3,251   12,765   13,051
Total product licenses and subscription services   4,843   5,474   21,338   21,169
Product support 4,082 3,014 15,001 12,748
Other services:
Consulting 12,557 13,818 50,866 63,344
Education   1,806   1,108   5,942   3,847
Total other services   14,363   14,926   56,808   67,191
Total cost of revenues   23,288   23,414   93,147   101,108
 
Gross profit $ 116,820 $ 120,108 $ 419,014 $ 428,761
 
* Derived from audited financial statements.
 
   
MICROSTRATEGY INCORPORATED
DEFERRED REVENUE DETAIL
(in thousands)
 
 
December 31, December 31,
2016 2015*
(unaudited)
Current:
Deferred product licenses revenue $ 13,023 $ 13,506
Deferred subscription services revenue 18,303 15,763
Deferred product support revenue 162,781 158,738
Deferred other services revenue   10,015     9,149  
Gross current deferred revenue and advance payments 204,122 197,156
Less: unpaid deferred revenue   (98,587 )   (96,461 )
Net current deferred revenue and advance payments $ 105,535   $ 100,695  
 
Non-current:
Deferred product licenses revenue $ 9,118 $ 5,397
Deferred subscription services revenue 1,307 2,138
Deferred product support revenue 5,751 7,607
Deferred other services revenue   690     795  
Gross non-current deferred revenue and advance payments 16,866 15,937
Less: unpaid deferred revenue   (2,951 )   (6,942 )
Net non-current deferred revenue and advance payments $ 13,915   $ 8,995  
 
Total current and non-current:
Deferred product licenses revenue $ 22,141 $ 18,903
Deferred subscription services revenue 19,610 17,901
Deferred product support revenue 168,532 166,345
Deferred other services revenue   10,705     9,944  
Gross current and non-current deferred revenue and advance payments 220,988 213,093
Less: unpaid deferred revenue   (101,538 )   (103,403 )
Net current and non-current deferred revenue and advance payments $ 119,450   $ 109,690  
 
* Derived from audited financial statements.
 
       
MICROSTRATEGY INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
(unaudited) (unaudited) (unaudited) (unaudited)
 

Reconciliation of non-GAAP income from operations:

Income from operations $ 36,742 $ 45,894 $ 107,625 $ 134,022
Share-based compensation expense 3,393 4,796 11,817 17,299
Restructuring costs   -   18   45   279
Non-GAAP income from operations $ 40,135 $ 50,708 $ 119,487 $ 151,600
 
       
MICROSTRATEGY INCORPORATED
WORLDWIDE EMPLOYEE HEADCOUNT
 
 
December 31, March 31, June 30, September 30, December 31,
2015 2016 2016 2016 2016
 
Subscription services 37 37 39 49 48
Product support 131 135 156 162 171
Consulting 467 455 452 458 453
Education 28 31 31 35 39
Sales and marketing 513 531 541 571 587
Research and development 461 499 532 528 512
General and administrative 310 317 314 317 323
Total headcount 1,947 2,005 2,065 2,120 2,133
 

MicroStrategy Incorporated
Investor Relations
703-848-8600
ir@microstrategy.com

Source: MicroStrategy Incorporated

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