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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, 2020

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 19, 2020, the registrant had 7,252,964 and 2,014,025 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, 2020 and December 31, 2019

1

 

 

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended September 30, 2020 and 2019

2

 

 

 

 

 

 

Consolidated Statements of Operations for the Nine Months Ended September 30, 2020 and 2019

3

 

 

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2020 and 2019

4

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity as of September 30, 2020

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

Item 2.

 

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

17

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

 

Item 4.

 

Controls and Procedures

34

 

 

 

 

PART II.

 

OTHER INFORMATION

35

 

 

 

 

Item 1.

 

Legal Proceedings

35

 

 

 

 

Item 1A.

 

Risk Factors

35

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

 

Item 5.

 

Other Information

51

 

 

 

 

Item 6.

 

Exhibits

51

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,653

 

 

$

456,727

 

Restricted cash

 

 

1,231

 

 

 

1,089

 

Short-term investments

 

 

0

 

 

 

108,919

 

Accounts receivable, net

 

 

148,512

 

 

 

163,516

 

Prepaid expenses and other current assets

 

 

16,040

 

 

 

23,195

 

Total current assets

 

 

218,436

 

 

 

753,446

 

Digital assets

 

 

380,758

 

 

 

0

 

Property and equipment, net

 

 

45,473

 

 

 

50,154

 

Right-of-use assets

 

 

79,296

 

 

 

85,538

 

Deposits and other assets

 

 

15,405

 

 

 

8,024

 

Deferred tax assets, net

 

 

33,537

 

 

 

19,409

 

Total assets

 

$

772,905

 

 

$

916,571

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses, and operating lease liabilities

 

$

38,668

 

 

$

33,919

 

Accrued compensation and employee benefits

 

 

44,177

 

 

 

48,792

 

Deferred revenue and advance payments

 

 

160,845

 

 

 

187,107

 

Total current liabilities

 

 

243,690

 

 

 

269,818

 

Deferred revenue and advance payments

 

 

11,657

 

 

 

4,344

 

Operating lease liabilities

 

 

95,591

 

 

 

103,424

 

Other long-term liabilities

 

 

32,651

 

 

 

30,400

 

Deferred tax liabilities

 

 

24

 

 

 

26

 

Total liabilities

 

 

383,613

 

 

 

408,012

 

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; 15,937 shares issued and 7,253 shares outstanding, and 15,888 shares issued and 8,081 shares outstanding, respectively

 

 

16

 

 

 

16

 

Class B convertible common stock, $0.001 par value; 165,000 shares authorized; 2,014 shares issued and outstanding, and 2,035 shares issued and outstanding, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

604,974

 

 

 

593,583

 

Treasury stock, at cost; 8,684 shares and 7,807 shares, respectively

 

 

(782,104

)

 

 

(658,880

)

Accumulated other comprehensive loss

 

 

(6,900

)

 

 

(9,651

)

Retained earnings

 

 

573,304

 

 

 

583,489

 

Total stockholders’ equity

 

 

389,292

 

 

 

508,559

 

Total liabilities and stockholders’ equity

 

$

772,905

 

 

$

916,571

 

 

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,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

Product licenses

 

$

29,573

 

 

$

18,972

 

Subscription services

 

 

8,305

 

 

 

7,894

 

Total product licenses and subscription services

 

 

37,878

 

 

 

26,866

 

Product support

 

 

71,352

 

 

 

72,885

 

Other services

 

 

18,178

 

 

 

19,942

 

Total revenues

 

 

127,408

 

 

 

119,693

 

Cost of revenues:

 

 

 

 

 

 

 

 

Product licenses

 

 

545

 

 

 

526

 

Subscription services

 

 

3,656

 

 

 

3,889

 

Total product licenses and subscription services

 

 

4,201

 

 

 

4,415

 

Product support

 

 

5,679

 

 

 

6,922

 

Other services

 

 

11,856

 

 

 

12,478

 

Total cost of revenues

 

 

21,736

 

 

 

23,815

 

Gross profit

 

 

105,672

 

 

 

95,878

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

35,330

 

 

 

43,935

 

Research and development

 

 

26,638

 

 

 

27,457

 

General and administrative

 

 

19,733

 

 

 

19,900

 

Digital asset impairment losses

 

 

44,242

 

 

 

0

 

Total operating expenses

 

 

125,943

 

 

 

91,292

 

(Loss) income from operations

 

 

(20,271

)

 

 

4,586

 

Interest income, net

 

 

209

 

 

 

2,941

 

Other (expense) income, net

 

 

(2,971

)

 

 

1,882

 

(Loss) income before income taxes

 

 

(23,033

)

 

 

9,409

 

Benefit from income taxes

 

 

(8,804

)

 

 

(291

)

Net (loss) income

 

$

(14,229

)

 

$

9,700

 

Basic (loss) earnings per share (1)

 

$

(1.48

)

 

$

0.95

 

Weighted average shares outstanding used in computing basic (loss) earnings per share

 

 

9,616

 

 

 

10,251

 

Diluted (loss) earnings per share (1)

 

$

(1.48

)

 

$

0.94

 

Weighted average shares outstanding used in computing diluted (loss) earnings per share

 

 

9,616

 

 

 

10,309

 

 

(1)

Basic and fully diluted (loss) 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,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

Product licenses

 

$

56,973

 

 

$

57,384

 

Subscription services

 

 

24,294

 

 

 

22,142

 

Total product licenses and subscription services

 

 

81,267

 

 

 

79,526

 

Product support

 

 

212,548

 

 

 

217,313

 

Other services

 

 

55,601

 

 

 

55,957

 

Total revenues

 

 

349,416

 

 

 

352,796

 

Cost of revenues:

 

 

 

 

 

 

 

 

Product licenses

 

 

1,729

 

 

 

1,597

 

Subscription services

 

 

11,512

 

 

 

10,976

 

Total product licenses and subscription services

 

 

13,241

 

 

 

12,573

 

Product support

 

 

19,234

 

 

 

21,710

 

Other services

 

 

37,795

 

 

 

41,055

 

Total cost of revenues

 

 

70,270

 

 

 

75,338

 

Gross profit

 

 

279,146

 

 

 

277,458

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

109,799

 

 

 

140,968

 

Research and development

 

 

78,606

 

 

 

83,436

 

General and administrative

 

 

60,514

 

 

 

63,684

 

Digital asset impairment losses

 

 

44,242

 

 

 

0

 

Total operating expenses

 

 

293,161

 

 

 

288,088

 

Loss from operations

 

 

(14,015

)

 

 

(10,630

)

Interest income, net

 

 

2,627

 

 

 

8,520

 

Other (expense) income, net

 

 

(4,532

)

 

 

30,717

 

(Loss) income before income taxes

 

 

(15,920

)

 

 

28,607

 

(Benefit from) provision for income taxes

 

 

(5,735

)

 

 

6,419

 

Net (loss) income

 

$

(10,185

)

 

$

22,188

 

Basic (loss) earnings per share (1)

 

$

(1.04

)

 

$

2.16

 

Weighted average shares outstanding used in computing basic (loss) earnings per share

 

 

9,777

 

 

 

10,273

 

Diluted (loss) earnings per share (1)

 

$

(1.04

)

 

$

2.15

 

Weighted average shares outstanding used in computing diluted (loss) earnings per share

 

 

9,777

 

 

 

10,336

 

 

(1)

Basic and fully diluted (loss) 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 (LOSS) INCOME

(in thousands)

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Net (loss) income

 

$

(14,229

)

 

$

9,700

 

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

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

2,612

 

 

 

(2,182

)

Unrealized loss on short-term investments

 

 

(325

)

 

 

(182

)

Total other comprehensive income (loss)

 

 

2,287

 

 

 

(2,364

)

Comprehensive (loss) income

 

$

(11,942

)

 

$

7,336

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Net (loss) income

 

$

(10,185

)

 

$

22,188

 

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

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

2,898

 

 

 

(1,922

)

Unrealized (loss) gain on short-term investments

 

 

(147

)

 

 

465

 

Total other comprehensive income (loss)

 

 

2,751

 

 

 

(1,457

)

Comprehensive (loss) income

 

$

(7,434

)

 

$

20,731

 

 

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, 2019

 

$

529,731

 

 

 

15,837

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

576,957

 

 

 

(7,285

)

 

$

(586,161

)

 

$

(10,217

)

 

$

549,134

 

Net loss

 

 

(7,906

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(7,906

)

Other comprehensive income

 

 

253

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

253

 

 

 

0

 

Issuance of class A common stock under stock option plans

 

 

1,507

 

 

 

13

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,507

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Purchases of treasury stock

 

 

(48,244

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(363

)

 

 

(48,244

)

 

 

0

 

 

 

0

 

Share-based compensation expense

 

 

2,965

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,965

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at March 31, 2019

 

$

478,306

 

 

 

15,850

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

581,429

 

 

 

(7,648

)

 

$

(634,405

)

 

$

(9,964

)

 

$

541,228

 

Net income

 

 

20,394

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

20,394

 

Other comprehensive income

 

 

654

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

654

 

 

 

0

 

Issuance of class A common stock under stock option plans

 

 

329

 

 

 

3

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

329

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Share-based compensation expense

 

 

3,006

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,006

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at June 30, 2019

 

$

502,689

 

 

 

15,853

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

584,764

 

 

 

(7,648

)

 

$

(634,405

)

 

$

(9,310

)

 

$

561,622

 

Net income

 

 

9,700

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

9,700

 

Other comprehensive loss

 

 

(2,364

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(2,364

)

 

 

0

 

Issuance of class A common stock under stock option plans

 

 

3,606

 

 

 

27