01—Abstract
Summary
Summary of the 10-K filed February 7, 2018. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated's annual report on Form 10-K for fiscal 2017 shows total revenues of $504.5 milliona, down from $512.2 million in 2016, with product licenses revenue falling 17.2% to $94.0 million.
Net income declined to $17.6 millionb from $90.9 million, largely because of a one-time $44.0 million tax provision tied to the Tax Cuts and Jobs Act, which included a $40.3 million transition tax on deemed repatriation of foreign earnings. Excluding that tax charge, the company reports non-GAAP net income of $61.7 million and non-GAAP diluted EPS of $5.34. Income from operations fell to $74.4 million from $107.6 million, as sales and marketing expense rose 10.0% to $174.6 million.
The company's revenue mix is weighted toward product support ($289.2 millionc) and other services ($89.0 million), while subscription services grew 5.9% to $32.4 million. Domestic product licenses revenue dropped 33.2%, while international product licenses revenue rose 7.8%. International revenues made up 41.9% of total revenues in 2017.
Cash and cash equivalents plus short-term investments totaled roughly $675 milliond at year-end, against $245.2 million in total liabilities. Operating cash flow was $78.3 million, down from $110.6 million. The company repurchased no shares in 2017 and had $454.7 million remaining under its 2005 repurchase program.
The filing also highlights governance and risk factors. Michael J. Saylor controls the majority of the class B common stock, which carries ten votes per share, and the company is a controlled company under NASDAQ rules.
The company adopted ASU 2014-09 (revenue recognition) on a full retrospective basis effective January 1, 2018, which it expects to change timing for term licenses and channel partner sales. The DataTern patent infringement suit was dismissed in October 2017.
02—Key points
Key Highlights
- Total revenues were $504.5 million in 2017, down from $512.2 million in 2016, with product licenses revenue declining 17.2% to $94.0 million.
- Net income fell to $17.6 million from $90.9 million, driven by a one-time $44.0 million tax provision from the Tax Act, which included a $40.3 million transition tax.
- Non-GAAP net income excluding the Tax Act charge was $61.7 million, and non-GAAP diluted EPS was $5.34, versus GAAP diluted EPS of $1.53.
- Income from operations decreased to $74.4 million from $107.6 million, as sales and marketing expense rose 10.0% to $174.6 million.
- Subscription services revenue grew 5.9% to $32.4 million, while domestic product licenses revenue fell 33.2% to $46.3 million.
- Cash, cash equivalents and short-term investments totaled about $675 million at December 31, 2017, and operating cash flow declined to $78.3 million from $110.6 million.
- Michael J. Saylor controls the majority of class B voting power (67.6% individually as of January 26, 2018), making the company a controlled company under NASDAQ rules.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Strategy kept $0.04.
- Revenue$503.8M100.0%
- Cost of revenue−$96.6M19.2%
- Gross profit$407.2M80.8%
- Operating costs−$334.0M66.3%
- Operating income$73.2M14.5%
- Interest, other & tax−$55.0M10.9%
- Net income$18.2M3.6%
Where FY2017 revenue went
$503.8M- Other operating costs: $255.2M, 51% of revenue
- Cost of revenue: $96.6M, 19% of revenue
- R&D: $78.8M, 16% of revenue
- Net income: $18.2M, 3.6% of revenue
- Interest, other & tax: $55.0M, 11% of revenue
Kept 3.6% as net incomeNet income $18.2M · 3.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 7, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $503.84M$513.59M | −1.9% |
| Cost of Revenue | $96.65M$93.15M | +3.8% |
| Gross Profit | $407.19M$420.44M | −3.2% |
| R&D Expenses | $78.77M$73.14M | +7.7% |
| Operating Expenses | $333.97M$310.93M | +7.4% |
| Operating Income | $73.22M$109.51M | −33.1% |
| Net Income | $18.20M$92.24M | −80.3% |
| EPS (Basic) | $1.59$8.07 | −80.3% |
| EPS (Diluted) | $1.58$8.01 | −80.3% |
| Shares Outstanding (Basic) | 11.44M11.43M | +0.2% |
| Shares Outstanding (Diluted) | 11.55M11.52M | +0.3% |
05—Questions
Frequently Asked Questions
Why did net income drop so sharply in 2017?
Net income fell to $17.6 million from $90.9 million mainly because of a one-time $44.0 million tax provision recorded in the fourth quarter of 2017 under the Tax Act. This comprised a $40.3 million transition tax on deemed repatriation of foreign earnings and a $3.7 million charge to re-measure net deferred tax assets at the new 21% rate. Operating income also declined, from $107.6 million to $74.4 million.
What is the company's revenue outlook related to the new revenue standard?
The company will adopt ASU 2014-09 effective January 1, 2018, with full retrospective adoption. It expects earlier recognition of revenue from term license sales and sales to channel partners, capitalization of certain sales commissions, and no longer offsetting accounts receivable and deferred revenue. It estimates that product licenses revenue will decrease by about $0.5 million for 2017 and increase by about $1.5 million for 2016.
Who controls voting power at MicroStrategy?
Holders of class B common stock, which carries ten votes per share, owned 68.4% of total voting power as of January 26, 2018. Michael J. Saylor individually beneficially owned 2,011,668 class B shares, or 67.6% of total voting power. Because of this concentration, Mr. Saylor can control director elections and major corporate transactions, and the company qualifies as a controlled company under NASDAQ rules.
Is the company paying dividends or repurchasing shares?
The company has never declared or paid cash dividends on either class A or class B common stock and has no current plans to do so. It made no share repurchases in 2017 under the 2005 Share Repurchase Program, leaving $454.7 million available for repurchase as of December 31, 2017. That program was scheduled to run through April 29, 2018.
06—Continue