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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to           

Commission File Number 000-24435

MICROSTRATEGY INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

51-0323571

(I.R.S. Employer

Identification Number)

1850 Towers Crescent Plaza, Tysons Corner, VA

(Address of Principal Executive Offices)

22182

(Zip Code)

(703) 848-8600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on which Registered

Class A common stock, par value $0.001 per share

 

MSTR

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 15, 2019, the registrant had 8,231,895 and 2,035,184 shares of class A common stock and class B common stock outstanding, respectively.

 

 


MICROSTRATEGY INCORPORATED

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

1

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

1

 

 

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended September 30, 2019 and 2018

2

 

 

 

 

 

 

Consolidated Statements of Operations for the Nine Months Ended September 30, 2019 and 2018

3

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018

4

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity as of September 30, 2019

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

 

Item 4.

 

Controls and Procedures

34

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

35

 

 

 

 

Item 1A.

 

Risk Factors

35

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

 

Item 5.

 

Other Information

48

 

 

 

 

Item 6.

 

Exhibits

48

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

375,071

 

 

$

109,924

 

Restricted cash

 

 

798

 

 

 

862

 

Short-term investments

 

 

203,218

 

 

 

466,186

 

Accounts receivable, net

 

 

118,002

 

 

 

171,359

 

Prepaid expenses and other current assets

 

 

24,665

 

 

 

30,068

 

Total current assets

 

 

721,754

 

 

 

778,399

 

Property and equipment, net

 

 

51,993

 

 

 

51,919

 

Right-of-use assets

 

 

86,994

 

 

 

0

 

Deposits and other assets

 

 

7,455

 

 

 

8,134

 

Deferred tax assets, net

 

 

20,520

 

 

 

17,316

 

Total assets

 

$

888,716

 

 

$

855,768

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses, and operating lease liabilities

 

$

28,626

 

 

$

33,684

 

Accrued compensation and employee benefits

 

 

41,829

 

 

 

48,045

 

Deferred revenue and advance payments

 

 

160,244

 

 

 

176,540

 

Total current liabilities

 

 

230,699

 

 

 

258,269

 

Deferred revenue and advance payments

 

 

4,487

 

 

 

6,469

 

Operating lease liabilities

 

 

105,291

 

 

 

0

 

Other long-term liabilities

 

 

32,786

 

 

 

61,262

 

Deferred tax liabilities

 

 

34

 

 

 

37

 

Total liabilities

 

 

373,297

 

 

 

326,037

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

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; 15,880 shares issued and 8,232 shares outstanding, and 15,837 shares issued and 8,552 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

 

 

590,158

 

 

 

576,957

 

Treasury stock, at cost; 7,648 shares and 7,285 shares, respectively

 

 

(634,405

)

 

 

(586,161

)

Accumulated other comprehensive loss

 

 

(11,674

)

 

 

(10,217

)

Retained earnings

 

 

571,322

 

 

 

549,134

 

Total stockholders’ equity

 

 

515,419

 

 

 

529,731

 

Total liabilities and stockholders’ equity

 

$

888,716

 

 

$

855,768

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

1


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

Product licenses

 

$

18,972

 

 

$

20,264

 

Subscription services

 

 

7,894

 

 

 

7,240

 

Total product licenses and subscription services

 

 

26,866

 

 

 

27,504

 

Product support

 

 

72,885

 

 

 

74,463

 

Other services

 

 

19,942

 

 

 

20,185

 

Total revenues

 

 

119,693

 

 

 

122,152

 

Cost of revenues:

 

 

 

 

 

 

 

 

Product licenses

 

 

526

 

 

 

377

 

Subscription services

 

 

3,889

 

 

 

3,259

 

Total product licenses and subscription services

 

 

4,415

 

 

 

3,636

 

Product support

 

 

6,922

 

 

 

5,079

 

Other services

 

 

12,478

 

 

 

14,674

 

Total cost of revenues

 

 

23,815

 

 

 

23,389

 

Gross profit

 

 

95,878

 

 

 

98,763

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

43,935

 

 

 

45,429

 

Research and development

 

 

27,457

 

 

 

25,829

 

General and administrative

 

 

19,900

 

 

 

20,285

 

Total operating expenses

 

 

91,292

 

 

 

91,543

 

Income from operations

 

 

4,586

 

 

 

7,220

 

Interest income, net

 

 

2,941

 

 

 

3,441

 

Other income, net

 

 

1,882

 

 

 

798

 

Income before income taxes

 

 

9,409

 

 

 

11,459

 

Benefit from income taxes

 

 

(291

)

 

 

(1,240

)

Net income

 

 

9,700

 

 

 

12,699

 

Basic earnings per share (1)

 

$

0.95

 

 

$

1.11

 

Weighted average shares outstanding used in computing basic earnings per share

 

 

10,251

 

 

 

11,467

 

Diluted earnings per share (1)

 

$

0.94

 

 

$

1.10

 

Weighted average shares outstanding used in computing diluted earnings per share

 

 

10,309

 

 

 

11,538

 

 

(1)

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

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

2


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

Product licenses

 

$

57,384

 

 

$

56,857

 

Subscription services

 

 

22,142

 

 

 

22,486

 

Total product licenses and subscription services

 

 

79,526

 

 

 

79,343

 

Product support

 

 

217,313

 

 

 

222,554

 

Other services

 

 

55,957

 

 

 

63,824

 

Total revenues

 

 

352,796

 

 

 

365,721

 

Cost of revenues:

 

 

 

 

 

 

 

 

Product licenses

 

 

1,597

 

 

 

4,255

 

Subscription services

 

 

10,976

 

 

 

9,953

 

Total product licenses and subscription services

 

 

12,573

 

 

 

14,208

 

Product support

 

 

21,710

 

 

 

14,685

 

Other services

 

 

41,055

 

 

 

44,721

 

Total cost of revenues

 

 

75,338

 

 

 

73,614

 

Gross profit

 

 

277,458

 

 

 

292,107

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

140,968

 

 

 

147,742

 

Research and development

 

 

83,436

 

 

 

74,471

 

General and administrative

 

 

63,684

 

 

 

63,756

 

Total operating expenses

 

 

288,088

 

 

 

285,969

 

(Loss) income from operations

 

 

(10,630

)

 

 

6,138

 

Interest income, net

 

 

8,520

 

 

 

8,698

 

Other income, net

 

 

30,717

 

 

 

3,665

 

Income before income taxes

 

 

28,607

 

 

 

18,501

 

Provision for (benefit from) income taxes

 

 

6,419

 

 

 

(699

)

Net income

 

 

22,188

 

 

 

19,200

 

Basic earnings per share (1)

 

$

2.16

 

 

$

1.68

 

Weighted average shares outstanding used in computing basic earnings per share

 

 

10,273

 

 

 

11,458

 

Diluted earnings per share (1)

 

$

2.15

 

 

$

1.67

 

Weighted average shares outstanding used in computing diluted earnings per share

 

 

10,336

 

 

 

11,502

 

 

(1)

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

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

3


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

9,700

 

 

$

12,699

 

Other comprehensive loss, net of applicable taxes:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(2,182

)

 

 

(607

)

Unrealized loss on short-term investments

 

 

(182

)

 

 

0

 

Total other comprehensive loss

 

 

(2,364

)

 

 

(607

)

Comprehensive income

 

$

7,336

 

 

$

12,092

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

22,188

 

 

$

19,200

 

Other comprehensive (loss) income, net of applicable taxes:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(1,922

)

 

 

(3,059

)

Unrealized gain on short-term investments

 

 

465

 

 

 

0

 

Total other comprehensive loss

 

 

(1,457

)

 

 

(3,059

)

Comprehensive income

 

$

20,731

 

 

$

16,141

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

4


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Convertible

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

Total

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Earnings

 

Balance at January 1, 2018

 

$

605,726

 

 

 

15,817

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

559,918

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(5,659

)

 

$

526,633

 

Net income

 

 

1,673

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,673

 

Other comprehensive income

 

 

1,440

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,440

 

 

 

0

 

Share-based compensation expense

 

 

4,743

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,743

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at March 31, 2018

 

$

613,582

 

 

 

15,817

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

564,661

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(4,219

)

 

$

528,306

 

Net income

 

 

4,828

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,828

 

Other comprehensive loss

 

 

(3,892

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(3,892

)

 

 

0

 

Issuance of class A common stock under stock option plans

 

 

2,471

 

 

 

20

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,471

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Share-based compensation expense

 

 

3,370

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,370

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at June 30, 2018

 

$

620,359

 

 

 

15,837

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

570,502

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(8,111

)

 

$

533,134

 

Net income

 

 

12,699

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

12,699

 

Other comprehensive loss

 

 

(607

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(607

)

 

 

0

 

Share-based compensation expense

 

 

2,972

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,972

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at September 30, 2018

 

$

635,423

 

 

 

15,837

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

573,474

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(8,718

)

 

$

545,833

 

Net income

 

 

3,301

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0