01—Abstract
Summary
Summary of the 10-K filed February 13, 2013. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated, now Strategy Inc, filed this annual report on Form 10-K for fiscal 2012, dated February 13, 2013.
The company reported total revenues of $594.6 milliona for 2012, up from $562.2 million in 2011, and net income of $20.5 million, or $1.84 per diluted share, down from $17.9 million, or $1.62 per diluted share, in 2011. Product licenses revenue fell 4.7% to $147.3 million, while product support and other services revenue rose 9.7% to $447.3 million, making recurring support and services the larger part of the business. Operating income before financing and other items was $30.2 million, up from $15.0 million in 2011.
The company describes itself as a business intelligence and mobile software provider and says it has extended its offerings to seven product lines, including MicroStrategy Cloud, Express, Wisdom, Alert and Usher. The filing states that these newer offerings did not generate significant revenue in 2012 or 2011, and that the BI and Mobile Platforms continue to generate the vast majority of revenue. Management expects investment and related expenses in 2013 to be higher than in 2012, and warns that profitability may decline if revenue does not keep pace with operating expenses.
Cash and cash equivalents were $224.4 millionb at December 31, 2012, and the company says existing cash is sufficient for at least the next 12 months. Risk disclosures include two pending patent infringement suits (DataTern and Vasudevan), a controlling stake held by Class B shareholders, with Michael J.
Saylor holding 64.2% of total voting power, and customer concentration in financial services and retail. Management reported no share repurchases under the 2005 program in 2012 and 2011, leaving $454.7 millionc authorized.
02—Key points
Key Highlights
- Total revenues rose to $594.6 million in 2012 from $562.2 million in 2011.
- Net income was $20.5 million, or $1.84 per diluted share, compared with $17.9 million, or $1.62 per diluted share, in 2011.
- Product licenses revenue declined 4.7% to $147.3 million, while product support and other services revenue grew 9.7% to $447.3 million.
- Operating income before financing and other items more than doubled to $30.2 million from $15.0 million.
- Cash and cash equivalents totaled $224.4 million at December 31, 2012, and management says this is sufficient for at least 12 months.
- Michael J. Saylor controls 64.2% of total voting power through Class B shares, and the company relies on the controlled company exemption from Nasdaq governance rules.
- Two patent infringement suits (DataTern and Vasudevan) are pending, with the outcomes stated as not presently determinable; the Vasudevan trial is scheduled for November 18, 2013.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Strategy kept $0.04.
- Revenue$565.7M100.0%
- Cost of revenue−$141.1M24.9%
- Gross profit$424.6M75.1%
- Operating costs−$391.5M69.2%
- Operating income$33.1M5.9%
- Interest, other & tax−$12.6M2.2%
- Net income$20.5M3.6%
Where FY2012 revenue went
$565.7M- Other operating costs: $303.4M, 54% of revenue
- Cost of revenue: $141.1M, 25% of revenue
- R&D: $88.2M, 16% of revenue
- Net income: $20.5M, 3.6% of revenue
- Interest, other & tax: $12.6M, 2.2% of revenue
Kept 3.6% as net incomeNet income $20.5M · 3.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 13, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $565.72M$537.17M | +5.3% |
| Cost of Revenue | $141.08M$130.70M | +7.9% |
| Gross Profit | $424.65M$406.47M | +4.5% |
| R&D Expenses | $88.19M$67.86M | +30.0% |
| Operating Expenses | $391.55M$385.60M | +1.5% |
| Operating Income | $33.10M$20.87M | +58.6% |
| Net Income | $20.55M$17.94M | +14.5% |
| EPS (Basic) | $1.87$1.67 | +12.0% |
| EPS (Diluted) | $1.84$1.62 | +13.6% |
| Shares Outstanding (Basic) | 10.99M10.72M | +2.6% |
| Shares Outstanding (Diluted) | 11.17M11.07M | +1.0% |
05—Questions
Frequently Asked Questions
How did MicroStrategy's revenue and profitability change in 2012?
Total revenues increased to $594.6 million from $562.2 million. Net income rose to $20.5 million from $17.9 million, and diluted earnings per share rose to $1.84 from $1.62. Operating income before financing and other items was $30.2 million, compared with $15.0 million in 2011.
Which revenue streams drove results?
Product support and other services revenue increased 9.7% to $447.3 million, including product support, consulting, education, subscription services and Angel.com. Product licenses revenue decreased 4.7% to $147.3 million, with domestic license revenue falling 11.1% and international license revenue rising 4.4%.
Are the newer product lines generating meaningful revenue yet?
No. The filing states that during 2012 and 2011 the company did not generate significant revenues from MicroStrategy Express, Wisdom, Alert or Usher. Subscription services revenue from MicroStrategy Cloud was $3.1 million in 2012, up from $0.1 million in 2011.
What control and legal risks should investors consider?
Class B holders, controlled by Michael J. Saylor with 64.2% of total voting power, can determine the outcome of most stockholder votes and block a change of control. The company also faces the DataTern and Vasudevan patent suits, and states that the outcomes of these matters are not presently determinable.
What does management expect for 2013 expenses and capital returns?
Management expects investment and related expenses in 2013 to be higher than in 2012. It made no share repurchases under the 2005 program in 2012 or 2011, with $454.7 million still authorized as of December 31, 2012, and it has never paid cash dividends.
06—Continue