MicroStrategy Announces Fourth Quarter 2006 Financial Results

MCLEAN, Va., Jan. 26 /PRNewswire-FirstCall/ -- MicroStrategy(R) Incorporated , a leading worldwide provider of business intelligence software, today announced financial results for the three-month period ended December 31, 2006 (the fourth quarter of its 2006 fiscal year).

Fourth quarter 2006 revenue was $92.6 million versus $77.4 million for the fourth quarter of 2005, a 20% increase. Product licenses revenue for the fourth quarter of 2006 was $36.6 million versus $31.3 million for the fourth quarter of 2005, a 17% increase. Product support and other services revenue for the fourth quarter of 2006 was $55.9 million versus $46.2 million for the fourth quarter of 2005, a 21% increase. Operating expenses for the fourth quarter of 2006 were $48.1 million versus $38.5 million for the fourth quarter of 2005, a 25% increase. The increase in fourth quarter operating expenses resulted primarily from an increase in worldwide employee headcount and reflects the continued expansion of our worldwide sales and services organization and administrative and IT support functions. Fourth quarter 2006 income from operations increased by 8% to $32.0 million, or 35% of revenue, versus $29.6 million, or 38% of revenue, for the fourth quarter of 2005. Net income for the fourth quarter of 2006 increased by 19% to $22.4 million, or $1.68 per share on a diluted basis, versus $18.9 million, or $1.30 per share on a diluted basis, for the fourth quarter of 2005.

"We are very pleased with our 2006 financial and operating performance, including a strong finish in Q4. Underlying our performance was strong customer demand for our business intelligence solution," said Arthur S. Locke, III, MicroStrategy's Vice President, Finance & Chief Financial Officer. "Our technologists continue to create innovative software that is being used by some of the world's largest business and government organizations. Coming away from MicroStrategy World 2007 this past week, we are excited about the opportunities that lie ahead."

As of December 31, 2006, MicroStrategy had $79.0 million in cash and cash equivalents and 9,917,596 shares of class A common stock and 2,775,244 shares of class B common stock outstanding.

New Customers and New Deals with Existing Customers in Q4 2006 included:

21st Century Insurance, American Healthways, American Signature, AmerisourceBergen Corporation, Building Materials Holding Company, Cascade Corporation, Chiquita Brands LLC, Cox Communications, Department of Interior, First Franklin Financial Corporation, Focus Technology Group, Hannaford Bros. Co., Herbalife, KeySpan Corporate Services LLC, McGraw-Hill Companies, Pacific Sunwear, Redwood Trust, Rheem Manufacturing, Rite-Hite Holding Corporation, Roundys Supermarkets, Inc., Sovereign Bank, State of Tennessee, Texas Department of Public Safety, The Cato Corporation, Unisource Administrators, Inc., The University of Texas M.D. Anderson Cancer Center, Upsher-Smith Laboratories, Inc., VHA Inc., and Yahoo!

Examples of Customer Deals from Q4 2006: Hannaford Bros. Co.

Hannaford Bros. Co. operates 158 stores under the Hannaford Supermarket and Hannaford Supermarket and Pharmacy names. A MicroStrategy customer for 12 years, Hannaford recently upgraded to MicroStrategy's 64-bit UNIX platform. Hannaford relies on MicroStrategy for a wide range of enterprise reporting and analysis capabilities. Employees across the organization use MicroStrategy for merchandising analysis, inventory planning, and supply chain analysis in order to better understand customer buying trends, maximize shelf space, and optimize store operations.

Sovereign Bank

Sovereign is the 16th largest banking institution in the United States, with nearly 800 community banking offices in nine states. Sovereign Bank selected MicroStrategy for fraud monitoring and investigation reporting, and for online banking customer behavior tracking and analysis. With MicroStrategy, Sovereign Bank can perform sophisticated analyses to enhance both its risk management and online banking programs. Sovereign Bank analysts use the data from their MicroStrategy BI application to create insightful reports that ultimately make a positive impact on the organization's bottom line.

VHA Inc.

VHA is a health care provider alliance of more than 2,400 not-for-profit health care organizations. VHA Inc. has expanded its deployment of MicroStrategy to further support reporting and analytics for hospital leaders across the country. With MicroStrategy, VHA provides customers with highly detailed operational performance information to improve patient care and hospital efficiency. MicroStrategy was selected for its flexibility, scalability, and convenient delivery of data over the web and via email.

New MicroStrategy Dynamic Enterprise Dashboards(TM):

MicroStrategy recently introduced Dynamic Enterprise Dashboards, innovative information dashboards for business users. MicroStrategy has combined advanced data visualization and animation with its industrial- strength business intelligence platform to deliver highly intuitive dashboards that yield enhanced business insight and are usable by more people than ever before.

MicroStrategy's Dynamic Enterprise Dashboards enable business users to flip intuitively through many different perspectives of corporate performance without leaving the dashboard allowing users to quickly and easily identify problems and diagnose root causes. Dashboard designers can combine data from a variety of data sources onto a single dashboard, with multi-disciplined, multi-dimensional performance feedback on every dashboard.

With the integration of Adobe(R) Flash(R), MicroStrategy dashboards offer innovative ways for users of all skill levels to derive insight from their data. The dashboards are highly responsive to users with a wide range of information views and increased information exploration options.

MicroStrategy Dynamic Enterprise Dashboards allow business users to create their own "personal dashboards." Using MicroStrategy's zero-footprint WYSIWYG (what-you-see-is-what-you-get) Web interface, business users can create dashboards using simple drag and drop actions. Users can now build the dashboards they want without IT support, increasing the adoption and use of business intelligence systems.

Customers are currently beta-testing MicroStrategy's Dynamic Enterprise Dashboards, which are expected to be generally available in mid-2007 as part of MicroStrategy's planned version 8.1 software release.

"MicroStrategy's new dashboards are visually appealing and set a new standard for interactivity with business data," said Jeff Whatcott, vice president of business development and marketing for the Enterprise and Developer Business Unit at Adobe. "Using Adobe's latest rich Internet application technology, MicroStrategy dashboards deliver an engaging user experience that can improve interpreting and analyzing business data in a graphical format. We are proud to team with MicroStrategy to bring this exciting innovation to the business intelligence market."

Results of The OLAP Survey 6:

Once again, MicroStrategy was a leader in key areas of The OLAP Survey 6, a leading independent survey of the BI software market. This year, 13 BI products were analyzed with feedback compiled from 1,679 organizations across 87 countries. For the third consecutive year, MicroStrategy received the highest customer loyalty score of all business intelligence software products reviewed. "The fact that MicroStrategy was rated number one in customer loyalty for the third year in a row is a remarkable achievement," reported Nigel Pendse, author of The OLAP Survey 6. "The fact that no other product has achieved such consistency suggests that many of MicroStrategy's customers are fiercely loyal and see no alternative to the product."

In The OLAP Survey 6, MicroStrategy was found to be the top product for standardization, with 92.4% of MicroStrategy customers with multiple BI products indicating that they would select MicroStrategy as their enterprise BI standard. The Survey found declining standardization preference percentages from 2005 customers of both Business Objects and Hyperion. "The rising tendency of Survey participants with multiple BI products to continue to rank MicroStrategy as one of the top products to keep in a standardization exercise is a reflection of MicroStrategy's widening range of capabilities and suitability for BI standardization," said Nigel Pendse, author of The OLAP Survey 6.

For the sixth consecutive year, MicroStrategy customers indicated that they analyzed, by far, the largest amounts of data -- a median of 316 GB of input data volume in this Survey. This input data volume is larger, by more than a factor of 4, than that of customers of SAP BW, the second-place product, and larger, by a factor of 65, than that of customers of Cognos. MicroStrategy also had the highest web deployment rate at nearly 78%. This high level of web usage reflects MicroStrategy's commitment to web product performance and feature-richness.

The OLAP Survey 6 found major differences in the quality of BI vendors' product support. For the third year in a row, MicroStrategy's product support was rated "Excellent" more often than that of other vendors in its peer group, which is comprised of Cognos Analysis, SAP BW, Hyperion Essbase, Oracle Discoverer, and Business Objects.

To view a summary of The OLAP Survey 6 results, go to: http://www.microstrategy.com/OLAPSurvey6.

MicroStrategy 2007 Events:

MicroStrategy held its tenth annual user conference, MicroStrategy World 2007, in Las Vegas, Nevada, on January 22-25, 2007. The event featured over 100 business and technical sessions, an exhibit hall showcasing more than 25 MicroStrategy partners, product demonstrations, and customer presentations from companies including Campbell Soup, Caremark Rx, Comcast, Corporate Express, Darden Restaurants, Hallmark Cards, Hudson's Bay Company, Lowe's Companies, Nordstrom, Pacific Life Insurance, PetSmart, Rite-Hite Corporation, Things Remembered, and Wyeth.

During 2007, MicroStrategy plans to continue its successful Symposia series in the U.S., Europe, and Latin America. These popular two-day events offer an interactive venue for participants to share ideas with peers and industry experts, learn practical BI strategies from leading companies, and talk with MicroStrategy's top technology leaders. Each Symposium features informative presentations from MicroStrategy customers sharing their insights on how they developed their business intelligence strategies, deployed multiple projects across their enterprises, and achieved returns on their BI investments. The 2007 MicroStrategy Symposia schedule begins in Madrid, March 7-8, and is expected to include events in Atlanta, New York City, Chicago, Buenos Aires, Sao Paulo, Frankfurt, London, and Milan.

MicroStrategy plans to hold more than 15 Technology Day events in 2007 throughout the U.S., Europe, Latin America, and Asia Pacific. These one-day events, the first of which was launched in November 2006 in Washington D.C., offer participants a full day of technical sessions and customer case studies, with practical tools to enhance business intelligence initiatives.

About MicroStrategy Incorporated

Founded in 1989, MicroStrategy is a global leader in business intelligence (BI) technology. MicroStrategy provides integrated reporting, analysis, and monitoring software that helps leading organizations worldwide make better business decisions every day. Companies choose MicroStrategy for its advanced technical capabilities, sophisticated analytics, and superior data and user scalability. More information about MicroStrategy is available at http://www.microstrategy.com/.

MicroStrategy, MicroStrategy 8, and MicroStrategy Dynamic Enterprise Dashboards 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 ability of the Company to implement and achieve widespread customer acceptance of its MicroStrategy 8 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, including its planned MicroStrategy version 8.1 software release; 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.

Contact: MicroStrategy Incorporated Investor [e-mail][phone] MICROSTRATEGY INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Three Months Ended Twelve Months Ended December 31, December 31, 2006 2005 2006 2005 (unaudited)(unaudited)(unaudited)(audited) Revenues Product licenses $36,645 $31,252 $107,383 $99,926 Product support and other services 55,909 46,177 206,440 168,736 Total revenues 92,554 77,429 313,823 268,662 Cost of Revenues Product licenses 641 824 2,763 3,886 Product support and other services 11,871 8,558 41,623 32,565 Total cost of revenues 12,512 9,382 44,386 36,451 Gross profit 80,042 68,047 269,437 232,211 Operating Expenses Sales and marketing 26,616 20,001 88,416 70,420 Research and development 8,357 8,372 34,133 31,471 General and administrative 13,094 10,078 47,028 36,382 Amortization of intangible assets 17 17 71 71 Total operating expenses 48,084 38,468 169,648 138,344 Income from operations 31,958 29,579 99,789 93,867 Financing and Other Income Interest income (expense), net 759 844 2,820 2,880 Gain (loss) on investments - - 14 (127) Other (expense) income, net (388) (113) (1,262) 1,550 Total financing and other income 371 731 1,572 4,303 Income before income taxes 32,329 30,310 101,361 98,170 Provision for income taxes 9,977 11,460 30,485 33,427 Net income $22,352 $18,850 $70,876 $64,743 Basic earnings per share $1.77 $1.36 $5.46 $4.38 Diluted earnings per share $1.68 $1.30 $5.20 $4.19 Basic weighted average shares outstanding 12,662 13,869 12,987 14,768 Diluted weighted average shares outstanding 13,277 14,512 13,633 15,436 MICROSTRATEGY INCORPORATED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) December 31, December 31, 2006 2005 Assets (unaudited) (audited) Current assets Cash and cash equivalents $78,980 $42,318 Restricted cash and investments 3,799 5,076 Short-term investments 16 53,761 Accounts receivable, net 54,468 43,052 Prepaid expenses and other current assets 8,633 6,209 Deferred tax assets, net 29,510 22,971 Total current assets 175,406 173,387 Property and equipment, net 11,102 12,031 Capitalized software development costs, net 1,903 3,669 Deposits and other assets 2,461 2,293 Deferred tax assets, net 57,944 86,393 Total assets $248,816 $277,773 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $24,378 $19,550 Accrued compensation and employee benefits 31,872 27,258 Deferred revenue and advance payments 56,578 45,874 Total current liabilities 112,828 92,682 Deferred revenue and advance payments 1,127 1,554 Other long-term liabilities 1,710 2,815 Total liabilities 115,665 97,051 Stockholders' Equity: Preferred stock undesignated; $0.001 par value; 5,000 shares authorized; no shares issued or outstanding - - Class A common stock; $0.001 par value; 330,000 shares authorized; 13,972 shares issued and 9,918 shares outstanding, and 13,270 shares issued and 10,595 shares outstanding, respectively 14 13 Class B common stock; $0.001 par value; 165,000 shares authorized; 2,775 and 3,258 shares issued and outstanding, respectively 3 3 Additional paid-in capital 440,766 428,062 Treasury stock, at cost; 4,054 and 2,675 shares, respectively (268,776) (136,817) Accumulated other comprehensive income 2,503 2,318 Accumulated deficit (41,359) (112,857) Total stockholders' equity 133,151 180,722 Total liabilities and stockholders' equity $248,816 $277,773 MICROSTRATEGY INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Twelve months ended December 31, 2006 2005 (unaudited) (audited) Operating activities: Net income $70,876 $64,743 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,635 8,496 Bad debt provision 1,020 349 Deferred taxes 26,528 27,358 Discount amortization on investments - (490) Stock-based compensation 1,341 - Excess tax benefits from stock- based payment arrangements (4,479) - Other, net 160 145 Changes in operating assets and liabilities: Accounts receivable (10,727) (3,681) Prepaid expenses and other current assets (2,108) (358) Deposits and other assets (117) 557 Accounts payable and accrued expenses, compensation and employee benefits 7,105 1,874 Deferred revenue and advance payments 7,891 4,754 Other long-term liabilities (706) (1,196) Net cash provided by operating activities 104,419 102,551 Investing activities: Proceeds from maturities of short- term investments 112,666 180,335 Purchases of short-term investments (58,900) (169,243) Purchases of property and equipment, net (4,496) (1,907) Capitalized software development costs (310) (926) Decrease (increase) in restricted cash and investments 1,372 (3,937) Net cash provided by investing activities 50,332 4,322 Financing activities: Proceeds from sale of class A common stock under employee stock purchase plan and exercise of employee stock options 6,094 5,703 Excess tax benefits from stock- based payment arrangements 4,479 - Purchases of treasury stock (131,959) (134,486) Net cash used in financing activities (121,386) (128,783) Effect of foreign exchange rate changes on cash and cash equivalents 3,297 (4,086) Net increase (decrease) in cash and cash equivalents 36,662 (25,996) Cash and cash equivalents, beginning of period 42,318 68,314 Cash and cash equivalents, end of period $78,980 $42,318