MicroStrategy Announces Fourth Quarter 2018 Financial Results

January 29, 2019

TYSONS CORNER, Va.--(BUSINESS WIRE)--Jan. 29, 2019-- MicroStrategy® Incorporated (Nasdaq: MSTR), a leading worldwide provider of enterprise analytics and mobility software, today announced financial results for the three-month period ended December 31, 2018 (the fourth quarter of its 2018 fiscal year).

MicroStrategy adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) and its subsequent amendments (“ASU 2014-09”), effective January 1, 2018, and has adjusted its prior period consolidated financial statements to reflect full retrospective adoption.

Fourth quarter 2018 revenues were $131.9 million versus $136.4 million for the fourth quarter of 2017, a 3.3% decrease. Product licenses and subscription services revenues for the fourth quarter of 2018 were $38.3 million versus $39.1 million for the fourth quarter of 2017, a 2.0% decrease. Product support revenues for the fourth quarter of 2018 were $73.7 million versus $75.0 million for the fourth quarter of 2017, a 1.8% decrease. Other services revenues for the fourth quarter of 2018 were $20.0 million versus $22.3 million for the fourth quarter of 2017, a 10.5% decrease. Foreign currency effects had an unfavorable impact on revenues for the fourth quarter of 2018.

Operating expenses for the fourth quarter of 2018 were $108.2 million versus $94.5 million for the fourth quarter of 2017, a 14.5% increase, reflecting MicroStrategy’s previously announced strategy to seek to take greater advantage of the opportunities in the market by increasing its sales and marketing expenditures and increasing its research and development expenditures as it invests in its technology products and personnel.

Loss from operations for the fourth quarter of 2018 was $2.2 million versus income from operations of $17.1 million for the fourth quarter of 2017. Net income for the fourth quarter of 2018 was $3.3 million, or $0.30 per share on a diluted basis, as compared to net loss of $25.5 million, or $2.23 per share on a diluted basis, for the fourth quarter of 2017. The net loss in the fourth quarter of 2017 included an estimated one-time tax charge of $44.0 million resulting from the enactment of U.S. corporate tax reform legislation. Excluding the impact of this legislation, non-GAAP net income for the fourth quarter of 2017 was $18.5 million, or $1.62 per share on a diluted basis.

Additionally, non-GAAP income from operations, which excludes share-based compensation expense, was $1.3 million for the fourth quarter of 2018 versus $20.8 million for the fourth quarter of 2017. The tables at the end of this press release include a reconciliation of GAAP to non-GAAP financial measures for the three months ended December 31, 2018 and 2017. An explanation of non-GAAP financial measures is also included under the heading “Non-GAAP Financial Measures” below.

As of December 31, 2018, MicroStrategy had cash and cash equivalents and short-term investments of $576.1 million, as compared to $675.2 million as of December 31, 2017, a decrease of $99.1 million. As of December 31, 2018, MicroStrategy had 8.6 million shares of class A common stock and 2.0 million shares of class B common stock outstanding. During the fourth quarter of 2018, MicroStrategy repurchased an aggregate of 0.9 million shares of its class A common stock at an average price per share of $126.02 for an aggregate cost of $111.0 million.

MicroStrategy expects to report a material weakness in its internal control over financial reporting as of December 31, 2018 in its upcoming Annual Report on Form 10-K for the year ended December 31, 2018. The material weakness relates to general information technology controls in the areas of user access, program change-management and other matters impacting information technology systems that support MicroStrategy’s financial reporting processes. There have been no misstatements identified in the financial statements as a result of this material weakness and MicroStrategy expects to timely file its Form 10-K. Remediation of this material weakness is expected to be completed prior to the end of fiscal year 2019.

MicroStrategy uses its Intelligent Enterprise™ platform across the enterprise and has created an interactive dossier with quarterly financial performance data. Anyone can access the MSTR Financials dossier via a web browser, or by downloading the MicroStrategy Library™ app on an iOS or Android device. To download the native apps, visit MicroStrategy Library for iPad, MicroStrategy Library for iPhone, or MicroStrategy Library for Android tablet and smartphone.

Conference Call

MicroStrategy will be discussing its fourth quarter 2018 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 1957548. A live and archived webcast will be available under the “Events” section on MicroStrategy’s investor relations website at http://ir.microstrategy.com/events.cfm. A replay of the conference call will be available beginning approximately two hours after the call concludes until February 5, 2019 at (855) 859-2056 (domestically) or (404) 537-3406 (internationally) using the passcode 1957548.

Recent Business Highlights

  • MicroStrategy announced the general availability of MicroStrategy 2019™, the industry’s first and onlyenterprise platform for HyperIntelligence™, transformational mobility, and federated analytics. On January 7, 2019, Founder, Chairman of the Board, President & CEO Michael J. Saylor and other members of MicroStrategy’s management team rang the Nasdaq opening bell to celebrate the launch of MicroStrategy 2019. MicroStrategy 2019 delivers modern analytics on an enterprise platform that can be deployed on-premises or on multiple private and public cloud platforms. It is designed to make every enterprise a more Intelligent Enterprise by delivering:
     
    • HyperIntelligence. This new category of analytics is designed to transform the way people interact with information and find answers by seamlessly delivering intelligence through zero-click experiences. With the HyperCard™ application, users with Google Chrome can hover over highlighted words on websites and other browser-based applications to instantly bring up relevant, contextual insights. With HyperIntelligence, users can also leverage APIs to design and deploy AI applications that deliver zero-click experiences via voice assistants, image recognition software, and GPS applications.
    • Transformational mobility. This category of analytical applications is targeted at the increasingly mobile workforce and delivers more ways for organizations to quickly deploy mobile productivity apps for a variety of business functions and roles.Users can build apps using mobile dossiers, no code drag-and-drop, and customized development using XCode or JavaScript.
    • Federated analytics. This mainstream category of analytics is targeted at analysts and data scientists, who enable long-term decision making. Whether it’s with dossiers, dashboards, or predictive models, or reporting for project performance, financial statements, or billing, MicroStrategy 2019 is designed to empower users with trusted analytics. Analysts who access data using Excel, Power BI, Qlik, or Tableau and data scientists who leverage RStudio or Jupyter Notebook can boost their productivity by using the MicroStrategy 2019 platform for trusted, scalable, federated analytics.

At the core of MicroStrategy 2019 is its Enterprise Semantic Graph™. This proprietary metadata foundation delivers a robust business glossary and index for a vast range of corporate information, making it a powerful method to consolidate disparate sources of data and deliver a single version of truth.

Learn more about MicroStrategy 2019 today. MicroStrategy customers on MicroStrategy 2019 platform can get started on HyperIntelligence by downloading the MicroStrategy HyperIntelligence extension at the Chrome Web Store. Customers can provision MicroStrategy 2019 in the cloud with the MicroStrategy for AWS and MicroStrategy for Azure provisioning consoles. A 30-day free trial is available for MicroStrategy 2019 on AWS and Microsoft Azure.

  • MicroStrategy announced that its customer Corporación Hijos de Rivera S.L., producer of Estrella Galicia beer and other leading beverage brands, piloted a new voice-powered business analytics and artificial intelligence (AI) application with Amazon’s customizable virtual assistant, Alexa, to simplify decision-making for its employees. Hijos de Rivera’s Estrella Galicia business created a voice-activated AI application for its users to glean data from its MicroStrategy analytics platform. By implementing Alexa across the business, Estrella Galicia is driving adoption to more decision makers, who can turn to Alexa for a direct pathway to the data they need. Users can more easily discern opportunities to be explored and make data-driven decisions to accelerate productivity and drive out operational inefficiencies.
  • MicroStrategy released the results of a Harvard Business Review Analytic Services (HBR-AS) study, “An Inflection Point for the Data-Driven Enterprise”, which polled 729 business leaders and personnel across various industries around the world. The HBR-AS study revealed concerning statistics for data-driven transformation, including that nearly one-third (32%) of respondents indicate that their organizations are still operating on static and backward-looking reporting. While 75% say it’s very important to deliver actionable intelligence to employees across the enterprise – the foundation for an Intelligent Enterprise – less than a quarter (24%) indicate their organizations are able to do so. Download An Inflection Point for the Data-Driven Enterprise today to learn more about these findings.
  • MicroStrategy won a NetworkWorld Asia 2018 Readers’ Choice Product Excellence Award in the Data Analytics and Business Intelligence category. MicroStrategy secured the top spot for the only award related to analytics and business intelligence. Readers chose MicroStrategy as the top technology vendor out of 21 business intelligence providers.

MicroStrategy World™ 2019

MicroStrategy will host its 22nd annual enterprise analytics and mobility conference, MicroStrategy World 2019, from February 4 to February 6 at the Phoenix Convention Center in Phoenix, Arizona. Keynote presentations at MicroStrategy World 2019 will take place on Tuesday, February 5, from 9:00 a.m. to 11:00 a.m. (MST) and Wednesday, February 6, from 10:00 a.m. to 12:00 p.m. (MST). Anyone can register to watch the MicroStrategy World 2019 live stream. Join or follow the conversation on Twitter using the hashtag #analytics19.

Non-GAAP Financial Measures

MicroStrategy is providing supplemental financial measures for income from operations that excludes the impact of share-based compensation arrangements and for net income and diluted earnings per share that exclude the impact from the enactment of U.S. corporate tax reform legislation. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate business performance and to help make operating decisions. MicroStrategy believes that these non-GAAP financial measures are also useful to investors and analysts in comparing its performance across reporting periods on a consistent basis because in the case of the supplemental measure for income from operations, it excludes a significant non-cash expense that MicroStrategy believes is not reflective of its general business performance, and in the case of the supplemental measures for net income and diluted earnings per share, they exclude one-time tax adjustments related to the enactment of U.S. corporate tax reform legislation. 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 these non-GAAP financial measures can also facilitate comparison of MicroStrategy’s operating results to those of its competitors.

About MicroStrategy Incorporated

MicroStrategy (Nasdaq: MSTR) is a leading worldwide provider of enterprise analytics and mobility software. A pioneer in the BI and analytics space, MicroStrategy delivers a world-class software platform and expert services to enable each of our customers to become a more Intelligent Enterprise. To learn more, visit MicroStrategy online, and follow us on LinkedIn, Twitter and Facebook.

MicroStrategy, Intelligent Enterprise, MicroStrategy Library, MicroStrategy 2019, HyperIntelligence, HyperCard, Enterprise Semantic Graph, and MicroStrategy World 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 2019; 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, including as a result of changes to U.S. federal tax laws; 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. The Company undertakes no obligation to update these forward-looking statements for revisions or changes after the date of this press 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,  
    2018     2017     2018     2017  
    (unaudited)    

(as adjusted,
unaudited)

    (unaudited)    

(as adjusted,
unaudited)

 
Revenues                                
Product licenses   $ 31,200     $ 30,529     $ 88,057     $ 93,259  
Subscription services     7,084       8,525       29,570       32,368  
Total product licenses and subscription services     38,284       39,054       117,627       125,627  
Product support     73,662       75,025       296,216       289,184  
Other services     19,971       22,302       83,795       89,032  
Total revenues     131,917       136,381       497,638       503,843  
                                 
Cost of revenues                                
Product licenses     609       1,994       4,864       7,176  
Subscription services     3,667       3,404       13,620       13,435  
Total product licenses and subscription services     4,276       5,398       18,484       20,611  
Product support     5,557       4,387       20,242       17,481  
Other services     16,052       14,968       60,773       58,557  
Total cost of revenues     25,885       24,753       99,499       96,649  
                                 
Gross profit     106,032       111,628       398,139       407,194  
                                 
Operating expenses                                
Sales and marketing     57,783       51,832       205,525       175,045  
Research and development     28,028       21,419       102,499       78,766  
General and administrative     22,378       21,240       86,134       80,161  
Total operating expenses     108,189       94,491       394,158       333,972  
                                 
(Loss) income from operations     (2,157 )     17,137       3,981       73,222  
Interest income, net     3,157       1,756       11,855       5,205  
Other income (expense), net     981       (576 )     4,646       (6,953 )
Income before income taxes     1,981       18,317       20,482       71,474  
(Benefit from) provision for income taxes     (1,320 )     43,816       (2,019 )     53,279  
Net income (loss)   $ 3,301     $ (25,499 )   $ 22,501     $ 18,195  
                                 
Basic earnings (loss) per share (1):   $ 0.30     $ (2.23 )   $ 1.98     $ 1.59  
Weighted average shares outstanding used in computing basic earnings (loss) per share     11,129       11,447       11,375       11,444  
                                 
Diluted earnings (loss) per share (1):   $ 0.30     $ (2.23 )   $ 1.97     $ 1.58  
Weighted average shares outstanding used in computing diluted earnings (loss) per share     11,151       11,447       11,412       11,547  

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

             

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

             
    December 31,     December 31,  
    2018     2017  
    (unaudited)    

(as adjusted,
unaudited)

 
Assets                
Current assets                
Cash and cash equivalents   $ 109,924     $ 420,244  
Restricted cash     862       938  
Short-term investments     466,186       254,927  
Accounts receivable, net     171,359       165,364  
Prepaid expenses and other current assets     30,068       19,180  
Total current assets     778,399       860,653  
                 
Property and equipment, net     51,919       53,359  
Capitalized software development costs, net     0       2,499  
Deposits and other assets     8,134       7,411  
Deferred tax assets, net     17,316       9,297  
Total Assets   $ 855,768     $ 933,219  
                 
Liabilities and Stockholders' Equity                
Current liabilities                
Accounts payable and accrued expenses   $ 33,684     $ 30,711  
Accrued compensation and employee benefits     48,045       41,498  
Deferred revenue and advance payments     176,540       198,734  
Total current liabilities     258,269       270,943  
                 
Deferred revenue and advance payments     6,469       6,400  
Other long-term liabilities     61,262       50,146  
Deferred tax liabilities     37       4  
Total Liabilities     326,037       327,493  
                 
Stockholders' Equity                
Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding     0       0  
Class A common stock, $0.001 par value; 330,000 shares authorized; 15,837 shares issued and 8,552 shares outstanding, and 15,817 shares issued and 9,412 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     576,957       559,918  
Treasury stock, at cost; 7,285 shares and 6,405 shares, respectively     (586,161 )     (475,184 )
Accumulated other comprehensive loss     (10,217 )     (5,659 )
Retained earnings     549,134       526,633  
Total Stockholders' Equity     529,731       605,726  
Total Liabilities and Stockholders' Equity   $ 855,768     $ 933,219  
       

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

       
    Twelve Months Ended  
    December 31,  
    2018     2017  
    (unaudited)    

(as adjusted,
unaudited)

 
Operating activities:                
Net income   $ 22,501     $ 18,195  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     3,701       15,532  
Bad debt expense     1,912       2,269  
Net realized loss on short-term investments     153       0  
Deferred taxes     (8,274 )     (3,605 )
Share-based compensation expense     14,636       14,267  
Changes in operating assets and liabilities:                
Accounts receivable     (8,357 )     15,348  
Prepaid expenses and other current assets     (6,561 )     (4,739 )
Deposits and other assets     (1,201 )     3,029  
Accounts payable and accrued expenses     3,378       (9,093 )
Accrued compensation and employee benefits     5,116       (6,209 )
Deferred revenue and advance payments     (22,126 )     (589 )
Other long-term liabilities     5,749       33,917  
Net cash provided by operating activities     10,627       78,322  
                 
Investing activities:                
Proceeds from redemption of short-term investments     491,800       390,720  
Purchases of property and equipment     (6,846 )     (3,982 )
Purchases of short-term investments     (694,018 )     (456,468 )
Net cash used in investing activities     (209,064 )     (69,730 )
                 
Financing activities:                
Proceeds from sale of class A common stock under exercise of employee stock options     2,471       1,677  
Purchases of treasury stock     (110,977 )     0  
Payments on capital lease obligations and other financing arrangements     (9 )     (21 )
Net cash (used in) provided by financing activities     (108,515 )     1,656  
                 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash     (3,444 )     8,222  
Net (decrease) increase in cash, cash equivalents, and restricted cash     (310,396 )     18,470  
Cash, cash equivalents, and restricted cash, beginning of year     421,182       402,712  
Cash, cash equivalents, and restricted cash, end of year   $ 110,786     $ 421,182  
           

MICROSTRATEGY INCORPORATED

REVENUE AND COST OF REVENUE DETAIL

(in thousands)

           
    Three Months Ended     Twelve Months Ended
    December 31,     December 31,
    2018     2017     2018     2017
    (unaudited)    

(as adjusted,
unaudited)

    (unaudited)    

(as adjusted,
unaudited)

Revenues                              
Product licenses and subscription services:                              
Product licenses   $ 31,200     $ 30,529     $ 88,057     $ 93,259
Subscription services     7,084       8,525       29,570       32,368
Total product licenses and subscription services     38,284       39,054       117,627       125,627
Product support     73,662       75,025       296,216       289,184
Other services:                              
Consulting     17,611       20,336       74,609       79,818
Education     2,360       1,966       9,186       9,214
Total other services     19,971       22,302       83,795       89,032
Total revenues     131,917       136,381       497,638       503,843
                               
Cost of revenues                              
Product licenses and subscription services:                              
Product licenses     609       1,994       4,864       7,176
Subscription services     3,667       3,404       13,620       13,435
Total product licenses and subscription services     4,276       5,398       18,484       20,611
Product support     5,557       4,387       20,242       17,481
Other services:                              
Consulting     13,746       13,439       53,605       52,018
Education     2,306       1,529       7,168       6,539
Total other services     16,052       14,968       60,773       58,557
Total cost of revenues     25,885       24,753       99,499       96,649
                               
Gross profit   $ 106,032     $ 111,628     $ 398,139     $ 407,194
           

MICROSTRATEGY INCORPORATED

DEFERRED REVENUE DETAIL

(in thousands)

           
    December 31,     December 31,
    2018     2017
    (unaudited)    

(as adjusted,
unaudited)

Current:              
Deferred product licenses revenue   $ 1,768     $ 3,760
Deferred subscription services revenue     13,508       17,324
Deferred product support revenue     152,501       168,185
Deferred other services revenue     8,763       9,465
Total current deferred revenue and advance payments   $ 176,540     $ 198,734
               
Non-current:              
Deferred product licenses revenue   $ 542     $ 820
Deferred subscription services revenue     2,384       126
Deferred product support revenue     3,091       4,826
Deferred other services revenue     452       628
Total non-current deferred revenue and advance payments   $ 6,469     $ 6,400
               
Total current and non-current:              
Deferred product licenses revenue   $ 2,310     $ 4,580
Deferred subscription services revenue     15,892       17,450
Deferred product support revenue     155,592       173,011
Deferred other services revenue     9,215       10,093
Total current and non-current deferred revenue and advance payments   $ 183,009     $ 205,134
           

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(in thousands, except per share data)

           
    Three Months Ended     Twelve Months Ended
    December 31,     December 31,
    2018     2017     2018     2017
    (unaudited)     (unaudited)     (unaudited)     (unaudited)
Reconciliation of non-GAAP income from operations:                              
(Loss) income from operations   $ (2,157 )   $ 17,137     $ 3,981     $ 73,222
Share-based compensation expense     3,504       3,710       14,636       14,267
Non-GAAP income from operations   $ 1,347     $ 20,847     $ 18,617     $ 87,489
                               
Reconciliation of non-GAAP net income:                              
Net income (loss)   $ 3,301     $ (25,499 )   $ 22,501     $ 18,195
Tax charges and adjustments related to U.S. tax reform     0       44,018       (3,106 )     44,018
Non-GAAP net income   $ 3,301     $ 18,519     $ 19,395     $ 62,213
                               
Reconciliation of non-GAAP diluted earnings per share:                              
Diluted earnings (loss) per share   $ 0.30     $ (2.23 )   $ 1.97     $ 1.58
Impact of tax charges and adjustments related to U.S. tax reform (per diluted share)     0.00       3.85       (0.27 )     3.81
Non-GAAP diluted earnings per share   $ 0.30     $ 1.62     $ 1.70     $ 5.39
                             

MICROSTRATEGY INCORPORATED

WORLDWIDE EMPLOYEE HEADCOUNT

                             
    December 31,     September 30,     June 30,     March 31,     December 31,
    2018     2018     2018     2018     2017
Subscription services     56       55       54       57       53
Product support     202       194       184       182       172
Consulting     452       458       443       441       441
Education     47       44       39       42       41
Sales and marketing     707       699       687       667       652
Research and development     716       688       651       604       559
General and administrative     348       326       322       313       298
Total headcount     2,528       2,464       2,380       2,306       2,216

 

Source: MicroStrategy Incorporated

MicroStrategy Incorporated
Investor Relations
Claudia Cahill
ir@microstrategy.com
(703) 848-8600