MicroStrategy Announces Third Quarter 2020 Financial Results

TYSONS CORNER, Va.–(BUSINESS WIRE)–MicroStrategy^® (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^™ 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.

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^™. 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, 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^™; 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 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		18,178			19,942			55,601			55,957
Total revenues		127,408			119,693			349,416			352,796

Cost of revenues
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		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

Operating expenses
Sales and marketing		35,330			43,935			109,799			140,968
Research and development		26,638			27,457			78,606			83,436
General and administrative		19,733			19,900			60,514			63,684
Digital asset impairment losses		44,242			0			44,242			0
Total operating expenses		125,943			91,292			293,161			288,088

(Loss) income from operations		(20,271	)		4,586			(14,015	)		(10,630	)
Interest income, net		209			2,941			2,627			8,520
Other (expense) income, net		(2,971	)		1,882			(4,532	)		30,717
(Loss) income before income taxes		(23,033	)		9,409			(15,920	)		28,607
(Benefit from) provision for income taxes		(8,804	)		(291	)		(5,735	)		6,419
Net (loss) income	$	(14,229	)	$	9,700		$	(10,185	)	$	22,188

Basic (loss) earnings per share (1):	$	(1.48	)	$	0.95		$	(1.04	)	$	2.16
Weighted average shares outstanding used in computing basic (loss) earnings per share		9,616			10,251			9,777			10,273

Diluted (loss) earnings per share (1):	$	(1.48	)	$	0.94		$	(1.04	)	$	2.15
Weighted average shares outstanding used in computing diluted (loss) earnings per share		9,616			10,309			9,777			10,336

(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 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

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

* 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 assets		6,134			6,087
Credit losses and sales allowances		1,874			892
Net realized (gain) loss on short-term investments		(94	)		41
Deferred taxes		(13,341	)		(3,352	)
Release of liabilities for unrecognized tax benefits		0			(1,077	)
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 investments		119,886			589,357
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 activities		(316,204	)		259,488

Financing activities:
Proceeds from sale of class A common stock under exercise of employee stock options		3,616			5,442
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, cash equivalents, and restricted cash		2,839			(3,926	)
Net (decrease) increase in cash, cash equivalents, and restricted cash		(403,932	)		265,083
Cash, cash equivalents, and restricted cash, beginning of period		457,816			110,786
Cash, cash equivalents, and restricted cash, end of period	$	53,884		$	375,869

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

Contacts

MicroStrategy Incorporated

Matt Basil

Investor Relations

ir@microstrategy.com
(703) 848-8600

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