01—Abstract
Summary
Summary of the 10-K filed February 10, 2017. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated, filed under that name with the Commission for fiscal 2016, reported total revenues of $512.2 milliona for 2016, down from $529.9 million in 2015 and $579.8 million in 2014.
Net income was $90.9 millionb, or $7.89 diluted earnings per share, compared with $105.9 million in 2015. Income from operations fell to $107.6 million from $134.0 million, while non-GAAP income from operations, which excludes share-based compensation and restructuring, was $119.5 million. Product licenses revenue declined 4.7% to $113.5 million, and consulting revenue dropped 20.3% as billable hours fell, while subscription services grew 9.8% to $30.6 million and product support rose 1.2% to $285.1 million.
The company ended 2016 with $401.975 millionc in cash and cash equivalents and $187.4 million in short-term investments, and stockholders' equity of $552.2 million. Operating cash flow was $110.6 million, down from $149.7 million. Total gross deferred revenue and advance payments were $221.0 million.
The company repurchased no shares in 2016, and $454.7 milliond remained available under its 2005 repurchase program. Management highlighted the Usher identity product, which has not generated significant revenue, and the company's dependence on a single product suite. Its Chairman, President and CEO, Michael J.
Saylor, controls 68.4% of total voting power through class B shares. The filing also discloses a pending patent infringement lawsuit brought by DataTern, Inc. over the '502 Patent, for which the outcome is not presently determinable, and the company says it cannot reasonably estimate a possible loss, so no liability has been accrued. Management concluded that internal control over financial reporting was effective as of December 31, 2016, and KPMG LLP issued an unqualified audit opinion.
02—Key points
Key Highlights
- Total revenues declined to $512.2 million in 2016 from $529.9 million in 2015, while net income fell to $90.9 million from $105.9 million.
- Diluted earnings per share were $7.89 in 2016 versus $9.18 in 2015.
- Income from operations decreased to $107.6 million from $134.0 million, with consulting revenue down 20.3% to $73.4 million.
- Subscription services revenue grew 9.8% to $30.6 million, and product support revenue rose 1.2% to $285.1 million.
- Cash and cash equivalents reached $402.0 million at year-end 2016, and operating cash flow was $110.6 million, down from $149.7 million.
- Michael J. Saylor controls 68.4% of total voting power through class B common stock, and the company qualifies as a controlled company under NASDAQ rules.
- A DataTern patent infringement lawsuit remains pending, and the company cannot estimate a possible loss, so no liability has been accrued.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Strategy kept $0.18.
- Revenue$513.6M100.0%
- Cost of revenue−$93.1M18.1%
- Gross profit$420.4M81.9%
- Operating costs−$310.9M60.5%
- Operating income$109.5M21.3%
- Interest, other & tax−$17.3M3.4%
- Net income$92.2M18.0%
Where FY2016 revenue went
$513.6M- Other operating costs: $237.8M, 46% of revenue
- Cost of revenue: $93.1M, 18% of revenue
- Net income: $92.2M, 18% of revenue
- R&D: $73.1M, 14% of revenue
- Interest, other & tax: $17.3M, 3.4% of revenue
Kept 18% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 10, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $513.59M$529.87M | −3.1% |
| Cost of Revenue | $93.15M$101.11M | −7.9% |
| Gross Profit | $420.44M$428.76M | −1.9% |
| R&D Expenses | $73.14M$65.21M | +12.2% |
| Operating Expenses | $310.93M$294.74M | +5.5% |
| Operating Income | $109.51M$134.02M | −18.3% |
| Net Income | $92.24M$105.93M | −12.9% |
| EPS (Basic) | $8.07$9.33 | −13.5% |
| EPS (Diluted) | $8.01$9.18 | −12.7% |
| Shares Outstanding (Basic) | 11.43M11.36M | +0.6% |
| Shares Outstanding (Diluted) | 11.52M11.54M | −0.2% |
05—Questions
Frequently Asked Questions
How did MicroStrategy's revenue and profitability trend in 2016?
Total revenues fell to $512.2 million in 2016 from $529.9 million in 2015 and $579.8 million in 2014. Net income declined to $90.9 million from $105.9 million, and income from operations dropped to $107.6 million from $134.0 million. Management attributed much of the decline to lower consulting billable hours and product license revenue.
Which revenue lines grew and which declined?
Subscription services grew 9.8% to $30.6 million and product support rose 1.2% to $285.1 million. Product licenses fell 4.7% to $113.5 million, and other services fell 17.9% to $83.0 million, driven by a 20.3% decline in consulting revenue.
How strong is the company's balance sheet and liquidity?
At December 31, 2016, the company held $402.0 million in cash and cash equivalents and $187.4 million in short-term investments, with total stockholders' equity of $552.2 million. Management stated these resources are sufficient for working capital, capital expenditures and contractual obligations for at least the next 12 months.
What risks does the filing highlight for shareholders?
The filing cites intense analytics competition, dependence on a single product suite, and the Usher product, which has not generated significant revenue despite substantial spending. Concentrated voting control by Michael J. Saylor, who holds 67.6% of total voting power individually, could limit other shareholders' influence over corporate matters.
Are there pending legal matters or capital return programs?
The DataTern patent case in the District Court for the District of Massachusetts remains unresolved, and the company says the outcome is not presently determinable. The company did not repurchase shares in 2016, and $454.7 million remained authorized under its 2005 Share Repurchase Program, which runs through April 29, 2018.
06—Continue