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MicroStrategy Announces Third Quarter 2018 Financial Results

October 25, 2018 4:01 PM

TYSONS CORNER, Va.--(BUSINESS WIRE)-- MicroStrategy® Incorporated (Nasdaq: MSTR), a leading worldwide provider of enterprise analytics and mobility software, today announced financial results for the three-month period ended September�30, 2018 (the third quarter of its 2018 fiscal year).

MicroStrategy adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) and its subsequent amendments (“ASU 2014-09”), effective January 1, 2018, and has adjusted its prior period consolidated financial statements to reflect full retrospective adoption.

Third quarter 2018 revenues were $122.2 million versus $126.0 million for the third quarter of 2017, a 3.1% decrease. Product licenses and subscription services revenues for the third quarter of 2018 were $27.5 million versus $30.1 million for the third quarter of 2017, an 8.6% decrease. Product support revenues for the third quarter of 2018 were $74.5 million versus $72.9 million for the third quarter of 2017, a 2.2% increase. Other services revenues for the third quarter of 2018 were $20.2 million versus $23.0 million for the third quarter of 2017, a 12.4% decrease. Foreign currency effects had an unfavorable impact on revenues for the third quarter of 2018.

Operating expenses for the third quarter of 2018 were $91.5 million versus $80.4 million for the third quarter of 2017, a 13.8% increase, reflecting MicroStrategy’s previously announced strategy to seek to take greater advantage of the opportunities in the market by increasing its sales and marketing expenditures and increasing its research and development expenditures as it invests in its technology products and personnel. MicroStrategy did not capitalize any software development costs during the third quarter of 2018 or 2017.

Income from operations for the third quarter of 2018 was $7.2 million versus $21.2 million for the third quarter of 2017. Net income for the third quarter of 2018 was $12.7 million, or $1.10 per share on a diluted basis, as compared to net income of $18.2 million, or $1.58 per share on a diluted basis, for the third quarter of 2017. Previously, in the fourth quarter of 2017, we recorded an estimated one-time tax charge of $44.0 million resulting from the enactment of U.S. corporate tax reform legislation. This charge included a $40.3 million tax expense related to the mandatory deemed repatriation of certain foreign earnings and profits. During the third quarter of 2018, we recorded a measurement-period adjustment to reduce our previously recorded one-time tax charge by $3.1 million. Excluding the impact of this measurement-period adjustment, non-GAAP net income for the third quarter of 2018 was $9.6 million, or $0.83 per share on a diluted basis.

Additionally, non-GAAP income from operations, which excludes share-based compensation expense, was $10.2 million for the third quarter of 2018 versus $24.8 million for the third quarter of 2017. The tables at the end of this press release include a reconciliation of GAAP to non-GAAP financial measures for the three months ended September�30, 2018 and 2017. An explanation of non-GAAP financial measures is also included under the heading “Non-GAAP Financial Measures” below.

As of September�30, 2018, MicroStrategy had cash and cash equivalents and short-term investments of $699.2 million, as compared to $675.2 million as of December�31, 2017, an increase of $24.0 million. As of September�30, 2018, MicroStrategy had 9.4 million shares of class A common stock and 2.0 million shares of class B common stock outstanding.

The Company uses the MicroStrategy Intelligent Enterprise™ platform across the enterprise and has created an interactive dossier with quarterly financial performance data. Anyone can access the MSTR Financials dossier via a web browser, or by downloading the MicroStrategy Library™ app on an iOS or Android device. To download the native apps, visit MicroStrategy Library for iPad, MicroStrategy Library for iPhone, or MicroStrategy Library for Android tablet and smartphone.

Conference Call

MicroStrategy will be discussing its third quarter 2018 financial results on a conference call today beginning at approximately 5:00 p.m. EDT. To access the conference call, dial (844) 824-7425 (domestically) or (716) 220-9429 (internationally) and use conference ID 5562168. A live and archived webcast will be available under the “Events” section on MicroStrategy’s investor relations website at http://ir.microstrategy.com/events.cfm. A replay of the conference call will be available beginning approximately two hours after the call concludes until November 1, 2018 at (855) 859-2056 (domestically) or (404) 537-3406 (internationally) using the passcode 5562168.

Recent Business Highlights

Non-GAAP Financial Measures

MicroStrategy is providing supplemental financial measures for income from operations that excludes the impact of share-based compensation arrangements and for net income and diluted earnings per share that exclude the impact from the enactment of U.S. corporate tax reform legislation. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate business performance and to help make operating decisions. MicroStrategy believes that these non-GAAP financial measures are also useful to investors and analysts in comparing its performance across reporting periods on a consistent basis because in the case of the supplemental measure for income from operations, it excludes a significant non-cash expense that MicroStrategy believes is not reflective of its general business performance, and in the case of the supplemental measures for net income and diluted earnings per share, they exclude one-time tax adjustments related to the enactment of U.S. corporate tax reform legislation. In addition, accounting for share-based compensation arrangements requires significant management judgment and the resulting expense could vary significantly in comparison to other companies. Therefore, MicroStrategy believes the use of these non-GAAP financial measures can also facilitate comparison of MicroStrategy’s operating results to those of its competitors.

About MicroStrategy Incorporated

MicroStrategy (Nasdaq: MSTR) is a worldwide leader in enterprise analytics and mobility software. A pioneer in the BI and analytics space, MicroStrategy delivers innovative software that empowers people to make better decisions and transform the way they do business. We provide our enterprise customers with world-class software and expert services so they can deploy unique intelligence applications. To learn more, visit MicroStrategy online, and follow us on LinkedIn, Twitter and Facebook.

MicroStrategy, MicroStrategy Library, MicroStrategy Desktop, and Intelligent Enterprise 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 extent and timing of market acceptance of MicroStrategy’s new offerings; the Company’s ability to recognize revenue or deferred revenue through delivery of products or satisfactory performance of services; continued acceptance of the Company’s other products in the marketplace; fluctuations in tax benefits or provisions, including as a result of changes to U.S. federal tax laws; the timing of significant orders; delays in or the inability of the Company to develop or ship new products; competitive factors; general economic conditions, including economic uncertainty in the retail industry, in which the Company has a significant number of customers; currency fluctuations; and other risks detailed in the Company’s registration statements and periodic reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update these forward-looking statements for revisions or changes after the date of this release.

MSTR-F

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MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
�
Three Months Ended Nine Months Ended
September 30, September 30,
2018 � 2017 2018 � 2017
(unaudited)

(as adjusted,
unaudited)

(unaudited)

(as adjusted,
unaudited)

Revenues
Product licenses $ 20,264 $ 22,356 $ 56,857 $ 62,730
Subscription services � 7,240 � � 7,725 � � 22,486 � � 23,843 �
Total product licenses and subscription services 27,504 30,081 79,343 86,573
Product support 74,463 72,881 222,554 214,159
Other services � 20,185 � � 23,048 � � 63,824 � � 66,730 �
Total revenues � 122,152 � � 126,010 � � 365,721 � � 367,462 �
�
Cost of revenues
Product licenses 377 1,763 4,255 5,182
Subscription services � 3,259 � � 3,592 � � 9,953 � � 10,031 �
Total product licenses and subscription services 3,636 5,355 14,208 15,213
Product support 5,079 4,218 14,685 13,094
Other services � 14,674 � � 14,816 � � 44,721 � � 43,589 �
Total cost of revenues � 23,389 � � 24,389 � � 73,614 � � 71,896 �
�
Gross profit � 98,763 � � 101,621 � � 292,107 � � 295,566 �
�
Operating expenses
Sales and marketing 45,429 42,005 147,742 123,213
Research and development 25,829 19,360 74,471 57,347
General and administrative � 20,285 � � 19,082 � � 63,756 � � 58,921 �
Total operating expenses � 91,543 � � 80,447 � � 285,969 � � 239,481 �
�
Income from operations 7,220 21,174 6,138 56,085
Interest income, net 3,441 1,449 8,698 3,449
Other income (expense), net � 798 � � (1,903 ) � 3,665 � � (6,377 )
Income before income taxes 11,459 20,720 18,501 53,157
(Benefit from) provision for income taxes � (1,240 ) � 2,536 � � (699 ) � 9,463 �
Net income $ 12,699 � $ 18,184 � $ 19,200 � $ 43,694 �
�
Basic earnings per share (1): $ 1.11 � $ 1.59 � $ 1.68 � $ 3.82 �
Weighted average shares outstanding used in computing basic earnings per share � 11,467 � � 11,447 � � 11,458 � � 11,443 �
�
Diluted earnings per share (1): $ 1.10 � $ 1.58 � $ 1.67 � $ 3.78 �
Weighted average shares outstanding used in computing diluted earnings per share � 11,538 � � 11,499 � � 11,502 � � 11,567 �
�
(1) � Basic and fully diluted earnings per share for class A and class B common stock are the same.
�
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MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
�
September 30, December 31,
2018 2017
(unaudited)

(as adjusted,
unaudited)

Assets
Current assets
Cash and cash equivalents $ 112,082 $ 420,244
Restricted cash 901 938
Short-term investments 587,093 254,927
Accounts receivable, net 110,761 165,364
Prepaid expenses and other current assets � 27,629 � � 19,180 �
Total current assets 838,466 860,653
�
Property and equipment, net 51,861 53,359
Capitalized software development costs, net 0 2,499
Deposits and other assets 7,549 7,411
Deferred tax assets, net � 15,628 � � 9,297 �
Total Assets $ 913,504 � $ 933,219 �
�
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 23,002 $ 30,711
Accrued compensation and employee benefits 37,819 41,498
Deferred revenue and advance payments � 151,043 � � 198,734 �
Total current liabilities 211,864 270,943
�
Deferred revenue and advance payments 4,923 6,400
Other long-term liabilities 61,290 50,146
Deferred tax liabilities � 4 � � 4 �
Total Liabilities � 278,081 � � 327,493 �
�
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; 15,837 shares issued and 9,432 shares outstanding, and 15,817 shares issued and 9,412 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 573,474 559,918
Treasury stock, at cost; 6,405 shares (475,184 ) (475,184 )
Accumulated other comprehensive loss (8,718 ) (5,659 )
Retained earnings � 545,833 � � 526,633 �
Total Stockholders' Equity � 635,423 � � 605,726 �
Total Liabilities and Stockholders' Equity $ 913,504 � $ 933,219 �
�
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MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
�
Nine Months Ended
September 30,
2018 � 2017
(unaudited)

(as adjusted,
unaudited)

Operating activities:
Net income $ 19,200 $ 43,694
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,483 12,009
Bad debt expense 1,053 1,726
Deferred taxes (6,667 ) (5,508 )
Share-based compensation expense 11,132 10,557
Changes in operating assets and liabilities:
Accounts receivable 9,300 18,804
Prepaid expenses and other current assets (1,075 ) (5,042 )
Deposits and other assets (956 ) (1,288 )
Accounts payable and accrued expenses (5,816 ) (14,468 )
Accrued compensation and employee benefits (3,901 ) (10,437 )
Deferred revenue and advance payments (4,032 ) 1,140
Other long-term liabilities � 1,527 � � (1,904 )
Net cash provided by operating activities � 23,248 � � 49,283 �
�
Investing activities:
Proceeds from redemption of short-term investments 348,980 340,920
Purchases of property and equipment (4,457 ) (2,282 )
Purchases of short-term investments � (674,528 ) � (411,666 )
Net cash used in investing activities � (330,005 ) � (73,028 )
�
Financing activities:
Proceeds from sale of class A common stock under exercise of employee stock options 2,471 1,677
Payments on capital lease obligations and other financing arrangements � (9 ) � (17 )
Net cash provided by financing activities � 2,462 � � 1,660 �
�
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash � (3,904 ) � 6,992 �
Net decrease in cash, cash equivalents, and restricted cash (308,199 ) (15,093 )
Cash, cash equivalents, and restricted cash, beginning of period � 421,182 � � 402,712 �
Cash, cash equivalents, and restricted cash, end of period $ 112,983 � $ 387,619 �
�
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MICROSTRATEGY INCORPORATED
REVENUE AND COST OF REVENUE DETAIL
(in thousands)
�
Three Months Ended Nine Months Ended
September 30, September 30,
2018 � 2017 2018 � 2017
(unaudited)

(as adjusted,
unaudited)

(unaudited)

(as adjusted,
unaudited)

Revenues
Product licenses and subscription services:
Product licenses $ 20,264 $ 22,356 $ 56,857 $ 62,730
Subscription services � 7,240 � 7,725 � 22,486 � 23,843
Total product licenses and subscription services � 27,504 � 30,081 � 79,343 � 86,573
Product support 74,463 72,881 222,554 214,159
Other services:
Consulting 18,001 20,645 56,998 59,482
Education � 2,184 � 2,403 � 6,826 � 7,248
Total other services � 20,185 � 23,048 � 63,824 � 66,730
Total revenues � 122,152 � 126,010 � 365,721 � 367,462
�
Cost of revenues
Product licenses and subscription services:
Product licenses 377 1,763 4,255 5,182
Subscription services � 3,259 � 3,592 � 9,953 � 10,031
Total product licenses and subscription services � 3,636 � 5,355 � 14,208 � 15,213
Product support 5,079 4,218 14,685 13,094
Other services:
Consulting 12,996 13,295 39,859 38,579
Education � 1,678 � 1,521 � 4,862 � 5,010
Total other services � 14,674 � 14,816 � 44,721 � 43,589
Total cost of revenues � 23,389 � 24,389 � 73,614 � 71,896
�
Gross profit $ 98,763 $ 101,621 $ 292,107 $ 295,566
�
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MICROSTRATEGY INCORPORATED
DEFERRED REVENUE DETAIL
(in thousands)
�
September 30, December 31, September 30,
2018 2017 2017
(unaudited)

(as adjusted,
unaudited)

(as adjusted,
unaudited)

Current:
Deferred product licenses revenue $ 584 $ 3,760 $ 2,752
Deferred subscription services revenue 11,736 17,324 15,583
Deferred product support revenue 131,185 168,185 141,675
Deferred other services revenue � 7,538 � 9,465 � 8,743
Total current deferred revenue and advance payments $ 151,043 $ 198,734 $ 168,753
�
Non-current:
Deferred product licenses revenue $ 730 $ 820 $ 646
Deferred subscription services revenue - 126 406
Deferred product support revenue 3,701 4,826 5,790
Deferred other services revenue � 492 � 628 � 990
Total non-current deferred revenue and advance payments $ 4,923 $ 6,400 $ 7,832
�
Total current and non-current:
Deferred product licenses revenue $ 1,314 $ 4,580 $ 3,398
Deferred subscription services revenue 11,736 17,450 15,989
Deferred product support revenue 134,886 173,011 147,465
Deferred other services revenue � 8,030 � 10,093 � 9,733
Total current and non-current deferred revenue and advance payments $ 155,966 $ 205,134 $ 176,585
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MICROSTRATEGY INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands, except per share data)
�
Three Months Ended Nine Months Ended
September 30, September 30,
2018 � 2017 2018 � 2017
(unaudited)

(as adjusted,
unaudited)

(unaudited)

(as adjusted,
unaudited)

Reconciliation of non-GAAP income from operations:
Income from operations $ 7,220 $ 21,174 $ 6,138 $ 56,085
Share-based compensation expense � 3,011 � � 3,668 � 11,132 � � 10,557
Non-GAAP income from operations $ 10,231 � $ 24,842 $ 17,270 � $ 66,642
�
Reconciliation of non-GAAP net income:
Net income $ 12,699 $ 18,184 $ 19,200 $ 43,694
Measurement-period adjustment related to U.S. tax reform � (3,106 ) � 0 � (3,106 ) � 0
Non-GAAP net income $ 9,593 � $ 18,184 $ 16,094 � $ 43,694
�
Reconciliation of non-GAAP diluted earnings per share:
Diluted earnings per share $ 1.10 $ 1.58 $ 1.67 $ 3.78
Impact of measurement-period adjustment related to U.S. tax reform (per diluted share) � (0.27 ) � 0.00 � (0.27 ) � 0.00
Non-GAAP diluted earnings per share $ 0.83 � $ 1.58 $ 1.40 � $ 3.78
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MICROSTRATEGY INCORPORATED
WORLDWIDE EMPLOYEE HEADCOUNT
�
September 30, June 30, March 31, December 31, September 30,
2018 2018 2018 2017 2017
Subscription services 55 54 57 53 50
Product support 194 184 182 172 163
Consulting 458 443 441 441 447
Education 44 39 42 41 41
Sales and marketing 699 687 667 652 635
Research and development 688 651 604 559 539
General and administrative 326 322 313 298 303
Total headcount 2,464 2,380 2,306 2,216 2,178
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MicroStrategy Incorporated

Claudia Cahill

Investor Relations

703-848-8600

[email protected]

Source: MicroStrategy Incorporated

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