MicroStrategy Announces Second Quarter 2005 Financial Results

July 28, 2005
MicroStrategy Announces Second Quarter 2005 Financial Results

MCLEAN, Va., July 28 -- MicroStrategy(R) Incorporated (Nasdaq: MSTR), a leading worldwide provider of business intelligence software, today announced financial results for the three-month period ended June 30, 2005 (the second quarter of its 2005 fiscal year).

Second quarter 2005 revenue was $65.4 million versus $49.9 million in the second quarter of 2004, a 31% increase. License revenue for the second quarter of 2005 was $24.3 million versus $18.3 million for the second quarter of 2004, a 32% increase. Net income for the second quarter of 2005 was $17.6 million, or $1.12 per share on a diluted basis. Second quarter 2005 income from operations was $23.0 million, or 35% of revenue, versus $12.2 million, or 24% of revenue, in the second quarter of 2004.

For the six-month period ended June 30, 2005, revenue was $125.4 million versus $99.0 million for the same period in 2004, a 27% increase. License revenue for the six-month period ended June 30, 2005 was $46.1 million versus $37.1 million in 2004, a 24% increase. Net income for the first six months of 2005 was $32.6 million, or $1.99 per share on a diluted basis. Income from operations for the six-month period ended June 30, 2005, was $41.4 million, or 33% of revenue, versus $22.4 million, or 23% of revenue, for the same period in 2004.

During the second quarter of 2005, MicroStrategy repurchased 2.5 million shares of its class A common stock for $127.6 million at an average price per share of $50.84. As of June 30, 2005, MicroStrategy had $50.6 million in cash and cash equivalents and 10,410,090 shares of class A common stock and 3,394,399 shares of class B common stock outstanding.

"MicroStrategy's business exhibited outstanding operating leverage and generated significant operating cash flows in the second quarter. Operating income increased 89% compared to the second quarter of 2004 and revenues increased 31% during the same period," said Arthur S. Locke, III, MicroStrategy's Vice President, Finance & Chief Financial Officer. "Net cash generated from operations for the first half of 2005 was $52.2 million, compared to $37.8 million for the first half of 2004."

"We are proud of our 31% year-over-year organic revenue growth in the second quarter of 2005," said Michael Saylor, MicroStrategy's Chairman and CEO. "We are also pleased that IDC recently cited MicroStrategy as the fastest growing top 10 BI vendor in both 2004 and 2003. We believe that MicroStrategy 8, with its enhanced user interface designed for use by business people, makes MicroStrategy technology even easier to use and well-suited for large scale business intelligence deployments."

    New Customers and New Deals with Existing Customers in Q2 2005 included:

     Financial Services
     1st Financial Bank USA; Bank of the West; Equity Office Properties Trust;
      Wells Fargo

     Charming Shoppes, Inc.; Family Dollar Stores, Inc.; Federated Systems
      Group; Hannaford Bros. Co.; HE Butt Grocery Company; Hudson's Bay
      Company; New York & Co., Group Inc.; Retail Ventures, Inc.; Shoppers
      Drug Mart

     Centers for Medicare and Medicaid Services; Federal Bureau of
      Investigation; Ohio Department of Education; Transportation Security

     ImpactRx; Forest Laboratories; Prescription Solutions; Verispan, LLC

     CSK Auto Corporation; emedco; Porsche Cars North America; Rheem

     Children International; DMX Group; Focus Technology Group; Marketing
      Direct, Inc.; Meredith Corporation; Monster Government Solutions;
      Vcommerce Corporation; Yahoo!

    Examples of Noteworthy Customer Deals from Q2 2005:

    Transportation Security Administration

The Transportation Security Administration's (TSA) Office of Strategic Management and Analysis, part of the U.S. Department of Homeland Security, implemented the MicroStrategy Business Intelligence Platform(TM) to analyze transportation security operations at commercial airports nationwide. TSA executives, Federal Security Directors, and TSA field staff use MicroStrategy's software to assess and streamline the performance of commercial airport security operations. MicroStrategy anchors TSA's Performance Management Information System (PMIS), which collects, analyzes, and reports passenger and baggage screening data. Operational performance metrics, such as wait times at selected airports, TSA staff utilization, and screening equipment utilization are collected and reported via the PMIS system.

Bank of the West

Based in San Francisco, Bank of the West is the fourth-largest commercial bank headquartered west of the Mississippi, with 480 banking locations in 16 states. After evaluating numerous business intelligence products, Bank of the West selected MicroStrategy for risk management reporting and analysis. To mitigate risk in collections and lending, Bank of the West will use MicroStrategy to glean valuable information from its collections data warehouse. With MicroStrategy, Bank of the West personnel can analyze lending and collections data to generate reports that compare risk management strategies, assess effectiveness, and determine optimal risk management policies for the company.

Family Dollar Stores, Inc.

Family Dollar, one of the fastest growing discount store chains in the United States with stores in 44 states, has selected MicroStrategy for enhanced sales analysis and inventory management. Using MicroStrategy, Family Dollar personnel will generate comprehensive sales and inventory reports for greater insight into what products are selling at their 5,700 stores. MicroStrategy's intuitive user interface and Web report delivery provides Family Dollar business users with valuable data to make better-informed decisions that can improve sales performance, inventory management, and customer satisfaction.

Monster Government Solutions

Monster Government Solutions is a leading provider of government human capital solutions and a wholly owned subsidiary of Monster Worldwide, Inc. Monster Government Solutions selected MicroStrategy to support its enterprise hiring management solution, which allows government HR professionals to build and post vacancy announcements and develop online questionnaires to help them evaluate and hire the best candidates. Monster Government Solutions is relying on MicroStrategy to develop a new business intelligence module for its hiring management solution, which is used by more than 100 government agencies. With the new module, agencies will be able to report on, analyze, and drive the performance of their critical human capital initiatives and operations. Monster Government Solutions chose MicroStrategy over the competing products because of its easy-to-use Web interface, outstanding security, and scalability for a growing number of users.

Update on MicroStrategy 8:

Launched earlier this year, MicroStrategy 8 provides fully integrated reporting, analysis, and dashboarding capabilities. The MicroStrategy 8 user interface has been redesigned to greatly improve productivity for business people. Unlike products that require technically-trained developers for report development, MicroStrategy 8 enables business people to format reports and scorecards in WYSIWYG (what-you-see-is-what-you-get) mode. These business people can control the content and structure of their own reports with minimal assistance from IT staff.

On July 14, 2005, MicroStrategy announced the release of MicroStrategy 8 for 64-bit Linux and the new high-capacity, entry-level servers containing 64- bit x86 processors. MicroStrategy customers now have additional operating system and hardware options to increase the performance and value of their BI systems. MicroStrategy 8's 64-bit architecture enables customers to run more applications and support larger numbers of users per server, and our support for Linux provides customers with increased operating system flexibility for deployment of their business intelligence applications.

IDC Cites MicroStrategy as Fastest Growing Top 10 BI Vendor:

IDC's Worldwide Business Intelligence 2004 Vendor Shares report identified MicroStrategy as the fastest-growing top 10 Business Intelligence software vendor for the second year in a row, with software license and maintenance revenue growth of 32.8% in 2004 and 24.0% in 2003. According to the IDC report, MicroStrategy's results during these periods have been based on a strong focus on its core strength in highly scalable business intelligence deployments. The IDC report also noted that MicroStrategy has been on the leading edge in user interface development for both end users and developers.

MicroStrategy Regional and Annual User Conferences:

The MicroStrategy Summer Symposium was held on July 18-20, 2005 in Chicago, Illinois and offered an environment for participants to exchange ideas and learn from MicroStrategy customers such as Intel, Cardinal Health, Nationwide Insurance, Corporate Express, Inovant, Sprint, Tyco International, U.S. Postal Service, and Retail Ventures who presented business intelligence case studies. The event was interactive. Attendees provided MicroStrategy product managers feedback and input on MicroStrategy technology and also participated in one-on-one consultations with MicroStrategy Technology Advisory Service (TAS) principals to get expert advice on their particular BI challenges.

Following the success of EuroWorld 2004, the Company's first European users' conference, MicroStrategy is planning this year's event in Bonn, Germany. EuroWorld 2005, October 18-20, will feature visionary keynote speakers, more than 35 technical sessions covering a wide range of topics, and customer presentations from leading European companies including British American Tobacco, METRO Group, PEPSI Bottling Group, Deutsche Borse, Telefonica, and MACH.

Other upcoming MicroStrategy user events include the MicroStrategy Fall Symposium in October and MicroStrategy World 2006, February 13-16, in Miami, Florida.

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 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 its 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, MicroStrategy 7i, MicroStrategy Universal Edition, and MicroStrategy Report Services 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
                    (in thousands, except per share data)

                           Three Months Ended             Six Months Ended
                                June 30,                      June 30,
                          2005           2004           2005           2004
                              (unaudited)                   (unaudited)

    Product licenses     $24,255        $18,323        $46,066        $37,134
    Product support and
     other services       41,182         31,561         79,357         61,856
      Total revenues      65,437         49,884        125,423         98,990

    Cost of revenues
    Product licenses         918            870          2,195          1,714
    Product support and
     other services        8,179          7,269         15,595         14,180
      Total cost of
       revenues            9,097          8,139         17,790         15,894
    Gross profit          56,340         41,745        107,633         83,096

    Operating expenses
    Sales and marketing   16,533         15,538         33,767         31,944
    Research and
     development           8,061          6,516         15,279         13,246
    General and
     administrative        8,773          7,503         17,125         15,456
    Amortization of
     intangible assets        18             17             36             35
      Total operating
       expenses           33,385         29,574         66,207         60,681
    Income from
     operations           22,955         12,171         41,426         22,415

    Financing and other
     income (expense)
    Interest income          721            174          1,593            289
    Interest expense         (17)           (11)           (32)           (25)
    Loss on investments     (149)           (85)          (131)           (85)
    Other income
     (expense), net        1,157           (241)         1,415            565
      Total financing
       and other income
       (expense)           1,712           (163)         2,845            744
    Income before income
     taxes                24,667         12,008         44,271         23,159
      Provision for
       income taxes        7,080            581         11,631          1,353
    Net income           $17,587        $11,427        $32,640        $21,806

    Basic earnings per
     share                 $1.16          $0.71          $2.08          $1.36
    Diluted earnings per
     share                 $1.12          $0.67          $1.99          $1.27
    Basic weighted
     average shares
     outstanding          15,149         16,056         15,683         16,033
    Diluted weighted
     average shares
     outstanding          15,767         17,128         16,363         17,190

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

                                                  June 30,        December 31,
                                                    2005              2004
    Assets                                       (unaudited)        (audited)
    Current assets
      Cash and cash equivalents                    $50,632           $68,314
      Restricted cash and investments                5,998             1,210
      Short-term investments                            14            37,816
      Accounts receivable, net                      32,387            40,917
      Prepaid expenses and other current assets      4,685             6,337
      Deferred tax assets, net                      22,874            20,583
    Total current assets                           116,590           175,177

    Property and equipment, net                     13,950            16,096
    Capitalized software development costs, net      4,804             5,479
    Long-term investments                              -              26,365
    Deposits and other assets                        2,623             3,021
    Deferred tax assets, net                       101,090           110,818
    Total assets                                  $239,057          $336,956

    Liabilities and stockholders' equity
    Current liabilities
      Accounts payable and accrued expenses        $15,239           $18,906
      Accrued compensation and employee benefits    19,389            25,292
      Accrued restructuring costs                    1,756             1,762
      Deferred revenue and advance payments         47,113            43,674
    Total current liabilities                       83,497            89,634

    Deferred revenue and advance payments            2,002             1,681
    Other long-term liabilities                      2,974             3,157
    Accrued restructuring costs                      1,231             1,906
    Total liabilities                               89,704            96,378

    Stockholders' equity:
      Preferred stock undesignated; $0.001 par
       value; 4,971 shares authorized; no shares
       issued or outstanding                           -                 -
      Class A common stock; $0.001 par value;
       330,000 shares authorized; 12,988 shares
       issued and 10,410 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; 3,394 and
       3,394 shares issued and outstanding,
       respectively                                      3                 3
      Additional paid-in capital                   422,263           417,287
      Treasury stock, at cost; 2,578 and 68
       shares, respectively                       (129,893)           (2,331)
      Accumulated other comprehensive income         1,926             3,206
      Accumulated deficit                         (144,959)         (177,600)
    Total stockholders' equity                     149,353           240,578
    Total liabilities and stockholders' equity    $239,057          $336,956

                          MICROSTRATEGY INCORPORATED
                                (in thousands)

                                                        Six months ended
                                                            June 30,
                                                     2005             2004
    Operating activities:
       Net income                                   $32,640          $21,806
       Adjustments to reconcile net income
        to net cash provided by operating
          Depreciation and amortization               4,521            4,167
          Bad debt recovery                             (49)             (27)
          Loss on investments                           131               85
          Discount amortization on short-
           and long-term investments                   (490)             -
          Deferred taxes                              9,592              288
          Other, net                                     12               60
       Changes in operating assets and
          Accounts receivable                         7,444            3,245
          Prepaid expenses and other current
           assets                                     1,058           (1,263)
          Deposits and other assets                     292           (1,458)
          Accounts payable and accrued
           expenses, compensation and employee
           benefits                                  (8,019)          (1,050)
          Accrued restructuring costs                  (724)          (1,470)
          Deferred revenue and advance payments       5,932           11,705
          Other long-term liabilities                  (183)           1,683
             Net cash provided by operating
              activities                             52,157           37,771
    Investing activities:
       Proceeds from maturities of short-
        term investments                             38,000              -
       Proceeds from sales of short-term
        investments                                  49,593              -
       Proceeds from sales of long-term
        investments                                  26,517              -
       Purchases of short-term investments          (49,293)             -
       Purchases of long-term investments               -            (26,353)
       Purchases of property and equipment, net        (881)          (3,193)
       Capitalized software development costs          (926)          (1,414)
       Increase in restricted cash and investments   (4,845)              (3)
             Net cash provided by (used in)
              investing activities                   58,165          (30,963)
    Financing activities:
       Proceeds from sale of class A common stock
        under exercise of employee stock options
        and employee stock purchase plan              2,952            2,412
       Purchases of treasury stock                 (127,562)             -
             Net cash (used in) provided by
              financing activities                 (124,610)           2,412
             Effect of foreign exchange rate
              changes on cash and cash equivalents   (3,394)            (319)
    Net (decrease) increase in cash and cash
     equivalents from continuing operations         (17,682)           8,901
    Net cash received from discontinued
     operations                                         -                 34
    Net (decrease) increase in cash and cash
     equivalents                                    (17,682)           8,935
    Cash and cash equivalents, beginning of period   68,314           51,882
    Cash and cash equivalents, end of period        $50,632          $60,817

SOURCE  MicroStrategy Incorporated

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