MicroStrategy Announces Fourth Quarter 2006 Financial Results

January 26, 2007
MicroStrategy Announces Fourth Quarter 2006 Financial Results

MCLEAN, Va., Jan. 26 -- 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, 2006 (the fourth quarter of its 2006 fiscal year).

Fourth quarter 2006 revenue was $92.6 million versus $77.4 million for the fourth quarter of 2005, a 20% increase. Product licenses revenue for the fourth quarter of 2006 was $36.6 million versus $31.3 million for the fourth quarter of 2005, a 17% increase. Product support and other services revenue for the fourth quarter of 2006 was $55.9 million versus $46.2 million for the fourth quarter of 2005, a 21% increase. Operating expenses for the fourth quarter of 2006 were $48.1 million versus $38.5 million for the fourth quarter of 2005, a 25% increase. The increase in fourth quarter operating expenses resulted primarily from an increase in worldwide employee headcount and reflects the continued expansion of our worldwide sales and services organization and administrative and IT support functions. Fourth quarter 2006 income from operations increased by 8% to $32.0 million, or 35% of revenue, versus $29.6 million, or 38% of revenue, for the fourth quarter of 2005. Net income for the fourth quarter of 2006 increased by 19% to $22.4 million, or $1.68 per share on a diluted basis, versus $18.9 million, or $1.30 per share on a diluted basis, for the fourth quarter of 2005.

"We are very pleased with our 2006 financial and operating performance, including a strong finish in Q4. Underlying our performance was strong customer demand for our business intelligence solution," said Arthur S. Locke, III, MicroStrategy's Vice President, Finance & Chief Financial Officer. "Our technologists continue to create innovative software that is being used by some of the world's largest business and government organizations. Coming away from MicroStrategy World 2007 this past week, we are excited about the opportunities that lie ahead."

As of December 31, 2006, MicroStrategy had $79.0 million in cash and cash equivalents and 9,917,596 shares of class A common stock and 2,775,244 shares of class B common stock outstanding.

New Customers and New Deals with Existing Customers in Q4 2006 included:

21st Century Insurance, American Healthways, American Signature, AmerisourceBergen Corporation, Building Materials Holding Company, Cascade Corporation, Chiquita Brands LLC, Cox Communications, Department of Interior, First Franklin Financial Corporation, Focus Technology Group, Hannaford Bros. Co., Herbalife, KeySpan Corporate Services LLC, McGraw-Hill Companies, Pacific Sunwear, Redwood Trust, Rheem Manufacturing, Rite-Hite Holding Corporation, Roundys Supermarkets, Inc., Sovereign Bank, State of Tennessee, Texas Department of Public Safety, The Cato Corporation, Unisource Administrators, Inc., The University of Texas M.D. Anderson Cancer Center, Upsher-Smith Laboratories, Inc., VHA Inc., and Yahoo!

Examples of Customer Deals from Q4 2006:

Hannaford Bros. Co.

Hannaford Bros. Co. operates 158 stores under the Hannaford Supermarket and Hannaford Supermarket and Pharmacy names. A MicroStrategy customer for 12 years, Hannaford recently upgraded to MicroStrategy's 64-bit UNIX platform. Hannaford relies on MicroStrategy for a wide range of enterprise reporting and analysis capabilities. Employees across the organization use MicroStrategy for merchandising analysis, inventory planning, and supply chain analysis in order to better understand customer buying trends, maximize shelf space, and optimize store operations.

Sovereign Bank

Sovereign is the 16th largest banking institution in the United States, with nearly 800 community banking offices in nine states. Sovereign Bank selected MicroStrategy for fraud monitoring and investigation reporting, and for online banking customer behavior tracking and analysis. With MicroStrategy, Sovereign Bank can perform sophisticated analyses to enhance both its risk management and online banking programs. Sovereign Bank analysts use the data from their MicroStrategy BI application to create insightful reports that ultimately make a positive impact on the organization's bottom line.

VHA Inc.

VHA is a health care provider alliance of more than 2,400 not-for-profit health care organizations. VHA Inc. has expanded its deployment of MicroStrategy to further support reporting and analytics for hospital leaders across the country. With MicroStrategy, VHA provides customers with highly detailed operational performance information to improve patient care and hospital efficiency. MicroStrategy was selected for its flexibility, scalability, and convenient delivery of data over the web and via email.

New MicroStrategy Dynamic Enterprise Dashboards(TM):

MicroStrategy recently introduced Dynamic Enterprise Dashboards, innovative information dashboards for business users. MicroStrategy has combined advanced data visualization and animation with its industrial- strength business intelligence platform to deliver highly intuitive dashboards that yield enhanced business insight and are usable by more people than ever before.

MicroStrategy's Dynamic Enterprise Dashboards enable business users to flip intuitively through many different perspectives of corporate performance without leaving the dashboard allowing users to quickly and easily identify problems and diagnose root causes. Dashboard designers can combine data from a variety of data sources onto a single dashboard, with multi-disciplined, multi-dimensional performance feedback on every dashboard.

With the integration of Adobe(R) Flash(R), MicroStrategy dashboards offer innovative ways for users of all skill levels to derive insight from their data. The dashboards are highly responsive to users with a wide range of information views and increased information exploration options.

MicroStrategy Dynamic Enterprise Dashboards allow business users to create their own "personal dashboards." Using MicroStrategy's zero-footprint WYSIWYG (what-you-see-is-what-you-get) Web interface, business users can create dashboards using simple drag and drop actions. Users can now build the dashboards they want without IT support, increasing the adoption and use of business intelligence systems.

Customers are currently beta-testing MicroStrategy's Dynamic Enterprise Dashboards, which are expected to be generally available in mid-2007 as part of MicroStrategy's planned version 8.1 software release.

"MicroStrategy's new dashboards are visually appealing and set a new standard for interactivity with business data," said Jeff Whatcott, vice president of business development and marketing for the Enterprise and Developer Business Unit at Adobe. "Using Adobe's latest rich Internet application technology, MicroStrategy dashboards deliver an engaging user experience that can improve interpreting and analyzing business data in a graphical format. We are proud to team with MicroStrategy to bring this exciting innovation to the business intelligence market."

Results of The OLAP Survey 6:

Once again, MicroStrategy was a leader in key areas of The OLAP Survey 6, a leading independent survey of the BI software market. This year, 13 BI products were analyzed with feedback compiled from 1,679 organizations across 87 countries. For the third consecutive year, MicroStrategy received the highest customer loyalty score of all business intelligence software products reviewed. "The fact that MicroStrategy was rated number one in customer loyalty for the third year in a row is a remarkable achievement," reported Nigel Pendse, author of The OLAP Survey 6. "The fact that no other product has achieved such consistency suggests that many of MicroStrategy's customers are fiercely loyal and see no alternative to the product."

In The OLAP Survey 6, MicroStrategy was found to be the top product for standardization, with 92.4% of MicroStrategy customers with multiple BI products indicating that they would select MicroStrategy as their enterprise BI standard. The Survey found declining standardization preference percentages from 2005 customers of both Business Objects and Hyperion. "The rising tendency of Survey participants with multiple BI products to continue to rank MicroStrategy as one of the top products to keep in a standardization exercise is a reflection of MicroStrategy's widening range of capabilities and suitability for BI standardization," said Nigel Pendse, author of The OLAP Survey 6.

For the sixth consecutive year, MicroStrategy customers indicated that they analyzed, by far, the largest amounts of data -- a median of 316 GB of input data volume in this Survey. This input data volume is larger, by more than a factor of 4, than that of customers of SAP BW, the second-place product, and larger, by a factor of 65, than that of customers of Cognos. MicroStrategy also had the highest web deployment rate at nearly 78%. This high level of web usage reflects MicroStrategy's commitment to web product performance and feature-richness.

The OLAP Survey 6 found major differences in the quality of BI vendors' product support. For the third year in a row, MicroStrategy's product support was rated "Excellent" more often than that of other vendors in its peer group, which is comprised of Cognos Analysis, SAP BW, Hyperion Essbase, Oracle Discoverer, and Business Objects.

To view a summary of The OLAP Survey 6 results, go to: http://www.microstrategy.com/OLAPSurvey6.

MicroStrategy 2007 Events:

MicroStrategy held its tenth annual user conference, MicroStrategy World 2007, in Las Vegas, Nevada, on January 22-25, 2007. The event featured over 100 business and technical sessions, an exhibit hall showcasing more than 25 MicroStrategy partners, product demonstrations, and customer presentations from companies including Campbell Soup, Caremark Rx, Comcast, Corporate Express, Darden Restaurants, Hallmark Cards, Hudson's Bay Company, Lowe's Companies, Nordstrom, Pacific Life Insurance, PetSmart, Rite-Hite Corporation, Things Remembered, and Wyeth.

During 2007, MicroStrategy plans to continue its successful Symposia series in the U.S., Europe, and Latin America. These popular two-day 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. Each Symposium features informative presentations from MicroStrategy customers sharing their insights on how they developed their business intelligence strategies, deployed multiple projects across their enterprises, and achieved returns on their BI investments. The 2007 MicroStrategy Symposia schedule begins in Madrid, March 7-8, and is expected to include events in Atlanta, New York City, Chicago, Buenos Aires, Sao Paulo, Frankfurt, London, and Milan.

MicroStrategy plans to hold more than 15 Technology Day events in 2007 throughout the U.S., Europe, Latin America, and Asia Pacific. These one-day events, the first of which was launched in November 2006 in Washington D.C., offer participants a full day of technical sessions and customer case studies, with practical tools to enhance business intelligence initiatives.

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 8, and MicroStrategy Dynamic Enterprise Dashboards 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, including its planned MicroStrategy version 8.1 software release; 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
    Investor Relations
    (703) 848-8600

                          MICROSTRATEGY INCORPORATED
                    (in thousands, except per share data)

                                       Three Months Ended  Twelve Months Ended
                                           December 31,      December 31,
                                          2006     2005      2006     2005


    Product licenses                     $36,645  $31,252  $107,383  $99,926
    Product support and other services    55,909   46,177   206,440  168,736
      Total revenues                      92,554   77,429   313,823  268,662

    Cost of Revenues
    Product licenses                         641      824     2,763    3,886
    Product support and other services    11,871    8,558    41,623   32,565
      Total cost of revenues              12,512    9,382    44,386   36,451
    Gross profit                          80,042   68,047   269,437  232,211

    Operating Expenses
    Sales and marketing                   26,616   20,001    88,416   70,420
    Research and development               8,357    8,372    34,133   31,471
    General and administrative            13,094   10,078    47,028   36,382
    Amortization of intangible assets         17       17        71       71
      Total operating expenses            48,084   38,468   169,648  138,344
    Income from operations                31,958   29,579    99,789   93,867

    Financing and Other Income
    Interest income (expense), net           759      844     2,820    2,880
    Gain (loss) on investments               -        -          14     (127)
    Other (expense) income, net             (388)    (113)   (1,262)   1,550
      Total financing and other income       371      731     1,572    4,303
    Income before income taxes            32,329   30,310   101,361   98,170
      Provision for income taxes           9,977   11,460    30,485   33,427
    Net income                           $22,352  $18,850   $70,876  $64,743

         Basic earnings per share          $1.77    $1.36     $5.46    $4.38
         Diluted earnings per share        $1.68    $1.30     $5.20    $4.19
         Basic weighted average shares
          outstanding                     12,662   13,869    12,987   14,768
         Diluted weighted average shares
          outstanding                     13,277   14,512    13,633   15,436

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

                                                December 31,      December 31,
                                                    2006              2005
    Assets                                       (unaudited)        (audited)
    Current assets
      Cash and cash equivalents                    $78,980           $42,318
      Restricted cash and investments                3,799             5,076
      Short-term investments                            16            53,761
      Accounts receivable, net                      54,468            43,052
      Prepaid expenses and other current
       assets                                        8,633             6,209
      Deferred tax assets, net                      29,510            22,971
    Total current assets                           175,406           173,387

    Property and equipment, net                     11,102            12,031
    Capitalized software development
     costs, net                                      1,903             3,669
    Deposits and other assets                        2,461             2,293
    Deferred tax assets, net                        57,944            86,393
    Total assets                                  $248,816          $277,773

    Liabilities and Stockholders' Equity
    Current liabilities
      Accounts payable and accrued
       expenses                                    $24,378           $19,550
      Accrued compensation and employee
       benefits                                     31,872            27,258
      Deferred revenue and advance
       payments                                     56,578            45,874
    Total current liabilities                      112,828            92,682

    Deferred revenue and advance payments            1,127             1,554
    Other long-term liabilities                      1,710             2,815
    Total liabilities                              115,665            97,051

    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;
       13,972 shares issued and 9,918
       shares outstanding, and 13,270 shares
       issued and 10,595 shares
       outstanding, respectively                        14                13
      Class B common stock; $0.001 par
       value; 165,000 shares authorized;
       2,775 and 3,258 shares issued and
       outstanding, respectively                         3                 3
      Additional paid-in capital                   440,766           428,062
      Treasury stock, at cost; 4,054 and
       2,675 shares, respectively                 (268,776)         (136,817)
      Accumulated other comprehensive
       income                                        2,503             2,318
      Accumulated deficit                          (41,359)         (112,857)
    Total stockholders' equity                     133,151           180,722
    Total liabilities and stockholders'
     equity                                       $248,816          $277,773

                            MICROSTRATEGY INCORPORATED
                                  (in thousands)

                                                       Twelve months ended
                                                          December 31,
                                                     2006              2005
                                                  (unaudited)        (audited)
    Operating activities:
       Net income                                   $70,876           $64,743
       Adjustments to reconcile net income
        to net cash provided by operating
          Depreciation and amortization               7,635             8,496
          Bad debt provision                          1,020               349
          Deferred taxes                             26,528            27,358
          Discount amortization on
           investments                                  -                (490)
          Stock-based compensation                    1,341               -
          Excess tax benefits from stock-
           based payment arrangements                (4,479)              -
          Other, net                                    160               145
       Changes in operating assets and
          Accounts receivable                       (10,727)           (3,681)
          Prepaid expenses and other
           current assets                            (2,108)             (358)
          Deposits and other assets                    (117)              557
          Accounts payable and accrued
           expenses, compensation
           and employee benefits                      7,105             1,874
          Deferred revenue and advance
           payments                                   7,891             4,754
          Other long-term liabilities                  (706)           (1,196)
             Net cash provided by
              operating activities                  104,419           102,551
    Investing activities:
       Proceeds from maturities of short-
        term investments                            112,666           180,335
       Purchases of short-term investments          (58,900)         (169,243)
       Purchases of property and
        equipment, net                               (4,496)           (1,907)
       Capitalized software development
        costs                                          (310)             (926)
       Decrease (increase) in restricted
        cash and investments                          1,372            (3,937)
             Net cash provided by
              investing activities                   50,332             4,322
    Financing activities:
       Proceeds from sale of class A
        common stock under employee
        stock purchase plan and exercise
        of employee stock options                     6,094             5,703
       Excess tax benefits from stock-
        based payment arrangements                    4,479               -
       Purchases of treasury stock                 (131,959)         (134,486)
             Net cash used in financing
              activities                           (121,386)         (128,783)
             Effect of foreign exchange
              rate changes on cash and
              cash equivalents                        3,297            (4,086)
    Net increase (decrease) in cash and
     cash equivalents                                36,662           (25,996)
    Cash and cash equivalents, beginning
     of period                                       42,318            68,314
    Cash and cash equivalents, end of
     period                                         $78,980           $42,318

SOURCE  MicroStrategy Incorporated

CONTACT:  MicroStrategy Incorporated Investor Relations, +1-703-848-8600,