01—Abstract
Summary
Summary of the 10-K filed February 14, 2020. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated, a global provider of enterprise analytics software and services, reported total revenues of $486.3 milliona for 2019, down from $497.6 million in 2018, and net income of $34.4 million, up from $22.5 million.
The increase in net income was driven in part by a one-time $29.8 millionb gain from the May 2019 sale of the Voice.com domain name, which the filing says contributed net income of $21.8 million after tax. Operating results were weaker: the company posted a loss from operations of $1.0 million, compared with income from operations of $4.0 million in 2018, as sales and marketing expenses fell while research and development spending rose. Revenue mix was led by product support ($292.0 million) and other services ($77.4 million), with product licenses and subscription services totaling $116.9 million.
Product licenses revenue declined slightly, and consulting revenue fell 6.6%. International revenues accounted for 43.7% of total revenues in 2019. Cash and short-term investments were supported by a $60.9 millionc operating cash flow, and the company repurchased $72.7 million of class A stock under an $800.0 million program, leaving $271.0 million available.
The filing also highlights governance and risk factors: Michael J. Saylor controls about 70.8%d of total voting power through class B shares, and the company is a "controlled company" under Nasdaq rules.
Management reported that previously disclosed material weaknesses in internal control were remediated as of December 31, 2019. The company disclosed a Brazilian subsidiary investigation in which bank accounts were frozen up to about $2.3 million, and stated that a loss is probable but not reasonably estimable.
02—Key points
Key Highlights
- Total revenues of $486.3 million in 2019, down from $497.6 million in 2018
- Net income of $34.4 million (diluted EPS $3.33), aided by a $29.8 million gain from the Voice.com domain name sale
- Loss from operations of $1.0 million in 2019 versus income from operations of $4.0 million in 2018
- Product support revenues of $292.0 million, the largest revenue category; product licenses revenues of $87.5 million
- Operating cash flow of $60.9 million, and cash and cash equivalents of $456.7 million at year-end
- $72.7 million of class A stock repurchased in 2019; $271.0 million remains under the $800.0 million program
- Michael J. Saylor holds 70.8% of total voting power via class B shares; company is a Nasdaq 'controlled company'
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Strategy kept $0.07.
- Revenue$486.3M100.0%
- Cost of revenue−$100.0M20.6%
- Gross profit$386.4M79.4%
- Operating costs−$387.4M79.6%
- Operating income−$1.0M0.2%
- Interest, other & tax$35.4M7.3%
- Net income$34.4M7.1%
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 14, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $486.33M$497.64M | −2.3% |
| Cost of Revenue | $99.97M$99.50M | +0.5% |
| Gross Profit | $386.35M$398.14M | −3.0% |
| R&D Expenses | $109.42M$102.50M | +6.8% |
| Operating Expenses | $387.36M$394.16M | −1.7% |
| Operating Income | -$1.00M$3.98M | −125.2% |
| Net Income | $34.35M$22.50M | +52.7% |
| EPS (Basic) | $3.35$1.98 | +69.2% |
| EPS (Diluted) | $3.33$1.97 | +69.0% |
| Shares Outstanding (Basic) | 10.26M11.38M | −9.8% |
| Shares Outstanding (Diluted) | 10.33M11.41M | −9.5% |
05—Questions
Frequently Asked Questions
Why did net income rise while operating results declined?
Net income increased to $34.4 million from $22.5 million, but the filing attributes a large part of the improvement to a one-time $29.8 million gain from the May 30, 2019 sale of the Voice.com domain name, recorded in other income. Operations themselves produced a $1.0 million loss, compared with $4.0 million of operating income in 2018.
What drove the decline in revenue?
Total revenues fell to $486.3 million from $497.6 million. The filing cites a $7.1 million unfavorable foreign currency impact on product support revenues, a $5.0 million decrease in consulting revenues driven by fewer billable hours, and a $1.4 million decrease in education revenues, partly offset by higher product support contracts. Management also noted that the company's international revenues were 43.7% of the total.
How much control does the founder have over the company?
As of February 3, 2020, Michael J. Saylor beneficially owned 2,011,668 class B shares, representing 70.8% of total voting power. The filing states he can determine the outcome of director elections and could transfer control or block a change of control without approval from the board or other stockholders.
What is the status of the Brazilian investigation?
On February 6, 2020, a Brazilian court authorized investigative measures, and the bank accounts of the company's Brazilian subsidiary were frozen up to BRL 10.0 million, about $2.3 million. The company states it is not the subject of the investigation, but believes a loss is probable. The loss amount or range cannot be reasonably estimated at this time.
Did the company have any control weaknesses?
Management reported that material weaknesses identified in its 2018 Form 10-K had been remediated as of December 31, 2019, following testing of implemented controls in the fourth quarter. KPMG LLP issued an unqualified opinion that internal control over financial reporting was effective as of that date.
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