License Revenues Grow by 31 Percent Over Q2 2002
MCLEAN, Va., (July 29, 2003) –
MicroStrategy(R) Incorporated (Nasdaq: MSTR), a leading worldwide provider of business intelligence software, today announced its financial results for the three- month period ended June 30, 2003 (the second quarter of its 2003 fiscal year), reporting its sixth consecutive quarter of GAAP profitability and earnings of $0.15 per share on a diluted basis. Revenues reached their highest level in six quarters. License revenues rose approximately 31 percent from the second quarter of the 2002 fiscal year.
Second quarter 2003 revenues were $43.6 million versus $37.4 million in the first quarter of 2003 and $36.8 million in the second quarter of 2002. Second quarter 2003 license revenues were $19.6 million versus $16.5 million in the first quarter of 2003 and $15.0 million in the second quarter of 2002. Net income attributable to common stockholders for the second quarter of 2003, determined in accordance with Generally Accepted Accounting Principles (GAAP), was $2.3 million or $0.15 per share on a diluted basis. This result included non-cash charges for discount amortization expense on notes payable of $0.9 million, a non-cash loss on the partial extinguishment of notes payable of $0.9 million, and a restructuring charge of $1.7 million.
“Q2 was an excellent quarter for MicroStrategy by any objective measure,” said MicroStrategy President and CFO Eric F. Brown. “Six consecutive profitable quarters, the highest revenue in six quarters, and three consecutive quarters of year-over-year license revenue growth all showcase the dynamism of the company.”
“MicroStrategy has made solid financial and technical progress during the past year,” said MicroStrategy Chairman and CEO Michael J. Saylor. “We believe that the current trend toward consolidation in the BI industry is favorable for us, and that we are well positioned for continued market success.”
Added 139 New Customers
New Customers and New Deals with Existing Customers in Q2 2003 included:
Cardinal Distribution, Carl Warren & Co., Cascade Natural Gas Company, CSK Auto Corporation, eBay, FAO, Inc., FleetBoston Financial Corporation, Garden Ridge, GE Medical Systems, Hannaford Bros. Co., Kohl’s Corporation, Land O’Lakes, Inc., National Institutes of Health, NDCHealth Corporation, National Electric Warranty Corp., Pfizer Global Manufacturing, Raley’s, Reynolds and Reynolds, Rheem Manufacturing, Rite-Hite Corporation, Shaw Industries, Stein Mart, Inc., Telephia, Time Warner Cable, Ukrop’s Super Markets, Inc., Unilever Cosmetics International, U.S. Department of State, U.S. Postal Service, Verispan, LLC, Wells Fargo & Company, The Wet Seal, Inc.
Examples of Noteworthy Customer Deals from Q2 2003:
U.S. Postal Service
The U.S. Postal Service purchased over $5 million of MicroStrategy software licenses, education, and software support services in June 2003. The Postal Service will deploy the MicroStrategy Business Intelligence Platform(TM) enterprise-wide for reporting, analysis and information delivery. Additionally, the Postal Service has acquired options to procure consulting services, education, and software support services over the next five years.
Unilever Cosmetics International
Unilever Cosmetics International, a division of Unilever, has selected the MicroStrategy Business Intelligence Platform to increase internal operational efficiency and employee productivity globally. Approximately 200 employees, including sales, marketing and operations personnel, will perform sales promotion management, sales reporting, and supply chain reporting and analyses against an Oracle(R) data warehouse. The company will utilize the MicroStrategy platform to track and assess business data across several areas to provide end users with greater insight. After an evaluation of user requirements, Unilever Cosmetics International selected the MicroStrategy platform for its functionality, scalability and easy-to-use Web interface.
Shaw Industries
Shaw Industries, the world’s largest manufacturer of carpeting, has selected the MicroStrategy Business Intelligence Platform as its enterprise- wide reporting standard. Approximately 1,000 employees, including sales, marketing and accounting personnel, will perform reporting and analyses of sales and marketing information against a Teradata(R) data warehouse. After an in-depth evaluation of many of the competing products in the industry, Shaw Industries selected the MicroStrategy platform for its scalability and superior analytical capabilities.
O’Reilly Automotive, Inc.
O’Reilly Automotive, Inc., a nationally recognized specialty retailer of automotive aftermarket parts, tools, supplies and equipment, has selected the MicroStrategy Business Intelligence Platform for sales and inventory reporting and analysis. With MicroStrategy, O’Reilly Automotive will have a consolidated, dynamic view of sales and stock information, enabling consistent availability of goods across its 1,011 stores. The company will also be able to more effectively monitor and manage inventory levels in order to improve product sales and profitability. The company chose MicroStrategy’s technology for its ability to consolidate and present valuable corporate performance data in an easy-to-understand format over the Web.
MicroStrategy’s Strategic Partnerships
Signed Agreements with 12 Systems Integrators and OEMs (Original Equipment Manufacturers)
New partners include: ALT Consultores, Altia Consultores S.L., DoubleClick, Intelligence Technologies S.A., Marketing Direct, Inc., S & L Siemonsen GmbH, S3 Store System Solutions srl, Saras America, Inc., Systems Evolution Inc, SYSTIME, Tecnologia de Gerencia Comercial SA (GEMCO), WNF Consulting.
Awards for Applications of MicroStrategy Software and Recognition for MicroStrategy’s Financial Turnaround
In June 2003, MicroStrategy and its customers won noteworthy awards for applications of the MicroStrategy business intelligence platform. MicroStrategy and the State of Tennessee’s Department of Finance and Administration were honored with a DM Review World Class Solution Award for a MicroStrategy application that processes and analyzes millions of Tennessee financial records in an efficient manner. This MicroStrategy application has reduced costs and significantly improved the quality of financial information for decision-making by state officials. The DM Review World Class Solutions Award, a symbol of excellence within the business intelligence and data warehousing industry, originated in 1996.
Also in June, the CIO of MicroStrategy customer Lowe’s Home Improvement Warehouse, Steve Stone, won a 2003 Executive Technology Magazine CIO/IT Leadership & Innovation Award for his business intelligence deployment. Lowe’s has deployed the MicroStrategy business intelligence platform to anchor all of its business intelligence applications. One MicroStrategy application, called DART (Data Access and Reporting Tool), plays a key role in empowering employees to obtain any piece of data critical to lifting sales or improving inventory efficiency.
In early July 2003, MicroStrategy was added to the Russell 3000(R) Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98 percent of the investable U.S. equity market. MicroStrategy President and CFO Eric Brown noted that “inclusion in this index will help raise MicroStrategy’s visibility with investors and institutions that rely on the Russell indices as part of their investment strategy.”
Outlook and Financial Guidance Information
The following statements are subject to risks and uncertainties described at the end of this press release. Management guidance for 2003 contained herein is valid as of today only and supersedes any previously announced guidance as to the company’s expectations for financial results for 2003.
In considering management’s guidance for the consolidated continuing operations of MicroStrategy for the quarter ending September 30, 2003 and for the full year 2003, it should be noted that on July 30, 2003 (the “Conversion Date”), MicroStrategy will convert the remaining $53,035,445 in principal amount outstanding of its 71/2% series A unsecured notes (the “Notes”) plus all accrued and unpaid interest into class A common stock. The conversion will result in MicroStrategy issuing an aggregate of approximately 1,656,297 shares of class A common stock (the “Conversion Shares”). On the Conversion Date, the company expects to incur a non-recurring, non-cash charge equal to the difference between the fair market value of the Conversion Shares on the Conversion Date and approximately $39.8 million, the carrying value of the Notes plus accrued and unpaid interest on the Conversion Date. For example, if the fair market value of a Conversion Share on the Conversion Date were equal to $40.86, the closing sale price per share of the class A common stock on July 28, 2003, MicroStrategy would incur a non-recurring, non-cash charge in the third quarter of 2003 of approximately $27.9 million as a result of the conversion. Since the fair market value of a Conversion Share on the Conversion Date may be higher or lower than the $40.86 assumed in the example above, the actual charge attributable to the conversion of the Notes may be higher or lower than the $27.9 million reflected in the above example. The actual charge will impact MicroStrategy’s GAAP net income for the third quarter of 2003 and for the year ended December 31, 2003.
Assuming a charge of $27.9 million attributable to the conversion of the Notes, management offers the following guidance for the consolidated continuing operations of MicroStrategy for the quarter ending September 30, 2003 and for the full year 2003:
Approximate Ranges
(in millions, except for
per share data Full Year 2003
Q3 2003 Range Range
Revenue $36.0 – $39.0 $155.0 – $165.0
Net income (loss) ($26.6)- ($25.0) ($16.7)- ($11.7)
GAAP basic and diluted earnings
(loss) per share ($1.75)- ($1.60) ($1.17)- ($0.77)
GAAP basic and diluted weighted
average shares outstanding 15.2 – 15.7 14.3 – 15.3
Additional Financial Information
Discount amortization expense on
notes payable $0.3 – $0.3 $2.1 – $2.1
Restructuring charge $0.0 – $0.0 $1.7 – $1.7
Loss on conversion of notes payable $27.9 – $27.9 $27.9 – $27.9
Loss on early extinguishment of
notes payable $0.0 – $0.0 $0.8 – $0.8
Amortization of intangible assets $0.0 – $0.0 $0.2 – $0.2
Total $28.2 – $28.2 $32.7 – $32.7
Adjusted diluted weighted average
shares outstanding 16.5 – 16.0 16.0 – 15.0
(Note: The adjusted diluted weighted average sharecount was estimated
by taking the GAAP Basic and Diluted weighted average sharecount and
adding an estimate for employee stock options)
About MicroStrategy Incorporated
Founded in 1989, MicroStrategy is a worldwide leader in the increasingly critical business intelligence software market. Leading Fortune 2000 companies are integrating MicroStrategy’s industrial-strength software into virtually all facets of their businesses. The MicroStrategy Business Intelligence Platform(TM) distills vast amounts of data into vital, probing insight to help drive cost-efficiency, productivity, customer relations and revenue-generation. MicroStrategy offers exceptional capabilities — excellent scalability, powerful analytics, user-friendly query and reporting features and an outstanding, easy-to-use Web interface. Top companies are using MicroStrategy to cost-effectively harness large, multi-terabyte databases; empower thousands of employees at all operational levels; and extend the benefits of business intelligence enterprise-wide and beyond to customers, partners and suppliers.
MicroStrategy has over 2,000 enterprise-class customers, including General Motors, Best Buy, Lowe’s Home Improvement Warehouse, Yahoo!, Visa International, Wells Fargo, Telecom Italia, AT&T Wireless Group and Aventis. MicroStrategy also has relationships with over 500 systems integrators and application development and platform partners, including IBM, PeopleSoft, Sun, and JD Edwards. MicroStrategy is listed on Nasdaq under the symbol MSTR. For more information or to purchase or demo MicroStrategy’s software, visit MicroStrategy’s Web site at http://www.microstrategy.com .
MicroStrategy, MicroStrategy 7, MicroStrategy Business Intelligence Platform, and MicroStrategy 7i 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 its 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 Company’s ability to secure financing for its current operations and long-term plans on acceptable terms; the ability of the Company to implement and achieve widespread customer acceptance of its MicroStrategy 7i software on a timely basis; the Company’s ability to recognize deferred revenue through delivery of products or satisfactory performance of services; continued acceptance of the Company’s products in the marketplace; the timing of significant orders; delays in the Company’s ability to develop or ship new products; market acceptance of new products; 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. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this release.
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 (1) 2003 2002 (1)
(unaudited) (as adjusted) (unaudited) (as adjusted)
Revenues
Product licenses $19,637 $15,032 $36,166 $29,530
Product support
and other services 23,996 21,798 44,902 42,959
Total revenues 43,633 36,830 81,068 72,489
Cost of Revenues
Product licenses 739 572 1,529 1,093
Product support
and other services 6,419 6,486 12,377 13,126
Total cost
of revenues 7,158 7,058 13,906 14,219
Gross profit 36,475 29,772 67,162 58,270
Operating Expenses
Sales and marketing 14,279 11,411 26,962 23,881
Research and
development 7,798 6,850 14,731 12,201
General and
administrative 7,963 6,812 15,147 13,574
Restructuring and
impairment charges 1,699 1,162 1,699 2,394
Amortization of
intangible assets 18 862 148 1,827
Total operating
expenses 31,757 27,097 58,687 53,877
Income from
operations 4,718 2,675 8,475 4,393
Financing and Other
(Expense) Income
Interest income 281 179 371 409
Interest expense
(note 2) (2,049) (1,659) (4,347) (3,278)
Loss on investments – (205) – (494)
Reduction in
estimated cost
of litigation
settlement – 7,936 – 11,396
Loss on early
extinguishment of
notes payable (858) – (840) –
Gain on contract
termination – 16,837 – 16,837
Other income, net 133 2,169 95 2,053
Total financing
and other
(expense) income (2,493) 25,257 (4,721) 26,923
Income before
income taxes 2,225 27,932 3,754 31,316
(Benefit) provision
for income taxes (71) 420 793 819
Net income 2,296 27,512 2,961 30,497
Dividends on
and accretion
of convertible
preferred stock – (2,566) – (5,123)
Net income
attributable to
common stockholders $2,296 $24,946 $2,961 $25,374
Basic earnings
per share $0.16 $2.43 $0.21 $2.58
Diluted earnings
per share $0.15 $2.41 $0.20 $2.54
Basic weighted
average shares
outstanding 14,088 10,440 13,939 10,140
Diluted weighted
average shares
outstanding 14,940 10,498 14,500 10,303
(1) On July 30, 2002, the Company’s Board of Directors approved a reverse
stock split of the Company’s common stock at a ratio of one-for-ten.
All references to common share and per common share amounts for the
prior periods presented have been retroactively restated to reflect
this reverse split.
(2) Interest expense for the three and six months ended June 30, 2003
includes discount amortization expense on notes payable of $883 and
$1,856, respectively.
MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, December 31,
2003 2002
Assets (unaudited) (audited)
Current assets
Cash and cash equivalents $34,874 $15,036
Restricted cash 679 6,173
Short-term investments 30 44
Accounts receivable, net 28,956 28,195
Prepaid expenses and other current
assets 4,228 5,032
Deferred tax assets, net 740 495
Total current assets 69,507 54,975
Property and equipment, net 16,884 18,471
Goodwill and intangible assets, net 639 789
Capitalized software development
costs, net 3,490 4,414
Deposits and other assets 1,346 1,224
Deferred tax assets, net 76 –
Total Assets $91,942 $79,873
Liabilities and Stockholders’ Equity
(Deficit)
Current liabilities
Accounts payable and accrued
expenses $15,235 $15,267
Accrued compensation and
employee benefits 12,536 11,352
Accrued interest 231 244
Accrued restructuring costs 4,215 5,222
Deferred revenue and advance
payments 28,215 23,961
Deferred tax liabilities, net 10 –
Notes payable 4,955 4,698
Net liabilities of
discontinued operations 1,011 1,151
Total current liabilities 66,408 61,895
Deferred revenue and advance payments 1,835 1,381
Other long-term liabilities 2,084 2,402
Accrued restructuring costs 3,708 3,663
Notes payable 39,183 45,041
Total Liabilities 113,218 114,382
Stockholders’ equity (deficit):
Preferred stock undesignated;
$0.001 par value; 4,971 shares
authorized; no shares issued or
outstanding – –
Class A common stock; $0.001 par
value; 330,000 shares authorized;
10,455 and 9,157 shares
issued and outstanding,
respectively 10 9
Class B common stock; $0.001 par
value; 165,000 shares authorized;
3,703 and 4,619 shares
issued and outstanding,
respectively 4 5
Additional paid-in capital 315,000 305,334
Deferred compensation – (17)
Accumulated other comprehensive income 2,759 2,170
Accumulated deficit (339,049) (342,010)
Total Stockholders’ Equity (Deficit) (21,276) (34,509)
Total Liabilities and
Stockholders’ Equity (Deficit) $91,942 $79,873
MICROSTRATEGY INCORPORATED
Computation of basic and diluted earnings (loss) per share
(in thousands, except per share data)
(unaudited)
Three months ended Three months ended
June 30, 2003 June 30, 2002
Per Per
Income Shares Share Income Shares Share
(Numerator)(Denominator)Amount(Numerator)(Denominator)Amount
Net income $2,296 $27,512
Dividends on
and accretion
of convertible
preferred stock – (2,566)
Net income
attributable
to common
stockholders 2,296 24,946
Effect of
common stock:
Weighted average
shares of
class A
common stock – 10,385 – 5,079
Weighted average
shares of
class B
common stock – 3,703 – 4,643
Series A
preferred stock – – 151 428
Series D
preferred stock – – 244 290
Basic earnings
per share 2,296 14,088 $0.16 25,341 10,440 $2.43
Effect of
dilutive
securities:
Employee stock
options – 852 – 58
Diluted earnings
per share $2,296 14,940 $0.15 $25,341 10,498 $2.41
The numerator in the basic and diluted earnings per share calculation for the three months ended June 30, 2002 has been adjusted to add back $395,000 of dividends and accretion on the series A and D preferred stock that would have been excluded from net income attributable to common stockholders assuming conversion at the beginning of the period under the if-converted method.
The diluted earnings per share calculation for the three months ended June 30, 2002 excluded the series B and C preferred stock, which were convertible into 265,000 and 159,000 weighted average shares of class A common stock, respectively, because their effect would have been anti-dilutive.
MICROSTRATEGY INCORPORATED
Computation of basic and diluted earnings (loss) per share
(in thousands, except per share data)
(unaudited)
Six months ended Six months ended
June 30, 2003 June 30, 2002
Per Per
Income Shares Share Income Shares Share
(Numerator)(Denominator)Amount(Numerator)(Denominator)Amount
Net income $2,961 $30,497
Dividends on
and accretion
of convertible
preferred stock – (5,123)
Net income
attributable
to common
stockholders 2,961 25,374
Effect of
common stock:
Weighted average
shares of
class A
common stock – 10,236 – 4,887
Weighted average
shares of
class B
common stock – 3,703 – 4,643
Series A
preferred stock – – 327 320
Series D
preferred stock – – 474 290
Basic earnings
per share 2,961 13,939 $0.21 26,175 10,140 $2.58
Effect of
dilutive
securities:
Employee stock
options – 561 – 163
Diluted earnings
per share $2,961 14,500 $0.20 $26,175 10,303 $2.54
The numerator in the basic and diluted earnings per share calculation for the six months ended June 30, 2002 has been adjusted to add back $801,000 of dividends and accretion on the series A and D preferred stock that would have been excluded from net income attribuable to common stockholders assuming conversion at the beginning of the period under the if-converted method.
The diluted earnings per share calculation for the six months ended June 30, 2002 excluded the series B and C preferred stock, which were convertible into 265,000 and 159,000 weighted average shares of class A common stock, respectively, because their effect would have been anti-dilutive.
MICROSTRATEGY INCORPORATED
Additional Financial Information
Net Income and Additional
Financial Information
(in thousands)
(unaudited) Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Net income $2,296 $27,512 $2,961 $30,497
Additional Financial Information
Restructuring and impairment charges 1,699 1,162 1,699 2,394
Amortization of intangible assets 18 862 148 1,827
Loss on investments – 205 – 494
Reduction in estimated cost of
litigation settlement – (7,936) – (11,396)
Loss on early extinguishments
of notes payable 858 – 840 –
Gain on contract termination – (16,837) – (16,837)
Discount amortization expense on
notes payable 883 – 1,856 –
Other non-recurring items – (65) – (284)
Total $3,458 $(22,609) $4,543 $(23,802)
Additional Financial Information –
Cash vs. Non-cash
(in thousands)
(unaudited) Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Non-cash:
Amortization of intangible assets $18 $862 $148 $1,827
Loss on investments – 205 – 494
Reduction in estimated cost of
litigation settlement – (7,936) – (11,396)
Loss on early extinguishments
of notes payable 858 – 840 –
Gain on contract termination – (16,837) – (16,837)
Discount amortization expense on
notes payable 883 – 1,856 –
Other non-recurring items – (65) – (78)
Total non-cash 1,759 (23,771) 2,844 (25,990)
Cash:
Restructuring and impairment charges 1,699 1,162 1,699 2,394
Other non-recurring items – – – (206)
Total cash 1,699 1,162 1,699 2,188
Total $3,458 $(22,609) $4,543 $(23,802)
MICROSTRATEGY INCORPORATED
Non-Generally Accepted Accounting Principles (“Non-GAAP”)
Financial Measures
Management believes that the presentation of the additional financial information is helpful in understanding the ongoing operating results and cash flow indicators with respect to the Company’s core business because the additional financial items are non-cash or cash related gains and expenses incurred during the period that are not associated with ongoing operating results and are not cash flow indicators of the Company’s core business operations.
EBITDA and Additional
Financial Information
(in thousands)
(unaudited) Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Net income attributable
to common stockholders $2,296 $24,946 $2,961 $25,374
Interest income (281) (179) (371) (409)
Interest expense 2,049 1,659 4,347 3,278
(Benefit) provision for
income taxes (71) 420 793 819
Depreciation and amortization 2,247 2,559 4,594 5,087
Amortization of intangible assets 18 862 148 1,827
EBITDA $6,258 $30,267 $12,472 $35,976
Additional Financial Information:
Restructuring and
impairment charges 1,699 1,162 1,699 2,394
Loss on investments – 205 – 494
Reduction in estimated cost of
litigation settlement – (7,936) – (11,396)
Loss on early extinguishment of
notes payable 858 – 840 –
Gain on contract termination – (16,837) – (16,837)
Other income (133) (2,169) (95) (2,053)
Dividends on and accretion of
convertible preferred stock – 2,566 – 5,123
Total $2,424 $(23,009) $2,444 $(22,275)
SOURCE MicroStrategy Incorporated
CONTACT: Marc Brailov of MicroStrategy Incorporated, +1-703-770-1670,
cell: +1-703-407-9884, or mbrailov@microstrategy.com
Web site: http://www.microstrategy.com
Source: MicroStrategy