Image Source: MicroStrategy.
MicroStrategy Inc. (MSTR 4.49%) reported second-quarter results on July 28 that show the provider of enterprise analytics, mobility, and security platforms is continuing to struggle with declining sales and profits as it implements its turnaround strategy.
MicroStrategy results: The raw numbers
| Metric |
Q2 2016 |
Q2 2015 |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$123.142 million |
$132.940 million |
(7%) |
|
Net Income |
$18.884 million |
$22.467 million |
(16%) |
|
Earnings per Share |
$1.64 |
$1.95 |
(16%) |
Data Source: MicroStrategy Q2 2016 earnings press release.
What happened with MicroStrategy this quarter?
Revenue fell 7% year over year to $123 million as foreign exchange movements dampened results. Product licenses and subscription services revenue declined 14% to $31.2 million, while product support revenue rose 1% to $71.5 million. Other services revenue decreased 21% to $20.5 million, although CFO Phong Le noted during MicroStrategy's earnings call that the company has seen its services business stabilize in recent quarters.
Even as sales fell, operating expenses increased 8% to $78 million, mostly due to higher research and development costs. As such, operating income plunged 39% to $21 million.
All told, net income -- which benefited from foreign currency hedges and a lower effective tax rate -- declined 16% to $19 million or $1.64 per share.
Still, MicroStrategy generated more than $66 million in operating cash flow, helping the company's cash and investments grow to $550 million -- or nearly 30% of its current $1.9 billion market cap -- at the end of the second quarter.
Looking forward
Chairman and CEO Michael Saylor said that the company is making progress:
We are now in the middle of our three-year turnaround plan for MicroStrategy. We spent Q3 and Q4 of 2014 restructuring and consolidating the business around single enterprise software platform and centralizing our operations to Northern Virginia. We made significant reductions in our cost structure and clarified our technology focus while embarking on a path toward a more transparent, efficient, integrated company that's designed to provide the platform for organic profitable growth in the years ahead.
Still, CFO Phong Le warned that, "In light of our performance in the first half of this year, it may be challenging to show revenue growth for the full year." And Saylor added:
Looking at the outlook, some might be concerned about our year-over-year decline in revenue and EPS, but we don't view this as significant in the long run. We've made great progress over the past 12 months across the critical three dimension of our business: our people, our product and our processes.
Saylor went on to state:
So in conclusion, even when facing volatility in the macro environment and the typical fluctuations that occur in the enterprise software industry, we believe the firm is powering forward steadily toward its goal of organic profitable growth stronger than it was a year ago with a track record of generating consistent cash flow and profits quarter after quarter.
As MicroStrategy approaches the third year of implementing its turnaround strategy, investors should watch to see if the company's sales and profits resume their upward trajectory. If Saylor and his team deliver on their growth promises, shareholders could be well-rewarded.
