10-K 1 mstr-10k_20171231.htm 10-K mstr-10k_20171231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to                        

Commission File Number 000-24435

 

MICROSTRATEGY INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

1850 Towers Crescent Plaza, Tysons Corner, VA  22182

51-0323571

(State of Incorporation)

(Address of Principal Executive Offices)          (Zip Code)

(I.R.S. Employer

Identification No.)

Registrant’s Telephone Number, Including Area Code: (703) 848-8600

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Name of each exchange on which registered

Class A common stock, par value $0.001 per share

The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:  Not applicable

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes      No  

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes      No  

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (based on the last reported sale price of the registrant’s class A common stock on June 30, 2017 on the NASDAQ Global Select Market) was approximately $1,807.9 million.

The number of shares of the registrant’s class A common stock and class B common stock outstanding on January 26, 2018 was 9,411,810 and 2,035,184, respectively.

Documents incorporated by reference:  Portions of the definitive proxy statement for the 2018 Annual Meeting of Stockholders of the Registrant to be filed subsequently with the SEC are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent indicated herein.

 

 

 

 

 


MICROSTRATEGY INCORPORATED

TABLE OF CONTENTS

 

 

 

Page

PART I

 

 

 

 

 

Item 1.

Business

4

 

 

 

Item 1A.

Risk Factors

25

 

 

 

Item 1B.

Unresolved Staff Comments

39

 

 

 

Item 2.

Properties

39

 

 

 

Item 3.

Legal Proceedings

39

 

 

 

Item 4.

Mine Safety Disclosures

40

 

 

 

PART II

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

41

 

 

 

Item 6.

Selected Financial Data

43

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

44

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

67

 

 

 

Item 8.

Financial Statements and Supplementary Data

68

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

68

 

 

 

Item 9A.

Controls and Procedures

68

 

 

 

Item 9B.

Other Information

69

 

 

 

PART III

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

70

 

 

 

Item 11.

Executive Compensation

70

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

70

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

70

 

 

 

Item 14.

Principal Accountant Fees and Services

70

 

 

 

PART IV

 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

71

 

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The trademarks and registered trademarks of MicroStrategy Incorporated and its subsidiaries referred to herein include, but are not limited to, MicroStrategy, MicroStrategy 10, MicroStrategy 10.9, MicroStrategy Cloud, MicroStrategy Analytics, MicroStrategy Mobile, MicroStrategy Desktop, MicroStrategy Web, MicroStrategy Server, MicroStrategy Distribution Services, MicroStrategy Data Mining Services, MicroStrategy Library, MicroStrategy Services, MicroStrategy Consulting, MicroStrategy Education, Usher, Usher Professional, Usher Analytics, Usher Network Manager, Usher Security, Dossier, Intelligent Enterprise and Global Delivery Center.  Third-party product and company names mentioned herein may be the trademarks of their respective owners.

 

 

CERTAIN DEFINITIONS

All references in this Annual Report on Form 10-K to “MicroStrategy,” the “Company,” “we,” “us,” and “our” refer to MicroStrategy Incorporated and its consolidated subsidiaries (unless the context otherwise indicates).

FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements under “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry prospects and our results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. The important factors discussed under “Item 1A. Risk Factors,” among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations.

 

 

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PART I

 

Item 1.

Business

Overview

MicroStrategy® is a leading worldwide provider of enterprise analytics and mobility software. Our mission is to provide enterprise customers with a world-class software platform and expert services so they can deploy unique intelligence applications.

MicroStrategy 10™, our flagship platform offering, consolidates analytics and mobility in a single unified platform. The MicroStrategy 10 platform is available on Windows®, Linux and Amazon Web Services (“AWS”), and as a hosted service offering through MicroStrategy Cloud™. Our platform offers a comprehensive suite of business intelligence functionality, from data discovery to mobile analytics, data mining, Big Data analytics, enterprise reporting and powerful identity intelligence generated by digital credentials. MicroStrategy 10 builds on proven enterprise capabilities to make sophisticated, high-performance analytics more accessible, easier to use, and faster. MicroStrategy 10 consists of MicroStrategy Analytics™, MicroStrategy Mobile™, and Usher®.

MicroStrategy Analytics empowers large organizations to analyze vast amounts of data and securely distribute actionable business insight throughout an enterprise, while also being able to cater to smaller workgroups and departmental use via MicroStrategy Desktop™.  MicroStrategy Analytics delivers reports and dashboards, and enables users to conduct ad hoc analysis and share insights anywhere, anytime, via mobile devices (via MicroStrategy Mobile) or the web (via MicroStrategy Web™).  It also combines the agility and productivity of self-service visual data discovery with the security, scalability, and governance features of enterprise-grade business intelligence.  Additionally, MicroStrategy Analytics delivers powerful identity intelligence on user behavior and resource utilization (via Usher).

MicroStrategy Web is the primary interface for analysts, data scientists, consumers and developers, offering interactive reporting, dashboarding, and ad-hoc data discovery capabilities through a web browser. With MicroStrategy Web, users can design and deliver reports and dashboards across various styles of business intelligence, including scorecards, pixel-perfect documents and invoices, and interactive reports and dashboards, as well as for visual data discovery. MicroStrategy Web can also connect to a wide range of data sources, and be used to build sophisticated advanced analytical models that may be inserted within reports and dashboards.  MicroStrategy reports and dashboards can be personalized and automatically delivered to thousands of users with MicroStrategy Server™’s advanced distribution capabilities. Web applications can also be extensively customized and embedded into other applications using MicroStrategy Web SDK for a branded experience.

MicroStrategy Desktop is a free, standalone, on-premise, single-user tool for fast, powerful, and easy-to-use self-service visual data discovery.  It enables business users to analyze and gain valuable insight and understanding into their organizations’ data by quickly creating stunning and useful visualizations, without assistance from the IT department.  MicroStrategy Desktop can be readily downloaded and installed on a PC or Mac, making the power of MicroStrategy 10 easily available. MicroStrategy Desktop can be used while offline and while not connected to MicroStrategy Server.  MicroStrategy Desktop connects to MicroStrategy Server when needed, allowing for governance workflows that deliver data discovery capabilities to the enterprise at scale.

MicroStrategy Mobile is fully integrated into the MicroStrategy Analytics platform, so it is easy to leverage existing reports and dashboards to instantly deploy mobile business intelligence.  In addition, MicroStrategy Mobile extends beyond analytics to enable organizations to rapidly build custom enterprise mobility applications that deliver analytics combined with transactions, multimedia, and mapping to support business workflows.  The robust code-free application development platform is designed to reduce development costs and accelerate the deployment of native mobile business apps optimized for both iOS® and Android™.  Companies can build fully native iOS and Android apps that take advantage of the unique device and operating system capabilities (e.g., GPS/location, calendar, and camera) on those devices.  MicroStrategy Mobile is an easy, fast, and cost-effective vehicle for mobilizing an organization’s information systems, including its data warehouses, business intelligence, ERP, CRM, and web applications that are currently accessible only on the desktop.  With MicroStrategy Mobile, businesses can transform their entire workforce into a connected and more productive mobile workforce.  With mobile access to

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critical corporate data and systems that drive the business, employees can have a virtual office in their hands at all times.  MicroStrategy Mobile also enables companies to deploy customized, white-labeled mobile apps to business partners and customers. These apps can serve as new or enhanced offerings that differentiate an organization’s product or service to business partners or customers.

Usher delivers to its users unique mobile identity badges, each cryptographically linked to its owner’s smartphone and dynamically linked to the enterprise’s existing identity repositories, that are highly secure and convenient for organizations to deploy.  Usher badges work on standard smartphones running on iOS or the Android platform and include an Apple Watch® integration.  Through the use of Bluetooth®, QR codes, biometrics, push notifications, time-limited PIN codes, and other authentication methods, Usher badge users can log into applications, VPNs, and workstations, unlock doors and other physical gateways, and validate each other’s identities.  Usher badge users are also able to scan barcodes for asset tracking applications.  Usher can additionally serve as a powerful enterprise productivity tool with Usher Professional™, a dynamic and searchable employee directory that facilitates communication among users, and gives managers insight into the location and activity of their distributed workforce. Usher Professional users can view badge user activity on a nearly real-time map and manage or direct their workforce by engaging in two-way communication with badge users.  In the Enterprise Internet of Things (“EIoT”) paradigm, interactions between Usher users and enterprise resources generate real-time telemetry, which can be efficiently harnessed in Usher Analytics™, creating actionable intelligence.  By delivering strong yet convenient authentication that can be extended to nearly every corporate system, Usher can uncover insights, reduce infrastructure complexity, and secure assets -- all to help businesses flourish in the age of connected devices and connected people.  Usher addresses some of the biggest challenges facing corporations today, including authentication, identity and access management, and resource authorization, while applying industry-leading business intelligence and analytics to an enterprise’s infrastructure.

MicroStrategy on AWS allows organizations to harness the power of data through our enterprise solutions via the cloud.  Compared to traditional on-premise approaches, MicroStrategy on AWS is architected to deliver best-of-breed MicroStrategy software via the cloud, with pre-configured, ready-to-go servers, coupled with the required supporting infrastructure.  With MicroStrategy on AWS, customers can launch enterprise analytics environments within minutes via a web-based provisioning tool, and use the full MicroStrategy 10 offering.  MicroStrategy on AWS deploys MicroStrategy directly into the customer’s AWS account where the customer maintains and manages the environment.

For customers looking for a Platform-as-a-Service (PaaS) experience, MicroStrategy Cloud offers managed services that deliver the full breadth of platform capabilities along with a dedicated cloud operations team to deploy the platform in the cloud.  MicroStrategy Cloud is well suited for organizations without extensive IT resources to maintain and manage the cloud infrastructure on their own.  MicroStrategy Cloud offers a 99.9% Service Level Agreement for availability, and is backed by a team of experts and dedicated tech support staff that provides continuous monitoring and alerting.  MicroStrategy Cloud maintains and keeps up to date on compliance and security certifications to help ensure the environments adhere to the Service Organization Control 2, ISO 27001, Payment Card Industry, Health Insurance Portability and Accountability Act (“HIPAA”), and Privacy Shield standards.

System integrators, value-added resellers, and original equipment manufacturers (“OEMs”) around the world rely on the capabilities of the MicroStrategy platform, including its functionality, workflows, report presentation, user management, security, administration, system configuration, and monitoring, to build branded and custom applications of their own. Our platform’s open architecture and APIs make it especially suitable for developing custom functionality or integrating with other applications.  Organizations seeking to add analytics features to their own offerings can easily and directly embed the platform into their business applications or portals with white labeling and single sign-on options.

We were incorporated as a Delaware corporation on November 17, 1989. Today, with operations in 28 countries worldwide, we are one of the largest independent publicly-traded analytics vendors as measured by annual revenue.

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MicroStrategy 10

MicroStrategy 10 transforms data into business insights through highly visual, interactive reports and dashboards that can be securely distributed to hundreds of thousands of users throughout an enterprise. In MicroStrategy 10.9™, MicroStrategy introduced the Dossier™ feature, which enables users to consolidate reports and dashboards into an easy-to-consume and intuitive analytics book referred to as a dossier. With dossiers, users can utilize built-in collaboration capabilities, tables of contents, powerful filtering options, and proactive alerts and push notifications on top of existing reports and dashboards. 

Five key business needs have driven demand for powerful analytics solutions:

 

Increased consumption of analytics. In the past, dissemination of information was limited to a few power-users or analysts.  Now, a wide range of information users – from customer service representatives to the CEO within a company, and from customers to suppliers outside the organization – can benefit from the insight that analytics provides.  The wide acceptance of the Internet as an information source also has fueled demand for enterprise data to be accessible over the web to tens of thousands of users across an enterprise.  In addition, demand for analytics on mobile devices is being driven by the growth of the mobile Internet and by the accelerating proliferation of mobile devices.

 

Increased data scalability. Increasing information generation, and in particular, the ability to capture and store electronically every business transaction and interaction, have made terabyte-size data warehouses commonplace. Due to very large data volumes at some organizations, such as data volumes generated by social media, data warehouses can now reach sizes in excess of tens of petabytes (1,000 terabytes).  While transaction- and interaction-level information is now routinely captured, organizations often struggle to make productive use of such massive data stores.  Organizations need to view data within its operational context – making even the most detailed information meaningful to business users.  As a result, users want the ability to easily discover trends hidden in these very large databases and to verify these trends by reviewing the underlying detail.

 

Improved analytics system performance.  The increase in user population sizes and data volumes puts a strain on analytics infrastructures.  Business users expect to retrieve the information they are requesting within seconds of making the request.  Mobile devices have set this expectation even higher by increasing demand for near instantaneous responses to requests.  Analytics administrators need to systematically monitor and tune the analytics environment to provide the expected service levels.

 

Improved data comprehension and visualization.  As data volumes have increased, the growing work demands placed on business users have meant progressively less time available to users to monitor and improve their businesses and make informed decisions.  As a result, business users need to view the data in a summarized, easy-to-grasp format and navigate to areas of concern for additional insight.  Presenting the data in a highly visual, accessible, and interactive format to collate, view, and explore information with agility and ease of use improves the overall comprehension of the business and speeds up the decision-making process.

 

Increased demand for personalized, one-to-one customer and/or supplier experience. Many companies have implemented strategies that establish personalized relationships with each customer and/or supplier based on individual needs and preferences. They earn loyalty by providing superior service, security, and convenience. In order to successfully acquire, retain, and upgrade customers, these organizations need to understand their customers’ profiles, transaction histories, past responses to marketing campaigns, and interactions with customer service. This information is often stored in widely dispersed and complex data sources, and obtaining a holistic view of the customer can be challenging.

The volume of data available to enterprises is growing at a very high rate, being driven by greater transaction detail, more sensors, more external data, and more data from mobile and social media platforms. MicroStrategy 10 helps organizations worldwide take advantage of this explosive growth in enterprise data by equipping managers and employees with timely, actionable information to make data-driven business decisions.

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Solutions built on MicroStrategy 10 can give analysts, managers, and executives the critical insight they need to reduce costs, better allocate resources, improve efficiencies, and optimize operations.  MicroStrategy 10 can also be used to build stronger relationships with business partners and suppliers by providing insights for managing inventory levels, analyzing supply chains, and tracking vendor performance. MicroStrategy 10 also includes predictive capabilities that enable organizations to leverage their historical data to project future business outcomes.

MicroStrategy 10 provides IT professionals with a powerful, highly automated mechanism for delivering insightful reports and dashboards to employees throughout an organization.  In addition, MicroStrategy 10 offers self-service capabilities, which enable business users to upload, prepare, and explore enterprise data on their own, without any coding or IT expertise.  With these self-service capabilities, business users can spot trends and outliers in a completely visual and interactive way, thereby eliminating much of the need for IT to create reports and dashboards for them.

MicroStrategy 10 is available in two distinct end user products: MicroStrategy Analytics and MicroStrategy Desktop. MicroStrategy Analytics is designed for enterprise-scale business intelligence, supporting high performance analytics on gigabytes, terabytes, or petabytes of data.  Organizations can deploy MicroStrategy Analytics on-premise or access the same functionality within the MicroStrategy on AWS or MicroStrategy Cloud offerings. MicroStrategy Desktop puts the power of MicroStrategy 10 into the hands of individual users for self-service visual analytics and data discovery.  The two products share a common user experience — making it easy to start small with self-service analytics and grow into the production-grade features of MicroStrategy Analytics.

MicroStrategy Analytics

MicroStrategy Analytics is our flagship analytics software. It is a comprehensive, enterprise-grade solution featuring sophisticated analytics, scalable performance, multi-level security, and rigorous data governance.  It also combines the agility and productivity of self-service data visualization (also known as visual data discovery), which bridges the gap between fast, elegant, interactive visual analytics and powerful, large-scale enterprise business intelligence.

Key benefits of MicroStrategy Analytics include:

 

Flexibility to report, analyze, and monitor. MicroStrategy Analytics unifies reporting, analysis, and real-time business monitoring into one seamless experience for the business user, one efficient and scalable architecture for the IT professional, and one economical and extensible utility for the CIO.

 

Single platform for enterprise data discovery and analytics. MicroStrategy Analytics supports both business user and traditional IT user needs by offering various styles of BI bundled into a single comprehensive analytics platform. Business users have access to the data discovery toolset via MicroStrategy Web, MicroStrategy Desktop and MicroStrategy Mobile, and these user interfaces also allow them to consume other styles of analytics that their IT organizations have deployed, including pixel-perfect dashboards, enterprise reports and statements, scorecards, and more. Organizations do not need to resort to other point data discovery tools to gain access to agile data discovery capabilities, as they are available as an integrated part of MicroStrategy Analytics.

 

Industrial-strength analytics. MicroStrategy Analytics enables industrial-strength analytics with enterprise-caliber technology and high user- and data-scalability.  It enables centralized administration, operations, and maintenance in a unified interface and from within a unified hardware environment.  Users can connect through their mobile devices, a zero-footprint web offering, a desktop-based client for offline analysis and by directly injecting analytics into Microsoft® Office products — expanding the reach of business intelligence across the enterprise.

 

Data discovery at scale. MicroStrategy Analytics offers data discovery capabilities and is available to the end user across all standard user interfaces. With its HTML5 interface, users are able to connect to most data sources, ranging from personal spreadsheets to enterprise warehouses and cloud hosted sources, and can blend and prepare the data on their own without any IT support. This fully self-service work flow also allows the extension of the software to integrate with other third-party capabilities.  For instance, although MicroStrategy Analytics includes a variety of out-of-the-box visualizations, it also provides the ability to include other third-party visualizations like D3 and high charts, as well as the

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ability to include native and third-party advanced analytics into native workflows. The dashboards that include all of these components can also be personalized and shared with thousands of users across the organization using our powerful MicroStrategy Distribution Services™.

 

Data to insight in minutes without IT involvement. MicroStrategy Analytics gives business users a simple, powerful, and fast way to analyze data with minimal set-up requirements.  It is designed to allow business users to answer business questions on their own, avoiding the lengthy process of report specification and design. By using a variety of graphical visualizations to represent the entire analysis, users can easily and rapidly spot trends and outliers in large data sets, creating a user experience that seems to unfold in real time.  In addition to this, MicroStrategy Analytics also supports traditional centralized BI through its metadata based architecture, from which MicroStrategy Analytics gains its ability to design highly reusable objects that deliver both high performance and scale. The combination of enterprise scalability along with data discovery features brings the power of enterprise analytics to the personal level, making it easy to extend the power of the entire MicroStrategy Analytics platform to everyone in the organization.

 

Actionable insight. MicroStrategy Analytics helps organizations accelerate the speed and productivity of their businesses by building mobile apps and web reports and dashboards that connect to back-end transactional systems and databases to include data entry and action-taking features, including: submitting orders, one-click approvals and denials, notes for tracking and directing business activity, and write-back to data sources.

 

Governed data discovery. MicroStrategy Analytics enables organizations to achieve data consistency and governance across every report, dashboard, and user within the system through a trusted and centralized metadata store. By leveraging our reusable metadata to define, manage, and maintain common definitions for metrics, attributes, data sets, and other objects through governed data discovery, organizations can lower the overall cost of developing new analytical outputs (such as reports or dashboards), while helping to ensure that the information delivered in those outputs is accurate, governed, and timely. MicroStrategy Analytics not only provides governance via centralized IT deployments where the reports and dashboards are based around a centralized metadata store, but also offers the ability to promote desktop-based reports and dashboards created by business users to MicroStrategy Server, and to map external data assets to certified data systems.

 

Heterogeneous access, joining and preparation of data from across the enterprise.  MicroStrategy Analytics enables organizations to create integrated views of data across heterogeneous data stores. By mapping conforming dimensions from multiple sources within the MicroStrategy object model, the platform automatically joins data from multiple sources in the same table, chart, or visualization. Additionally, MicroStrategy Analytics also offers self-service data connect options to business users, who do not need to rely on data modeling or architecting to access any data source. Data can come from any source including most relational and columnar data warehouses, data marts, Apache™ Hadoop®, SAP® Business Information Warehouse (SAP BW), Microsoft SQL Server® Analysis Services, IBM® Cognos® TM1®, Oracle® Essbase, Salesforce®, social media sources such as Twitter and Facebook, and many other operational system databases. In addition to allowing users to connect to these data sources, MicroStrategy Analytics offers data preparation and wrangling capabilities that allow business users to transform their data for improved analysis.

 

Integration of advanced analytics into mainstream reporting and dashboarding. MicroStrategy Analytics’ analytic engine includes predictive capabilities in MicroStrategy reports and dashboards. The analytic engine can train and calculate many of the primary data mining functions, including time-series, association rules, clustering, regression, and decision-tree algorithms. Hand-in-hand with this calculation capability, MicroStrategy Analytics also includes the ability to import data mining models directly from data mining products from vendors like IBM SPSS®, Teradata®, and SAS® using the predictive modeling mark-up language (PMML) standard, and by embedding R statistical packages in the platform. With this capability, data mining models, such as neural network algorithms, rule set algorithms, and support vector machines, as well as ensembles of models, can be imported through a single click and automatically converted into a standard MicroStrategy metric. After that, the MicroStrategy Data Mining Services™ extension enables these metrics to be used freely and calculated quickly in reports, dashboards, and alerts. A key capability of MicroStrategy Analytics is that business

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users can now readily tap into over 350 advanced analytics and statistical functions for data discovery purposes, and these functions are included within an easily accessible library.

 

Support for large data volumes and all major relational database/hardware combinations.  MicroStrategy Analytics supports systems with very large data volumes and is specifically optimized to support all major relational database platforms, Hadoop distributions, and data appliances commonly used for business intelligence systems, as well as multi-dimensional databases, such as SAP BW.  Important features of our solution in this area include:

 

o

Native connectors to HDFS, in addition to the hive options to connect to Cloudera®, Hortonworks®, and MapR®, among other Big Data sources;

 

o

Available with MicroStrategy 10, and included as an integrated part of the MicroStrategy Server product are highly scalable, in-memory cubes that can now be partitioned and support parallel processing. This new advancement in in-memory architecture allows organizations to store a greater volume of data in memory and offers faster processing;

 

o

Dynamically generated SQL, multidimensional expressions (MDX), and Hadoop queries that optimize the performance of each major database;

 

o

Very Large Database (VLDB) parameters that allow individual reports or dashboards to be tuned for performance;

 

o

Support for hand-written SQL, Hadoop, and XQuery queries;

 

o

Ability to support very large user populations; and

 

o

Highly reliable up-time, even in high volume applications.

 

Powerful distribution engine for information delivery. Our technology offers a high performance, personalized distribution engine for delivering periodic and alert-based information to users via email, web, and mobile devices. The distribution engine is able to deliver report and dashboard applications in a highly automated and personalized manner to all major device types used in both domestic and international markets, enabling the delivery of information to users when and where it is needed.

 

Customizable applications and Embedded BI. MicroStrategy Analytics applications can be customized extensively using proprietary SDK capabilities. This allows organizations to brand web and mobile-based applications, and embed these applications directly into other corporate applications. White labeling for portal integration, single sign-on, and direct integration into other software increase the deployment options of MicroStrategy Analytics and allow IT groups to roll out analytics to the entire organization in a customizable manner, while still being able to leverage investments made in other technologies.

MicroStrategy’s Metadata Architecture

The core differentiator of our platform stems from its metadata-based centralized architecture, which has been built and refined over many years and provides access to enterprise data using familiar business terms, rules, and logic. The portable, flexible, reusable, object-oriented and dynamic nature of the metadata provides an efficient BI application and mobile app development platform while maximizing maintainability and enforcing enterprise-wide consistency. The dynamic behavior of metadata in our platform helps ensure consistency across business definitions, and minimizes the number of objects created, stored, and managed.  Other BI technologies are limited in their reuse capabilities, forcing developers to create the same components over and over again for use in each individual report or dashboard.

MicroStrategy Server

MicroStrategy Server is the architectural foundation of MicroStrategy 10. It provides the core analytical processing and job management for all reporting, analysis, and monitoring applications. It provides a powerful, comprehensive set of features necessary for a scalable, fault-tolerant, enterprise-wide business intelligence system.

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As the central contact point to metadata, MicroStrategy Server dynamically assembles the metadata objects to create optimized, multi-pass SQL queries for every major relational database, HiveQL queries for Hadoop distributions like Cloudera, MapR, Hortonworks, and Amazon EMR, interactive queries for real-time distributed SQL processing, optimized connectivity for NoSQL sources like Apache Cassandra™, HBase™, and MongoDB®, native connectivity to HDFS via MicroStrategy Hadoop Gateway, and MDX queries for multidimensional data sources. MicroStrategy Server retrieves the data, performs any additional analytical calculations not available in the databases, formats the report, and delivers the reports to business users via the MicroStrategy Web, Mobile, Office, or Desktop interfaces.

MicroStrategy Server is a highly scalable, parallel-processing, self-tuning analytic server. It manages high performance interactions involving terabytes of data accessed by tens of thousands of users using in-memory intelligent cubes, caching, load balancing, resource prioritization, and connection pooling. It accesses and joins data from multiple data sources, such as data warehouses, operational databases, multidimensional (cube) databases, and even web services and flat files. MicroStrategy Server also manages users, system security, data security, and user functionality access. A clustering option is available with MicroStrategy Server that increases scalability, and provides fault tolerance with automatic failover.

MicroStrategy Web

MicroStrategy Web is great for business users or consumers looking to interact with data, or to even simply view a static overview report. At the same time, MicroStrategy Web is where savvy analysts put all of the pieces together to design highly formatted and customized reports and dashboards.

MicroStrategy Web is the primary reporting interface for analysts, offering interactive reporting, dashboarding, and analysis through a web browser. It provides enterprise analytical functionality with access to extensive report and dashboard creation, manipulation, and formatting capabilities in an easy-to-use web interface.

MicroStrategy Web architecture provides a single, consistent interface to users whether the BI application is departmental and internal, or an extranet application deployed to hundreds of thousands of users.  MicroStrategy Web allows business users of any skill level to move fluidly between various styles of BI to satisfy their reporting, analysis, and monitoring needs.

MicroStrategy Desktop

MicroStrategy Desktop is a free, standalone, on-premise, single-user tool for fast, powerful, and easy-to-use self-service visual data discovery.  It enables business users to analyze and gain valuable insight and understanding into their organizations’ data by quickly creating stunning and useful visualizations, without assistance from the IT department.  MicroStrategy Desktop can be readily downloaded and installed on a PC or Mac, making the power of MicroStrategy 10 easily available. MicroStrategy Desktop can be used while offline and while not connected to MicroStrategy Server, and can connect to MicroStrategy Server when needed. This user interface can help introduce MicroStrategy 10 to smaller departments that are looking for quick and easy deployment options. It offers easy migration options to the Enterprise edition of MicroStrategy Analytics, and all analytical content developed with MicroStrategy Desktop may be promoted to MicroStrategy Server and can be consumed by the other user interfaces offered with MicroStrategy, such as MicroStrategy Web and MicroStrategy Mobile.

MicroStrategy Analytics Releases in 2017

MicroStrategy Analytics includes the following significant functional enhancements made during 2017:

 

Dossier. A new way of consuming analytics in the form of interactive books with built-in collaboration capabilities, tables of contents, powerful filtering options, and proactive alerts and push notifications. Dossiers are organized in chapters and pages, making it easy to navigate and find insight from analytics across the enterprise.

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MicroStrategy Library™. A personalized portal for users to access their reports, dashboards, and dossiers.  Each dossier is represented by a customized thumbnail image within MicroStrategy Library, making it easy to visually identify content.

 

Expanded filters within dossiers. Use any visualization, chart, or graph within the filter panel of a dossier for more intuitive and modern filtering options. In addition, dossiers can include filters and target other visualizations within the main interface.

 

Embedding API for dossiers. A new API that leverages JavaScript to easily embed interactive dossiers into third-party applications.

 

Data Connector SDK. Developers and analysts can build almost any data connector with the Data Connector SDK by leveraging HTML and JavaScript, thus getting access to data sources without waiting for them to be certified by the platform.

 

Gallery for custom data connectors. Customers and business partners can access a public gallery of custom data connectors on MicroStrategy Community, where they can download the connectors for their own use or enhance them further prior to integration. The available connectors include Fitbit, SurveyMonkey, Jethro, Solr, Elasticsearch, and more.

 

Revamped MicroStrategy Desktop. Redesigned and overhauled with a new, modern interface for data access, data preparation, visualization, sharing, and authoring and designing reports and dashboards with responsive design options.

 

MicroStrategy Workstation. A unified product that makes it faster to build and maintain scalable enterprise content, manage users and groups, assign security roles, create data models, and much more.

 

Intelligent narratives for analytics with NLG integration. Through technology partnerships with NLG platform providers, Automated Insights and Narrative Science, MicroStrategy Analytics supports the use of artificial intelligence to interpret charts and graphs into clear, meaningful, and intelligent narratives that explain the context of the data.

 

Enhanced native Hadoop Gateway. A new and re-architected Hadoop Gateway that leverages Spark to increase scalability and performance, and can access data file types such as CSV, Text, JSON, AVRO, and Parquet directly from HDFS.

 

R Analytics bundled and installed with platform. Customers can leverage R capabilities without having to go through a separate installation process.

 

Hierarchy reporting. Analysts can view and interact with ragged hierarchies with data sourced from MDX sources like MSAS and Essbase, with the ability to apply dynamic filters, create custom MDX queries, apply advanced sorting, and optimize performance.

 

Support for more data sources. MicroStrategy Analytics allows business users to readily connect to Microsoft Azure Cosmos DB. MicroStrategy Analytics also offers certifications for new data sources such as Maria DB 10.x, Apache Hive 2.x, SparkSQL 2.0, MapR 5.2, Druid, Amazon Athena, Oracle 12c R2, Azure SQL Database, and SAP Hana 2.x.

 

Improved PDF export. Analysts have more options to customize PDF versions of reports and dashboards prior to exporting them, such as selecting the page orientation, paper size, and header/footer details. Analysts can also export large grid reports, charts, and graphs that have data expanding over a page into highly formatted PDFs, ensuring no information is cut off.

MicroStrategy Analytics Technology Strategy

Our technology strategy is focused on delivering comprehensive platform-based solutions to enable any organization to create immediate value from analytics and then quickly grow its analytics effort to encompass more advanced capabilities as well as larger user and data scale. This strategy includes: expanding support for large information stores, improving performance and administration, enhancing our analysis capabilities, and enhancing report and dashboard delivery via the web and mobile devices. We continue to enhance our products for use with a broad range of operating systems and databases to enable our customers to leverage their existing technology investments to

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achieve faster query times with fewer required resources. We continue to enhance usability and visual data exploration to increase ease of use and functionality, and thus further decrease the need for IT intervention. We are working to further differentiate our products by increasing:

 

Visual analysis and user self-service. Ease of use and visual exploration and analysis capabilities on small to extremely large data sets, in conjunction with the enterprise capabilities also offered by our platforms;

 

Data capacity. The volume of information that can be efficiently analyzed and utilized;

 

User concurrency. The number of users that can be supported simultaneously;

 

Analytic sophistication. The range of analytical methods available to the application designer;

 

Performance.  The throughput and response time of the system, measured in seconds;

 

Database flexibility. The range of data sources, data warehouses, and online transaction processing databases that the software is capable of efficiently querying without modification;

 

Robustness.  The reliability and availability of the software in mission-critical environments;

 

Deployability. The ease with which applications can be securely deployed, modified, upgraded, and tuned;

 

Personalization. The quality and sophistication of a one-to-one user experience;

 

Content flexibility. The range of content, both structured and unstructured, that can be efficiently utilized;

 

Media channel and interface flexibility. The range of media channels (including mobile devices), interface options, and display features supported; and

 

Transaction capabilities. The ability to efficiently initiate actions and transactions from mobile devices and web-based reports and dashboards.

MicroStrategy Mobile

Our consistently highly-rated mobile offering extends beyond basic mobile analytics to deliver an innovative mobile app platform that makes building a variety of mobile business apps easier and faster.

MicroStrategy Mobile is fully integrated into the MicroStrategy Analytics platform, so it is easy to leverage existing reports and dashboards to instantly deploy mobile business intelligence. In addition, MicroStrategy Mobile extends beyond analytics to enable organizations to rapidly build custom mobile applications that deliver analytics combined with transactions, multimedia, and mapping to support business workflows. The robust code-free application development platform is designed to reduce development costs and accelerate the deployment of native mobile business apps—optimized for both iOS and Android. Companies can build fully native iOS and Android apps that take advantage of the unique device and operating system capabilities (e.g., GPS/location, calendar, and camera) on those devices. MicroStrategy Mobile is an easy, fast, and cost-effective vehicle for mobilizing an organization’s information systems, including its data warehouses, business intelligence, ERP, CRM, and web applications that are currently accessible only on the desktop.  With MicroStrategy Mobile, businesses can transform their entire workforce into a connected and more productive mobile workforce using information-driven mobile apps that are significantly more robust and secure than their web-only counterparts.  With mobile access to critical corporate data and systems that drive the business, employees can have a virtual office in their hands at all times.  

MicroStrategy Mobile is available both as on-premise software and as a hosted service offering in MicroStrategy Cloud.

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Key benefits of MicroStrategy Mobile include:

 

Increased employee productivity by gaining new efficiencies and cutting decision times. MicroStrategy Mobile computing can dramatically improve personal productivity, changing how people work today. MicroStrategy Mobile puts materials, information, and system access on devices that can be always on, always connected, and always in reach. MicroStrategy Mobile enables write-back to systems of record (e.g., ERP and CRM), providing users with an interactive two-way mobile experience. Users can change data on the fly, insert new information, and view updated reports and dashboards. Users can access transactional inputs and forms regardless of internet connectivity. When offline, transactions are queued for submission and executed when the user next connects.

 

Extending information throughout an organization. MicroStrategy Mobile can help run a business more effectively by extending the reach of critical enterprise systems to all constituents in all locations. It can provide real-time access to the latest information and data-driven reports and dashboards that fuel spontaneous conversations and more effective decision making.

 

Enabling field workforces with multimedia materials and training. Mobile workforces can access anything from product brochures and sales presentations to instructional videos and training manuals, when and where they’re needed. MicroStrategy Mobile supports in-app viewing of multimedia content, such as videos, PDFs, images, presentations, spreadsheets, documents, email, and web content—all seamlessly embedded within a mobile app. As with other app content, multimedia content can be pre-cached or stored for convenient, offline access. When the mobile device is offline, users can still view files that have been previously downloaded and stored on their mobile device.

 

Proactive alerting of potential business problems. MicroStrategy Mobile supports personalized mobile alerts—informing users of potential business problems so they can take timely corrective action. The 24/7 alerting engine is based on a robust distribution server that can be set up to monitor multiple data sources in near real time, creating personalized alerts—distributed through the mobile device’s native push notification system—when a preset condition (threshold) has been met.

 

Conducting business in newer and faster ways. MicroStrategy Mobile context-aware apps that leverage native mobile device functionality (e.g., GPS, camera, etc.) allow users to complete tasks significantly faster or in more efficient ways than web or desktop-bound apps.

 

Fast app development. MicroStrategy Mobile is one of the fastest ways to create new mobile apps and mobile front-ends to existing analytics applications. Its click-to-configure features allow the development of mobile apps in a code free environment without requiring an organization’s IT resources. It also allows for the deployment of native apps across multiple operating systems with a single design and lets a user make an app multi-lingual with a few configuration clicks.

 

High performance mobilization. MicroStrategy Mobile provides compelling and high-performance MicroStrategy Mobile powered apps that can help maximize impact, durability, and adoption.

MicroStrategy Mobile Releases in 2017

MicroStrategy Mobile includes the following significant functional enhancements made during 2017:

 

Support for .SHP files for custom shapes on iOS. Previously, MicroStrategy Mobile allowed users to add custom shapes using .KML shapes in the map widget. Users can now also use .SHP files to deploy custom shapes and areas maps. This parity with MicroStrategy Web provides consistent user experience and behavior across different web and iOS interfaces.

 

Best-fit image auto-selected based on device resolution on Android. Android app designers can now define multiple resolutions for images in their dashboards and allow the Android device to auto-select the best-fit image depending on its own resolution. With so many different Android devices in the market, this responsive design capability makes it easier for Android app developers to optimize user experience.

 

Enterprise Mobility Management (EMM) support via AppConfig (formerly known as ACE) on Android. In addition to our native integration support with AirWatch, MicroStrategy Mobile now

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provides native integration to configure and help secure Android apps based on AppConfig guidelines. The integration with AppConfig provides more consistent, open and simple ways to configure and help secure mobile apps.

 

App Transport Security (ATS) on iOS. Apple’s new ATS policy improves user security and privacy by requiring apps to use secure network connections over HTTPS instead of HTTP. MicroStrategy Mobile developers can enable Apple’s ATS policy when Apple requires it to help ensure connections from the app adhere to the HTTPS standard. This feature helps app developers secure data in transit through additional encryption.  

 

MicroStrategy Mobile SDK for Blackberry Dynamics Library. Following Blackberry’s integration of Good Dynamics into its EMM platform, the MicroStrategy Mobile iOS SDK for Blackberry Dynamics now reflects Blackberry’s branding changes, including color schemes, icons, and much more. These changes improve user experience and enhance integration of the Good Dynamics and Blackberry libraries. Through the new SDK, MicroStrategy Mobile customers can continue to natively integrate with the former Good Dynamics.

 

Custom properties for D3 visualizations on Android. Custom properties are now supported in D3 visualizations. This feature provides greater parity with iOS and web report and dashboard functionality. App designers have the flexibility to add different properties to attribute elements and metrics. For example, app designers can use shape or text color to differentiate various components of their visualizations.

 

Embedded images during Android app compilation. The Android framework supports bundling images as part of the app resources to boost performance. Bundling images during app compilation eliminates requests for downloading images that are not expected to change in the short term. This feature accelerates app performance through better image loading. This is especially helpful when users are located in a remote area with weak network conditions.

 

MicroStrategy Library for iPad and Android tablet. Users can consume reports, dashboards, and dossiers via native mobile clients for iPad and Android tablets.

 

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Quickly toggle between different MicroStrategy Library environments. Instead of re-configuring the app each time, users can store multiple environment configurations in the MicroStrategy Library app. With two quick taps, users can easily switch between the different environments. For users that regularly access reports, dashboards, and dossiers in separate libraries, this feature provides significant convenience and time savings. The MicroStrategy Library app also includes folders to access downloaded .mstr files and PDF exports. Instead of saving these files outside of the app, the folders provide a convenient place to store and view downloaded reports, dashboards, and dossiers within the app.

 

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Export to PDF. Users can export entire dossiers or single chapters of dossiers to PDF.

 

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Share via native extensions. Users can share links to dossiers, .mstr files and PDFs from the Dossier app using native OS extensions. iOS and Android users can share by emailing, printing, copying, using communicators such as Slack and AirDrop (only iOS users), or importing to other apps (e.g., iBook, Dropbox).

 

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Enhance workflows with native touch-optimized controls. Users can take advantage of native touch-optimized gestures to manipulate content within their dossiers. Using long swipes, users can sort charts in ascending or descending order. Long and/or double taps display a filtering menu with “keep only,” “exclude,” or “drill” options. Users can also use free form lasso options to multi-select elements in visualizations. Native touch-optimized controls provide users with more advanced options to interact with dossiers.

 

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Search within maps. Users can search for attribute elements on maps directly from their iPads or Android tablets. The searched element is highlighted on the map and provides users with location and other information instantly. If the searched element is within a cluster, the whole cluster is highlighted and the number of elements found within the cluster is specified. This feature—

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previously available only on MicroStrategy Web—adds parity between MicroStrategy Web and MicroStrategy Mobile applications, providing users with a seamless map search interface.

 

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Automatically align to various form factors with enhanced responsive design capabilities. The Dossier mobile app provides significantly enhanced responsive design capabilities, making the experience seamless when switching between interfaces, devices and form factors. Dossier components, such as visualizations, filters, images, and notification panels are automatically resized and arranged for optimal display on iPads and Android tablets. Though there are several form factors and aspect ratios, MicroStrategy Mobile prioritizes the visualizations view by adjusting spacing and padding and object alignment.

 

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Leverage AppConfig on iOS and Android. The MicroStrategy Library apps for iOS and Android have been compiled using AppConfig guidelines. Without employing an SDK, customers can deploy the application to their users securely as well as configure it remotely via any of the leading EMM vendors compatible with AppConfig standards.

 

MicroStrategy Mobile Technology Strategy

We continue to invest in enhancing MicroStrategy Mobile to empower our customers with the ability to build apps that drive their businesses forward and deliver revolutionary applications to their employees, business partners, prospects, and customers. We continue to invest in enhancing MicroStrategy Mobile’s overall performance and security as well as its three core capability areas: analytics, transactions, and multimedia. We remain focused on delivering the most compelling native end user experience on devices that are adopted by enterprises. New features specific to supported operating systems will take advantage of the native API’s and incorporate new OS capabilities into apps built by our customers.

We also continue to invest in bringing to life mobile apps in an easy, fast, and flexible way. We will continue to enhance our MicroStrategy Mobile technology to deliver an experience that is philosophically “user first” by combining a powerful user experience on top of a dynamic and accessible development infrastructure.

Usher

Usher is a digital credential and identity intelligence offering that provides a highly secure, convenient way for organizations to dematerialize traditional forms of identity verification (such as passwords, tokens, and physical badges) and replace them with unique mobile identity badges, each cryptographically linked to its owner’s smartphone and dynamically linked to the enterprise’s existing identity repositories. Usher can be used as a powerful enterprise productivity and workforce management resource because it is designed to enable managers to gain an almost real-time window into the location and activity of their distributed workforces, while providing powerful interactive features to manage or direct them. With the addition of Usher Professional, administrators can track user activity on a nearly real-time map using access telemetry.  They can also engage in two-way communications with users from the Usher application.  Usher badges work on standard smartphones running on iOS or the Android platform and include an Apple Watch integration.  Through the use of Bluetooth, QR codes, biometrics, push notifications, time-limited PIN codes, and other authentication methods, Usher users can log into applications, VPNs, and workstations, unlock doors and other physical gateways, and validate each other’s identities.  By delivering strong, multi-factor authentication that can be extended to nearly every corporate system, Usher’s digital credential solution addresses some of the biggest challenges facing corporations today, including authentication, identity and access management, and resource authorization, while applying industry leading business intelligence and analytics to an enterprise’s infrastructure. Usher is available both as on-premise software and as a hosted service offering in MicroStrategy Cloud.

Usher can appeal to businesses, universities, associations, governments, and other organizations because it adds a layer of security to their systems, physical spaces, and transactions that would otherwise be technically difficult or cost-prohibitive. Usher is designed to secure an enterprise by offering an alternative to existing forms of identification and authentication.  Usher is designed to provide a more secure alternative to passwords, which can be stolen or cracked.  Usher is also designed to help reduce identity-related fraud by replacing physical ID cards that can be counterfeited and stolen.

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Key benefits of Usher include:

 

Identity protection. Usher mobile identities are designed to be more secure than traditional physical forms of identity, which can be stolen and counterfeited.

 

Authentication. Usher is designed to provide a more secure alternative to passwords — which can be the weak link exploited by cybercrime attacks — with secure mobile identities.

 

Physical access control. Usher users can unlock doors by tapping on a “digital key” or by scanning a QR code. If a device is Bluetooth-enabled, a user can unlock a door simply by approaching it.

 

Workforce management. Usher can collect data about the locations of users’ Usher activity, enabling managers to remotely monitor and direct distributed workforces.

 

Activity analysis. Usher uses MicroStrategy 10 to monitor and analyze Usher user activity.

 

Convenience and cost-effectiveness. Usher allows users to carry their business credentials in digital form on their smartphones. Enterprises can reduce costs associated with the distribution and management of physical badges, cards, and keys, as well as the costs associated with identity-related fraud and cybercrime.

Usher Releases in 2017

Usher includes the following significant functional enhancements made during 2017:

 

Usher privacy controls. Administrators can tailor their deployments to protect their users’ privacy, giving organizations the flexibility to balance desired functionality with required data collection. Usher privacy controls include transaction location information, Bluetooth discovery, and the Usher telemetry feed to Usher Analytics.

 

Shared kiosk capability for multi-user authentication. Usher now enables rapid authentication of multiple users in a shared workstation (terminal) or tablet environment. Multiple users can be paired with a single browser or web application for use cases as diverse as reception areas, retail stores, healthcare providers, and utility workers.

 

NFC for iOS devices. Now both Android and iOS device owners can enjoy the security and convenience of using NFC tags to access resources, which has the advantage of explicitly signaling the user’s intent to access the resource due to its very short range. Usher supports NFC tags on iPhone 7, iPhone 7 Plus, and iPhone 8 devices running iOS 11. Type 1, 2, 3, 4, and 5 NFC tags are supported.

 

Usher master administrator role. Usher Network Manager™ adds a new master administrator role, supporting separation of duties and improved user administrator capabilities.

 

Search and filter on directory attribute groups. Increase the value of Usher Professional as an enterprise directory and communications tool, while leveraging existing directories. All directory gateway attributes mapped in Usher Network Manager are searchable, including directory groups and distribution lists.

 

Universal scanner. The Usher Security™ badge client’s integrated QR scanner can now read non-Usher barcodes and QR codes (e.g., Aztec codes). The scanning transaction can be stored in the Usher server and linked to the user performing the scan, the time of the scan, and the location at which the scan took place (if location services are enabled). This barcode data can be used in Usher Analytics to parse barcode data, create derived attributes from the parsed barcode data, and link to third-party and legacy-backend logical systems to generate custom reports and dashboards.

 

Usher Network Manager: Okta Universal Directory support. Usher now supports Okta Universal Directory as an identity management source. This is in addition to existing support for Microsoft Active Directory, OpenLDAP, AWS Directory Services, Novell NDS (NetIQ eDirectory), Apple Open Directory, and Apache Directory.

 

Usher Analytics: Badge properties reporting. With a new out-of-the-box dashboard and schema, badge properties set by Usher Network Manager can require and report on end-user action or compliance, such

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as location services and Bluetooth enablement, photo uploads, multiple device installations, and acceptance of the Terms of Use.

 

Usher inbox. With the debut of the Usher inbox, communications sent from managers and administrators via Usher Professional are accessible to recipients in an inbox within the app, so users can read and respond to queries at their leisure. Users can even review messages that they have already replied to in the past. The Usher inbox enhances user convenience and the overall communications usability of Usher Professional messaging for purposes such as safety and productivity.

 

Usher Analytics: New out-of-the-box dashboard. Visualize Usher badge-generated telemetry through a set of KPI intensive grids. As users move about and interact with a corporate environment using their Usher badges, data flows into the dashboard sorted under categories such as users, historical telemetry log, timesheet, floors, spaces, beacons, actions, applications, cities, and devices. These grids can be used as a basis for creating custom visualizations based on business questions surrounding user access and presence.

 

Nearby user auto-discovery. Usher Professional users can control the manner in which lists of nearby Usher badge users are discovered and/or refreshed. Usher Professional may be configured to display location-based lists of Usher badge users that are either dynamic or static. When configured for dynamic display, Usher Professional provides a list of nearby Usher users (based on selected filter criteria) and automatically updates this list over time.

 

Usher Network Manager: Approver role for badge issuance / reactivation. Enterprises require separation of duties across many roles to mitigate the danger of a single employee taking unauthorized actions. Badge issuance approvers are responsible for reviewing badges that are ready to be issued prior to their issuance. Before approving or rejecting a badge issuance, they can review the identity record, including biographic and biometric data, and enter notes (e.g., a case number, background check results, etc.) to explain their decision.

Usher Technology Strategy  

Our technology strategy for Usher is focused on taking advantage of developments in mobile and cloud technology to provide more flexible and powerful user identity-based security and analytics solutions. This involves continued development in the following areas:

 

Logical access. We continue to explore new techniques with which Usher can provide identity to applications and systems and provide alternatives to passwords, keys, and fobs.  Our focus is on seamless, zero-click access based on proximity.  Additionally, we continue to monitor the market and test new biometric measurement systems that can be integrated into Usher, such as Apple’s Touch ID, voice authentication, and facial recognition.

 

Physical access. We continue to expand on the integration of Usher with physical access control systems and hardware, so that users with adequate credentials and digital keys can unlock secure doorways.

 

Action-oriented intelligence. We are focusing on enhancing Usher’s ability to determine Usher member location and activities so that trends and anomalies can be used to provide better security or better workforce management.

MicroStrategy on AWS

MicroStrategy on AWS is a self-service, customer-managed solution that offers customers instant access to a comprehensive enterprise cloud platform. Organizations can launch fully configured and ready-to-use MicroStrategy analytics and mobility projects on their own. Administrators have total control of their environments, making it easy to start, stop, resize, and terminate as needed. MicroStrategy on AWS provides access to the latest features and capabilities, while delivering a low total cost of ownership.

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Key benefits of MicroStrategy on AWS include:

 

Simplified enterprise deployment. With just a few clicks, organizations can deploy fully configured enterprise environments. Most instances can be up and running in just 30 minutes. This saves users time and money by eliminating the need to download, install, and configure environments themselves. Users can choose from different instance types and sizes based on their budget and usage requirements.

 

Centralized administration. Customers that deploy a project using MicroStrategy on AWS can dynamically start, stop, restart, and resize their environments. Organizations can reduce costs by stopping their environments during non-peak hours.

 

Scalability. Scaling MicroStrategy on AWS environments is quick and easy. Customers can choose from six different instance size options ranging from 4 vCPU and 15.25 GiB to 64 vCPU and 488 GiB of memory. Environments can be scaled on demand or on a preset schedule based on usage patterns or data size. Organizations can add new users at any time, deploy multiple environments and projects as they see fit, and pay only for what they use.

 

API-enabled operations. APIs are available with MicroStrategy on AWS to provide broad flexibility for organizations to create customized workflows. Developers can build personalized user interfaces for deploying, managing, and automating their cloud environments. The APIs also easily integrate with other automation tools and work with any programming language. With the APIs, it is possible to launch multiple MicroStrategy instances with a single line of code, resize them as needed, and terminate them when they are no longer required.

 

Global availability. Leveraging AWS, MicroStrategy Analytics is now available in all AWS data centers.

MicroStrategy on AWS Releases in 2017

MicroStrategy on AWS includes the following significant functional enhancements made during 2017:

 

Web-based provisioning console. New to MicroStrategy on AWS, a web-based provisioning console allows administrators to quickly and easily deploy and manage a fully configured MicroStrategy project using a simple and intuitive web-based deployment manager.

 

Seamless hotfix upgrades. With the general availability of any hotfix release, the hotfix will be automatically available on the MicroStrategy on AWS provisioning tool. An upgrade button will appear on the main administrative page, and clicking on it will automatically validate the upgrade process and administrators can then choose to upgrade at that time or schedule the upgrade at an off-peak time.

 

Deploy MicroStrategy on AWS into existing Virtual Private Cloud (VPC). Customers can deploy, manage, upgrade and resize their MicroStrategy on AWS environments within their own VPC and still leverage the powerful deployment and management tool. Deploying MicroStrategy on AWS into existing VPC accounts gives customers full control of their own AWS security settings.

 

Deploy applications directly into data centers around the world. MicroStrategy on AWS now allows organizations to deploy the application directly into data centers in North America, Europe, Australia, and Asia. The availability of data centers in these new regions allows organizations to deploy in a data center close to home, so they can deliver faster response times for mission-critical KPIs.

 

Available in nine languages. In addition to expanding the list of data centers around the world, the MicroStrategy on AWS provisioning tool is now available in nine different languages: English, French, Italian, Portuguese, Spanish, Dutch, Japanese, Korean, and Chinese.

 

Automatic architecture updates. Each time MicroStrategy pushes out a new architectural design, we automatically upgrade the underlying AWS CloudFormation template so the next time an organization deploys a new environment, it’s on the latest MicroStrategy architecture.

 

Now deployed on Amazon Linux. MicroStrategy on AWS is now deployed on Amazon Linux. Amazon Linux offers better support, costs less and is highly integrated within the AWS ecosystem.

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Center for Internet Security (CIS) baselines. MicroStrategy follows CIS best practices to help mitigate cyber risks and protect customer data.

MicroStrategy Cloud

MicroStrategy Cloud offers an integrated and optimized cloud business analytics platform that combines infrastructure, technology, people, and processes to offer analytics as a service to our customers. MicroStrategy Cloud builds on MicroStrategy 10, and adds class-leading ETL and database technology to provide an agile, high performance, elastic, and cost-effective analytics platform.

MicroStrategy Cloud provides our customers MicroStrategy 10 offerings through a Platform-as-a-Service (PaaS) solution hosted in the cloud. In addition to MicroStrategy Analytics and MicroStrategy Mobile, MicroStrategy Cloud also offers data integration ETL and data hosting services. The MicroStrategy Cloud PaaS provides customers with infrastructure (data center space, rack space, power, cooling, and servers), technology platforms (analytics, mobile data integration, and data hosting), operations, support, and expert analytics practitioners for a subscription fee with no upfront capital investment. MicroStrategy Cloud can offer improved time to market, higher performance, and lower overall total cost of ownership compared to traditional on-premise deployments.

Key benefits of MicroStrategy Cloud include:

 

Agile rapid application development and secure deployment. MicroStrategy Cloud provides the infrastructure, technology, processes, and experts that a customer needs to develop and securely deploy applications quickly. The entire service has been pre-packaged and optimized, and is supported by expert analytics practitioners. This solution allows our customers to get to market much more quickly than traditional approaches and react to business changes as they happen.

 

High performance analytics applications. MicroStrategy Cloud combines the high performance characteristics of MicroStrategy Analytics and MicroStrategy Mobile with high performance servers and network infrastructure. This integration allows our customers to deploy analytics and mobile applications on demand, allowing them to serve their customers more quickly and efficiently.

 

Elastic capacity with no capital investment. MicroStrategy Cloud allows customers to get started with no upfront capital investment in infrastructure. Customers can start small and increase their capacity on demand.

 

Low overall total cost of ownership. IT application costs are driven by capital investments and the personnel cost associated with hiring a staff of experts to build, maintain, and tune a large-scale environment. MicroStrategy Cloud delivers this high performance, tuned, and monitored environment as a service, lowering overall total cost of ownership.

MicroStrategy on AWS and MicroStrategy Cloud Technology Strategy

MicroStrategy on AWS and MicroStrategy Cloud each offers organizations an alternate purchase and deployment model for business analytics, compared to traditional on-premise deployments. Instead of making large upfront capital investments and building large support teams, MicroStrategy on AWS and MicroStrategy Cloud allow organizations to purchase analytics as a service with no upfront capital investments and offer payment structures that scale with business requirements.

Our MicroStrategy on AWS and MicroStrategy Cloud technology strategy is focused on continuing to enhance the reliability, self-service, performance, and scalability of our offerings. We also seek to differentiate our offerings by investing in enhancing the security process and infrastructure around our services, monitoring existing security and compliance certifications, and obtaining new certifications.

MicroStrategy Services™

MicroStrategy Services consists of MicroStrategy Consulting™, MicroStrategy Education™, and MicroStrategy Technical Support.  MicroStrategy Services advises, assists and supports our customers in successfully leveraging

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the MicroStrategy platform to achieve enterprise intelligence.  Through this three-pronged combination, we help our customers realize the vision of the Intelligent Enterprise™ and the creation of an intelligence platform.

MicroStrategy Consulting

MicroStrategy Consulting provides our customers with assessment, advisory, architecture, and deployment expertise to help drive critical analytics and mobile solutions across key industries. We utilize our deep expertise, thought leadership, and extensive MicroStrategy resources to guide our customers in defining, developing, and delivering core business analytics solutions for their enterprises. These solutions provide our customers with greater access to critical business information and help them make better business decisions faster.  MicroStrategy consultants work with the backing of the MicroStrategy product engineering, technical support and account teams to continue to partner with customers to help ensure a high adoption rate, positive ROI, and increased BI maturity.  Our team is rigorously trained and certified on capabilities of the MicroStrategy platform.

MicroStrategy Consulting is a worldwide organization with operations in North America, South America, Europe, Middle East, Africa and Asia Pacific, delivering projects to customers across all major industries. Our Global Delivery Center™ (“GDC”), located in Warsaw, Poland, is a hub of several hundred consultants who support analytics and mobile projects directly at customer sites around the world or remotely. With functional and business management practices, the appropriate experts can transition on and off projects as needed.  The GDC can quickly scale up or down to meet unique technical and industry requirements.  Integrating the GDC with on-site project resources is a flexible and cost-efficient way to receive highly specialized services.

MicroStrategy Education

MicroStrategy Education offers users a personalized plan to expand their knowledge and skill sets and help them build and optimize their organization’s intelligence center.  Key Education initiatives include:

Free education.  We offer free education through our Jump Start program. 30,000 registrations later, the program continues to attract users interested in learning about business intelligence and MicroStrategy. Each day of the five-day program is structured to stand on its own, allowing users to attend any one or all five days. Currently, the program is available in nine languages in over 40 cities worldwide and online.

Quarterly updated educational content. We update educational content to reflect our quarterly software releases, customer feedback and best practices to help ensure users are learning how to leverage the latest MicroStrategy features and functionalities. As our platform evolves, we continuously improve our suite of courses and certifications so users have access to the latest information.

Certifying intelligence centers.  We provide role-specific project certifications for employees within an organization’s intelligence center so they can serve as trusted MicroStrategy advisors. We offer the following options to help users get trained and certified:

 

Certify at your own pace: Our course schedule delivers the most popular certifications and certification projects on a frequent basis, enabling organizations to build a training and certification schedule that works for their specific enterprise requirements.

 

Fast track: An efficient and expedited certification program that compresses a lot of knowledge into a short amount of time. Depending on a user’s role, level and certification need, a user can expect to become certified in five to ten days.

Self-paced E-courseware learning.  For organizations wanting to get a large number of analysts up and running within a few hours of training, we offer E-courseware modules. Our E-courseware modules are the most cost-effective and efficient option to get users proficient on MicroStrategy. We have made significant investments in our portfolio of E-courseware modules with 10 of our most popular courses now available as self-paced modules.

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Course customization.  We can customize course content around an organization’s data and how it uses the data to make decisions. Content can be personalized to reflect a customer’s brand and its datasets, and tie it into real-world applications and benefits. Customized courses offer users the information and specific skill sets they need to boost their performance and help ensure their organization is making the most of its training.

MicroStrategy Technical Support

MicroStrategy Technical Support is focused on improving the overall customer experience through proactive technical product support for customers and business partners across MicroStrategy’s software products.  Additionally, it is responsible for negotiating and maintaining support contracts with our customers and business partners alike, including support services for MicroStrategy Cloud customers.  MicroStrategy Technical Support includes the following groups:

Customer Support Group (CSG).  CSG is a team of Technical Support Engineers responsible for providing first level technical support to customers, business partners, and prospects.

Premium Support.  Premium Support is a team of Premium Support Engineers that provides dedicated technical support to our elite customers and business partners.

Customer Success Management (CSM). CSM manages our support renewal business and our process for renewing software maintenance contracts with customers worldwide. It also helps answer questions from customers while working with those customers on renewing their maintenance contracts. The team also works with customers quarterly to ascertain the customer’s on-going satisfaction level.

Sales and Services Strategy  

We primarily sell through our dedicated sales force, as well as through channel partners in order to increase market coverage in both domestic and international markets.  We provide financial incentives for our channel partners to market and distribute our products and services.  We also offer a comprehensive set of educational programs that enhance our potential customers’ and channel partners’ understanding of our software.  Furthermore, we offer a wide range of services that provide support in the discovery, planning, development, and deployment stages of a MicroStrategy product or service.

Dedicated sales force.  We market our software and services chiefly through our direct sales force.  We have sales offices in locations throughout the world.  We use distributors in several countries where we do not have sales offices.

Channel partners.  We have established strategic alliances with third party vendors to help ensure the success of our customers’ business intelligence initiatives. Our channel partners are system integrators, consulting firms, resellers, solution providers, managed service providers, OEMs, and technology companies. These firms utilize MicroStrategy platforms for a variety of commercial purposes and our agreements with them generally provide non-exclusive rights to market our products and services and allow access to our marketing materials, product training, and direct sales force for field-level assistance.

We make significant commitments to our channel partners, including investments in joint development including technical training and certifications, pre-sales and sales enablement, and marketing programs. Through our joint efforts, we believe customers are able to minimize their risk and maximize the return on their business intelligence projects. We believe that our channel partners allow us to leverage sales and service resources, as well as marketing and industry-specific expertise, to expand our user base and increase our market coverage.

Marketing Strategy

Our marketing programs target the following principal constituencies:

 

Our historical base of corporate technology buyers and departmental technology buyers across FORTUNE™ Global 2000 enterprises.  We also target senior executives and other leaders in these companies for MicroStrategy Mobile and Usher;

 

Corporate and departmental technology buyers in mid-sized enterprises;

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Government technology buyers and the vendors to the government community;

 

Independent software vendors that want to embed our technology tools in their solutions; and

 

System integrators that have technology relationships with the largest enterprises, governments, and information-intensive businesses.

We continually seek to increase our brand awareness by focusing our messaging on the possibilities for value creation and the benefits of using our platforms, and competitive differentiators. The channels we use to communicate with these constituencies include:

 

User conferences;

 

Advertising;

 

Direct email;

 

Free and evaluation software;

 

Industry awards;

 

Industry events;

 

Media coverage;

 

Mobile application downloads;

 

Our website;

 

Social media;

 

Channel partners; and

 

Word of mouth and peer references.

Each quarter in 2017, we hosted symposia events in cities across North America, Europe, the Middle East, Asia, Africa, and South America. These events offered IT and business users an opportunity to network, attend workshops, and learn about real-world MicroStrategy 10 applications from our customers. These events also featured topics on analytics and mobile applications in retail, banking, higher education, healthcare and other sectors being transformed by Big Data. We will continue to host symposia events where we will highlight opportunities to drive the adoption of business intelligence across organizations, reduce costs through tool consolidation, and empower the workforce to be more productive – all of which can help attendees plan and achieve their analytics goals.

Customers

Our customers include leading companies from a wide range of industries, as well as the public sector. These industries include retail, consulting, technology, manufacturing, finance, banking, insurance, healthcare, education, telecommunications, and many more.

Competition

MicroStrategy Analytics, MicroStrategy on AWS and MicroStrategy Cloud Competitors

The analytics market is highly competitive and subject to rapidly changing technology paradigms.  Within the analytics space, we compete with many different vendors, including (i) large software vendors, such as IBM (Cognos), SAP (BO), Microsoft (Power BI™), and Oracle (OBIEE), that provide one or more products that directly compete with our products, (ii) open source analytics vendors such as OpenText™ Analytics and Hitachi (Pentaho®), (iii) various other analytics software providers, such as Qlik™, Tableau Software®, TIBCO®, Information Builders®, and the SAS Institute, and (iv) other vendors offering cloud-based offerings, such as GoodData and Birst, an Infor Company. Our future success depends on the effectiveness with which we can differentiate and compete with these vendors and other potential competitors across analytics implementation projects of varying sizes.  Failure to maintain adequate technology differentiation from these competitors could materially adversely affect our revenue from both existing and prospective customers.

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MicroStrategy Mobile Competitors

The market for mobile analytics is rapidly evolving. New mobile devices are being introduced in the market at a rapid pace, and enhancements to mobile operating systems are being made at an even faster rate. The rapidly changing technology landscape creates opportunities for both existing competitors and new vendors to introduce innovative new products. Within the mobile analytics space, we predominantly compete with the same set of analytics vendors that we compete with in the analytics market. Our competitiveness in this market will depend on how quickly we can adapt to the changing technology landscape and how effectively we sell, market, and differentiate our offering.

Usher Competitors

Usher competes with companies with technologies categorized as user authentication products. These competitors focus primarily on traditional forms of identity verification such as smart cards, tokens, and password managers.  These companies have significant name recognition and offer solutions with security architectures that are familiar to IT buyers.  Usher also competes with companies with newer solutions, often involving mobile technology.

Employees

As of December 31, 2017, we had a total of 2,216 employees, of whom 1,100 were based in the United States and 1,116 were based internationally. Of our 2,216 employees, 652 were engaged in sales and marketing, 559 in research and development, 707 in subscription, product support, consulting, and education services, and 298 in finance, administration, and corporate operations. None of our employees in the United States is represented by a labor union; however, in certain foreign subsidiaries, some employees are members of trade or local unions.  In France, our employees are represented by a works council as required by local law. We have not experienced any work stoppages and consider our relations with our employees to be good.

The following table summarizes employee headcount as of the dates indicated:

 

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

Subscription services

 

 

37

 

 

 

48

 

 

 

53

 

Product support

 

 

131

 

 

 

171

 

 

 

172

 

Consulting

 

 

467

 

 

 

453

 

 

 

441

 

Education

 

 

28

 

 

 

39

 

 

 

41

 

Sales and marketing

 

 

513

 

 

 

587

 

 

 

652

 

Research and development

 

 

461

 

 

 

512

 

 

 

559

 

General and administrative

 

 

310

 

 

 

323

 

 

 

298

 

Total headcount

 

 

1,947

 

 

 

2,133

 

 

 

2,216

 

 

Research and Product Development

We maintain a dedicated performance engineering team and conduct research and development focused on providing our customers with the highest levels of performance for analytics applications of all sizes and security solutions.  The description of research and development expenses in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes a breakdown of such expenses. We believe that our future performance will depend in large part on our ability to maintain and enhance our current product line, develop new products that achieve market acceptance, maintain technological competitiveness, and meet an expanding range of customer requirements.

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Available Information

Our website is located at www.microstrategy.com.  We make available free of charge, on or through the Investor Relations section of our website (http://ir.microstrategy.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission (“SEC”).  Information found on our website is not part of this Annual Report or any other report filed with the SEC.  The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

 

 

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Item 1A.

Risk Factors

You should carefully consider the risks described below before making an investment decision.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

If any of the following risks occurs, our business, financial condition, or results of operations could be materially adversely affected.  In such case, the market price of our class A common stock could decline and you may lose all or part of your investment.

Our quarterly operating results, revenues, and expenses may fluctuate significantly, which could have an adverse effect on the market price of our stock

For many reasons, including those described below, our operating results, revenues, and expenses have varied in the past and may vary significantly in the future from quarter to quarter. These fluctuations could have an adverse effect on the market price of our class A common stock.

Fluctuations in Quarterly Operating Results. Our quarterly operating results may fluctuate, in part, as a result of:

 

the size, timing, volume, and execution of significant orders and shipments;

 

the mix of products and services ordered by customers, including product licenses and subscription offerings, which can affect the extent to which revenue is recognized immediately or over future quarterly periods;

 

the timing of the release or delivery of new or enhanced offerings, which may affect the period in which we can recognize revenue;

 

the timing of announcements of new offerings by us or our competitors;

 

changes in our pricing policies or those of our competitors;

 

market acceptance of new and enhanced versions of our products and services;

 

the length of our sales cycles;

 

seasonal or other buying patterns of our customers;

 

changes in our operating expenses;

 

planned major maintenance activities related to our corporate aircraft;

 

the timing of research and development projects and the capitalization of software development costs;

 

personnel changes;

 

our use of channel partners;

 

utilization of our consulting and education services, which can be affected by delays or deferrals of customer implementation of our software products;

 

changes in foreign currency exchange rates;

 

our profitability and expectations for future profitability and their effect on our deferred tax assets and net income for the period in which any adjustment to our net deferred tax asset valuation allowance may be made;

 

increases or decreases in our liability for unrecognized tax benefits; and

 

changes in customer decision making processes or customer budgets.

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Limited Ability to Adjust Expenses. We base our operating expense budgets on expected revenue trends and strategic objectives. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in revenue may cause significant variation in operating results in any quarter. For example, if our revenues in the future are not sufficient to offset our operating expenses, or we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, we may incur operating losses.

Based on the above factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is possible that in one or more future quarters, our operating results may be below the expectations of public market analysts and investors. In that event, the market price of our class A common stock may fall.

The market price of our class A common stock has been and may continue to be volatile

The market price of our class A common stock historically has been volatile and may continue to be volatile. The market price of our class A common stock may fluctuate widely in response to various factors, some of which are beyond our control. These factors include, but are not limited to:

 

quarterly variations in our results of operations or those of our competitors;

 

announcements about our earnings that are not in line with analyst expectations, the likelihood of which may be enhanced because it is our policy not to give guidance relating to our anticipated financial performance in future periods;

 

announcements by us or our competitors of acquisitions, dispositions, new offerings, significant contracts, commercial relationships, or capital commitments;

 

the emergence of new sales channels in which we are unable to compete effectively;

 

our ability to develop, market, and deliver new and enhanced offerings on a timely basis;

 

commencement of, or our involvement in, litigation;

 

any major change in our Board of Directors, management, or governing documents;

 

changes in government regulations or in the status of our regulatory approvals;

 

recommendations by securities analysts or changes in earnings estimates and our ability to meet those estimates;

 

investor perception of our Company;

 

announcements by our competitors of their earnings that are not in line with analyst expectations;

 

the volume of shares of our class A common stock available for public sale;

 

sales or purchases of stock by us or by our stockholders, and issuances of awards under our stock incentive plan;

 

short sales, hedging, and other derivative transactions involving shares of our class A common stock; and

 

general economic conditions and slow or negative growth of related markets.

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies in those markets. These broad market and industry factors may seriously harm the market price of our class A common stock, regardless of our actual operating performance.

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We may not be able to sustain or increase profitability in the future

We generated net income for each of the fiscal years ended December 31, 2017, 2016, and 2015; however, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future.  If our revenues are not sufficient to offset our operating expenses, or we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, our profitability may decrease, we may cease to be profitable, or we may incur operating losses.  As a result, our business, results of operations, and financial condition may be materially adversely affected.

As of December 31, 2017, we had $13.4 million of deferred tax assets, net of a $1.0 million valuation allowance. If we are unable to sustain profitability in the future, we may be required to increase the valuation allowance against these deferred tax assets, which could result in a charge that would materially adversely affect net income in the period in which the charge is incurred.

Economic uncertainty and increased competition for our customers, particularly in the retail industry, could materially adversely affect our business and results of operations

The U.S. and other significant markets have experienced cyclical downturns and worldwide economic conditions remain uncertain. Economic uncertainty and associated macroeconomic conditions make it extremely difficult for our customers and us to accurately forecast and plan future business activities, and could cause our customers to slow spending on our products and services, which could delay and lengthen sales cycles.  Furthermore, during uncertain economic times, our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us.  If that were to occur, we may be required to increase our allowance for doubtful accounts and our results would be negatively impacted.

Furthermore, we have a significant number of customers in the retail industry, which has recently experienced intense competition and structural changes.  A significant downturn or the intensification of competition in this industry may cause organizations to reduce their capital expenditures in general or specifically reduce their spending on information technology.  In addition, customers in this industry may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts.  Customers with excess information technology resources may choose to develop in-house software solutions rather than obtain those solutions from us.  In recent years, consumers have increasingly migrated toward large e-commerce platforms and other online applications.  As a result, the retail industry has experienced consolidation and other ownership changes.  In the future, retailers may further consolidate, undergo restructurings or reorganizations, or realign their affiliations, any of which could decrease the number of competitors within the retail industry, reducing the number of potential customers for our offerings.  Moreover, our competitors may respond to challenging market conditions by lowering prices and attempting to lure away our customers. 

We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally, or competitive and structural changes in the retail industry. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, and results of operations could be materially adversely affected.

We may have exposure to greater than anticipated tax liabilities

We are subject to income taxes and non-income taxes in a variety of domestic and foreign jurisdictions. Our future income taxes could be materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates, earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the amount of unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations thereof.

Further changes in the tax laws of foreign jurisdictions could arise, including as a result of the base erosion and profit shifting (“BEPS”) project undertaken by the Organisation for Economic Co-operation and Development (“OECD”). The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, make substantial changes to numerous long-standing tax positions and principles. These changes, many of which have been adopted or are under active consideration by OECD members and/or other countries, could

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increase tax uncertainty and may adversely affect our provision for income taxes. In addition, in the United States, legislation bringing about broad changes in the existing corporate tax system was recently enacted, with some retroactive effects. For example, during the fourth quarter of 2017, we estimated and recorded a one-time transition tax expense of $40.3 million due to the recently enacted U.S. corporate tax reform legislation that effected a deemed repatriation of certain foreign earnings and profits.

Our determination of our tax liability is subject to review by applicable domestic and foreign tax authorities.  Any adverse outcome of such reviews could have an adverse effect on our operating results and financial condition.  The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain.  Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain.

We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion.  If such unasserted contingent liabilities were to be asserted, or become probable of assertion, we may be required to record significant expenses and liabilities in the period in which these liabilities are asserted or become probable of assertion.

As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may materially affect our financial results in future periods in which we change our estimates of our tax obligations or in which the ultimate tax outcome is determined.

If the market for analytics products fails to grow as we expect or if businesses fail to adopt our offerings, our business, operating results, and financial condition could be materially adversely affected

Nearly all of our revenues to date have come from sales of analytics products and related technical support, consulting, and education services.  We expect these sales to account for a large portion of our revenues for the foreseeable future.  Although demand for analytics products has grown in recent years, the market for analytics offerings continues to evolve.  Resistance from consumer and privacy groups to increased commercial collection and use of data on spending patterns and other personal behavior, government restrictions on the collection, use, and transfer of personal data, and other developments may impair the further growth of this market.  We cannot be sure that this market will continue to grow or, even if it does grow, that businesses will adopt our solutions.

We have spent, and intend to keep spending, considerable resources to educate potential customers about analytics offerings in general and our offerings in particular.  However, we cannot be sure that these expenditures will help any of our offerings achieve any additional market acceptance.  If the market fails to grow or grows more slowly than we currently expect or businesses fail to adopt our offerings, our business, operating results, and financial condition could be materially adversely affected.

Our products face intense competition, which may lead to lower prices for our products and services, reduced gross margins, loss of market share, and reduced revenue

The analytics market is highly competitive and subject to rapidly changing technology paradigms.  Within the analytics space, we compete with many different types of vendors, including (i) large software vendors, such as IBM (Cognos), SAP (BO), Microsoft (Power BI), and Oracle (OBIEE), that provide one or more products that directly compete with our products, (ii) open source analytics vendors, such as OpenText Analytics and Hitachi (Pentaho), (iii) various other analytics software providers, such as Qlik, Tableau Software, TIBCO, Information Builders, and the SAS Institute, (iv) other vendors offering cloud-based offerings, such as GoodData and Birst, an Infor Company, and (v) companies with EIoT technologies or technologies categorized as user authentication products that are primarily focused on traditional forms of identity verification such as smart cards, tokens, and password managers.  Our future success depends on the effectiveness with which we can differentiate and compete with these vendors and other potential competitors across analytics implementation projects of varying sizes.  Failure to maintain adequate technology differentiation from these competitors could materially adversely affect our revenue from both existing and prospective customers.

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Some of our competitors have longer operating histories and significantly greater financial, technical, and marketing resources than we do.  As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion, sale, and marketing of their offerings than we can, such as offering certain analytics products free of charge when bundled with other software offerings.  In addition, many of our competitors have strong relationships with current and potential customers, extensive industry and specialized business knowledge, as well as corresponding proprietary technologies that they can leverage, such as multidimensional databases and ERP repositories.  As a result, they may be able to prevent us from penetrating new accounts or expanding within existing accounts.

Increased competition may lead to price cuts, reduced gross margins, and loss of market share. We may not be able to compete successfully against current and future competitors, and the failure to meet the competitive pressures we face may have a material adverse effect on our business, operating results, and financial condition.

Current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others.  By doing so, these competitors may increase their ability to meet the needs of our potential customers by their expanded offerings.  Our current or prospective channel partners may establish cooperative relationships with our current or future competitors. These relationships may limit our ability to sell our analytics offerings through specific distribution channels. Accordingly, new competitors or alliances among current and future competitors may emerge and rapidly gain significant market share. These developments could limit our ability to obtain revenues from new customers and to sustain software maintenance revenues from our installed customer base.  In addition, basic office productivity software suites, such as Microsoft Office, could evolve to offer advanced analysis and reporting capabilities that may reduce the demand for our analytics offerings.

We depend on revenue from a single suite of products and related services as well as revenue from our installed customer base

Our MicroStrategy 10 platform and related services account for a substantial portion of our revenue. Because of this revenue concentration, our business could be harmed by a decline in demand for, or in the adoption or prices of, these products and related services as a result of, among other factors, any change in our pricing or packaging model, increased competition, maturation in the markets for these products, or other risks described in this Annual Report.

We also depend on our installed customer base for a substantial portion of our revenue. We have contracts with our license customers for ongoing support and maintenance, as well as contracts for cloud-based subscription services that provide recurring revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. If our existing customers cancel or fail to renew their service contracts or fail to purchase additional products or services, our revenue could decrease and our operating results could be materially adversely affected.

If we are unable to develop and release product enhancements and new offerings to respond to rapid technological change in a timely and cost-effective manner, our business, operating results, and financial condition could be materially adversely affected

The market for our offerings is characterized by rapid technological change, frequent new product introductions and enhancements, changing customer demands, and evolving industry standards.  The introduction of offerings embodying new technologies can quickly make existing offerings obsolete and unmarketable.  We believe that our future success depends largely on our ability to:

 

continue to support a number of popular operating systems and databases;

 

maintain and improve our current offerings;

 

rapidly develop new offerings and product enhancements that achieve market acceptance;

 

maintain technological competitiveness; and

 

meet an expanding range of customer requirements.

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Analytics applications are inherently complex, and it can take a long time and require significant research and development expenditures to develop and test new offerings and product enhancements.  In addition, customers may delay their purchasing decisions because they anticipate that new or enhanced versions of our offerings will soon become available.  We cannot be sure that we will succeed in developing, marketing, and delivering, on a timely and cost-effective basis, new or enhanced offerings that respond to technological change or new customer requirements, nor can we be sure that any new or enhanced offerings will achieve market acceptance.  Moreover, even if we introduce a new offering, we may experience a decline in revenues of our existing offerings that is not fully matched by the new offering’s revenue.  For example, customers may delay making purchases of a new offering to permit them to make a more thorough evaluation of the offering, or until industry and marketplace reviews become widely available.  Some customers may hesitate migrating to a new offering due to concerns regarding the complexity of migration and product infancy issues on performance.  In addition, we may lose existing customers who choose a competitor’s offering rather than migrate to our new offering. This could result in a temporary or permanent revenue shortfall and materially adversely affect our business.

A substantial customer shift in the deployment of MicroStrategy Analytics from a perpetual software license model to our cloud services model could affect the timing of revenue recognition and materially adversely affect our operating results

We offer our analytics platform in the form of a perpetual software license and a cloud-based subscription.  The payment streams and revenue recognition timing for our perpetual software licenses are different from those for our cloud-based subscriptions.  For perpetual software licenses, customers typically pay us a lump sum soon after entering into a software license agreement and revenue is typically recognized upon delivery of the software to the customer.  For cloud-based subscriptions, customers typically make periodic payments over the subscription period and revenue is typically recognized ratably over the subscription period.  As a result, if a substantial number of current or new customers shift to subscribing to our cloud services offerings instead of purchasing perpetual software licenses for MicroStrategy Analytics, the resulting change in payment terms and revenue recognition may materially adversely affect our operating results and cash flows for the reporting periods during which such a shift occurs.

Our investment in new business strategies and initiatives could disrupt the operations of our ongoing business and present risks that we have not adequately anticipated

We have invested, and in the future may invest, in new business strategies and initiatives.  For example, in recent years we have introduced a number of innovative technologies designed to enable companies to capitalize on Big Data, mobile applications, cloud-based services, security, and Internet of Things trends in the marketplace. These endeavors may involve significant risks and uncertainties, including distraction of management from other business operations, the dedication of significant research and development, sales and marketing, and other resources to these new initiatives at the expense of our other business operations, generation of insufficient revenue to offset expenses associated with new initiatives, incompatibility of our new technologies with third-party platforms, inadequate return of capital, and other risks that we may not have adequately anticipated.  Because new strategies and initiatives are inherently risky, these strategies and initiatives may not be successful and could materially adversely affect our financial condition and operating results.

Business disruptions, including interruptions, delays, or failures of our systems, third-party data center hosting facilities or other third-party services, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our stock

A significant portion of our research and development activities or certain other critical business operations are concentrated in facilities in Northern Virginia, China, and Poland.  In addition, we serve our customers, and manage certain critical internal processes, using third-party data center hosting facilities located in the United States and England and other third-party services, including AWS and other cloud services.  We could experience a disruption or failure of our systems, or the third-party hosting facilities or other services that we use. Such disruptions or failures could include a natural disaster, fire, cyber-attack, act of terrorism, geopolitical conflict, or other catastrophic event, as well as power outages or telecommunications infrastructure outages, or a decision by one of our third-party service providers to close facilities that we use without adequate notice or to materially change the

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pricing or terms of their services, or other unanticipated problems with the third-party services that we use, including a failure to meet service standards.

We are a highly automated business and any such disruptions or failures could (i) result in the destruction or disruption of any of our critical business operations, controls or procedures, or information technology systems, (ii) severely affect our ability to conduct normal business operations, including delaying completion of sales and provision of services, (iii) result in a material weakness in our internal control over financial reporting, (iv) cause our customers to terminate their subscriptions, (v) result in our issuing credits to customers or paying penalties or fines, (vi) harm our reputation, (vii) adversely affect our attrition rates or our ability to attract new customers, or (viii) cause our offerings to be perceived as not being secure, any of which could materially adversely affect our future operating results.

We use channel partners and if we are unable to maintain successful relationships with them, our business, operating results, and financial condition could be materially adversely affected

In addition to our direct sales force, we use channel partners such as resellers, value-added resellers, system integrators, consulting firms, OEMs, and technology partners to license and support our products.  For the year ended December 31, 2017, transactions by channel partners for which we recognized revenues accounted for 21.7% of our total product licenses revenues.  Our channel partners may offer customers the products and services of several different companies, including offerings that compete with ours.  Because our channel partners generally do not have exclusive relationships with us, we cannot be certain that they will prioritize or devote adequate resources to selling our products.  Moreover, divergence in strategy or contract defaults by any of these channel partners may materially adversely affect our ability to develop, market, sell, or support our offerings.

Although we believe that direct sales will continue to account for a majority of our product licenses revenues, we seek to maintain a significant level of sales activities through our channel partners.  There can be no assurance that our channel partners will continue to cooperate with us.  In addition, actions taken or not taken by such parties may materially adversely affect us. Our ability to achieve revenue growth in the future will depend in part on our ability to maintain successful relationships with our channel partners. If we are unable to maintain our relationships with these channel partners, our business, operating results, and financial condition could be materially adversely affected.

In addition, we rely on our channel partners to operate in accordance with the terms of their contractual agreements with us.  For example, some of our agreements with our channel partners prescribe the terms and conditions pursuant to which they are authorized to resell or distribute our software and offer technical support and related services.  If our channel partners do not comply with their contractual obligations to us, our business, operating results, and financial condition may be materially adversely affected.

Our recognition of deferred revenue and advance payments is subject to future performance obligations and may not be representative of revenues for succeeding periods

Our gross current and non-current deferred revenue and advance payments totaled $218.7 million as of December 31, 2017.  We offset our accounts receivable and deferred revenue for any unpaid items, which totaled $95.9 million, resulting in net current and non-current deferred revenue and advance payments of $122.8 million as of December 31, 2017.  The timing and ultimate recognition of our deferred revenue and advance payments depend on various factors, including our performance of various service obligations.

Because of the possibility of customer changes or delays in customer development or implementation schedules or budgets, and the need for us to satisfactorily perform product support and other services, deferred revenue and advance payments at any particular date may not be representative of actual revenue for any succeeding period.

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Our international operations are complex and expose us to risks that could have a material adverse effect on our business, operating results, and financial condition

We receive a significant portion of our total revenues from international sales, and conduct our business activities in various foreign countries, including some emerging markets where we have limited experience, where the challenges of conducting our business can be significantly different from those we have faced in more developed markets, and where business practices may create internal control risks.  International revenues accounted for 41.9%, 39.3%, and 38.3% of our total revenues for the years ended December 31, 2017, 2016, and 2015, respectively. Our international operations require significant management attention and financial resources.

There are certain risks inherent in our international business activities, including:

 

fluctuations in foreign currency exchange rates;

 

new, or changes in, regulatory requirements;

 

tariffs, export and import restrictions, restrictions on foreign investments, sanctions, and other trade barriers or protection measures;

 

costs of localizing offerings;

 

lack of acceptance of localized offerings;

 

difficulties in and costs of staffing, managing, and operating our international operations;

 

tax issues, including restrictions on repatriating earnings;

 

weaker intellectual property protection;

 

economic weakness or currency related crises;

 

the burden of complying with a wide variety of laws, including those relating to labor matters, consumer and data protection, privacy, network security, and encryption;

 

generally longer payment cycles and greater difficulty in collecting accounts receivable;

 

our ability to adapt to sales practices and customer requirements in different cultures;

 

corporate espionage; and

 

political instability and security risks in the countries where we are doing business.

We may face heightened risks in connection with our international operations as a result of the impending withdrawal of the United Kingdom from the European Union, commonly referred to as “Brexit.”  The future effects of Brexit are uncertain and will depend on any agreements the United Kingdom makes to retain access to E.U. markets either during a transitional period or more permanently.  Brexit could, among other outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union, and significantly disrupt trade between the United Kingdom and the European Union. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations, including tax laws and regulations, as the United Kingdom determines which E.U. laws to replace or replicate. Disruptions to trade, weakening of economic conditions, economic and legal uncertainties, or changes in currency rates may adversely affect our business, financial condition, operating results and cash flows.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), with some retroactive effects. This legislation brings about, among other items, corporate income tax rate changes, the modification or elimination of certain tax incentives, changes to the existing regime for taxing overseas earnings (including modifications to the current regime for repatriating such earnings), and measures to prevent BEPS.  Although the overall impact that the legislation may have on our future effective tax rate is unclear at this time, the changes to the U.S. taxation of our international income could have a material effect on our future operating results.

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From time to time, we may undertake various potential intercompany transactions and legal entity restructurings that involve our international subsidiaries. We consider various factors in evaluating these potential transactions and restructurings, including the alignment of our corporate structure with our organizational objectives, the operational and tax efficiency of our corporate structure, and the long-term cash flows and cash needs of our business. Such transactions and restructurings could negatively impact our overall tax rate and result in additional tax liabilities.

In addition, compliance with foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and local laws prohibiting corrupt payments to government officials. These laws and regulations also include import and export requirements and economic and trade sanctions administered by the Office of Foreign Assets Control and the U.S. Commerce Department based on U.S. foreign policy and national security goals against targeted foreign states, organizations, and individuals.  Although we have implemented policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees, channel partners, and other persons with whom we do business will not take actions in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products and services to one or more countries, and could also materially damage our reputation and our brand.

These factors may have a material adverse effect on our future sales and, consequently, on our business, operating results, and financial condition.

We may lose sales, or sales may be delayed, due to the long sales and implementation cycles of certain of our products and services, which could reduce our revenues

To date, our customers have typically invested substantial time, money, and other resources, and involved many people in the decision to license our software products and purchase our related services.  As a result, we may wait nine months or more after the first contact with a customer for that customer to place an order while it seeks internal approval for the purchase of our products or services.  During this long sales cycle, events may occur that affect the size and/or timing of the order or even cause it to be canceled.  For example, our competitors may introduce new offerings, or the customer’s own budget and purchasing priorities may change.

Even after an order is placed, the time it takes to deploy our products and complete services engagements can vary widely.  Implementing some of our offerings can take several months, depending on the customer’s needs, and may begin only with a pilot program.  It may be difficult to deploy our products if the customer has complicated deployment requirements, which typically involve integrating databases, hardware, and software from different vendors.  If a customer hires a third party to deploy our products, we cannot be sure that our products will be deployed successfully.

Our results in any particular period may depend on the number and volume of large transactions in that period and these transactions may involve lengthier, more complex, and more unpredictable sales cycles than other transactions

As existing and potential customers seek to standardize on a single analytics vendor or require greater vendor capacity to meet their growing analytics needs, our business may experience larger transactions at the enterprise level and larger transactions may account for a greater proportion of our business. The presence or absence of one or more large transactions in a particular period may have a material positive or negative effect on our revenue and operating results for that period.  For the years ended December 31, 2017, 2016, and 2015, our top three product licenses transactions with recognized revenue totaled $4.5 million, $9.2 million, and $7.4 million, respectively, or 4.8%, 8.1%, and 6.2% of total product licenses revenues, respectively.  These transactions represent significant business and financial decisions for our customers, require considerable effort on the part of customers to assess alternative products, and often require additional levels of management approval.  In addition, large transactions are often more complex than smaller transactions.  These factors generally lengthen the typical sales cycle and increase the risk that customers may postpone or delay purchasing decisions from one period to another subsequent or later period, or that customers will alter their purchasing requirements.  We may also encounter greater competition and pricing pressure in larger transactions, and the sales effort and service delivery scope for larger transactions may

33


 

require us to use additional resources to execute the transaction.  These factors could result in lower than anticipated revenue and earnings for a particular period or in lower estimated revenue and earnings in future periods.

We face a variety of risks in doing business with U.S., foreign, state, and local governments and government agencies, including risks related to the procurement process, budget constraints and cycles, termination of contracts, and compliance with government contracting requirements

Our customers include the U.S. government and a number of state and local governments and government agencies.  There are a variety of risks in doing business with government entities, including:

Procurement.  Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring us to incur significant up-front time and expense without any assurance that we will win a contract.

Budgetary Constraints and Cycles.  Demand and payment for our products and services are impacted by public sector budgetary cycles and funding availability, with funding reductions or delays adversely impacting public sector demand for our products and services.

Termination of Contracts. Public sector customers often have contractual or other legal rights to terminate current contracts for convenience or due to a default. If a contract is terminated for convenience, which can occur if the customer’s needs change, we may only be able to collect fees for products or services delivered prior to termination and settlement expenses.  If a contract is terminated due to a default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative products or services.

Compliance with Government Contracting Requirements.  Government contractors are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typically found in commercial contracts.  These may include rights with respect to price protection, the accuracy of information provided to the government, contractor compliance with socio-economic policies, and other terms that are particular to government contracts.  Federal, state, and local governments and government agencies routinely investigate and audit contractors for compliance with these requirements.  If, as a result of an audit or review, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, cost associated with the triggering of price reduction clauses, fines, and suspensions or debarment from future government business, and we may suffer harm to our reputation.

Our customers also include a number of foreign governments and government agencies.  Similar procurement, budgetary, contract, and audit risks also apply to our doing business with these entities.  In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources.  In certain jurisdictions, our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market.  Each of these difficulties could materially adversely affect our business and results of operations.

We depend on technology licensed to us by third parties, and the loss of this technology could impair our software, delay implementation of our offerings, or force us to pay higher license fees

We license third-party technologies that are incorporated into or utilized by our existing offerings. There can be no assurance that the licenses for such third-party technologies will not be terminated or that we will be able to license third-party software for future offerings. In addition, we may be unable to renegotiate acceptable third-party license terms, or we may be subject to infringement liability if third-party software that we license is found to infringe intellectual property rights of others. Changes in or the loss of third-party licenses could lead to a material increase in our costs, or to our software offerings becoming inoperable or their performance being materially reduced.  As a result, we may need to incur additional development costs to help ensure continued performance of our offerings, and we may experience a decreased demand for our offerings.

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If we are unable to recruit or retain skilled personnel, or if we lose the services of our Chairman of the Board of Directors, President & Chief Executive Officer, our business, operating results, and financial condition could be materially adversely affected

Our future success depends on our continuing ability to attract, train, assimilate, and retain highly skilled personnel.  Competition for these employees is intense, and competition may be amplified by evolving restrictions on immigration, travel, or availability of visas for skilled technology workers.  We may not be able to retain our current key employees, or attract, train, assimilate, and retain other highly skilled personnel in the future.  Our future success also depends in large part on the continued service of Michael J. Saylor, our Chairman of the Board of Directors, President & Chief Executive Officer.  If we lose the services of Mr. Saylor, or if we are unable to attract, train, assimilate, and retain the highly skilled personnel we need, our business, operating results, and financial condition could be materially adversely affected.

The emergence of new industry standards may materially adversely affect the demand for our existing offerings

The emergence of new industry standards in related fields may materially adversely affect the demand for our existing offerings.  This could happen if new web standards and technologies or new standards in the field of operating system support emerge that are incompatible with customer deployments of our software offerings.  For example, if we are unable to adapt our software offerings on a timely basis to new standards in database access technology, the ability of our software offerings to access customer databases could be impaired.

The nature of our software offerings makes them particularly susceptible to undetected errors, bugs, or security vulnerabilities, which could cause problems with how the offerings perform and which could, in turn, reduce demand for our offerings, reduce our revenue, and lead to product liability claims against us

Software as complex as ours may contain undetected errors, bugs, or security vulnerabilities.  Although we test our software offerings extensively, we have in the past discovered software errors, bugs, or security vulnerabilities in our offerings after their introduction.  Despite testing by us and our current and potential customers, errors, bugs, or security vulnerabilities may be found in new offerings or releases after commercial shipments begin.  This could result in lost revenue, damage to our reputation, or delays in market acceptance, which could have a material adverse effect on our business, operating results, and financial condition.  We may also need to expend resources and capital to correct these defects.

Our agreements with customers typically contain provisions designed to limit our exposure to product liability, warranty, and other claims.  It is possible, however, that these provisions may not be effective under the laws of certain domestic or international jurisdictions and we may be exposed to product liability, warranty, and other claims.  A successful product liability claim against us could have a material adverse effect on our business, operating results, and financial condition.

Changes in laws or regulations relating to privacy or the collection, processing, disclosure, storage, or transmission of personal data, or any actual or perceived failure by us or our third-party service providers to comply with such laws and regulations or applicable privacy policies, could materially adversely affect our business

Aspects of our business, including our cloud services offerings and Usher, involve collecting, processing, disclosing, storing, and transmitting personal data, which are subject to certain privacy policies and certain federal, state, and foreign laws, regulations, and directives relating to privacy and data protection.  The amount of customer and employee data that we store through our cloud services offerings, networks, and other systems, including personal data, is increasing.  In addition, the types of data subject to protection as personal data in the European Union, the United States, and elsewhere have been expanding.  In recent years, the collection and use of personal data by companies have come under increased regulatory and public scrutiny, especially in relation to the collection and processing of sensitive data, such as healthcare, financial services, and government data.  For example, in the United States, protected health information is subject to HIPAA.  HIPAA has been supplemented by the Health Information Technology for Economic and Clinical Health Act with the result of increased civil and criminal penalties for noncompliance.  Entities performing certain functions that engage in creating, receiving, maintaining, or

35


 

transmitting protected health information provided by covered entities and other business associates are directly subject to enforcement under HIPAA.  Our access to protected health information through our cloud services offerings triggers obligations to comply with certain privacy rules and data security requirements under HIPAA.  

Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us or our third-party service providers to comply with applicable privacy policies or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by domestic or foreign government entities or others, including private plaintiffs in litigation.  Such proceedings could result in the imposition of sanctions, fines, penalties, liabilities, and/or government orders requiring that we change our data practices, any of which could have a material adverse effect on our business, operating results, reputation, and financial condition.

Various federal, state, and foreign legislative, regulatory, or other government bodies may enact new or additional laws or regulations, or issue rulings that invalidate prior laws or regulations, concerning privacy, data storage, data protection, and cross-border transfer of data that could materially adversely impact our business.  For example, in October 2015, the Court of Justice of the European Union issued a ruling that declared the U.S.-EU Safe Harbor Framework invalid.  Following this ruling, U.S. and European authorities agreed to, and in July 2016 the European Commission formally adopted, a new mechanism for lawfully transferring personal data from the European Union to the United States, referred to as the “Privacy Shield.”  In addition, in April 2016, the European Parliament and the Council of the European Union formally adopted a comprehensive general data protection regulation, which will take effect in May 2018.  The new law governs data practices and privacy, and establishes new requirements regarding the handling of personal data.  Furthermore, a new ePrivacy regulation, regulating electronic communications, is also slated to take effect in the European Union in 2018.  Complying with these and other changing requirements could cause us or our customers to incur substantial costs, require us to change our business practices, require us to take on more onerous obligations in our contracts, or limit our ability to provide certain products and services in certain jurisdictions, any of which could materially adversely affect our business and operating results.  In addition, the Privacy Shield, as well as other mechanisms for lawfully transferring personal data from the European Union to the United States and certain other countries, are being challenged in European courts, which could lead to uncertainty about the legality of such transfers, or burdensome or inconsistent legal requirements.  The Privacy Shield is also subject to annual review by the European Commission and the U.S. Department of Commerce, which could result in modifications to the Privacy Shield or its enforcement, or even its invalidation.  In addition, we may be subject to a cybersecurity law that went into effect in China on June 1, 2017 that has uncertain but broad application and imposes a number of new privacy and data security obligations.  New laws or regulations restricting or limiting the collection or use of mobile data could also reduce demand for certain of our services or require changes to our business practices, which could materially adversely affect our business and operating results.

If we or our third-party service providers experience a security breach and unauthorized parties obtain access to our customers’, prospects’, vendors’, or channel partners’ data, our data, or our cloud services offerings, networks, or other systems, our offerings may be perceived as not being secure, our reputation may be harmed, demand for our offerings may be reduced, our operations may be disrupted, we may incur significant legal and financial liabilities, and our business could be materially adversely affected

As part of our business, we process, store, and transmit our customers’, prospects’, vendors’, and channel partners’ information and data as well as our own, including in our cloud services offerings, networks, and other systems.  There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against all current or future security threats.  For example, security measures may be breached as a result of technological error, computer viruses, or third-party action, including intentional misconduct by computer hackers, physical break-ins, the actions of state actors, industrial espionage, fraudulent inducement of employees, customers, or channel partners to disclose sensitive information such as user names or passwords, and employee, customer, or channel partner error or malfeasance.  High-profile security breaches at other companies have increased in recent years.  A security breach could result in unauthorized access to or disclosure, modification, misuse, loss, or destruction of our customers’, prospects’, vendors’, or channel partners’ data, our data (including our proprietary information, intellectual property, or trade secrets), or our cloud services offerings, networks, or other systems.  Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate attempted security breaches and implement adequate preventative measures.  Third parties may

36


 

also conduct attacks designed to temporarily deny customers access to our cloud services.  Any security breach or successful denial of service attack could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt our normal business operations, require us to spend material resources to investigate or correct the breach, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and materially adversely affect our revenue and operating results.  These risks will increase as we continue to grow the number and scale of our cloud-based offerings, and process, store, and transmit increasingly large amounts of our customers’, prospects’, vendors’, channel partners’, and our own information and data, which may include proprietary or confidential data or personal or identifying information.

Our intellectual property is valuable, and any inability to protect it could reduce the value of our products, services, and brand

We rely on a combination of copyrights, patents, trademarks, trade secrets, confidentiality procedures, and contractual commitments to protect our intellectual property. Despite our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or reverse engineer portions of our products or otherwise obtain and use our intellectual property. Any patents owned by us may be invalidated, circumvented, or challenged. Any of our pending or future patent applications, whether or not currently being challenged, may not be issued with the scope of the claims we seek, if at all. Moreover, amendments to and developing jurisprudence regarding U.S. patent law may affect our ability to protect our intellectual property and defend against claims of patent infringement. In addition, although we generally enter into confidentiality agreements with our employees, our former employees may seek employment with our business partners, customers, or competitors, and there can be no assurance that the confidential nature of our intellectual property will be maintained. Furthermore, the laws of some countries do not provide the same level of protection of our intellectual property as do the laws of the United States. If we cannot protect our intellectual property against unauthorized copying or use, we may not remain competitive.

Third parties may claim we infringe their intellectual property rights

We periodically receive notices from third parties claiming we are infringing their intellectual property rights, principally patent and trademark rights. We expect the number of such claims will increase as we continue to expand our offerings and branding, the number of offerings and level of competition in our industry segments grow, the functionality of offerings overlaps, and the volume of issued patents, patent applications, and trademark registrations continues to increase. Responding to any infringement claim, regardless of its validity, could:

 

be time-consuming, costly, and/or result in litigation;

 

divert management’s time and attention from developing our business;

 

require us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;

 

require us to stop selling certain of our offerings;

 

require us to redesign certain of our offerings using alternative non-infringing technology or practices, which could require significant effort and expense;

 

require us to rename certain of our offerings or entities; or

 

require us to satisfy indemnification obligations to our customers and channel partners.

Additionally, while we monitor our use of third-party software, including open source software, we cannot assure you that our processes for controlling such use in our products will be effective.  If we inadvertently embed certain types of open source software into one or more of our products, or if third-party software that we license is found to infringe intellectual property rights of others, we could subject ourselves to infringement liability and be required to re-engineer our products, discontinue the sale of our products if re-engineering could not be accomplished on a timely or cost-effective basis, or make available to certain third parties or generally available, in source code form, our proprietary code, any of which could materially adversely affect our business, operating results, and financial condition.

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If a successful infringement claim is made against us and we fail to develop or license a substitute technology or brand name, as applicable, our business, results of operations, financial condition, or cash flows could be materially adversely affected.

Because of the rights of our two classes of common stock and because we are controlled by Michael J. Saylor, who beneficially owns the majority of our class B common stock, Mr. Saylor could transfer control of MicroStrategy to a third party without the approval of our Board of Directors or our other stockholders, prevent a third party from acquiring us, or limit your ability to influence corporate matters

We have two classes of common stock: class A common stock and class B common stock.  Holders of our class A common stock generally have the same rights as holders of our class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share.  As of January 26, 2018, holders of our class B common stock owned 2,035,184 shares of class B common stock, or 68.4% of the total voting power.  As of January 26, 2018, Mr. Saylor, our Chairman of the Board of Directors, President & Chief Executive Officer, beneficially owned 2,011,668 shares of class B common stock, or 67.6% of the total voting power.  Accordingly, Mr. Saylor can control MicroStrategy through his ability to determine the outcome of elections of our directors, amend our certificate of incorporation and by-laws, and take other actions requiring the vote or consent of stockholders, including mergers, going-private transactions, and other extraordinary transactions and their terms.

Our certificate of incorporation allows holders of class B common stock to transfer shares of class B common stock, subject to the approval of stockholders holding a majority of the outstanding class B common stock.  Mr. Saylor or a group of stockholders holding a majority of the outstanding class B common stock could, without the approval of our Board of Directors or our other stockholders, transfer voting control of MicroStrategy to a third party.  Such a transfer of control could have a material adverse effect on our business, operating results, and financial condition.  Mr. Saylor or a group of stockholders holding a majority of the outstanding class B common stock could also prevent a change of control of MicroStrategy, regardless of whether holders of class A common stock might otherwise receive a premium for their shares over the then current market price. In addition, this concentrated control limits stockholders’ ability to influence corporate matters and, as a result, we may take actions that our non-controlling stockholders do not view as beneficial or that conflict with their interests.  As a result, the market price of our class A common stock could be materially adversely affected.

Our status as a “controlled company” could make our class A common stock less attractive to some investors or otherwise materially adversely affect our stock price

Because we qualify as a “controlled company” under the corporate governance rules for NASDAQ-listed companies, we are not required to have independent directors comprise a majority of our Board of Directors. Additionally, our Board of Directors is not required to have an independent compensation or nominating committee, or to have the independent directors exercise the nominating function. We are also not required to have the compensation of our executive officers be determined by a compensation committee of independent directors.  In addition, we are not required to empower our Compensation Committee with the authority to engage the services of any compensation consultants, legal counsel, or other advisors, or to have the Compensation Committee assess the independence of compensation consultants, legal counsel, and other advisors that it engages.

In light of our status as a controlled company, our Board of Directors has determined not to establish an independent nominating committee or have its independent directors exercise the nominating function, and has elected instead to have the Board of Directors be directly responsible for nominating members of the Board.  A majority of our Board of Directors is currently comprised of independent directors, and our Board of Directors has established a Compensation Committee comprised entirely of independent directors. The Compensation Committee determines the compensation of our Chief Executive Officer.  However, our Board of Directors has authorized our Chief Executive Officer to determine the compensation of executive officers other than himself, rather than having such compensation determined by the Compensation Committee, except that certain executive officer compensation that is intended to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code is determined by the Compensation Committee pursuant to the requirements of Section 162(m).  Awards under our 2013 Stock Incentive Plan (as amended, the “2013 Equity Plan”) are also approved by the Compensation Committee.  Additionally, while our Compensation Committee is empowered with the authority to retain and terminate outside counsel, compensation consultants, and other experts or consultants, it is not required to assess their independence.

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Although currently a majority of our Board of Directors is comprised of independent directors and the Compensation Committee is comprised entirely of independent directors, we may elect in the future not to have independent directors constitute a majority of the Board of Directors or the Compensation Committee, have our Chief Executive Officer’s compensation determined by a compensation committee of independent directors, or have a compensation committee of the Board of Directors at all.

Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections that are afforded to stockholders of companies that are required to follow all of the corporate governance rules for NASDAQ-listed companies. Our status as a controlled company could make our class A common stock less attractive to some investors or otherwise materially adversely affect our stock price.

Revenue recognition accounting pronouncements may materially adversely affect our reported results of operations

We continuously review our compliance with all new and existing revenue recognition accounting pronouncements.  In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance.  We will adopt this guidance and its subsequent amendments effective as of January 1, 2018 and will adjust prior period consolidated financial statements to reflect full retrospective adoption, beginning with our Quarterly Report on Form 10-Q for the first quarter of 2018.  We currently estimate that the adoption of this guidance will result in earlier recognition of revenue from term license sales and sales to channel partners and will result in the capitalization of certain variable costs (such as sales commissions) that we had previously expensed as incurred. See Note 3, Recent Accounting Standards, to the Consolidated Financial Statements for further information regarding ASU 2014-09.  

 

 

Item 1B.

Unresolved Staff Comments

None.

 

 

Item 2.

Properties

As of December 31, 2017, we leased approximately 214,000 square feet of office space at a location in Northern Virginia that began serving as our corporate headquarters in October 2010 and was to expire in December 2020. In January 2018, we amended the lease to extend the lease term through December 2030.  See Note 17, Subsequent Events, to the Consolidated Financial Statements for further information.  

In addition, we lease offices in U.S. and foreign locations for our services and support, sales and marketing, research and development, and administrative personnel. As of December 31, 2017, we leased approximately 28,000 square feet of office space in the United States, in addition to our corporate headquarters, and approximately 181,000 square feet of office space in various foreign locations.

 

 

Item 3.

Legal Proceedings

In December 2011, DataTern, Inc. (“DataTern”) filed a complaint for patent infringement against the Company in the United States District Court for the District of Massachusetts (the “District Court”). The complaint alleged that the Company infringes U.S. Patent No. 6,101,502 (the “’502 Patent”), allegedly owned by DataTern, by making, selling, or offering for sale several of the Company’s products and services, including MicroStrategy 9™, MicroStrategy Intelligence Server™, MicroStrategy Business Intelligence Platform™, MicroStrategy Cloud Personal, and other MicroStrategy applications for creating or using data mining, dashboards, business analytics, data storage and warehousing, and web hosting support.  The complaint accused the Company of willful infringement and sought an unspecified amount of damages, an award of attorneys’ fees, and preliminary and permanent injunctive relief. In light of a judgment in a separate action involving DataTern in another jurisdiction, in February 2013, MicroStrategy and DataTern filed motions for summary judgment of non-infringement and the District Court entered summary judgment against DataTern.  In March 2013, DataTern filed a notice of appeal with

39


 

the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”).  In December 2014, the Federal Circuit issued an opinion vacating the District Court’s summary judgment, stating that the claim construction on which the summary judgment was based was incorrect.  In January 2015, the case was remanded to the District Court for further proceedings.  A claim construction ruling was issued in February 2017.  In August 2017, counsel for DataTern filed a motion to withdraw from the lawsuit.  The District Court initially gave DataTern a deadline of September 18, 2017 to find replacement counsel, which was later extended to October 20, 2017.  On October 20, 2017, the District Court dismissed the case for failure to prosecute when DataTern failed to identify substitute counsel.  We have received indemnification requests from certain of our channel partners and customers who were sued by DataTern in the District Court in lawsuits alleging infringement of the ‘502 Patent.  The proceedings against these channel partners and customers were stayed pending the resolution of DataTern’s lawsuit against the Company.  On October 30, 2017, the District Court dismissed with prejudice these channel partner and customer proceedings.

We are also involved in various other legal proceedings arising in the normal course of business.  Although the outcomes of these other legal proceedings are inherently difficult to predict, we do not expect the resolution of these other legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows.

 

 

Item 4.

Mine Safety Disclosures

Not applicable.

 

 

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PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our class A common stock is traded on the NASDAQ Global Select Market under the symbol “MSTR.” The following table sets forth the high and low sales prices for the class A common stock for the periods indicated as reported by the NASDAQ Global Select Market:

 

 

 

High

 

 

Low

 

Year ended December 31, 2017

 

 

 

 

 

 

 

 

First Quarter

 

$

205.96

 

 

$

182.22

 

Second Quarter

 

 

194.58

 

 

 

177.50

 

Third Quarter

 

 

196.35

 

 

 

122.91

 

Fourth Quarter

 

 

143.37

 

 

 

128.00

 

Year ended December 31, 2016

 

 

 

 

 

 

 

 

First Quarter

 

$

182.30

 

 

$

141.01

 

Second Quarter

 

 

195.99

 

 

 

165.02

 

Third Quarter

 

 

191.76

 

 

 

161.90

 

Fourth Quarter

 

 

207.28

 

 

 

162.72

 

 

There is no established public trading market for our class B common stock.  As of January 26, 2018, there were approximately 1,426 stockholders of record of our class A common stock and three stockholders of record of our class B common stock.

Holders of our class A common stock generally have the same rights as holders of our class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share.

We have never declared or paid any cash dividends on either our class A or class B common stock and have no current plans to declare or pay any such dividends.

Information regarding our equity compensation plans and the securities authorized for issuance thereunder is incorporated by reference in “Part III. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

The following table provides information about our repurchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act during the periods indicated:

 

 

 

 

(a)

 

 

(b)

 

 

(c)

 

 

(d)

 

 

Period

 

 

Total

Number of

Shares (or

Units) Purchased

 

 

Average

Price Paid

per Share

(or Unit) (1)

 

 

Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1)

 

 

Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)

 

 

October 1, 2017 – October 31, 2017

 

 

0

 

 

N/A

 

 

0

 

 

$

454,708,615

 

 

November 1, 2017 – November 30, 2017

 

 

0

 

 

N/A

 

 

0

 

 

$

454,708,615

 

 

December 1, 2017 – December 31, 2017

 

 

0

 

 

N/A

 

 

0

 

 

$

454,708,615

 

 

 

Total:

 

 

0

 

 

N/A

 

 

0

 

 

$

454,708,615

 

 

 

(1)

On July 28, 2005, we announced that the Board of Directors authorized us to repurchase up to an aggregate of $300.0 million of our class A common stock from time to time on the open market (the “2005 Share Repurchase Program”).  On April 29, 2008, the Board of Directors amended the 2005 Share Repurchase Program to increase the amount of class A common stock that we are authorized to repurchase from $300.0 million to $800.0 million and extended the term of the 2005 Share Repurchase Program to April 29, 2013.  On

41


 

April 25, 2013, the Board of Directors extended the term of the 2005 Share Repurchase Program through April 29, 2018, although the program may be suspended or discontinued by us at any time.  The timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors.  The 2005 Share Repurchase Program may be funded using our working capital, as well as proceeds from any other funding arrangements that we may enter into in the future.  As of December 31, 2017, pursuant to the 2005 Share Repurchase Program, we had repurchased an aggregate of 3,826,947 shares of our class A common stock at an average price per share of $90.23 and an aggregate cost of $345.3 million.  As of December 31, 2017, $454.7 million of our class A common stock remained available for repurchase pursuant to the 2005 Share Repurchase Program.  The average price per share and aggregate cost amounts disclosed above include broker commissions.

Performance Graph

The following graph compares the cumulative total stockholder return on our class A common stock from December 31, 2012 (the last trading day before the beginning of our fifth preceding fiscal year) to December 29, 2017 (the last trading day of the fiscal year ended December 31, 2017) with the cumulative total return of (i) the Total Return Index for The NASDAQ Stock Market (U.S. Companies) (the “NASDAQ Composite Index”) and (ii) the NASDAQ Computer Index.  The graph assumes the investment of $100.00 on December 31, 2012 in our class A common stock, the NASDAQ Composite Index, and the NASDAQ Computer Index, and assumes that any dividends are reinvested. Measurement points are December 31, 2012, December 31, 2013, December 31, 2014, December 31, 2015, December 30, 2016, and December 29, 2017.

 

 

 

 

12/31/12

 

 

12/31/13

 

 

12/31/14

 

 

12/31/15

 

 

12/30/16

 

 

12/29/17

 

MicroStrategy Incorporated

 

$

100.00

 

 

$

133.05

 

 

$

173.91

 

 

$

192.00

 

 

$

211.39

 

 

$

140.61

 

NASDAQ Composite Index

 

$

100.00

 

 

$

140.12

 

 

$

160.78

 

 

$

171.97

 

 

$

187.22

 

 

$

242.71

 

NASDAQ Computer Index

 

$

100.00

 

 

$

134.07

 

 

$

163.15

 

 

$

175.66

 

 

$

200.32

 

 

$

281.21

 

 

 

42


 

Item 6.

Selected Financial Data

The following selected consolidated financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Consolidated Financial Statements and notes thereto, and other financial information appearing elsewhere in this Annual Report on Form 10-K.

We previously operated Angel.com, a provider of cloud-based Customer Experience Management solutions for Interactive Voice Response and contact centers.  In 2013, we completed the sale of our equity interest in Angel.com and have classified the gain on sale and preceding operations of the Angel.com business as discontinued operations in the following selected consolidated financial data.

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

 

(in thousands, except per share data)

 

Statements of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

504,543

 

 

$

512,161

 

 

$

529,869

 

 

$

579,830

 

 

$

575,888

 

Income from continuing operations, net of tax

 

$

17,643

 

 

$

90,908

 

 

$

105,931

 

 

$

5,035

 

 

$

26,550

 

Discontinued operations, net of tax

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

56,782

 

Net income

 

$

17,643

 

 

$

90,908

 

 

$

105,931

 

 

$

5,035

 

 

$

83,332

 

Earnings per share (1)(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic, from continuing operations

 

$

1.54

 

 

$

7.96

 

 

$

9.33

 

 

$

0.45

 

 

$

2.35

 

Basic, from discontinued operations

 

0.00

 

 

0.00

 

 

0.00

 

 

 

0.00

 

 

 

5.02

 

Basic earnings per share

 

$

1.54

 

 

$

7.96

 

 

$

9.33

 

 

$

0.45

 

 

$

7.37

 

Diluted, from continuing operations

 

$

1.53

 

 

$

7.89

 

 

$

9.18

 

 

$

0.44

 

 

$

2.35

 

Diluted, from discontinued operations

 

0.00

 

 

0.00

 

 

0.00

 

 

 

0.00

 

 

 

5.02

 

Diluted earnings per share

 

$

1.53

 

 

$

7.89

 

 

$

9.18

 

 

$

0.44

 

 

$

7.37

 

 

 

 

As of December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

 

(in thousands)

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets, excluding held-for-sale

 

$

835,728

 

 

$

768,319

 

 

$

656,894

 

 

$

558,797

 

 

$

585,514

 

Long-term liabilities, excluding deferred revenue, advance payments, and held-for-sale

 

$

50,150

 

 

$

16,741

 

 

$

19,960

 

 

$

26,208

 

 

$

32,699

 

Total stockholders’ equity

 

$

590,539

 

 

$

552,177

 

 

$

455,281

 

 

$

324,471

 

 

$

310,326

 

 

(1)

Basic and fully diluted earnings per share for class A and class B common stock are the same.

(2)

We have never declared or paid any cash dividends on either class A or class B common stock.

 

 

43


 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Exchange Act.  For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements regarding industry prospects and our results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. The important factors discussed under “Part I. Item 1A. Risk Factors,” among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations.

Overview

MicroStrategy is a leading worldwide provider of enterprise analytics and mobility software. Our mission is to provide enterprise customers with a world-class software platform and expert services so they can deploy unique intelligence applications.

MicroStrategy 10, our flagship platform offering, consolidates analytics and mobility in a single unified platform. The MicroStrategy 10 platform is available on Windows, Linux and AWS, and as a hosted service offering through MicroStrategy Cloud.  Our platform offers a comprehensive suite of business intelligence functionality, from data discovery to mobile analytics, data mining, Big Data analytics, enterprise reporting and powerful identity intelligence generated by digital credentials.  MicroStrategy 10 builds on proven enterprise capabilities to make sophisticated, high-performance analytics more accessible, easier to use, and faster. MicroStrategy 10 consists of MicroStrategy Analytics, MicroStrategy Mobile, and Usher.

MicroStrategy Analytics empowers large organizations to analyze vast amounts of data and securely distribute actionable business insight throughout an enterprise, while also being able to cater to smaller workgroups and departmental use via MicroStrategy Desktop.  MicroStrategy Analytics delivers reports and dashboards, and enables users to conduct ad hoc analysis and share insights anywhere, anytime, via mobile devices (via MicroStrategy Mobile) or the web (via MicroStrategy Web).  It also combines the agility and productivity of self-service visual data discovery with the security, scalability, and governance features of enterprise-grade business intelligence.  Additionally, MicroStrategy Analytics delivers powerful identity intelligence on user behavior and resource utilization (via Usher).  

MicroStrategy Web is the primary interface for analysts, data scientists, consumers and developers, offering interactive reporting, dashboarding, and ad-hoc data discovery capabilities through a web browser. With MicroStrategy Web, users can design and deliver reports and dashboards across various styles of business intelligence, including scorecards, pixel-perfect documents and invoices, and interactive reports and dashboards, as well as for visual data discovery. MicroStrategy Web can also connect to a wide range of data sources, and be used to build sophisticated advanced analytical models that may be inserted within reports and dashboards.  MicroStrategy reports and dashboards can be personalized and automatically delivered to thousands of users with MicroStrategy Server’s advanced distribution capabilities. Web applications can also be extensively customized and embedded into other applications using MicroStrategy Web SDK for a branded experience.

MicroStrategy Desktop is a free, standalone, on-premise, single-user tool for fast, powerful, and easy-to-use self-service visual data discovery.  It enables business users to analyze and gain valuable insight and understanding into their organizations’ data by quickly creating stunning and useful visualizations, without assistance from the IT department.  MicroStrategy Desktop can be readily downloaded and installed on a PC or Mac, making the power of MicroStrategy 10 easily available. MicroStrategy Desktop can be used while offline and while not connected to MicroStrategy Server.  MicroStrategy Desktop connects to MicroStrategy Server when needed, allowing for governance workflows that deliver data discovery capabilities to the enterprise at scale.

44


 

MicroStrategy Mobile is fully integrated into the MicroStrategy Analytics platform, so it is easy to leverage existing reports and dashboards to instantly deploy mobile business intelligence. In addition, MicroStrategy Mobile extends beyond analytics to enable organizations to rapidly build custom enterprise mobility applications that deliver analytics combined with transactions, multimedia, and mapping to support business workflows.  The robust code-free application development platform is designed to reduce development costs and accelerate the deployment of native mobile business apps optimized for both iOS and Android.  Companies can build fully native iOS and Android apps that take advantage of the unique device and operating system capabilities (e.g., GPS/location, calendar, and camera) on those devices.  MicroStrategy Mobile is an easy, fast, and cost-effective vehicle for mobilizing an organization’s information systems, including its data warehouses, business intelligence, ERP, CRM, and web applications that are currently accessible only on the desktop.  With MicroStrategy Mobile, businesses can transform their entire workforce into a connected and more productive mobile workforce.  With mobile access to critical corporate data and systems that drive the business, employees can have a virtual office in their hands at all times.  MicroStrategy Mobile also enables companies to deploy customized, white-labeled mobile apps to business partners and customers. These apps can serve as new or enhanced offerings that differentiate an organization’s product or service to business partners or customers.

Usher delivers to its users unique mobile identity badges, each cryptographically linked to its owner’s smartphone and dynamically linked to the enterprise’s existing identity repositories, that are highly secure and convenient for organizations to deploy. Usher badges work on standard smartphones running on iOS or the Android platform and include an Apple Watch integration. Through the use of Bluetooth, QR codes, biometrics, push notifications, time-limited PIN codes, and other authentication methods, Usher badge users can log into applications, VPNs, and workstations, unlock doors and other physical gateways, and validate each other’s identities. Usher badge users are also able to scan barcodes for asset tracking applications. Usher can additionally serve as a powerful enterprise productivity tool with Usher Professional, a dynamic and searchable employee directory that facilitates communication among users, and gives managers insight into the location and activity of their distributed workforce. Usher Professional users can view badge user activity on a nearly real-time map and manage or direct their workforce by engaging in two-way communication with badge users. In the EIoT paradigm, interactions between Usher users and enterprise resources generate real-time telemetry, which can be efficiently harnessed in Usher Analytics, creating actionable intelligence.  By delivering strong yet convenient authentication that can be extended to nearly every corporate system, Usher can uncover insights, reduce infrastructure complexity, and secure assets -- all to help businesses flourish in the age of connected devices and connected people. Usher addresses some of the biggest challenges facing corporations today, including authentication, identity and access management, and resource authorization, while applying industry-leading business intelligence and analytics to an enterprise’s infrastructure.  

MicroStrategy on AWS allows organizations to harness the power of data through our enterprise solutions via the cloud.  Compared to traditional on-premise approaches, MicroStrategy on AWS is architected to deliver best-of-breed MicroStrategy software via the cloud, with pre-configured, ready-to-go servers, coupled with the required supporting infrastructure.  With MicroStrategy on AWS, customers can launch enterprise analytics environments within minutes via a web-based provisioning tool, and use the full MicroStrategy 10 offering.  MicroStrategy on AWS deploys MicroStrategy directly into the customer’s AWS account where the customer maintains and manages the environment.

For customers looking for a Platform-as-a-Service (PaaS) experience, MicroStrategy Cloud offers managed services that deliver the full breadth of platform capabilities along with a dedicated cloud operations team to deploy the platform in the cloud.  MicroStrategy Cloud is well suited for organizations without extensive IT resources to maintain and manage the cloud infrastructure on their own.  MicroStrategy Cloud offers a 99.9% Service Level Agreement for availability, and is backed by a team of experts and dedicated tech support staff that provides continuous monitoring and alerting.  MicroStrategy Cloud maintains and keeps up to date on compliance and security certifications to help ensure the environments adhere to the Service Organization Control 2, ISO 27001, Payment Card Industry, HIPAA, and Privacy Shield standards.

System integrators, value-added resellers, and OEMs around the world rely on the capabilities of the MicroStrategy platform, including its functionality, workflows, report presentation, user management, security, administration, system configuration, and monitoring, to build branded and custom applications of their own. Our platform’s open architecture and APIs make it especially suitable for developing custom functionality or integrating with other applications.  Organizations seeking to add analytics features to their own offerings can easily and directly embed the platform into their business applications or portals with white labeling and single sign-on options.

45


 

The following table sets forth certain operating highlights (in thousands) for the years ended December 31, 2017, 2016, and 2015:

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product licenses

 

$

93,969

 

 

$

113,503

 

 

$

119,143

 

Subscription services

 

 

32,368

 

 

 

30,574

 

 

 

27,839

 

Total product licenses and subscription services

 

 

126,337

 

 

 

144,077

 

 

 

146,982

 

Product support

 

 

289,174

 

 

 

285,079

 

 

 

281,740

 

Other services

 

 

89,032

 

 

 

83,005

 

 

 

101,147

 

Total revenues

 

 

504,543

 

 

 

512,161

 

 

 

529,869

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product licenses

 

 

7,176

 

 

 

8,573

 

 

 

8,118

 

Subscription services

 

 

13,435

 

 

 

12,765

 

 

 

13,051

 

Total product licenses and subscription services

 

 

20,611

 

 

 

21,338

 

 

 

21,169

 

Product support

 

 

17,481

 

 

 

15,001

 

 

 

12,748

 

Other services

 

 

58,557

 

 

 

56,808

 

 

 

67,191

 

Total cost of revenues

 

 

96,649

 

 

 

93,147

 

 

 

101,108

 

Gross profit

 

 

407,894

 

 

 

419,014

 

 

 

428,761

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

174,612

 

 

 

158,740

 

 

 

148,522

 

Research and development

 

 

78,766

 

 

 

73,142

 

 

 

65,206

 

General and administrative

 

 

80,161

 

 

 

79,462

 

 

 

80,732

 

Restructuring costs

 

 

0

 

 

 

45

 

 

 

279

 

Total operating expenses

 

 

333,539

 

 

 

311,389

 

 

 

294,739

 

Income from operations

 

$

74,355

 

 

$

107,625

 

 

$

134,022

 

 

The analytics market is highly competitive and our results of operations depend on our ability to market and sell offerings that provide customers with greater value than those offered by our competitors.  Our success depends on the effectiveness with which we can differentiate our products from both large software vendors that provide products across multiple lines of business, including one or more products that directly compete with our products, and other analytics vendors across large, mid-sized, and small opportunities.  A key differentiator that we believe distinguishes our offerings is that we offer a single platform with comprehensive analytics that supports both the needs of IT and business users, by delivering easy-to-use data discovery combined with enterprise governance.

Organizations recently have sought, and we expect may continue to seek, to standardize their various analytics applications around a single software platform.  This trend presents both opportunities and challenges for our business.  It offers us the opportunity to increase the size of transactions with new customers and to expand the size of our analytics installations with existing customers.  On the other hand, it presents the challenge that we may not be able to penetrate accounts that a competitor has penetrated or in which a competitor is the incumbent analytics provider.

In addition, there is increased market demand for analysis of a wider variety of data sources, including sensor data, social data, web log data, and other data types. These new data sources are driving massive increases in the volume of data that can potentially be analyzed (these large-scale data sets are known as “Big Data”), which in turn is accelerating development of new storage technologies like Hadoop and NoSQL databases. The demand for analytics on Big Data represents an opportunity for us, as it opens up new potential applications and use cases for our technology. It also creates a challenge as we will need to continually enhance our technology to support emerging data sources, deliver faster performance necessary to support analysis of Big Data, and support analysis of a wider variety of data types, such as unstructured, semi-structured, and streaming data.

46


 

The market for enterprise mobility apps is rapidly changing, highly competitive, and complex with many competitors and different offerings ranging from fully custom-coded applications to plug-and-play solutions.  While organizations vary greatly in their approach to, and pace of adoption of, mobile solutions, they are increasingly accelerating the transition of their businesses onto mobile devices, such as tablets and smartphones.  Over the next few years, we expect that organizations will continue to construct their information and systems to take advantage of the efficiencies and cost savings of mobile computing.  Ultimately, we expect that the majority of routine business tasks and workflows will become available as mobile-optimized touch-enabled apps.

We have undertaken multiple initiatives to address these opportunities and challenges, including:

introducing Dossier, a new way to consume analytics on MicroStrategy 10 using an interactive book of reports and dashboards that combines relevant analytics into a single place, with a new streamlined interface that goes beyond reports and dashboards and brings key data into a format that users can understand and use to make better, actionable decisions and identify new opportunities (available on MicroStrategy Web and tablets via native apps for both iOS and Android);

releasing MicroStrategy on AWS, which allows customers to spin up their own instance of the full MicroStrategy platform in the cloud, and expanding support for MicroStrategy on AWS in more locations (such as London, Sydney, Frankfurt, Tokyo, Ireland, Ohio, Oregon, and Northern Virginia) and in nine different languages (English, French, Italian, Portuguese, Spanish, Dutch, Japanese, Korean, and Chinese);

improving access to MicroStrategy 10 via easy-to-access trial and evaluation versions of products on our website, including a free 30-day trial to MicroStrategy on AWS that lets prospects experience our enterprise capabilities and allows existing customers to try new features;

making our MicroStrategy Desktop product freely available to new and existing users, which helps to (i) increase public awareness, (ii) increase the adoption of the product into existing accounts by empowering MicroStrategy Web users to seamlessly connect MicroStrategy Desktop to their existing projects, upload and download reports and dashboards from the server, work offline, and try new functionality such as data blending and wrangling, and (iii) generate upsell opportunities for us by seeding the need for bigger enterprise capabilities like pixel-perfect dashboards, automated distribution, governance and security, all of which are available with our platform;

offering new collaboration tools that allow more users to interact and collaborate on analytics content, which can ultimately drive adoption to more users across the enterprise; and

delivering new out-of-the-box connectors that help analysts visualize log files and semi-structured data, such as Solr, Box, One Drive, Elasticsearch and others, introducing greater flexibility to visualize and interact with multi-level or ragged hierarchy reports against MDX (Multidimensional Expressions) sources such as Essbase and MSAS, and delivering enhancements such as dynamic filtering and support for derived attributes and metrics.

As part of our efforts to take greater advantage of the opportunities in the market and grow our market share, we expect to increase our sales and marketing expenditures and increase our research and development expenditures as we invest in our technology products and personnel in future periods.

As discussed in Note 11, Share-based Compensation, to the Consolidated Financial Statements, we have outstanding stock options to purchase shares of our class A common stock under our 2013 Equity Plan.  Share-based compensation expense (in thousands) from these stock option awards was recognized in the following operating expense line items in our Consolidated Statements of Operations for the periods indicated:

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Sales and marketing

 

$

2,294

 

 

$

2,971

 

 

$

2,842

 

Research and development

 

 

1,650

 

 

 

1,000

 

 

 

1,112

 

General and administrative

 

 

10,323

 

 

 

7,846

 

 

 

13,345

 

Total share-based compensation expense

 

$

14,267

 

 

$

11,817

 

 

$

17,299

 

 

47


 

As of December 31, 2017, we estimated that approximately $19.8 million of additional share-based compensation expense for options granted under the 2013 Equity Plan will be recognized over a remaining weighted average period of 2.3 years.  

We base our internal operating expense forecasts on expected revenue trends and strategic objectives.  Many of our expenses, such as office leases and certain personnel costs, are relatively fixed.  Accordingly, any shortfall in revenue may cause significant variation in our operating results.  We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance.

Non-GAAP Financial Measures

We are providing supplemental financial measures for income from operations that excludes the impact of our share-based compensation arrangements and restructuring activities, and for net income and diluted earnings per share that exclude the impact from the Tax Act. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies.  Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions. We believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis because in the case of the supplemental measure for income from continuing operations, it excludes a significant non-cash expense that we believe is not reflective of our general business performance and restructuring charges that we believe are not reflective of ongoing operating results, and in the case of the supplemental measures for net income and diluted earnings per share, they exclude one-time tax charges resulting from the Tax Act.  In addition, accounting for share-based compensation arrangements requires significant management judgment and the resulting expense could vary significantly in comparison to other companies.  Therefore, we believe the use of these non-GAAP financial measures can also facilitate comparison of our operating results to those of our competitors.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP.  For example, we expect that share-based compensation expense, which is excluded from our non-GAAP financial measure, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors.  Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP.  We rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance, and use the non-GAAP financial measures only supplementally.

48


 

The following is a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures (in thousands, except per share data) for the periods indicated:

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Reconciliation of non-GAAP income from operations: