Business Wire | Jul 28, 2020 04:01PM EDT

MicroStrategy Announces Second Quarter 2020 Financial Results

Jul. 28, 2020

TYSONS CORNER, Va.--(BUSINESS WIRE)--Jul. 28, 2020--MicroStrategy(r) (Nasdaq: MSTR), the largest independent publicly-traded business intelligence company, today announced financial results for the three-month period ended June 30, 2020 (the second quarter of its 2020 fiscal year).

"MicroStrategy's second quarter results were solid in the context of the challenging global economic environment and highlighted by double-digit subscription services revenue growth and significant improvements in profitability. We are encouraged by the adoption of the MicroStrategy Cloud(tm) and HyperIntelligence(r) as customers look for the best way to make fast, data-driven decisions," said Michael J. Saylor, CEO, MicroStrategy Incorporated.

"We continue to make significant progress streamlining our cost structure and improving our operating efficiency. We now believe we are in a position to drive consistent and meaningful profitability going forward while also continuing to invest in revenue growth. This has given us the confidence to more actively utilize our strong balance sheet, which together with our improved operational performance provides multiple opportunities to generate substantial long-term value for our shareholders," continued Mr. Saylor.

Capital Allocation Strategy

MicroStrategy today announced a new capital allocation strategy. With more than $500 million in cash and cash equivalents and short-term investments and an operating plan that anticipates generating material free cash flow going forward, MicroStrategy intends to return up to $250 million to its shareholders over the next 12 months. In addition, under this capital allocation strategy, MicroStrategy will seek to invest up to another $250 million over the next 12 months 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. Both of these strategies will depend on market conditions.

Phong Le, President & CFO, MicroStrategy Incorporated, said, "MicroStrategy is announcing a capital allocation strategy that reflects a new direction in its commitment to capital stewardship. We believe the business will be able to generate material excess cash going forward and are confident that we can manage our day-to-day business and achieve reasonable growth objectives with approximately $50 million of operating cash. Accordingly, we believe it is appropriate to return a portion of this excess cash to our shareholders and invest a portion in assets with potentially higher returns than holding cash."

Second Quarter 2020 Financial Highlights

* Revenues: Total revenues for the second quarter of 2020 were $110.6 million, a 6.1% decrease, or a 4.3% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2019. Product licenses and subscription services revenues for the second quarter of 2020 were $22.8 million, a 16.1% decrease, or a 13.5% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2019. Product support revenues for the second quarter of 2020 were $70.0 million, a 4.0% decrease, or a 2.4% decrease on a non-GAAP constant currency basis, compared to the second quarter of 2019. Other services revenues for the second quarter of 2020 were $17.7 million, a 1.0% increase, or a 2.4% increase on a non-GAAP constant currency basis, compared to the second quarter of 2019. * Gross Profit: Gross profit for the second quarter of 2020 was $86.6 million, representing a 78.3% gross margin, compared to a gross margin of 78.5% in the second quarter of 2019. * Operating Expenses: Operating expenses for the second quarter of 2020 were $80.3 million, a 17.4% decrease compared to the second quarter of 2019. * Income from Operations: Income from operations for the second quarter of 2020 was $6.3 million versus loss from operations of $4.8 million for the second quarter of 2019. Non-GAAP income from operations, which excludes share-based compensation expense, was $8.6 million for the second quarter of 2020 versus non-GAAP loss from operations of $1.8 million for the second quarter of 2019. * Net Income: Net income for the second quarter of 2020 was $3.4 million, or $0.35 per share on a diluted basis, as compared to net income of $20.4 million, or $1.98 per share on a diluted basis, for the second quarter of 2019. In the second quarter of 2019, MicroStrategy completed the sale of its Voice.com domain name for a gain of $21.8 million, net of tax (the "Domain Name Sale"). Excluding the impact of the Domain Name Sale, non-GAAP net loss for the second quarter of 2019 was $1.4 million, or $0.14 per share on a diluted basis. * Cash and Short-term Investments: As of June 30, 2020, MicroStrategy had cash and cash equivalents and short-term investments of $530.9 million, as compared to $565.6 million as of December 31, 2019, a decrease of $34.8 million. During the second quarter of 2020, MicroStrategy repurchased 90,136 shares of its class A common stock for an aggregate purchase price of approximately $11.1 million. As of June 30, 2020, MicroStrategy had 7.7 million shares of class A common stock and 2.0 million shares of class B common stock outstanding.

The tables at the end of this press release include a reconciliation of GAAP to non-GAAP financial measures for the three and six months ended June 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 "2Q 2020 Financial Results" 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.

Recent Business Highlights

The following are some key business highlights from the second quarter of 2020:

* Numerous leading organizations, such as the Industrial and Commercial Bank of China, SEVEN-ELEVEN JAPAN CO., LTD., and Dubai Health Authority, purchased HyperIntelligence. * MicroStrategy 2020(tm) Update 1 provided modern, consumer-grade experiences to every role across the enterprise, improving usability of multiple workflows such as dossier authoring, exporting, mobile linking, and more. * MicroStrategy 2020 Update 2 delivered new capabilities for business users, analysts, and architects via a new MicroStrategy application, enhancements to Dossier(r) and HyperIntelligence, and improvements to data connectors and Workstation. * MicroStrategy introduced Expert.Now, a new service for its customers and partners to connect immediately and face-to-face with MicroStrategy's best and brightest experts. Subscribers in need of instant help or advice can connect with MicroStrategy's team of analysts, architects, developers, and data scientists to build reports or dossiers, design HyperIntelligence cards or mobile apps, integrate new data sources, upgrade their platform, migrate to the cloud, or receive general support.

Conference Call

MicroStrategy will be discussing its second 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 7154964. 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 August 4, 2020 at (855) 859-2056 (domestically) or (404) 537-3406 (internationally) using the passcode 7154964.

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 arrangements, (ii) non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share that exclude the impact from the Domain Name Sale in the second quarter of 2019, 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 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. The second set of supplemental financial measures excludes the impact from the Domain Name Sale, which is outside of our 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.

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, 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, MicroStrategy Cloud, HyperIntelligence, Intelligent Enterprise, MicroStrategy Library, MicroStrategy 2020, Dossier, and Intelligence Everywhere 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; 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; 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 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

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

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

Revenues

Product $ 14,816 $ 20,121 $ 27,400 $ 38,412 licenses

Subscription 8,021 7,104 15,989 14,248 services

Total productlicenses and 22,837 27,225 43,389 52,660 subscriptionservices

Product support 70,038 72,978 141,196 144,428

Other services 17,709 17,534 37,423 36,015

Total revenues 110,584 117,737 222,008 233,103



Cost of revenues

Product 514 552 1,184 1,071 licenses

Subscription 3,792 3,489 7,856 7,087 services

Total productlicenses and 4,306 4,041 9,040 8,158 subscriptionservices

Product support 6,837 7,721 13,555 14,788

Other services 12,846 13,588 25,939 28,577

Total cost of 23,989 25,350 48,534 51,523 revenues



Gross profit 86,595 92,387 173,474 181,580



Operating expenses

Sales and 34,951 48,273 74,469 97,033 marketing

Research and 25,867 27,764 51,968 55,979 development

General and 19,449 21,180 40,781 43,784 administrative

Total operating 80,267 97,217 167,218 196,796 expenses



Income (loss) 6,328 (4,830 ) 6,256 (15,216 )from operations

Interest 563 3,013 2,418 5,579 income, net

Other (expense) (1,995 ) 29,431 (1,561 ) 28,835 income, net

Income before 4,896 27,614 7,113 19,198 income taxes

Provision for 1,509 7,220 3,069 6,710 income taxes

Net income $ 3,387 $ 20,394 $ 4,044 $ 12,488



Basic earnings $ 0.35 $ 1.99 $ 0.41 $ 1.21 per share (1):

Weightedaverage sharesoutstandingused in 9,739 10,240 9,858 10,283 computing basicearnings pershare



Dilutedearnings per $ 0.35 $ 1.98 $ 0.41 $ 1.21 share (1):

Weightedaverage sharesoutstandingused in 9,741 10,310 9,886 10,350 computingdilutedearnings pershare

(1) Basic and fully diluted 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)



June 30, December 31,

2020 2019*

(unaudited)

Assets

Current assets

Cash and cash equivalents $ 420,899 $ 456,727

Restricted cash 1,221 1,089

Short-term investments 109,972 108,919

Accounts receivable, net 123,794 163,516

Prepaid expenses and other current assets 16,887 23,195

Total current assets 672,773 753,446



Property and equipment, net 45,300 50,154

Right-of-use assets 81,543 85,538

Deposits and other assets 14,596 8,024

Deferred tax assets, net 18,834 19,409

Total Assets $ 833,046 $ 916,571



Liabilities and Stockholders' Equity

Current liabilities

Accounts payable, accrued expenses, and $ 31,468 $ 33,919 operating lease liabilities

Accrued compensation and employee benefits 40,806 48,792

Deferred revenue and advance payments 167,643 187,107

Total current liabilities 239,917 269,818



Deferred revenue and advance payments 5,910 4,344

Operating lease liabilities 98,283 103,424

Other long-term liabilities 30,452 30,400

Deferred tax liabilities 24 26

Total Liabilities 374,586 408,012



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; 15,903 shares issued and7,651 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; 2,035 shares 2 2 issued and outstanding, and 2,035 shares issuedand outstanding, respectively

Additional paid-in capital 600,851 593,583

Treasury stock, at cost; 8,252 shares and 7,807 (720,755 ) (658,880 )shares, respectively

Accumulated other comprehensive loss (9,187 ) (9,651 )

Retained earnings 587,533 583,489

Total Stockholders' Equity 458,460 508,559

Total Liabilities and Stockholders' Equity $ 833,046 $ 916,571

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Six Months Ended

June 30,

2020 2019

(unaudited) (unaudited)

Operating activities:

Net income $ 4,044 $ 12,488

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 5,828 3,623

Reduction in carrying amount of right-of-use 4,085 4,064 assets

Credit losses and sales allowances 990 796

Net realized loss on short-term investments 0 41

Deferred taxes 273 (3,219 )

Share-based compensation expense 5,337 6,053

Changes in operating assets and liabilities:

Accounts receivable 21,022 5,985

Prepaid expenses and other current assets (493 ) 7,089

Deposits and other assets 195 96

Accounts payable and accrued expenses (1,823 ) (8,396 )

Accrued compensation and employee benefits (8,708 ) (8,082 )

Deferred revenue and advance payments 347 33,489

Operating lease liabilities (4,662 ) (4,316 )

Other long-term liabilities 86 (509 )

Net cash provided by operating activities 26,521 49,202



Investing activities:

Proceeds from redemption of short-term 10,000 369,603 investments

Purchases of property and equipment (1,162 ) (8,432 )

Purchases of short-term investments (9,928 ) (212,248 )

Net cash (used in) provided by investing (1,090 ) 148,923 activities



Financing activities:

Proceeds from sale of class A common stock under 1,902 1,836 exercise of employee stock options

Purchases of treasury stock (61,875 ) (48,244 )

Net cash used in financing activities (59,973 ) (46,408 )



Effect of foreign exchange rate changes on cash, (1,154 ) 33 cash equivalents, and restricted cash

Net (decrease) increase in cash, cash (35,696 ) 151,750 equivalents, and restricted cash

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

Cash, cash equivalents, and restricted cash, end $ 422,120 $ 262,536 of period

MICROSTRATEGY INCORPORATED

REVENUE AND COST OF REVENUE DETAIL

(in thousands)



Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

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

Revenues

Productlicenses and subscriptionservices:

Product $ 14,816 $ 20,121 $ 27,400 $ 38,412 licenses

Subscription 8,021 7,104 15,989 14,248 services

Total productlicenses and 22,837 27,225 43,389 52,660 subscriptionservices

Product support 70,038 72,978 141,196 144,428

Other services:

Consulting 16,578 15,494 35,019 32,097

Education 1,131 2,040 2,404 3,918

Total other 17,709 17,534 37,423 36,015 services

Total revenues 110,584 117,737 222,008 233,103



Cost of revenues

Productlicenses and subscriptionservices:

Product 514 552 1,184 1,071 licenses

Subscription 3,792 3,489 7,856 7,087 services

Total productlicenses and 4,306 4,041 9,040 8,158 subscriptionservices

Product support 6,837 7,721 13,555 14,788

Other services:

Consulting 10,168 11,909 21,596 24,894

Education 2,678 1,679 4,343 3,683

Total other 12,846 13,588 25,939 28,577 services

Total cost of 23,989 25,350 48,534 51,523 revenues



Gross profit $ 86,595 $ 92,387 $ 173,474 $ 181,580

MICROSTRATEGY INCORPORATED

DEFERRED REVENUE DETAIL

(in thousands)

June 30, December June 30, 31,

2020 2019* 2019

(unaudited) (unaudited)

Current:

Deferred product licenses revenue $ 100 $ 481 $ 633

Deferred subscription services 17,934 16,561 15,393 revenue

Deferred product support revenue 142,543 161,670 152,866

Deferred other services revenue 7,066 8,395 7,894

Total current deferred revenue and $ 167,643 $ 187,107 $ 176,786 advance payments



Non-current:

Deferred product licenses revenue $ 168 $ 293 $ 405

Deferred subscription services 90 97 116 revenue

Deferred product support revenue 5,152 3,417 3,083

Deferred other services revenue 500 537 571

Total non-current deferred revenue $ 5,910 $ 4,344 $ 4,175 and advance payments



Total current and non-current:

Deferred product licenses revenue $ 268 $ 774 $ 1,038

Deferred subscription services 18,024 16,658 15,509 revenue

Deferred product support revenue 147,695 165,087 155,949

Deferred other services revenue 7,566 8,932 8,465

Total current and non-currentdeferred revenue and advance $ 173,553 $ 191,451 $ 180,961 payments

* Derived from audited financial statements.

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

EXCLUSION OF SHARE-BASED COMPENSATION EXPENSE

(in thousands)



Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

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

Reconciliationof non-GAAPincome (loss) fromoperations:

Income (loss) $ 6,328 $ (4,830 ) $ 6,256 $ (15,216 )from operations

Share-basedcompensation 2,226 3,036 5,337 6,053 expense

Non-GAAP income(loss) from $ 8,554 $ (1,794 ) $ 11,593 $ (9,163 )operations

MICROSTRATEGY INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

EXCLUSION OF DOMAIN NAME SALE

(in thousands, except per share data)



Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

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

Reconciliationof non-GAAP net income (loss):

Net income $ 3,387 $ 20,394 $ 4,044 $ 12,488

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

Non-GAAP net $ 3,387 $ (1,384 ) $ 4,044 $ (9,290 )income (loss)



Reconciliationof non-GAAPdiluted earnings (loss)per share:

Dilutedearnings per $ 0.35 $ 1.98 $ 0.41 $ 1.21 share

Gain fromDomain NameSale, net of 0.00 (2.12 ) 0.00 (2.11 )tax (perdiluted share)

Non-GAAPdiluted $ 0.35 $ (0.14 ) $ 0.41 $ (0.90 )earnings (loss)per share

MICROSTRATEGY INCORPORATEDRECONCILIATION OF GAAP TO NON-GAAP MEASURES

CONSTANT CURRENCY

(in thousands)

Three Months Ended

June 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 $ 14,816 $ (655 ) $ 15,471 $ 20,121 -26.4 % -23.1 %licenses

Subscription 8,021 (46 ) 8,067 7,104 12.9 % 13.6 %services

Totalproductlicenses and 22,837 (701 ) 23,538 27,225 -16.1 % -13.5 %subscriptionservices

Product 70,038 (1,165 ) 71,203 72,978 -4.0 % -2.4 %support

Other 17,709 (243 ) 17,952 17,534 1.0 % 2.4 %services

Total 110,584 (2,109 ) 112,693 117,737 -6.1 % -4.3 %revenues

Six Months Ended

June 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 $ 27,400 $ (1,196 ) $ 28,596 $ 38,412 -28.7 % -25.6 %licenses

Subscription 15,989 (82 ) 16,071 14,248 12.2 % 12.8 %services

Totalproductlicenses and 43,389 (1,278 ) 44,667 52,660 -17.6 % -15.2 %subscriptionservices

Product 141,196 (2,341 ) 143,537 144,428 -2.2 % -0.6 %support

Other 37,423 (498 ) 37,921 36,015 3.9 % 5.3 %services

Total 222,008 (4,117 ) 226,125 233,103 -4.8 % -3.0 %revenues

The "Foreign Currency Exchange Rate Impact" reflects the estimated impact from 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(1) 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 between the current period Non-GAAP Constant Currency amount and the GAAP(3) amount for the same period in the prior year.

MICROSTRATEGY INCORPORATED

WORLDWIDE EMPLOYEE HEADCOUNT

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

2020 2020 2019 2019 2019

Subscription 64 63 69 66 62 services

Product support 189 204 219 231 234

Consulting 421 425 392 390 404

Education 43 42 38 38 40

Sales and 573 594 597 616 637 marketing

Research and 684 721 743 775 764 development

General and 285 314 338 337 336 administrative

Total headcount 2,259 2,363 2,396 2,453 2,477

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CONTACT: MicroStrategy Incorporated Michael Bizovi ir@microstrategy.com (703) 848-8600