Business Wire | Oct 27, 2020 04:01PM EDT

MicroStrategy Announces Third Quarter 2020 Financial Results

Oct. 27, 2020

TYSONS CORNER, Va.--(BUSINESS WIRE)--Oct. 27, 2020--MicroStrategy(r) (Nasdaq: MSTR), the largest independent publicly-traded business intelligence company, today announced financial results for the three-month period ended September 30, 2020 (the third quarter of its 2020 fiscal year).

"MicroStrategy delivered one of its stronger quarters in years, with meaningful growth in both product licenses and deferred subscription services revenues and a significant improvement in non-GAAP operating margin. We believe our performance demonstrates growing customer demand for scalable, flexible enterprise-grade solutions that enable better business performance through data-driven decisions," said Michael J. Saylor, CEO, MicroStrategy Incorporated.

"Our recent decision to make bitcoin our primary treasury reserve asset is the latest example of MicroStrategy's embrace of virtual technologies. The purchase of $425 million of bitcoin during the quarter offers the possibility of greater return potential for investors than holding such balances in cash and has increased the overall visibility of MicroStrategy in the market. We believe our proactive management of our balance sheet, together with our improved revenue and profitability performance, can serve as catalysts to generate substantial long-term value for our shareholders," continued Mr. Saylor.

Third Quarter 2020 Financial Highlights

* Revenues: Total revenues for the third quarter of 2020 were $127.4 million, a 6.4% increase, or a 5.9% increase on a non-GAAP constant currency basis, compared to the third quarter of 2019. Product licenses and subscription services revenues for the third quarter of 2020 were $37.9 million, a 41.0% increase, or a 41.9% increase on a non-GAAP constant currency basis, compared to the third quarter of 2019. Product support revenues for the third quarter of 2020 were $71.4 million, a 2.1% decrease, or a 3.0% decrease on a non-GAAP constant currency basis, compared to the third quarter of 2019. Other services revenues for the third quarter of 2020 were $18.2 million, an 8.8% decrease, or a 10.2% decrease on a non-GAAP constant currency basis, compared to the third quarter of 2019. * Gross Profit: Gross profit for the third quarter of 2020 was $105.7 million, representing an 82.9% gross margin, compared to a gross margin of 80.1% in the third quarter of 2019. * Operating Expenses: Operating expenses for the third quarter of 2020 were $125.9 million, a 38.0% increase compared to the third quarter of 2019. Beginning in the third quarter of 2020, operating expenses include impairment losses on our digital assets, which were $44.2 million during the third quarter of 2020. * (Loss) Income from Operations: Loss from operations for the third quarter of 2020 was $20.3 million versus income from operations of $4.6 million for the third quarter of 2019. Non-GAAP income from operations, which excludes share-based compensation expense and impairment losses and gains on sale from intangible assets, which include digital assets, was $26.5 million for the third quarter of 2020 versus $6.4 million for the third quarter of 2019. * Net (Loss) Income: Net loss for the third quarter of 2020 was $14.2 million, or $1.48 per share on a diluted basis, as compared to net income of $9.7 million, or $0.94 per share on a diluted basis, for the third quarter of 2019. Non-GAAP net income, which excludes share-based compensation expense and impairment losses and gains on sale from intangible assets, which include digital assets, was $19.8 million, or $2.06 per share on a non-GAAP diluted basis, for the third quarter of 2020, as compared to non-GAAP net income of $11.6 million, or $1.13 per share on a non-GAAP diluted basis, for the third quarter of 2019. * Cash and Short-term Investments: As of September 30, 2020, MicroStrategy had cash and cash equivalents and short-term investments of $52.7 million, as compared to $565.6 million as of December 31, 2019, a decrease of $513.0 million. * Digital Assets: As of September 30, 2020, the carrying value of MicroStrategy's digital assets (comprised solely of bitcoin) was $380.8 million, which reflects cumulative impairments of $44.2 million since acquisition. MicroStrategy accounts for its digital assets as indefinite-lived intangible assets, which are initially recorded at cost. Subsequently, they are measured at cost, net of any impairment losses incurred since acquisition. MicroStrategy determines the fair value of its bitcoin based on quoted (unadjusted) prices on the active exchange that MicroStrategy has determined is its principal market for bitcoin. MicroStrategy considers the lowest price of one bitcoin quoted on the active exchange at any time since acquiring the specific bitcoin. If the carrying value of a bitcoin exceeds that lowest price, an impairment loss has occurred with respect to that bitcoin in the amount equal to the difference between its carrying value and such lowest price. Impairment losses are recognized as "Digital asset impairment losses" in MicroStrategy's Consolidated Statements of Operations. As of September 30, 2020, the average cost and average carrying value of MicroStrategy's bitcoin were approximately $11,111 and $9,954, respectively. As of October 26, 2020, at 4:00 p.m. EDT, MicroStrategy had 38,250 bitcoins and the market price of one bitcoin in the principal market was approximately $13,023.

The tables at the end of this press release include a reconciliation of GAAP to non-GAAP financial measures for the three and nine months ended September 30, 2020 and 2019. An explanation of non-GAAP financial measures is also included under the heading "Non-GAAP Financial Measures" below. Additional non-GAAP financial measures are included in our "3Q 2020 Earnings Presentation" presentation, which will be available under the "Events" section on MicroStrategy's investor relations website at https://ir.microstrategy.com/events-presentations.

MicroStrategy uses its Intelligent Enterprise(tm) 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(tm) 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.

Non-GAAP Financial Measures

MicroStrategy is providing supplemental financial measures for (i) non-GAAP income (loss) from operations that excludes the impact of share-based compensation expense and impairment losses and gains on sale from intangible assets, which include its digital assets, (ii) non-GAAP net income and non-GAAP diluted earnings per share that exclude the impact of share-based compensation expense and impairment losses and gains on sale from intangible assets, which include its digital assets and the sale of its Voice.com domain name in the second quarter of 2019 (the "Domain Name Sale"), and (iii) non-GAAP constant currency revenues that exclude foreign currency exchange rate fluctuations. 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. The first supplemental financial measure excludes (i) a significant non-cash expense that MicroStrategy believes is not reflective of its general business performance, and for which the accounting requires management judgment and the resulting share-based compensation expense could vary significantly in comparison to other companies and (ii) significant impairment losses and gains on sale from intangible assets, which include MicroStrategy's bitcoin. The second set of supplemental financial measures excludes the impact of (i) share-based compensation expense and (ii) impairment losses and gains on sale from intangible assets, which include MicroStrategy's bitcoin and the Domain Name Sale, which was outside of MicroStrategy's normal business operations. The third set of supplemental financial measures excludes changes resulting from fluctuations in foreign currency exchange rates so that results may be compared to the same period in the prior year on a non-GAAP constant currency basis. MicroStrategy believes the use of these non-GAAP financial measures can also facilitate comparison of MicroStrategy's operating results to those of its competitors.

Treasury Management Strategy and Bitcoin Acquisitions

In July 2020, MicroStrategy announced a capital allocation strategy pursuant to which it intended to use capital in excess of working capital requirements to (i) return up to $250.0 million to its stockholders over a 12-month period and (ii) invest up to another $250.0 million during the same period in one or more alternative investments or assets, which may include stocks, bonds, commodities such as gold, digital assets such as bitcoin, or other asset types. In August 2020, MicroStrategy's Board of Directors authorized the investment of up to $250.0 million in bitcoin. In September 2020, MicroStrategy's Board of Directors adopted a new Treasury Reserve Policy that updated MicroStrategy's treasury management and capital allocation strategies, under which its treasury reserve assets will consist of (i) cash and cash equivalents and short-term investments ("Cash Assets") held by MicroStrategy that exceed working capital requirements and (ii) bitcoin held by MicroStrategy, with bitcoin serving as the primary treasury reserve asset on an ongoing basis, subject to market conditions and anticipated needs of the business for Cash Assets. As part of these treasury management and capital allocation strategies, MicroStrategy purchased a total of approximately 38,250 bitcoins at an aggregate purchase price of $425.0 million in the third quarter of 2020 for an average purchase price of approximately $11,111 per bitcoin. As a result of the Treasury Reserve Policy, in future periods, MicroStrategy may purchase additional bitcoins and increase its overall holdings of bitcoin or sell its bitcoins and decrease its overall holdings of bitcoin.

Tender Offer

In August 2020, MicroStrategy announced that it commenced a "modified Dutch Auction" tender offer (the "Offer") to purchase up to $250.0 million in value of shares of its issued and outstanding class A common stock, or such lesser number of shares as are properly tendered and not properly withdrawn, at a price not greater than $140.00 nor less than $122.00 per share. The Offer expired at 5:00 p.m., New York City time, on September 10, 2020. During the third quarter of 2020, MicroStrategy repurchased an aggregate of 432,313 shares of its class A common stock through the Offer at a price of $140.00 per share for an aggregate cost of $61.3 million, inclusive of $0.8 million in certain fees and expenses related to the Offer. As of September 30, 2020, MicroStrategy had 7.3 million shares of class A common stock and 2.0 million shares of class B common stock outstanding.

Conference Call

MicroStrategy will be discussing its third quarter 2020 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 4698795. A live and archived webcast and accompanying presentation materials will be available under the "Events" section on MicroStrategy's investor relations website at https://ir.microstrategy.com/events-presentations. A replay of the conference call will be available beginning approximately two hours after the call concludes until November 3, 2020 at (855) 859-2056 (domestically) or (404) 537-3406 (internationally) using the passcode 4698795.

About MicroStrategy Incorporated

MicroStrategy (Nasdaq: MSTR) is the largest independent publicly-traded business intelligence company, with the leading enterprise analytics platform. Our vision is to enable Intelligence Everywhere(tm). MicroStrategy provides modern analytics on an open, comprehensive enterprise platform used by many of the world's most admired brands in the Fortune Global 500. Optimized for cloud and on-premises deployments, the platform features HyperIntelligence(r), a breakthrough technology that overlays actionable enterprise data on popular business applications to help users make smarter, faster decisions. For more information about MicroStrategy, visit www.microstrategy.com.

MicroStrategy, Intelligent Enterprise, MicroStrategy Library, Intelligence Everywhere, HyperIntelligence, and MicroStrategy 2020 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, including MicroStrategy 2020(tm); impacts of the COVID-19 pandemic; 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; changes in the value of the Company's bitcoin and impairment losses that may be associated therewith; fluctuations in tax benefits or provisions; the timing of significant orders; delays in or the inability of the Company to develop or ship new products; customers shifting from a product license model to a cloud subscription model; competitive factors; general economic conditions; currency fluctuations; and other risks detailed in MicroStrategy'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

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

(unaudited) (unaudited) (unaudited) (unaudited)

Revenues

Product $ 29,573 $ 18,972 $ 56,973 $ 57,384 licenses

Subscription 8,305 7,894 24,294 22,142 services

Total productlicenses and 37,878 26,866 81,267 79,526 subscriptionservices

Product support 71,352 72,885 212,548 217,313

Other services 18,178 19,942 55,601 55,957

Total revenues 127,408 119,693 349,416 352,796



Cost of revenues

Product 545 526 1,729 1,597 licenses

Subscription 3,656 3,889 11,512 10,976 services

Total productlicenses and 4,201 4,415 13,241 12,573 subscriptionservices

Product support 5,679 6,922 19,234 21,710

Other services 11,856 12,478 37,795 41,055

Total cost of 21,736 23,815 70,270 75,338 revenues



Gross profit 105,672 95,878 279,146 277,458



Operating expenses

Sales and 35,330 43,935 109,799 140,968 marketing

Research and 26,638 27,457 78,606 83,436 development

General and 19,733 19,900 60,514 63,684 administrative

Digital assetimpairment 44,242 0 44,242 0 losses

Total operating 125,943 91,292 293,161 288,088 expenses



(Loss) income (20,271 ) 4,586 (14,015 ) (10,630 )from operations

Interest 209 2,941 2,627 8,520 income, net

Other (expense) (2,971 ) 1,882 (4,532 ) 30,717 income, net

(Loss) incomebefore income (23,033 ) 9,409 (15,920 ) 28,607 taxes

(Benefit from)provision for (8,804 ) (291 ) (5,735 ) 6,419 income taxes

Net (loss) $ (14,229 ) $ 9,700 $ (10,185 ) $ 22,188 income



Basic (loss)earnings per $ (1.48 ) $ 0.95 $ (1.04 ) $ 2.16 share (1):

Weightedaverage sharesoutstandingused in 9,616 10,251 9,777 10,273 computing basic(loss) earningsper share



Diluted (loss)earnings per $ (1.48 ) $ 0.94 $ (1.04 ) $ 2.15 share (1):

Weightedaverage sharesoutstandingused in 9,616 10,309 9,777 10,336 computingdiluted (loss)earnings pershare

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

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

September December 30, 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 $ 38,668 $ 33,919 operating lease liabilities

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



Stockholders' Equity

Preferred stock undesignated, $0.001 par value;5,000 shares authorized; no shares issued or 0 0 outstanding

Class A common stock, $0.001 par value; 330,000shares authorized; 15,937 shares issued and7,253 shares outstanding, and 15,888 shares 16 16 issued and 8,081 shares outstanding,respectively

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

Additional paid-in capital 604,974 593,583

Treasury stock, at cost; 8,684 shares and 7,807 (782,104 ) (658,880 )shares, respectively

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

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended

September 30,

2020 2019

(unaudited) (unaudited)

Operating activities:

Net (loss) income $ (10,185 ) $ 22,188

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 9,342 5,456

Reduction in carrying amount of right-of-use 6,134 6,087 assets

Credit losses and sales allowances 1,874 892

Net realized (gain) loss on short-term (94 ) 41 investments

Deferred taxes (13,341 ) (3,352 )

Release of liabilities for unrecognized tax 0 (1,077 )benefits

Share-based compensation expense 7,897 7,887

Digital asset impairment losses 44,242 0

Changes in operating assets and liabilities:

Accounts receivable 6,439 11,781

Prepaid expenses and other current assets 391 4,513

Deposits and other assets (175 ) 349

Accounts payable and accrued expenses 902 (11,618 )

Accrued compensation and employee benefits (7,221 ) (7,368 )

Deferred revenue and advance payments (12,385 ) 23,612

Operating lease liabilities (7,148 ) (6,394 )

Other long-term liabilities 1,625 (674 )

Net cash provided by operating activities 28,297 52,323



Investing activities:

Purchases of digital assets (425,000 ) 0

Proceeds from redemption of short-term 119,886 589,357 investments

Purchases of property and equipment (1,162 ) (9,382 )

Purchases of short-term investments (9,928 ) (320,487 )

Net cash (used in) provided by investing (316,204 ) 259,488 activities



Financing activities:

Proceeds from sale of class A common stock under 3,616 5,442 exercise of employee stock options

Purchases of treasury stock (122,480 ) (48,244 )

Net cash used in financing activities (118,864 ) (42,802 )



Effect of foreign exchange rate changes on cash, 2,839 (3,926 )cash equivalents, and restricted cash

Net (decrease) increase in cash, cash (403,932 ) 265,083 equivalents, and restricted cash

Cash, cash equivalents, and restricted cash, 457,816 110,786 beginning of period

Cash, cash equivalents, and restricted cash, end $ 53,884 $ 375,869 of period

MICROSTRATEGY INCORPORATED

REVENUE AND COST OF REVENUE DETAIL

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenues

Product licenses and subscription services:

Product licenses

$

29,573

$

18,972

$

56,973

$

57,384

Subscription services

8,305

7,894

24,294

22,142

Total product licenses and subscription services

37,878

26,866

81,267

79,526

Product support

71,352

72,885

212,548

217,313

Other services:

Consulting

16,954

18,038

51,973

50,135

Education

1,224

1,904

3,628

5,822

Total other services

18,178

19,942

55,601

55,957

Total revenues

127,408

119,693

349,416

352,796

Cost of revenues

Product licenses and subscription services:

Product licenses

545

526

1,729

1,597

Subscription services

3,656

3,889

11,512

10,976

Total product licenses and subscription services

4,201

4,415

13,241

12,573

Product support

5,679

6,922

19,234

21,710

Other services:

Consulting

10,331

11,102

31,927

35,996

Education

1,525

1,376

5,868

5,059

Total other services

11,856

12,478

37,795

41,055

Total cost of revenues

21,736

23,815

70,270

75,338

Gross profit

$

105,672

$

95,878

$

279,146

$

277,458

MICROSTRATEGY INCORPORATED

REVENUE AND COST OF REVENUE DETAIL

(in thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

(unaudited) (unaudited) (unaudited) (unaudited)

Revenues

Productlicenses and subscriptionservices:

Product $ 29,573 $ 18,972 $ 56,973 $ 57,384 licenses

Subscription 8,305 7,894 24,294 22,142 services

Total productlicenses and 37,878 26,866 81,267 79,526 subscriptionservices

Product support 71,352 72,885 212,548 217,313

Other services:

Consulting 16,954 18,038 51,973 50,135

Education 1,224 1,904 3,628 5,822

Total other 18,178 19,942 55,601 55,957 services

Total revenues 127,408 119,693 349,416 352,796



Cost of revenues

Productlicenses and subscriptionservices:

Product 545 526 1,729 1,597 licenses

Subscription 3,656 3,889 11,512 10,976 services

Total productlicenses and 4,201 4,415 13,241 12,573 subscriptionservices

Product support 5,679 6,922 19,234 21,710

Other services:

Consulting 10,331 11,102 31,927 35,996

Education 1,525 1,376 5,868 5,059

Total other 11,856 12,478 37,795 41,055 services

Total cost of 21,736 23,815 70,270 75,338 revenues



Gross profit $ 105,672 $ 95,878 $ 279,146 $ 277,458

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

INCOME (LOSS) FROM OPERATIONS

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reconciliation of non-GAAP income (loss) from operations:

(Loss) income from operations

$

(20,271

)

$

4,586

$

(14,015

)

$

(10,630

)

Share-based compensation expense

2,560

1,834

7,897

7,887

Digital asset impairment losses

44,242

0

44,242

0

Non-GAAP income (loss) from operations

$

26,531

$

6,420

$

38,124

$

(2,743

)

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

INCOME (LOSS) FROM OPERATIONS

(in thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

(unaudited) (unaudited) (unaudited) (unaudited)

Reconciliationof non-GAAPincome (loss) fromoperations:

(Loss) income $ (20,271 ) $ 4,586 $ (14,015 ) $ (10,630 )from operations

Share-basedcompensation 2,560 1,834 7,897 7,887 expense

Digital assetimpairment 44,242 0 44,242 0 losses

Non-GAAP income(loss) from $ 26,531 $ 6,420 $ 38,124 $ (2,743 )operations

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

NET INCOME AND EARNINGS PER SHARE

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reconciliation of non-GAAP net income:

Net (loss) income

$

(14,229

)

$

9,700

$

(10,185

)

$

22,188

Share-based compensation expense, net of tax

2,608

1,932

8,381

$

7,428

Digital asset impairment losses, net of tax

31,465

0

31,465

0

Gain from Domain Name Sale, net of tax

0

0

0

(21,778

)

Non-GAAP net income

$

19,844

$

11,632

$

29,661

$

7,838

Reconciliation of non-GAAP diluted earnings per share:

Diluted (loss) earnings per share

$

(1.48

)

$

0.94

$

(1.04

)

$

2.15

Share-based compensation expense, net of tax (per diluted share)

0.27

0.19

0.85

0.72

Digital asset impairment losses, net of tax (per diluted share)

3.27

0.00

3.22

0.00

Gain from Domain Name Sale, net of tax (per diluted share)

0.00

0.00

0.00

(2.11

)

Non-GAAP diluted earnings per share

$

2.06

$

1.13

$

3.03

$

0.76

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

NET INCOME AND EARNINGS PER SHARE

(in thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

(unaudited) (unaudited) (unaudited) (unaudited)

Reconciliationof non-GAAP net income:

Net (loss) $ (14,229 ) $ 9,700 $ (10,185 ) $ 22,188 income

Share-basedcompensation 2,608 1,932 8,381 $ 7,428 expense, net oftax

Digital assetimpairment 31,465 0 31,465 0 losses, net oftax

Gain fromDomain Name 0 0 0 (21,778 )Sale, net oftax

Non-GAAP net $ 19,844 $ 11,632 $ 29,661 $ 7,838 income



Reconciliationof non-GAAPdiluted earnings pershare:

Diluted (loss)earnings per $ (1.48 ) $ 0.94 $ (1.04 ) $ 2.15 share

Share-basedcompensationexpense, net of 0.27 0.19 0.85 0.72 tax (perdiluted share)

Digital assetimpairmentlosses, net of 3.27 0.00 3.22 0.00 tax (perdiluted share)

Gain fromDomain NameSale, net of 0.00 0.00 0.00 (2.11 )tax (perdiluted share)

Non-GAAPdiluted $ 2.06 $ 1.13 $ 3.03 $ 0.76 earnings pershare

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

CONSTANT CURRENCY

(in thousands)

Three Months Ended

September 30,

(unaudited)

GAAP

Foreign Currency Exchange Rate Impact (1)

Non-GAAP Constant Currency (2)

GAAP

GAAP % Change

Non-GAAP Constant Currency % Change (3)

2020

2020

2020

2019

2020

2020

Revenues

Product licenses

$

29,573

$

(341

)

$

29,914

$

18,972

55.9

%

57.7

%

Subscription services

8,305

91

8,214

7,894

5.2

%

4.1

%

Total product licenses and subscription services

37,878

(250

)

38,128

26,866

41.0

%

41.9

%

Product support

71,352

670

70,682

72,885

-2.1

%

-3.0

%

Other services

18,178

269

17,909

19,942

-8.8

%

-10.2

%

Total revenues

127,408

689

126,719

119,693

6.4

%

5.9

%

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

CONSTANT CURRENCY

(in thousands)

Three Months Ended

September 30,

(unaudited)

Foreign Non-GAAP Currency Non-GAAP Constant GAAP Exchange Constant GAAP GAAP % Currency Rate Currency Change % Change Impact (2) (3) (1)

2020 2020 2020 2019 2020 2020

Revenues

Product $ 29,573 $ (341 ) $ 29,914 $ 18,972 55.9 % 57.7 %licenses

Subscription 8,305 91 8,214 7,894 5.2 % 4.1 %services

Totalproductlicenses and 37,878 (250 ) 38,128 26,866 41.0 % 41.9 %subscriptionservices

Product 71,352 670 70,682 72,885 -2.1 % -3.0 %support

Other 18,178 269 17,909 19,942 -8.8 % -10.2 %services

Total 127,408 689 126,719 119,693 6.4 % 5.9 %revenues

Nine Months Ended

September 30,

(unaudited)

GAAP

Foreign Currency Exchange Rate Impact (1)

Non-GAAP Constant Currency (2)

GAAP

GAAP % Change

Non-GAAP Constant Currency % Change (3)

2020

2020

2020

2019

2020

2020

Revenues

Product licenses

$

56,973

$

(1,537

)

$

58,510

$

57,384

-0.7

%

2.0

%

Subscription services

24,294

9

24,285

22,142

9.7

%

9.7

%

Total product licenses and subscription services

81,267

(1,528

)

82,795

79,526

2.2

%

4.1

%

Product support

212,548

(1,671

)

214,219

217,313

-2.2

%

-1.4

%

Other services

55,601

(229

)

55,830

55,957

-0.6

%

-0.2

%

Total revenues

349,416

(3,428

)

352,844

352,796

-1.0

%

0.0

%

Nine Months Ended

September 30,

(unaudited)

Foreign Non-GAAP Currency Non-GAAP Constant GAAP Exchange Constant GAAP GAAP % Currency Rate Currency Change % Change Impact (2) (3) (1)

2020 2020 2020 2019 2020 2020

Revenues

Product $ 56,973 $ (1,537 ) $ 58,510 $ 57,384 -0.7 % 2.0 %licenses

Subscription 24,294 9 24,285 22,142 9.7 % 9.7 %services

Totalproductlicenses and 81,267 (1,528 ) 82,795 79,526 2.2 % 4.1 %subscriptionservices

Product 212,548 (1,671 ) 214,219 217,313 -2.2 % -1.4 %support

Other 55,601 (229 ) 55,830 55,957 -0.6 % -0.2 %services

Total 349,416 (3,428 ) 352,844 352,796 -1.0 % 0.0 %revenues

(1)

The "Foreign Currency Exchange Rate Impact" reflects the estimated impact of fluctuations in foreign currency exchange rates on international revenues. It shows the increase (decrease) in international revenues from the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates. The term "international" refers to operations outside of the United States and Canada.

(2)The "Non-GAAP Constant Currency" reflects the current period GAAP amount, less the Foreign Currency Exchange Rate Impact.

(3)The "Non-GAAP Constant Currency % Change" reflects the percentage change between the current period Non-GAAP Constant Currency amount and the GAAP amount for the same period in the prior year.

The "Foreign Currency Exchange Rate Impact" reflects the estimated impact of fluctuations in foreign currency exchange rates on international revenues. It shows the increase (decrease) in international revenues from(1) the same period in the prior year, based on comparisons to the prior year quarterly average foreign currency exchange rates. The term "international" refers to operations outside of the United States and Canada.



The "Non-GAAP Constant Currency" reflects the current period GAAP amount,(2) less the Foreign Currency Exchange Rate Impact.



The "Non-GAAP Constant Currency % Change" reflects the percentage change(3) between the current period Non-GAAP Constant Currency amount and the GAAP amount for the same period in the prior year.

MICROSTRATEGY INCORPORATED

DEFERRED REVENUE DETAIL

(in thousands)

September 30,

December 31,

September 30,

2020

2019*

2019

(unaudited)

(unaudited)

Current:

Deferred product licenses revenue

$

186

$

481

$

470

Deferred subscription services revenue

19,535

16,561

12,812

Deferred product support revenue

134,632

161,670

139,402

Deferred other services revenue

6,492

8,395

7,560

Total current deferred revenue and advance payments

$

160,845

$

187,107

$

160,244

Non-current:

Deferred product licenses revenue

$

140

$

293

$

368

Deferred subscription services revenue

5,988

97

142

Deferred product support revenue

4,759

3,417

3,440

Deferred other services revenue

770

537

537

Total non-current deferred revenue and advance payments

$

11,657

$

4,344

$

4,487

Total current and non-current:

Deferred product licenses revenue

$

326

$

774

$

838

Deferred subscription services revenue

25,523

16,658

12,954

Deferred product support revenue

139,391

165,087

142,842

Deferred other services revenue

7,262

8,932

8,097

Total current and non-current deferred revenue and advance payments

$

172,502

$

191,451

$

164,731

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED

DEFERRED REVENUE DETAIL

(in thousands)

September December September 30, 31, 30,

2020 2019* 2019

(unaudited) (unaudited)

Current:

Deferred product licenses revenue $ 186 $ 481 $ 470

Deferred subscription services 19,535 16,561 12,812 revenue

Deferred product support revenue 134,632 161,670 139,402

Deferred other services revenue 6,492 8,395 7,560

Total current deferred revenue and $ 160,845 $ 187,107 $ 160,244 advance payments



Non-current:

Deferred product licenses revenue $ 140 $ 293 $ 368

Deferred subscription services 5,988 97 142 revenue

Deferred product support revenue 4,759 3,417 3,440

Deferred other services revenue 770 537 537

Total non-current deferred revenue $ 11,657 $ 4,344 $ 4,487 and advance payments



Total current and non-current:

Deferred product licenses revenue $ 326 $ 774 $ 838

Deferred subscription services 25,523 16,658 12,954 revenue

Deferred product support revenue 139,391 165,087 142,842

Deferred other services revenue 7,262 8,932 8,097

Total current and non-currentdeferred revenue and advance $ 172,502 $ 191,451 $ 164,731 payments

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED

WORLDWIDE EMPLOYEE HEADCOUNT

September June March December September 30, 30, 31, 31, 30,

2020 2020 2020 2019 2019

Subscription 54 64 63 69 66 services

Product support 165 189 204 219 231

Consulting 397 421 425 392 390

Education 38 43 42 38 38

Sales and 495 573 594 597 616 marketing

Research and 666 684 721 743 775 development

General and 258 285 314 338 337 administrative

Total headcount 2,073 2,259 2,363 2,396 2,453

View source version on businesswire.com: https://www.businesswire.com/news/home/20201027006034/en/

CONTACT: MicroStrategy Incorporated Matt Basil Investor Relations ir@microstrategy.com (703) 848-8600