MicroStrategy Announces Second Quarter 2006 Financial Results

July 27, 2006
MicroStrategy Announces Second Quarter 2006 Financial Results

MCLEAN, Va., July 27 -- 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, 2006 (the second quarter of its 2006 fiscal year).

Second quarter 2006 revenue was $74.1 million versus $65.4 million for the second quarter of 2005, a 13% increase. This marked the fourteenth consecutive quarter of year-over-year revenue growth. Product support and other services revenue for the second quarter of 2006 was $51.0 million versus $41.2 million for the second quarter of 2005, a 24% increase. Product licenses revenue for the second quarter of 2006 was $23.1 million versus $24.3 million for the second quarter of 2005, a 5% decrease.

Operating expenses for the second quarter of 2006 were $39.8 million versus $33.4 million for the second quarter of 2005, a 19% increase which resulted primarily from an increase in worldwide employee headcount and includes approximately $417,000 in stock option compensation expense in connection with the implementation of the Financial Accounting Standards Board's Statement of Financial Accounting Standards Number 123(R) as of January 1st, 2006. The increase in second quarter operating expenses reflects continued expansion of our worldwide sales and services organization and administrative and IT support functions. Second quarter 2006 income from operations increased by 3% to $23.7 million, or 32% of revenue, versus $23.0 million, or 35% of revenue, for the second quarter of 2005. Net income for the second quarter of 2006 was $16.6 million, or $1.21 per share on a diluted basis.

During the second quarter of 2006, MicroStrategy repurchased 528,300 shares of its class A common stock for $54.0 million at an average price per share of $102.24, including broker commissions. As of June 30, 2006, MicroStrategy had $46.9 million in cash and cash equivalents and 9,583,470 shares of class A common stock and 3,227,573 shares of class B common stock outstanding.

"Our worldwide services business led the way in the quarter with impressive growth, providing a strong financial and operational foundation that allowed us to expand our global presence and make further investments in our products," said Arthur S. Locke, III, MicroStrategy's Vice President, Finance & Chief Financial Officer. "We are pleased with the balance achieved during the second quarter, as we generated an operating income margin of 32% while expanding our worldwide sales and services organization."

New Customers and New Deals with Existing Customers in Q2 2006 included:

21st Century Insurance, American Healthways, Apria Healthcare, Cascade Corporation, Catalina Marketing Corporation, David's Bridal, Fieldstone Mortgage, The First American Financial Corporation, GERS Retail Systems, Guy Carpenter, Hard Rock Cafe, Iridium Satellite LLC, ITT Industries, KeySpan Corporate Services LLC, Meijer Great Lakes Limited Partnership, Morguard Corporation, N.E.W. Corp., National Institutes of Health (NIH), Network Solutions, New Plan Excel Realty Trust, Inc., New York & Company, Inc., NEXCOM, Payless ShoeSource Worldwide, Inc., Porsche Cars North America, ProcessMAP Corporation, Rewards Network Services Inc., Rite-Hite Corporation, SOCAN, Transportation Security Administration, Unisource Administrators, Inc., United States Geological Survey, Universal Studios Hollywood, US Department of State, Wells Fargo Bank, N.A, and Wyeth.

Examples of Customer Deals from Q2 2006:

ProcessMAP Corporation
A new MicroStrategy customer, ProcessMAP Corporation is a leading provider of end-to-end software solutions in environmental, health and safety (EH&S) information management. ProcessMAP provides a suite of applications, anchored by MicroStrategy, that help customers better manage EH&S compliance data, risk management data, and performance data. ProcessMAP has integrated MicroStrategy to allow customers to analyze a wide range of EH&S information such as key EH&S metrics, scorecards and performance indicators; injury/illness incident rates, trends and root causes; behavioral safety data; waste; energy consumptions and Greenhouse Gas emissions; corporate EH&S compliance and ISO 14001/OHSAS 18001 audit data; and industrial hygiene data. The ProcessMAP solution enables customers to establish enterprise-wide consistency in data management as well as monitor regulatory compliance, increase productivity, streamline business processes and enhance organizational transparency.

Rite-Hite Corporation
Rite-Hite Corporation, headquartered in Milwaukee, Wisconsin, is a world-wide leader in the development, manufacture and sale of loading dock safety systems and industrial door solutions. Using MicroStrategy, Rite-Hite recently introduced a new scorecard for executives, which provides a snapshot of critical company information such as forecasted revenue and balance sheet analysis. Monitoring business performance using MicroStrategy's "at-a-glance" scorecards gives Rite-Hite users timely insights into key business metrics. Rite-Hite also uses MicroStrategy to streamline and automate its planning data to make more strategic and analytically-based decisions.

Iridium Satellite LLC
Iridium Satellite LLC, a global supplier of mobile satellite communications services, selected MicroStrategy to provide improved sales and customer data reporting, and enhanced analysis of marketing programs. A new MicroStrategy customer, Iridium plans to use MicroStrategy to leverage its historical subscriber and network usage data to improve customer retention and better understand the geographic distribution of its products and services, as well as the market segments it serves. Using MicroStrategy, Iridium executives will be able to monitor the company's marketing and sales performance via real-time dashboards, and Iridium marketing analysts can more accurately understand the existing Iridium subscriber base and better tailor marketing initiatives for its various market segments.

MicroStrategy 8 Enhancements:
During the second quarter of 2006, MicroStrategy announced that IBM WebSphere(R) Information Integrator was certified to interoperate with MicroStrategy 8. This interoperability is another milestone in the long-standing relationship between IBM and MicroStrategy. The combination of MicroStrategy and IBM WebSphere Information Integrator technology enables companies to seamlessly derive critical business insights from multiple, heterogeneous data sources. MicroStrategy also announced that it certified Sybase(R) Avaki(R) Enterprise Information Integration (EII) software on the MicroStrategy Business Intelligence Platform(TM). With the certification of Sybase Avaki EII, MicroStrategy 8 extends its heterogeneous database access capability to include Web services data sources and file-based data stores.

MicroStrategy recently expanded its relationship with Microsoft by extending MicroStrategy 8 access to multidimensional data sources with support for Microsoft SQL Server 2000 and SQL Server 2005 Analysis Services. MicroStrategy 8 uses the industry standards of Web Services and XML for Analysis (XMLA) to connect to SQL Server Analysis Services. MicroStrategy's support for SQL Server 2005 Analysis Services will allow customers to report and analyze Analysis Services data and join it with data from other sources, enabling deeper insights to uncover problems and trends previously unseen. This support expands MicroStrategy's integration points with Microsoft, including Microsoft SQL Server 2005, Microsoft Office, Microsoft Office SharePoint Portal Server, and the Microsoft Windows operating systems.

MicroStrategy 2006 Symposia Series:
MicroStrategy continued its 2006 Symposia series with the Summer Symposia held in London, July 10-12, and New York City, July 17-19. These events provide a collaborative forum for attendees to exchange ideas with peers and industry experts, learn BI success strategies from leading companies in their industries, and gain valuable insights from MicroStrategy's technology leaders. At both events, MicroStrategy customers presented case studies demonstrating their deployed enterprise BI applications using MicroStrategy. Customer speakers at the London Symposium included Deutsche Bank, Virgin Retail, Amlin, and Finansbank. At the New York City Summer Symposium, customer speakers included representatives from Lowe's Companies, Yahoo!, Bank of America, and MetLife. Upcoming 2006 Symposia will be held in Sao Paulo, Brazil, September 11-13; Chicago, October 9-11; and Rome, October 16-18.

MicroStrategy Customer Recognition:
Four MicroStrategy customers were recognized as Laureates by the Computerworld Honors Program at an awards event held in Washington, D.C. in June. Consip (the IT branch of Italy's Ministry of the Economy and Finance), NBC Universal, Ohio Department of Education, and Receita Federal (Brazil's Federal Revenue and Customs Administration) were selected for their noteworthy use of business intelligence technology. Established in 1988, The Computerworld Honors Program brings together the principals of leading information technology companies to recognize and document the achievements of the men, women, organizations and institutions around the world, whose visionary applications of information technology promote positive social, economic and educational change.

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

MicroStrategy, MicroStrategy Report Services, MicroStrategy 8, Pixel Perfect, and MicroStrategy Business Intelligence Platform are either trademarks or registered trademarks of MicroStrategy Incorporated in the United States and certain other countries. Other product and company names mentioned herein may be the trademarks of their respective owners.

This press release may include statements that may constitute "forward-looking statements," including estimates of future business prospects or financial results and statements containing the words "believe," "estimate," "project," "expect" or similar expressions. Forward-looking statements inherently involve risks and uncertainties that could cause actual results of MicroStrategy Incorporated and its subsidiaries (collectively, the "Company") to differ materially from the forward-looking statements. Factors that could contribute to such differences include: the ability of the Company to implement and achieve widespread customer acceptance of its MicroStrategy 8 software on a timely basis; the Company's ability to recognize deferred revenue through delivery of products or satisfactory performance of services; continued acceptance of the Company's products in the marketplace; the timing of significant orders; delays in the Company's ability to develop or ship new products; market acceptance of new products; competitive factors; general economic conditions; currency fluctuations; and other risks detailed in the Company's registration statements and periodic reports filed with the Securities and Exchange Commission. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this release.

                            MICROSTRATEGY INCORPORATED
                      (in thousands, except per share data)

                                          Three Months Ended Six Months Ended
                                               June 30,          June 30,
                                            2006     2005     2006     2005
                                             (unaudited)       (unaudited)

    Product licenses                       $23,111  $24,255  $46,244  $46,066
    Product support and other services      50,995   41,182   97,360   79,357
      Total revenues                        74,106   65,437  143,604  125,423

    Cost of Revenues
    Product licenses                           592      918    1,296    2,195
    Product support and other services      10,039    8,179   18,869   15,595
      Total cost of revenues                10,631    9,097   20,165   17,790
    Gross profit                            63,475   56,340  123,439  107,633

    Operating Expenses
    Sales and marketing                     20,313   16,533   40,282   33,767
    Research and development                 8,732    8,061   16,981   15,279
    General and administrative              10,716    8,773   21,466   17,125
    Amortization of intangible assets           18       18       36       36
      Total operating expenses              39,779   33,385   78,765   66,207
    Income from operations                  23,696   22,955   44,674   41,426

    Financing and Other Income
    Interest income                            667      721    1,530    1,593
    Interest expense                           (19)     (17)     (51)     (32)
    Loss on investments                          -     (149)       -     (131)
    Other income (expense), net               (515)   1,157     (667)   1,415
      Total financing and other income         133    1,712      812    2,845
    Income before income taxes              23,829   24,667   45,486   44,271
      Provision for income taxes             7,271    7,080   13,935   11,631
    Net income                             $16,558  $17,587  $31,551  $32,640

         Basic earnings per share            $1.27    $1.16    $2.37    $2.08
         Diluted earnings per share          $1.21    $1.12    $2.26    $1.99
         Basic weighted average shares
          outstanding                       13,024   15,149   13,295   15,683
         Diluted weighted average shares
          outstanding                       13,678   15,767   13,990   16,363

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

                                                  June 30,        December 31,
                                                    2006               2005
    Assets                                       (unaudited)         (audited)
    Current assets
      Cash and cash equivalents                    $46,940            $42,318
      Restricted cash and investments                5,225              5,076
      Short-term investments                            22             53,761
      Accounts receivable, net                      34,069             43,052
      Prepaid expenses and other current
       assets                                        7,490              6,209
      Deferred tax assets, net                      25,954             22,971
    Total current assets                           119,700            173,387

    Property and equipment, net                     10,937             12,031
    Capitalized software development
     costs, net                                      2,608              3,669
    Deposits and other assets                        1,923              2,293
    Deferred tax assets, net                        73,278             86,393
    Total assets                                  $208,446           $277,773

    Liabilities and Stockholders' Equity
    Current liabilities
      Accounts payable and accrued
       expenses                                    $17,942            $19,550
      Accrued compensation and employee
       benefits                                     21,925             27,258
      Deferred revenue and advance
       payments                                     58,794             45,874
    Total current liabilities                       98,661             92,682

    Deferred revenue and advance
     payments                                        1,451              1,554
    Other long-term liabilities                      2,330              2,815
    Total liabilities                              102,442             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;
       13,422 shares issued and 9,583
        outstanding, and 13,270 shares
         issued and 10,595 shares
         outstanding, respectively                      13                 13
      Class B common stock; $0.001 par
       value; 165,000 shares authorized;
       3,228 and 3,258 shares
        issued and outstanding,
         respectively                                    3                  3
      Additional paid-in capital                   434,215            428,062
      Treasury stock, at cost; 3,839 and
       2,675 shares, respectively                 (249,625)          (136,817)
      Accumulated other comprehensive
       income                                        2,703              2,318
      Accumulated deficit                          (81,305)          (112,857)
    Total stockholders' equity                     106,004            180,722
    Total liabilities and stockholders'
     equity                                       $208,446           $277,773

                            MICROSTRATEGY INCORPORATED
                                  (in thousands)

                                                         Six months ended
                                                             June 30,
                                                      2006              2005
                                                  (unaudited)      (unaudited)
    Operating activities:
       Net income                                   $31,551           $32,640
       Adjustments to reconcile net income
        to net cash provided by operating
          Depreciation and amortization              $3,886             4,521
          Bad debt provision (recovery)                 656               (49)
          Deferred taxes                             11,981             9,592
          Stock-based compensation                      821                 -
          Excess tax benefits from stock-
           based payment arrangements                (2,214)                -
          Other, net                                     50              (347)
       Changes in operating assets and
          Accounts receivable                         9,444             7,444
          Prepaid expenses and other
           current assets                            (1,074)            1,058
          Deposits and other assets                     391               292
          Accounts payable and accrued
           expenses, compensation
             and employee benefits                   (8,055)           (8,743)
          Deferred revenue and advance payments      11,853             5,932
          Other long-term liabilities                  (273)             (183)
             Net cash provided by
              operating activities                   59,017            52,157
    Investing activities:
       Proceeds from maturities of short-
        term investments                            106,691           114,110
       Purchases of short-term investments          (52,924)          (49,293)
       Purchases of property and
        equipment, net                               (1,622)             (881)
       Capitalized software development
        costs                                             -              (926)
       Increase in restricted cash and
        investments                                     (97)           (4,845)
             Net cash provided by
              investing activities                   52,048            58,165
    Financing activities:
       Proceeds from sale of class A
        common stock under employee
          stock purchase plan and exercise
           of employee stock options                  2,758             2,952
       Excess tax benefits from stock-
        based payment arrangements                    2,214                 -
       Purchases of treasury stock                 (112,807)         (127,562)
             Net cash used in financing
              activities                           (107,835)         (124,610)
             Effect of foreign exchange
              rate changes on cash and
              cash equivalents                        1,392            (3,394)
    Net increase (decrease) in cash and
     cash equivalents                                 4,622           (17,682)
    Cash and cash equivalents, beginning
     of period                                       42,318            68,314
    Cash and cash equivalents, end of
     period                                         $46,940           $50,632

SOURCE  MicroStrategy Incorporated

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