MicroStrategy Announces Third Quarter 2006 Financial Results

October 26, 2006
MicroStrategy Announces Third Quarter 2006 Financial Results

MCLEAN, Va., Oct. 26 -- MicroStrategy(R) Incorporated (Nasdaq: MSTR), a leading worldwide provider of business intelligence software, today announced financial results for the three-month period ended September 30, 2006 (the third quarter of its 2006 fiscal year).

Third quarter 2006 revenue was $77.7 million compared to $65.8 million for the third quarter of 2005, an 18% increase. This marked the fifteenth consecutive quarter of year-over-year revenue growth. Product support and other services revenue for the third quarter of 2006 was $53.2 million versus $43.2 million for the third quarter of 2005, a 23% increase. Product licenses revenue for the third quarter of 2006 was $24.5 million versus $22.6 million for the third quarter of 2005, an 8% increase. Operating expenses for the third quarter of 2006 were $41.7 million versus $33.7 million for the third quarter of 2005, a 24% increase, and include approximately $264,000 in stock option compensation expense. The increase in third quarter operating expenses reflects an increase in worldwide employee headcount relating to the continued expansion of our worldwide sales and services organization and administrative and IT support functions. Third quarter 2006 income from operations increased by 6% to $24.2 million, or 31% of revenue, versus $22.9 million, or 35% of revenue, for the third quarter of 2005. Net income for the third quarter of 2006 increased by 35% to $17.9 million, or $1.32 per share on a diluted basis compared to $13.3 million, or $0.91 per share on a diluted basis for the third quarter of 2005.

During the third quarter of 2006, MicroStrategy repurchased 215,440 shares of its class A common stock for $19.2 million at an average price per share of $88.89, including broker commissions. As of September 30, 2006, MicroStrategy had 9,375,729 shares of class A common stock and 3,227,573 shares of class B common stock outstanding.

"We are pleased with the continued balance achieved by our business during the third quarter, as we generated solid revenue growth and an operating income margin in excess of 30% while also expanding our global business capacity," said Arthur S. Locke, III, MicroStrategy's Vice President, Finance & Chief Financial Officer. "Since the third quarter of 2005, we have increased our worldwide headcount by over 250 employees, adding new leadership to our global team and increasing our capacity to drive new business, maintain strong relationships with our customers, and strengthen our corporate infrastructure."

New Customers and New Deals with Existing Customers in Q3 2006 included:

21st Century Insurance, Agriliance, Alticor, Bank of Montreal, Boscov's Department Stores, Cingular Wireless, Department of Housing and Urban Development, The Estee Lauder Companies, Inc., Focus Technology Group, Giorgio Armani Corporation, Groupe TVA, H&R Block, Micro Electronics, Inc., New Plan Excel, Pacific Sunwear, Paradigm Solutions, Inc., Payless ShoeSource Worldwide, Inc., Porsche Cars North America, Inc., Redwood Trust, RGA Reinsurance Company, Shoppers Drug Mart, Transportation Security Administration, UNISYS Corporation, US Borax, Inc., Wilbur-Ellis Company, Wilton Industries, Inc., XM Satellite Radio Inc.

Examples of Customer Deals from Q3 2006:

Boscov's Department Stores

Boscov's, a leading full service department store, selected MicroStrategy to anchor a loss prevention and fraud detection BI application. With MicroStrategy, Boscov's employees can analyze point-of-sale data and look for anomalies, which help to uncover fraudulent activity and, ultimately, increase margins and reduce expenses. Boscov's chose MicroStrategy for its scalability to support a growing user base and increasing data sizes, as the company plans to expand its BI applications to support other areas of the business. Boscov's Department Stores operates 50 department stores that anchor malls mainly in Pennsylvania, as well as in Delaware, Maryland, New Jersey, New York, and Virginia.

Porsche Cars North America, Inc.

Porsche Cars North America, Inc. (PCNA), based in Atlanta, GA, and its subsidiary, Porsche Cars Canada, Ltd., are the exclusive importers of Porsche sports cars and Cayenne sport utility vehicles for the United States and Canada, Ltd, and is a wholly owned, indirect subsidiary of Dr. Ing. h.c. F. Porsche AG. PCNA uses MicroStrategy to help report, analyze, and monitor sales and marketing information. PCNA uses this information to be as responsive as possible to its customers, increase dealership productivity, and support the company's business objectives. PCNA selected the MicroStrategy Business Intelligence Platform for its ease-of-use, advanced analytical capabilities, and scalability.

Redwood Trust

Based in Mill Valley, California, Redwood Trust invests in, credit- enhances, and securitizes residential and commercial real estate loans and securities. As a new MicroStrategy customer, Redwood Trust plans to use MicroStrategy as its enterprise business intelligence standard for reporting and analysis. With MicroStrategy, Redwood Trust personnel will be able to analyze business performance across the enterprise and track its assets with "at-a-glance" dashboards, as well as drill down to examine how each asset impacts the company. MicroStrategy was selected for its data scalability and advanced reporting and analytical capabilities.

MicroStrategy Events:

In September, MicroStrategy held its first Latin American Symposium in Sao Paulo, Brazil. The two-day event featured 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. Customer speakers from Brazil and Argentina at the Sao Paulo event included General Motors Brazil, Chevron Brazil, Redecard, Banco Central do Brasil, HSBC/BNL Argentina, Metrovias, and Banco Patagonia.

MicroStrategy hosted its Fall Symposium in Chicago, Illinois, on October 10-11, 2006. The Symposium offered informative technical sessions on BI application performance, networking opportunities, and industry best practice presentations from MicroStrategy customers. Customer speakers at the Chicago event included Hallmark Cards, known throughout the world for its greeting cards; Things Remembered, the nation's largest personalized gift chain; Rite- Hite Corporation, a worldwide leader in the development, manufacture, and sale of loading dock safety systems and industrial door solutions; and Quixtar, a top retailer in the online health and beauty category.

MicroStrategy also held a Symposium in Rome, Italy, on October 17-18, 2006. The Rome Symposium featured technical sessions on BI application performance and real-world case studies on how companies use MicroStrategy to improve operational efficiencies, increase revenues, and enhance business performance. Customer speakers at the Rome event included Banca Nazionale del Lavoro, Consip, Gruppo PAM, Gucci, Holding dei Giochi, Milan City Council, Poste Italiane, Rai, Trenitalia, and Wyeth.

In November, MicroStrategy will launch a new one-day event, MicroStrategy Technology Day. The inaugural event will be held on November 15, 2006 in Washington D.C. at the Willard InterContinental Washington Hotel. MicroStrategy Technology Day will offer a variety of technical and business sessions, featuring customer BI deployment strategies and solutions. During 2007, MicroStrategy expects to schedule Technology Day events in multiple locations around the globe.

MicroStrategy is now planning its largest event for next year, MicroStrategy World 2007, which will be held on January 22-25, 2007 at the Wynn Las Vegas.

MicroStrategy Customer Recognition:

The MicroStrategy Honors Award is presented to companies that demonstrate best practices and outstanding corporate performance improvements as a result of their MicroStrategy-based BI applications. This award was presented at the MicroStrategy Symposium in Sao Paulo, Brazil and at the MicroStrategy Symposium in Rome. The MicroStrategy Brazil Honors Award winners for 2006 were Assai Atacadista, Banco Itau Holding Financeira, and Serpro. The MicroStrategy Italy Honors Award winners for 2006 were Ragioneria Generale dello Stato, Trenitalia, and Vodafone Italia.

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
    Investor Relations
    (703) 848-8600

                          MICROSTRATEGY INCORPORATED
                    (in thousands, except per share data)

                                         Three Months Ended  Nine Months Ended
                                            September 30,      September 30,
                                            2006     2005     2006     2005
                                             (unaudited)       (unaudited)

    Product licenses                       $24,494  $22,608  $70,738  $68,674
    Product support and other services      53,171   43,202  150,531  122,559
      Total revenues                        77,665   65,810  221,269  191,233

    Cost of Revenues
    Product licenses                           826      867    2,122    3,062
    Product support and other services      10,883    8,412   29,752   24,007
      Total cost of revenues                11,709    9,279   31,874   27,069
    Gross profit                            65,956   56,531  189,395  164,164

    Operating Expenses
    Sales and marketing                     21,518   16,652   61,800   50,419
    Research and development                 8,794    7,820   25,776   23,099
    General and administrative              11,411    9,179   32,877   26,304
    Amortization of intangible assets           18       18       53       54
      Total operating expenses              41,741   33,669  120,506   99,876
    Income from operations                  24,215   22,862   68,889   64,288

    Financing and Other Income
    Interest income, net                       583      475    2,062    2,036
    Gain (loss) on investments                  14        4       14     (127)
    Other (expense) income, net               (210)     248     (877)   1,663
      Total financing and other income         387      727    1,199    3,572
    Income before income taxes              24,602   23,589   70,088   67,860
      Provision for income taxes             6,729   10,336   20,664   21,967
    Net income                             $17,873  $13,253  $49,424  $45,893

         Basic earnings per share            $1.41    $0.96    $3.77    $3.05
         Diluted earnings per share          $1.32    $0.91    $3.57    $2.91
         Basic weighted average shares
          outstanding                       12,707   13,868   13,097   15,071
         Diluted weighted average shares
          outstanding                       13,517   14,537   13,830   15,748

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

                                               September 30,      December 31,
                                                   2006               2005
    Assets                                      (unaudited)        (audited)
    Current assets
      Cash and cash equivalents                     $47,828           $42,318
      Restricted cash and investments                 3,833             5,076
      Short-term investments                             15            53,761
      Accounts receivable, net                       41,701            43,052
      Prepaid expenses and other current
       assets                                         7,845             6,209
      Deferred tax assets, net                       28,511            22,971
    Total current assets                            129,733           173,387

    Property and equipment, net                      10,600            12,031
    Capitalized software development
     costs, net                                       2,077             3,669
    Deposits and other assets                         2,462             2,293
    Deferred tax assets, net                         65,180            86,393
    Total assets                                   $210,052          $277,773

    Liabilities and Stockholders' Equity
    Current liabilities
      Accounts payable and accrued
       expenses                                     $18,883           $19,550
      Accrued compensation and employee
       benefits                                      25,474            27,258
      Deferred revenue and advance
       payments                                      57,139            45,874
    Total current liabilities                       101,496            92,682

    Deferred revenue and advance payments             1,357             1,554
    Other long-term liabilities                       2,015             2,815
    Total liabilities                               104,868            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;
       13,430 shares issued and 9,376
       shares outstanding, and 13,270
       shares issued and 10,595 shares
       outstanding at September 30, 2006
       and December 31, 2005, respectively               13                13
      Class B common stock; $0.001 par
       value; 165,000 shares authorized;
       3,228 and 3,258 shares issued and
       outstanding, at September 30, 2006
       and December 31, 2005, respectively                3                 3
      Additional paid-in capital                    434,681           428,062
      Treasury stock, at cost; 4,054 and
       2,675 shares at September 30, 2006
       and December 31, 2005, respectively         (268,776)         (136,817)
      Accumulated other comprehensive
       income                                         2,074             2,318
      Accumulated deficit                           (62,811)         (112,857)
    Total stockholders' equity                      105,184           180,722
    Total liabilities and stockholders'
     equity                                        $210,052          $277,773

                          MICROSTRATEGY INCORPORATED
                                (in thousands)

                                                     Nine months ended
                                                        September 30,
                                                   2006              2005
                                                (unaudited)       (unaudited)
    Operating activities:
       Net income                                   $49,424           $45,893
       Adjustments to reconcile net income
        to net cash provided by operating
          Depreciation and amortization               5,755             6,405
          Bad debt provision                            696               425
          Deferred taxes                             17,604            14,539
          Stock-based compensation                    1,086                 -
          Excess tax benefits from stock-
           based payment arrangements                (2,208)                -
          Other, net                                    144              (345)
       Changes in operating assets and
          Accounts receivable                         1,876            10,665
          Prepaid expenses and other
           current assets                            (1,401)              213
          Deposits and other assets                    (142)              449
          Accounts payable and accrued
           expenses, compensation
           and employee benefits                     (4,052)           (8,059)
          Deferred revenue and advance
           payments                                   9,504             3,361
          Other long-term liabilities                  (482)           (1,088)
             Net cash provided by
              operating activities                   77,804            72,458
    Investing activities:
       Proceeds from maturities of short-
        term investments                            112,666           116,110
       Purchases of short-term investments          (58,900)          (87,143)
       Purchases of property and
        equipment, net                               (2,671)           (1,284)
       Capitalized software development
        costs                                             -              (926)
       Decrease (increase) in restricted
        cash and investments                          1,308            (3,779)
             Net cash provided by
              investing activities                   52,403            22,978
    Financing activities:
       Proceeds from sale of class A
        common stock under employee
        stock purchase plan and exercise
        of employee stock options                     2,919             7,158
       Excess tax benefits from stock-
        based payment arrangements                    2,208                 -
       Purchases of treasury stock                 (131,959)         (127,562)
             Net cash used in financing
              activities                           (126,832)         (120,404)
             Effect of foreign exchange
              rate changes on cash and
              cash equivalents                        2,135            (3,732)
    Net increase (decrease) in cash and
     cash equivalents                                 5,510           (28,700)
    Cash and cash equivalents, beginning
     of period                                       42,318            68,314
    Cash and cash equivalents, end of
     period                                         $47,828           $39,614

SOURCE MicroStrategy Incorporated

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