MicroStrategy Incorporated
02-01-08

MicroStrategy Announces Record Revenues of $351 Million in 2007

 

20th Consecutive Quarter of Year-Over-Year Revenue Growth

MCLEAN, Va., Feb. 1 /PRNewswire-FirstCall/ -- MicroStrategy® Incorporated (Nasdaq: MSTR - News), a leading worldwide provider of business intelligence software, today announced financial results for the three-month period ended December 31, 2007 (the fourth quarter of its 2007 fiscal year).
 
Fourth quarter 2007 revenue was $97.6 million versus $92.6 million for the fourth quarter of 2006, a 5% increase. This marked the twentieth consecutive quarter of year-over-year revenue growth. Revenue for the full year 2007 was $350.7 million versus $313.8 million for the full year 2006, a 12% increase. Product licenses revenue for the fourth quarter of 2007 was $31.7 million versus $36.6 million for the fourth quarter of 2006, a 13% decrease. Product support, services and other revenues for the fourth quarter of 2007 were $65.9 million versus $55.9 million for the fourth quarter of 2006, an 18% increase. Revenues from non-core operations, which consist of MicroStrategy's Alarm.com subsidiary and Angel.com business unit, were $4.6 million for the fourth quarter of 2007 compared to $2.8 million for the fourth quarter of 2006.

Operating expenses for the fourth quarter of 2007 were $57.0 million versus $48.1 million for the fourth quarter of 2006, a 19% increase. The increase in fourth quarter operating expenses was primarily due to an increase in the worldwide employee headcount of our core business intelligence (BI) business and reflects the continued expansion in the fourth quarter of 2007 of our worldwide sales and services organization and administrative and IT support functions. Operating expenses related to Alarm.com and Angel.com were $5.5 million in the fourth quarter of 2007 compared to $2.7 million in the fourth quarter of 2006, a 102% increase. This increase in non-core operating expenses was primarily due to a bad debt allowance of $2.1 million related to our Alarm.com subsidiary recorded during the fourth quarter of 2007. Fourth quarter 2007 consolidated income from operations was $26.6 million, or 27% of revenue, versus $32.0 million, or 35% of revenue, for the fourth quarter of 2006. Net income for the fourth quarter of 2007 was $17.7 million, or $1.41 per share on a diluted basis, compared to $22.4 million, or $1.68 per share on a diluted basis, for the fourth quarter of 2006.

During the fourth quarter of 2007, MicroStrategy repurchased 252,675 shares of its class A common stock for $26.4 million at an average price per share of $104.46, including broker commissions. As of December 31, 2007, MicroStrategy had 9,183,396 shares of class A common stock and 2,770,244 shares of class B common stock outstanding.

"During 2007, we recruited a substantial number of talented employees, significantly augmented our global business capacity, and welcomed many new customers," said Arthur S. Locke, III, MicroStrategy's Executive Vice President, Finance & Chief Financial Officer. "MicroStrategy achieved record revenues in the fourth quarter and sustained a high operating margin while continuing to expand its global reach. We are delighted with the progress we have made this past year and look forward to leveraging our strengths as an independent business intelligence company in 2008."

New Customers and New Deals with Existing Customers in Q4 2007 Included:

Bell Canada; BMC West Corporation; Cancer Care Ontario; Chiquita Brands LLC; Classic Residence by Hyatt; Cox Communications; DHL; Emory Healthcare, Inc.; Freddie Mac; Group Health Incorporated; Guitar Center; Joe's Crab Shack; New York and Co., Group Inc.; Novartis Pharmaceuticals Corporation; Nu Skin Enterprises; Pacific Sunwear; Republic Bank Limited; Republic National Distributing Company; RONA; Saint Elizabeth Health Care; Shoppers Drug Mart Inc.; Silverton Casino; Springs Global Participacoes, S.A.; Stein Mart; The Bon Ton Stores Inc.; TVA Group; Unified Western Grocers; UNISYS Corporation; Universal Studios Hollywood; VHA Inc.; Wells Fargo Bank, N.A; Wells Fargo Home Mortgage; Wilton Industries, Inc.

Examples of Customer Deals from Q4 2007:

Classic Residence by Hyatt

Classic Residence by Hyatt is a national leader in luxury living for older adults that currently develops, owns, and operates upscale senior living communities from coast to coast. Classic Residence uses MicroStrategy reporting and dashboards across multiple strategic business areas, including Sales, Marketing, Finance, and Human Resources. Given the success of installed MicroStrategy projects, Classic Residence recently expanded its use of the MicroStrategy platform to evaluate and enhance operational performance and support its growing business intelligence requirements. A MicroStrategy customer for five years, Classic Residence cited ease-of-use and expanding functionality as reasons it recently expanded its use of MicroStrategy.

Joe's Crab Shack

Joe's Crab Shack, one of the largest seafood restaurant chains in America, has 119 locations in 28 states. A new MicroStrategy customer, Joe's Crab Shack plans to use MicroStrategy's information dashboards to track sales by region, store, and sales type, as well as to provide forecasts for sales trends across its chain of restaurants. In addition, MicroStrategy will be used for reporting across labor, productivity, and human resource management areas. MicroStrategy will enable Joe's users to pull data from a wide variety of sources and combine this data onto reports and dashboards for enhanced insight and decision-making.

Republic Bank Limited

Republic Bank Limited, the leading bank in Trinidad and Tobago and one of the largest in the Eastern Caribbean, has selected MicroStrategy over Business Objects for reporting and analytics for its new data warehouse platform. MicroStrategy will replace Business Objects' Crystal Reports to provide reporting and analysis capabilities for finance and business intelligence at the Republic Bank headquarters in Trinidad. MicroStrategy will enable Republic Bank employees to monitor key financial metrics and seamlessly drill into detailed reports to view underlying data. Using MicroStrategy, along with the HP Neoview data warehousing platform and a banking data model from Quadrant Risk Management, Republic Bank users will be able to obtain timely insights into financial performance and make analytically-based business decisions.

BI Market Debate: Open System vs. Closed System Solutions

Following the announced acquisitions of Cognos and Business Objects, MicroStrategy prepared a white paper with its views on the changing BI landscape. The white paper focuses on the contrasting dynamics of open system vs. closed system solutions and addresses the new set of issues for customers to consider as they evaluate their BI options in the changing BI market.

The white paper is available on the MicroStrategy website: http://www.microstrategy.com/Publications/Whitepapers.

License Replacement and Recruiting Programs

During Q4 2007, MicroStrategy announced two programs to attract customers and top talent from Cognos and Business Objects.

The MicroStrategy License Replacement program enables customers of Cognos and Business Objects to trade in their existing BI licenses for MicroStrategy licenses at little or no replacement cost. As a result of the announced acquisitions of Cognos and Business Objects, customers of these two BI vendors may have concerns about ongoing product support, product direction, and migration efforts.

MicroStrategy also launched a program to aggressively recruit qualified business intelligence professionals from Cognos and Business Objects. The goal of this program is to hire qualified sales, consulting, engineering, legal, marketing, and administrative professionals at Cognos and Business Objects who may be concerned about their job security. MicroStrategy held a worldwide Open House on November 29 and 30, 2007 at its offices in the following cities: Atlanta, Chicago, Dallas, Los Angeles, New York, San Francisco, Washington DC, London, Paris, Cologne, Madrid, Milan, Sao Paulo, Buenos Aires, Tokyo, Sydney, and Melbourne.

MicroStrategy World 2008:

MicroStrategy hosted its 11th annual user conference, MicroStrategy World 2008, January 14-17, 2008 in Miami, Florida. The conference featured keynote presentations, more than 120 business and technology sessions, and an exhibit hall showcasing MicroStrategy technology partners.

Executives from more than 25 companies presented case studies on how they use MicroStrategy software to improve operations, reduce inefficiencies, and enhance business performance. Presenting companies at MicroStrategy World 2008 included Bluegreen Corporation, Catalina Marketing, Con-way Freight, Corporate Express, Darden Restaurants, Gucci, H&R Block Financial Advisors, Lowe's Companies, Meredith Corporation, Metcash Australia, MetLife, Nordstrom, Nygard International, The University of Miami, XM Satellite Radio, Yahoo!, and Yum! Brands.

At the conference, MicroStrategy honored several organizations for achieving outstanding business performance with their MicroStrategy-based business intelligence applications:

eBay: eBay was recognized for Excellence in Enterprise Business Intelligence. Many eBay employees rely on MicroStrategy for enterprise business intelligence reporting and analytics, with reports running against one of the largest Teradata® data warehouses in the world. MicroStrategy anchors a variety of applications that are deployed across eBay and its companies, including PayPal, Rent.com, and Shopping.com, among others.

GEICO: GEICO, a leading auto insurer, was recognized in the Data Scalability category for its use of MicroStrategy to analyze over 20 terabytes of customer and sales data. GEICO's MicroStrategy applications have more than 1,500 users who execute over 2,000 analytical reports daily. With MicroStrategy's dashboards and one-click analysis, GEICO personnel can gain greater insight into sales activity to enhance customer relationships and generate sales growth.

U.S. Postal Service: The U.S. Postal Service was honored in the User Scalability category. Approximately 30,000 managers in every major functional group at the U.S. Postal Service rely on MicroStrategy to improve operations, detect fraud, and increase efficiencies in mail service. The U.S. Postal Service runs over 140,000 reports weekly to monitor and analyze financial performance, on-time delivery performance, network efficiency, in-plant operations, and retail outlet performance.

Corporate Express US: Corporate Express US, one of the world's largest business-to-business suppliers of essential office and computer products and services, was recognized in the Extranet Deployment category. Corporate Express customers use a MicroStrategy-powered extranet to run reports and analyze data related to their office supply purchases. More than 10,000 Corporate Express customers are expected to use this online service, which is available through Corporate Express' award-winning EWAY Internet ordering site.

Ryder: Ryder's CIO, Kevin Bott, received the MicroStrategy Individual Excellence in Business Intelligence award. Ryder's business intelligence environment supports 10,000 users and more than 40,000 reports are run each week to help Ryder employees monitor fleet management and transportation service information. MicroStrategy supports a Fleet Management Services operational dashboard at Ryder that provides management with key performance indicators and early warning information. The Dedicated Contract Carriage operational dashboard provides management with at-a-glance trend information on drivers, equipment, trips, customer satisfaction, and other key performance indicators.

MicroStrategy Recognition from CMP's Intelligent Enterprise and Retail Info Systems News:

MicroStrategy was selected by CMP's Intelligent Enterprise for the prestigious 2008 Editors' Choice Award. Intelligent Enterprise editors chose 48 companies that provide exceptional vision, technology innovation, and customer leadership in attaining strategic objectives. MicroStrategy was selected as a "Company to Watch" in the Business Intelligence category for its advanced technology and Dynamic Enterprise Dashboards. Intelligent Enterprise made the following statement about MicroStrategy: "There is such a thing as best-of-breed technology. One of MicroStrategy's strengths is user- friendly, Web 2.0-style animated dashboards. You get rich navigation with advanced visualizations, including spark lines and bullet graphs, that make the insight come alive."

MicroStrategy was also recognized by Retail Info Systems (RIS) News as one of the top software providers for retailers. MicroStrategy was named to the RIS 2007 Software LeaderBoard, highlighting the top 45 software vendors for retailers. The LeaderBoard compares software companies serving the retail industry in a head-to-head ranking that is based largely on retailer evaluations. MicroStrategy ranked # 13 overall. In addition, MicroStrategy ranked # 8 on the Tier One list, which reflects the preferred software vendors of retailers with revenues greater than $1 billion. In a breakout of the three largest segments of retailers, MicroStrategy ranked in the top 10 in two of the three segments: specialty retailing and apparel/footwear.

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 - News) is available at www.microstrategy.com.

MicroStrategy, MicroStrategy 8, MicroStrategy Business Intelligence Platform, MicroStrategy Dynamic Enterprise Dashboards, MicroStrategy Mobile, and MicroStrategy Integrity Manager 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.

    Contact:
    MicroStrategy Incorporated
    Investor Relations
    ir@microstrategy.com
    (703) 848-8600

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

                                  Three Months Ended     Twelve Months Ended
                                        December 31,          December 31,
                                     2007       2006        2007        2006
                                (unaudited) (unaudited) (unaudited) (audited)
    Revenues
    Product licenses               $31,736    $36,645    $100,344    $107,383
    Product support, services and
     other revenues                 65,860     55,909     250,330     206,440
      Total revenues                97,596     92,554     350,674     313,823

    Cost of Revenues
    Product licenses                   899        641       3,055       2,763
    Product support, services and
     other revenues                 13,155     11,871      57,439      41,623
      Total cost of revenues        14,054     12,512      60,494      44,386
    Gross profit                    83,542     80,042     290,180     269,437

    Operating Expenses
    Sales and marketing             31,503     26,616     111,552      88,416
    Research and development        10,402      8,357      36,662      34,133
    General and administrative      15,057     13,094      53,673      47,028
    Amortization of intangible
     assets                             17         17          71          71
      Total operating expenses      56,979     48,084     201,958     169,648
    Income from operations          26,563     31,958      88,222      99,789

    Financing and Other Income
    Interest income, net               866        759       3,648       2,820
    Other income (expense), net        122       (388)       (683)     (1,248)
      Total financing and other
       income                          988        371       2,965       1,572
    Income before income taxes      27,551     32,329      91,187     101,361
      Provision for income taxes     9,877      9,977      32,719      30,485
    Net income                     $17,674    $22,352     $58,468     $70,876

    Basic earnings per share         $1.47      $1.77       $4.74       $5.46
    Diluted earnings per share       $1.41      $1.68       $4.55       $5.20
    Basic weighted average shares
     outstanding                    12,055     12,662      12,325      12,987
    Diluted weighted average shares
     outstanding                    12,556     13,277      12,853      13,633



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

                                          Core BI Business      Alarm.com
                                         Three Months Ended Three Months Ended
                                             December 31,       December 31,
                                            2007      2006     2007     2006

    Revenues
    Product licenses                      $31,736   $36,645     $-       $-
    Product support and services           61,296    53,134      -        -
    Alarm.com hardware and services
     revenue                                  -         -      2,369    1,229
    Angel.com telephony services              -         -        -        -
      Total revenues                       93,032    89,779    2,369    1,229

    Cost of Revenues
    Product licenses                          899       641      -        -
    Product support and services           12,181    10,563      -        -
    Alarm.com hardware and services           -         -        593      960
    Angel.com telephony services              -         -        -        -
      Total cost of revenues               13,080    11,204      593      960
    Gross profit                           79,952    78,575    1,776      269

    Operating Expenses
    Sales and marketing                    29,841    25,164      289      325
    Research and development                9,417     7,476      356      291
    General and administrative             12,214    12,712    2,738      382
    Amortization of intangible assets          17        17      -        -
      Total operating expenses             51,489    45,369    3,383      998
    Income (loss) from operations          28,463    33,206   (1,607)    (729)

    Financing and Other Income
    Interest income (expense), net            893       759      (27)     -
    Other income (expense), net               122      (388)     -        -
      Total financing and other income      1,015       371      (27)     -
    Income (loss) before income taxes     $29,478   $33,577  $(1,634)   $(729)
      Provision for income taxes
    Net income

         Basic earnings per share
         Diluted earnings per share
         Basic weighted average shares
          outstanding
         Diluted weighted average shares
          outstanding


                                        Angel.com             Consolidated
                                    Three Months Ended     Three Months Ended
                                        December 31,           December 31,
                                      2007       2006         2007      2006


    Revenues
    Product licenses                  $-          $-        $31,736   $36,645
    Product support and services       -           -         61,296    53,134
    Alarm.com hardware and
     services revenue                  -           -          2,369     1,229
    Angel.com telephony services     2,195       1,546        2,195     1,546
      Total revenues                 2,195       1,546       97,596    92,554

    Cost of Revenues
    Product licenses                   -           -            899       641
    Product support and services       -           -         12,181    10,563
    Alarm.com hardware and
     services                          -           -            593       960
    Angel.com telephony services       381         348          381       348
      Total cost of revenues           381         348       14,054    12,512
    Gross profit                     1,814       1,198       83,542    80,042

    Operating Expenses
    Sales and marketing              1,373       1,127       31,503    26,616
    Research and development           629         590       10,402     8,357
    General and administrative         105 (a)     -   (a)   15,057    13,094
    Amortization of intangible
     assets                            -           -             17        17
      Total operating expenses       2,107       1,717       56,979    48,084
    Income (loss) from operations     (293)       (519)      26,563    31,958

    Financing and Other Income
    Interest income (expense), net     -           -            866       759
    Other income (expense), net        -           -            122      (388)
      Total financing and other
       income                          -           -            988       371
    Income (loss) before income
     taxes                           $(293)      $(519)      27,551    32,329
      Provision for income taxes                              9,877     9,977
    Net income                                              $17,674   $22,352

         Basic earnings per share                             $1.47     $1.77
         Diluted earnings per
          share                                               $1.41     $1.68
         Basic weighted average
          shares outstanding                                 12,055    12,662
         Diluted weighted average
          shares outstanding                                 12,556    13,277

    (a) An insignificant amount of general and administrative services is
        provided to the Angel.com business unit by MicroStrategy's core
        business operations.


                                           Core BI Business     Alarm.com
                                            Twelve Months     Twelve Months
                                                Ended             Ended
                                             December 31,       December 31,
                                            2007      2006     2007     2006

    Revenues
    Product licenses                     $100,344  $107,383     $-       $-
    Product support and services          227,917   197,915      -        -
    Alarm.com hardware and services
     revenue                                  -         -     15,301    3,537
    Angel.com telephony services              -         -        -        -
      Total revenues                      328,261   305,298   15,301    3,537

    Cost of Revenues
    Product licenses                        3,055     2,763      -        -
    Product support and services           45,662    37,695      -        -
    Alarm.com hardware and services           -         -      9,953    2,834
    Angel.com telephony services              -         -        -        -
      Total cost of revenues               48,717    40,458    9,953    2,834
    Gross profit                          279,544   264,840    5,348      703

    Operating Expenses
    Sales and marketing                   104,525    83,261    1,116    1,006
    Research and development               32,464    31,196    1,491    1,066
    General and administrative             49,331    45,743    4,230    1,285
    Amortization of intangible assets          71        71      -        -
      Total operating expenses            186,391   160,271    6,837    3,357
    Income (loss) from operations          93,153   104,569   (1,489)  (2,654)

    Financing and Other Income
    Interest income (expense), net          3,675     2,820      (27)     -
    Other expense, net                       (683)   (1,248)     -        -
      Total financing and other income      2,992     1,572      (27)     -
    Income (loss) before income taxes     $96,145  $106,141  $(1,516) $(2,654)
      Provision for income taxes
    Net income

         Basic earnings per share
         Diluted earnings per share
         Basic weighted average shares
          outstanding
         Diluted weighted average shares
          outstanding


                                        Angel.com             Consolidated
                                   Twelve Months Ended    Twelve Months Ended
                                      December 31,            December 31,
                                      2007        2006         2007      2006


    Revenues
    Product licenses                  $-          $-       $100,344  $107,383
    Product support and services       -           -        227,917   197,915
    Alarm.com hardware and
     services revenue                  -           -         15,301     3,537
    Angel.com telephony services     7,112       4,988        7,112     4,988
      Total revenues                 7,112       4,988      350,674   313,823

    Cost of Revenues
    Product licenses                   -           -          3,055     2,763
    Product support and services       -           -         45,662    37,695
    Alarm.com hardware and
     services                          -           -          9,953     2,834
    Angel.com telephony services     1,824       1,094        1,824     1,094
      Total cost of revenues         1,824       1,094       60,494    44,386
    Gross profit                     5,288       3,894      290,180   269,437

    Operating Expenses
    Sales and marketing              5,911       4,149      111,552    88,416
    Research and development         2,707       1,871       36,662    34,133
    General and administrative         112 (a)     -   (a)   53,673    47,028
    Amortization of intangible
     assets                            -           -             71        71
      Total operating expenses       8,730       6,020      201,958   169,648
    Income (loss) from operations   (3,442)     (2,126)      88,222    99,789

    Financing and Other Income
    Interest income (expense), net     -           -          3,648     2,820
    Other expense, net                 -           -           (683)   (1,248)
      Total financing and other
       income                          -           -          2,965     1,572
    Income (loss) before income
     taxes                         $(3,442)    $(2,126)      91,187   101,361
      Provision for income taxes                             32,719    30,485
    Net income                                              $58,468   $70,876

         Basic earnings per share                             $4.74     $5.46
         Diluted earnings per
          share                                               $4.55     $5.20
         Basic weighted average
          shares outstanding                                 12,325    12,987
         Diluted weighted average
          shares outstanding                                 12,853    13,633

    (a)  An insignificant amount of general and administrative services is
         provided to the Angel.com business unit by MicroStrategy's core
         business operations.



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

                                                December 31,      December 31,
                                                     2007              2006
    Assets                                      (unaudited)         (audited)
    Current assets
      Cash and cash equivalents                    $85,194           $78,980
      Restricted cash and investments                2,982             3,799
      Accounts receivable, net                      52,214            54,468
      Prepaid expenses and other current
       assets                                       12,681             8,649
      Deferred tax assets, net                      29,652            29,510
    Total current assets                           182,723           175,406

    Property and equipment, net                      9,544            11,102
    Capitalized software development
     cost, net                                       2,340             1,903
    Deposits and other assets                       11,433             2,461
    Deferred tax assets, net                        35,347            57,944
    Total Assets                                  $241,387          $248,816

    Liabilities and Stockholders' Equity
    Current liabilities
      Accounts payable and accrued
       expenses                                    $23,469           $24,378
      Accrued compensation and employee
       benefits                                     39,214            31,872
      Deferred revenue and advance
       payments                                     64,302            56,578
    Total current liabilities                      126,985           112,828

    Deferred revenue and advance payments            1,936             1,127
    Other long-term liabilities                      9,137             1,710

    Total Liabilities                              138,058           115,665

    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;
       14,112 shares issued and 9,183
       shares outstanding, and 13,972
       shares issued and 9,918 shares
       outstanding, respectively                        14                14
      Class B common stock, $0.001 par
       value; 165,000 shares authorized;
       2,770 and 2,775 issued and
       outstanding, respectively                         3                 3
      Additional paid-in capital                   448,229           440,768
      Treasury stock, at cost; 4,929 and
       4,054 shares, respectively                 (357,804)         (268,776)
      Accumulated other comprehensive
       income                                        2,929             3,123
    Retained earnings (Accumulated deficit)          9,958           (41,981)
    Total Stockholders' Equity                     103,329           133,151
    Total Liabilities and Stockholders' Equity    $241,387          $248,816



                          MICROSTRATEGY INCORPORATED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

                                                      Twelve months ended
                                                          December 31,
                                                     2007              2006
                                                (unaudited)         (audited)
    Operating activities:
       Net income                                  $58,468           $70,876
       Adjustments to reconcile net income
        from continuing operations to net
        cash
          provided by operating
           activities:
          Depreciation and amortization              7,596             7,635
          Bad debt provision                         3,481             1,020
          Deferred taxes                            26,137            26,528
          Share-based compensation                     548             1,341
          Excess tax benefits from share-based
           payment arrangements                     (3,270)           (4,479)
          Other, net                                   160               160
       Changes in operating assets and
        liabilities:
          Accounts receivable                         (103)          (10,727)
          Prepaid expenses and other
           current assets                           (3,697)           (2,108)
          Deposits and other assets                 (1,434)             (117)
          Accounts payable and accrued
           expenses, compensation
             and employee benefits                   3,765             7,105
          Deferred revenue and advance
           payments                                  5,001             7,891
          Other long-term liabilities                1,244              (706)
             Net cash provided by
              operating activities                  97,896           104,419
    Investing activities:
       Proceeds from maturities of short-
        term investments                               -             112,666
       Purchases of short-term investments             -             (58,900)
       Advance deposits on purchase of
        property and equipment                      (7,500)              -
       Purchases of property and
        equipment, net                              (3,476)           (4,496)
       Capitalized software development
        costs                                       (2,650)             (310)
       Decrease in restricted cash and
        investments                                    931             1,372
             Net cash (used in) provided
              by investing activities              (12,695)           50,332
    Financing activities:
       Proceeds from sale of class A
        common stock under employee
         stock purchase plan and exercise
         of employee stock options                   3,293             6,094
       Excess tax benefits from share-
        based payment arrangements                   3,270             4,479
       Purchases of treasury stock                 (89,028)         (131,959)
             Net cash used in financing
              activities                           (82,465)         (121,386)
             Effect of foreign exchange
              rate changes on cash and
              cash equivalents                       3,478             3,297
    Net increase in cash and cash
     equivalents                                     6,214            36,662
    Cash and cash equivalents, beginning
     of period                                      78,980            42,318
    Cash and cash equivalents, end of
     period                                        $85,194           $78,980

Source: MicroStrategy Incorporated