MicroStrategy Incorporated
01-31-06

MicroStrategy Announces Fourth Quarter 2005 Financial Results

Full Year 2005 Cash Flow From Operations Up 20% Versus Full Year 2004

MCLEAN, Va., Jan. 31 -- MicroStrategy(R) Incorporated (Nasdaq: MSTR), a leading worldwide provider of business intelligence software, today announced financial results for the three-month period ended December 31, 2005 (the fourth quarter of its 2005 fiscal year).

Fourth quarter 2005 revenue was $77.4 million versus $71.6 million in the fourth quarter of 2004, an 8% increase. Product licenses revenue for the fourth quarter of 2005 was $31.3 million versus $34.1 million for the fourth quarter of 2004, an 8% decrease. Product support and other services revenue for the fourth quarter of 2005 was $46.2 million versus $37.5 million for the fourth quarter of 2004, a 23% increase. Fourth quarter 2005 income from operations was $29.6 million, or 38% of revenue, versus $27.2 million, or 38% of revenue, for the fourth quarter of 2004, a 9% increase. Net income for the fourth quarter of 2005 was $18.9 million, or $1.30 per share on a diluted basis.

For the year ended December 31, 2005, revenue was $268.7 million versus $231.2 million for the year ended 2004, a 16% increase. Product licenses revenue for the full year 2005 was $99.9 million versus $97.0 million for the full year 2004, a 3% increase. Product support and other services revenue for the full year 2005 was $168.7 million versus $134.2 million for the full year 2004, a 26% increase. Income from operations for the full year 2005 was $93.9 million, or 35% of revenue, versus $68.5 million, or 30% of revenue, for the full year 2004, a 37% increase. Net income for the full year 2005 was $64.7 million, or $4.19 per share on a diluted basis versus net income for the full year 2004 of $168.3 million, or $9.83 per share on a diluted basis. MicroStrategy's full year 2004 results included a net non-cash tax benefit of $102.1 million, or $5.96 per share on a diluted basis, related to the release of the Company's US and Canadian deferred tax asset valuation allowances and the utilization of non-cash US deferred tax assets. Cash flow from operations for the full year 2005 increased 20% to $102.6 million versus $85.5 million for the full year 2004.

"We are pleased with our financial and business accomplishments in 2005. We developed and maintained strong and loyal relationships with our new and existing customers, which helped drive the services growth we experienced during the year. MicroStrategy achieved notable financial and operating efficiencies across all lines of business, with operating margins of 38% during the fourth quarter of 2005 and 35% for the full year," said Arthur S. Locke, III, MicroStrategy's Vice President, Finance & Chief Financial Officer. "Net cash generated from operations for the full year 2005 increased 20% to $102.6 million, compared to $85.5 million for the full year 2004. We look forward to 2006."

New Customers and New Deals with Existing Customers in Q4 2005 included:

21st Century Insurance; Affiliated Computer Services, Inc.; Alticor; Biltmore Technologies, Inc.; BMC West Corporation; Borders Group, Inc.; Cancer Care Ontario; Carl Warren & Co.; Charming Shoppes, Inc.; Cingular Wireless; CommonHealth, LP; Darden Restaurants; Focus Technology Group; Grange Insurance; Grey Global Group; ImpactRx; Limited Brands Inc.; Meredith Corporation; Network Solutions; RONA; Spartan Stores; The University of Texas M.D. Anderson Cancer Center; Verispan; VHA Inc.; Wilbur-Ellis; Wilton Industries, Inc.; and Wyeth Pharmaceuticals.

Examples of Customer Deals from Q4 2005:

21st Century Insurance

21st Century Insurance is a direct-to-consumer provider of personal auto insurance covering over 1.5 million vehicles and with $1.3 billion of premiums in California, Texas, Illinois and six other states. A MicroStrategy customer since 1999, 21st Century is currently leveraging MicroStrategy for a wide range of business intelligence applications across the company. 21st Century employees are using MicroStrategy to report on and analyze data in key business areas including claims, actuarial analysis, underwriting, policies and premiums, call center, enterprise billing and marketing.

Beyond Interactive

Beyond Interactive, a digital advertising arm of Mediacom, a unit of WPP's GroupM, has selected MicroStrategy to support the reporting and analysis requirements of its clients. Using MicroStrategy, Beyond Interactive provides its clients with valuable insights into the performance of their online advertising campaigns. MicroStrategy enables the business intelligence group at Beyond Interactive to efficiently provide high quality interactive reporting and analytics. Beyond Interactive selected MicroStrategy because of its flexibility, rich analytical functionality, and scalability to support hundreds of advertising campaigns and volumes of data.

Spartan Stores

Grand Rapids, Michigan-based Spartan Stores is the nation's tenth largest grocery distributor with warehouse facilities in Grand Rapids and Plymouth, Michigan. Spartan Stores uses MicroStrategy for financial reporting for all retail locations as well as the warehouse facilities. Additionally, MicroStrategy is used for sales and inventory performance analysis as well as retail operational process measurement.

Wilbur-Ellis Company

Wilbur-Ellis Company, a leading international marketer and distributor of agricultural and industrial products, is expanding its deployment of MicroStrategy for financial reporting. Wilbur-Ellis has been using MicroStrategy for operational reporting and is now expanding its deployment to include MicroStrategy Report Services(TM) for financial reporting and analysis. With MicroStrategy Report Services, Wilbur-Ellis users will have access to key financial information to provide visibility into their financial operations.

RONA

RONA is the leading Canadian distributor and retailer of hardware, home improvement, and gardening products, with a network of over 570 franchised, affiliated and corporate stores. RONA selected MicroStrategy for multiple BI applications including sales analysis, supply chain management and product analysis. Using MicroStrategy, RONA business users can drill down into volumes of transactional data to make analytically-based decisions that enhance merchandising, streamline inventory management and reduce costs.

Q1 2006 New Release of MicroStrategy 8:

In the first quarter of 2006, MicroStrategy plans to make generally available the next release of MicroStrategy 8. This upcoming release will include access to multidimensional data sources, including Microsoft Analysis Services and Hyperion Essbase, making it easier for customers to standardize on the MicroStrategy platform for enterprise-wide reporting and analysis. MicroStrategy will also extend its support for 64-bit BI platforms by introducing support for HP(R) Integrity servers based on Intel(R) Itanium(R) 2 processors. MicroStrategy 8 is one of the few BI technologies fully compiled in 64-bit mode, providing customers with a highly scalable and efficient architecture for large scale BI deployments.

In the coming weeks, MicroStrategy expects to detail other enhancements in this upcoming release of MicroStrategy 8, including access to the most popular open source databases, MySQL and PostgreSQL, extended ad-hoc reporting capabilities with a graphical query builder interface and the availability of new lower-cost reporting packages.

MicroStrategy Annual User Conference and Symposia:

MicroStrategy held its ninth annual user conference, MicroStrategy World 2006, in Miami, Florida, January 23-26, 2006. The event featured over 100 business and technical sessions, an exhibit hall showcasing more than 25 MicroStrategy partners, live product demonstrations and customer presentations from companies including The Bank of New York, Comcast, Corporate Express, Discovery Education, Herbalife, Intel, Lowe's Companies, MetLife, PetSmart, US Postal Service and Victoria's Secret Direct.

Following the success of the MicroStrategy Summer and Fall Symposia in 2005, MicroStrategy is launching its 2006 Symposia schedule, which will include locations in Europe as well as the US. These popular events offer an interactive venue for participants to share ideas with peers and industry experts, learn practical BI strategies from leading companies and talk with MicroStrategy's top technology leaders. The MicroStrategy Symposia 2006 series begins with the Winter Symposium, February 6-8, 2006, in Barcelona, Spain and is expected to include events later this year in Los Angeles, Paris, New York, London and Chicago.

MicroStrategy hosted its first invitation-only Executive Forum during the Fall Symposium in Las Vegas in October 2005. The event brought together IT executives to share BI insights via roundtable discussions, analyst keynotes and customer best practice presentations. As a result of the positive response from participants, MicroStrategy is planning to conduct Executive Forums at each Symposium and user conference in 2006.

Results of The OLAP Survey 5:

Once again, MicroStrategy was ranked number one in several key areas of The OLAP Survey 5, a leading independent survey of the BI software market. For the second consecutive year, MicroStrategy received the highest customer loyalty score of all business intelligence software products reviewed. MicroStrategy was also the top performer in Web deployment, with the survey finding that MicroStrategy customers are more successful in deploying BI via the Web than are customers of any other leading BI product. In addition, The OLAP Survey 5 found that MicroStrategy customers accessed the largest data volumes by a substantial margin. MicroStrategy has held the top position in Web deployment and data scalability for the past five years, since the inception of the survey. The OLAP Survey 5, the largest and most comprehensive survey of OLAP products to date, is conducted by Nigel Pendse and Survey.com.

To view a summary of The OLAP Survey 5 results, go to: http://www.microstrategy.com/Company/OLAP_Survey5.asp

About MicroStrategy Incorporated

Founded in 1989, MicroStrategy is a global leader in business intelligence (BI) technology. MicroStrategy provides integrated reporting, analysis, and monitoring software that helps leading organizations worldwide make better business decisions every day. Companies choose MicroStrategy for its advanced technical capabilities, sophisticated analytics, and superior data and user scalability. More information about MicroStrategy (Nasdaq: MSTR) is available at http://www.microstrategy.com.

MicroStrategy, MicroStrategy Report Services, MicroStrategy 8 and MicroStrategy Business Intelligence Platform 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 ability of the Company to implement and achieve widespread customer acceptance of its MicroStrategy 8 software on a timely basis; the Company's ability to recognize deferred revenue through delivery of products or satisfactory performance of services; continued acceptance of the Company's products in the marketplace; the timing of significant orders; delays in the Company's ability to develop or ship new products; market acceptance of new products; competitive factors; general economic conditions; currency fluctuations; and other risks detailed in the Company's registration statements and periodic reports filed with the Securities and Exchange Commission. 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.



                            MICROSTRATEGY INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

                                      Three Months Ended   Twelve Months Ended
                                           December 31,      December 31,
                                         2005      2004      2005      2004
                                    (unaudited)(unaudited)(unaudited)(audited)

    Revenues
    Product licenses                     $31,252  $34,100   $99,926   $96,995
    Product support and other services    46,177   37,492   168,736   134,213
      Total revenues                      77,429   71,592   268,662   231,208

    Cost of Revenues
    Product licenses                         824    1,110     3,886     3,875
    Product support and other services     8,558    7,365    32,565    28,996
      Total cost of revenues               9,382    8,475    36,451    32,871
    Gross profit                          68,047   63,117   232,211   198,337

    Operating Expenses
    Sales and marketing                   20,001   20,753    70,420    69,924
    Research and development               8,372    4,322    31,471    24,915
    General and administrative            10,078   10,817    36,382    34,977
    Amortization of intangible assets         17       18        71        71
      Total operating expenses            38,468   35,910   138,344   129,887
    Income from operations                29,579   27,207    93,867    68,450

    Financing and Other Income (Expense)
    Interest income                          894      554     2,974     1,221
    Interest expense                         (50)      (9)      (94)      (53)
    Gain (loss) on investments               -          4      (127)      (83)
    Other (expense) income, net             (113)    (620)    1,550      (215)
      Total financing and other income
       (expense)                             731      (71)    4,303       870
    Income before income taxes            30,310   27,136    98,170    69,320
      Provision (benefit) for income
       taxes                              11,460    2,619    33,427   (98,993)
    Net income                           $18,850  $24,517   $64,743  $168,313

    Basic earnings per share               $1.36    $1.52     $4.38    $10.48
    Diluted earnings per share             $1.30    $1.43     $4.19     $9.83
    Basic weighted average shares
     outstanding                          13,869   16,103    14,768    16,055
    Diluted weighted average shares
     outstanding                          14,512   17,195    15,436    17,119



                          MICROSTRATEGY INCORPORATED
                         CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share data)

                                                 December 31,     December 31,
                                                    2005               2004
    Assets                                       (unaudited)         (audited)
    Current assets
      Cash and cash equivalents                    $42,318            $68,314
      Restricted cash and investments                5,076              1,210
      Short-term investments                        53,761             37,816
      Accounts receivable, net                      43,052             40,917
      Prepaid expenses and other current
       assets                                        6,209              6,337
      Deferred tax assets, net                      22,971             20,583
    Total current assets                           173,387            175,177

    Property and equipment, net                     12,031             16,096
    Capitalized software development
     costs, net                                      3,669              5,479
    Long-term investments                              -               26,365
    Deposits and other assets                        2,293              3,021
    Deferred tax assets, net                        86,393            110,818
    Total assets                                  $277,773           $336,956

    Liabilities and stockholders' equity
    Current liabilities
      Accounts payable and accrued
       expenses                                    $18,524            $18,906
      Accrued compensation and employee
       benefits                                     27,258             25,292
      Accrued restructuring costs                    1,026              1,762
      Deferred revenue and advance
       payments                                     45,874             43,674
    Total current liabilities                       92,682             89,634

    Deferred revenue and advance
     payments                                        1,554              1,681
    Other long-term liabilities                      1,961              3,157
    Accrued restructuring costs                        854              1,906
    Total liabilities                               97,051             96,378

    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;
       13,270 shares issued and 10,595
       shares outstanding, and 12,841 shares
       issued and 12,773 shares
       outstanding, respectively                        13                 13
      Class B common stock; $0.001 par
       value; 165,000 shares authorized;
       3,258 and 3,394 shares
       issued and outstanding, respectively              3                  3
      Additional paid-in capital                   428,062            417,287
      Treasury stock, at cost; 2,675 and
       68 shares, respectively                    (136,817)            (2,331)
      Accumulated other comprehensive
       income                                        2,318              3,206
      Accumulated deficit                         (112,857)          (177,600)
    Total stockholders' equity                     180,722            240,578
    Total liabilities and stockholders'
     equity                                       $277,773           $336,956



                          MICROSTRATEGY INCORPORATED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

                                                     Twelve months ended
                                                         December 31,
                                                    2005              2004
                                                (unaudited)        (audited)
    Operating activities:
      Net income                                   $64,743          $168,313
      Adjustments to reconcile net income
       to net cash provided by operating
       activities
         Depreciation and amortization               8,496             8,323
         Bad debt expense                              349               290
         Loss on investments                           127                83
         Deferred taxes                             27,358          (101,660)
         Discount amortization on
          investments                                 (490)              -
         Other, net                                     19               171
      Changes in operating assets and
       liabilities:
         Accounts receivable                        (3,681)           (8,798)
         Prepaid expenses and other
          current assets                              (358)           (2,398)
         Deposits and other assets                     557            (1,034)
         Accounts payable and accrued
          expenses, compensation and
          employee benefits                          3,762            11,793
         Accrued restructuring costs                (1,888)           (2,515)
         Deferred revenue and advance
          payments                                   4,754            12,200
         Other long-term liabilities                (1,196)              714
            Net cash provided by
             operating activities                  102,552            85,482
    Investing activities:
      Proceeds from sales and maturities
       of investments                              180,335               -
      Purchases of investments                    (169,243)          (64,095)
      Purchases of property and
       equipment, net                               (1,907)           (5,649)
      Capitalized software development
       costs                                          (926)           (4,268)
      Increase in restricted cash and
       investments                                  (3,937)             (379)
            Net cash provided by (used
             in) investing activities                4,322           (74,391)
    Financing activities:
      Proceeds from sale of class A
       common stock under exercise of
       employee stock options and employee
       stock purchase plan                           5,703             5,759
      Purchases of treasury stock                 (134,487)           (2,331)
            Net cash (used in) provided
             by financing activities              (128,784)            3,428
            Effect of foreign exchange
             rate changes on cash and
             cash equivalents                       (4,086)            1,837
    Net (decrease) increase in cash and
     cash equivalents from continuing
     operations                                    (25,996)           16,356
    Net cash received from discontinued
     operations                                        -                  76
    Net (decrease) increase in cash and
     cash equivalents                              (25,996)           16,432
    Cash and cash equivalents, beginning
     of period                                      68,314            51,882
    Cash and cash equivalents, end of
     period                                        $42,318           $68,314


    * Note that $2.2 million of the $7.2 million reflected as "Proceeds from
      sale of class A common stock under exercise of employee stock options
      and employee stock purchase plan" during the third quarter of 2005, has
      been reclassified to Deferred taxes in "Adjustments to reconcile net
      income to net cash provided by operating activities."

CONTACT: MicroStrategy Incorporated Investor Relations, +1-703-848-8600, ir@microstrategy.com

SOURCE  MicroStrategy Incorporated