Microstrategy Inc (MSTR) 2005 Q1 法說會逐字稿

At this time I would like to welcome everyone to the MicroStrategy first-quarter 2005 conference call. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Mr. Michael Saylor, Chairman and CEO.

Please go ahead, sir.

Thank you.

I'm Michael Saylor.

I'm the CEO of MicroStrategy.

I wanted to welcome everybody to our first-quarter 2005 earnings conference call and thank everybody for spending the time with us today.

I'm here with Arthur Locke, our Chief Financial Officer, as well as Sanju Bansal, our Vice Chairman.

And at this point I'm going to pass it forward to Arthur Locke.

Thank you Michael.

Various remarks that we may make about our future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our Registration Statements and periodic filings filed with the SEC.

I'd like to start out by thanking everyone for taking the time out to be on the call with us today.

And I'm going to provide some highlights to our financial statement and turn the call back over to Michael.

Revenue in the first quarter was 60 million, representing a 22% increase over Q1 of 2004.

License revenue in the first quarter was 21.8 million, which is up 16% versus Q1 of 2004.

Product support and other services revenue increased 26% to 38.2 million from Q1 of 2005 as compared to 30.3 million in the prior year.

Gross profit margins for Q1 2005 were 86%, an improvement over the 84% achieved during Q1 of last year.

Gross profit margin in the license business was 94%, which was slightly below last quarter's gross profit of 97%.

Gross profit margin in the service business was 81% during Q1 of 2005, an increase over the 77% achieved in Q1 2004.

Q1 2005 operating expenses were 32.8 million, as compared to 31.1 million during Q1 of last year.

During Q1 2005, we capitalized 926,000 of software development costs related to MicroStrategy Version 8.0 release, as compared to 418,000 during Q1 2004 related to our 7i universal release.

Operating income margin for the quarter was 31%, an increase from 21% in Q1 of 2004.

Interest income increased 872,000 from 115,000 last year due to the increase in our cash and investments.

Our provision for income taxes increased to 4.6 million in Q1 of 2005 from 772,000 in Q1 of last year.

As reflected in our Q1 consolidated statement of cash flows, 3.8 million of our Q1 provision for income taxes was attributable to a non-cash change in our deferred taxes.

Net income for Q1 2005 was 15.1 million, or $0.89 per diluted share, as compared to 10.4 million, or $0.60 per diluted share, for Q1 of 2004.

Total cash and investments excluding restricted cash increased from 76.4 million at end of Q1 of 2004 to 132.5 million at end of 2004 to 158 million at the end of Q1 2005.

During Q1 2005 the Company generated 30.5 million in operating cash flow, as compared to 25 million during Q1 of 2004.

Our Q1 2005 accounts receivable days sales outstanding was 42 days.

Total deferred revenue increased 17% from 45.4 million at the end of 2004 to 53.3 million at the end of Q1 2005.

Deferred revenue is primarily comprised of subscription revenue associated with our technical support contracts.

On April 28, 2005, the Audit Committee of the Board of Directors of MicroStrategy appointed Grant Thornton as MicroStrategy's independent accountants, such appointment to be effective upon the completion of MicroStrategy's current independent accountant of its review of our financial statements as of and for the quarter ended March 31, 2005.

At this point in time that concludes my remarks, and I'd like to turn the call back over to Michael.

Thanks Art.

We're very excited about being with you here today.

We feel like we had a good first quarter.

We had successful MicroStrategy World.

We had a lot of good customers there, and they seemed very excited and very upbeat.

We're excited about the MicroStrategy 8 release.

It's getting very, very good reviews with our customer base.

We were able to make a lot of improvements to our product with MicroStrategy 8.

In the first quarter we were able to add some new customers, and that was a really exciting thing.

And we were also able to do business with a number of our existing customers, people like Charming Shoppes, Corporate Express, the Intel Corporation, and others.

In interest of moving efficiently through the call and out of respect of everybody's time, what we would like to do now is to open up the floor for questions and answers.

I'm here, as well as Sanju Bansal and Art Locke.

And we would be happy to take any questions from the audience on our earnings release.

I think there will just be on momentary pause while we set up the questions and answers and queue up everybody, so we would appreciate everybody if they will stay with us.

Thank you.

(OPERATOR INSTRUCTIONS) David Hilal, Friedman Billings.

Mike, I know you guys with your new policy don't share as many metrics or information as you have in the past, but at least last quarter there were some metrics that I was hoping we could get that you still shared last quarter.

And I can list through all of them, but in terms of number of deals, and deals over 1 million, and geographic breakout, can you provide us with those metrics please?

We think those are all interesting metrics.

We're going to look at including those into the 10-Q.

Art, what about on the service line?

Can you tell us how much of that was maintenance revenue?

I think what we would like to do right now is just focus on our financial highlights, and then we will have additional details that will come in our upcoming 10-Q filing.

You guys should just wait until the filing to have a call to answer the questions then.

Let me ask more maybe a business oriented question.

I guess on MicroStrategy 8, can you comment on maybe how many customers have upgraded or are in the process of upgrading?

And what has been the main driver for people to pursue 8?

We've heard good things about report services, but I'd love to hear from your standpoint.

This is Sanju speaking.

As you know, we launched MicroStrategy 8 first at our user conference, MicroStrategy World, and we had good response to it there.

Generally, as is typical in the software industry, once people see something that they like, it takes them some number of months to incorporate it into their technology deployment plan.

And so we have had a lot of interest in 8.

We're not tracking right now how many people have decided to deploy it or are in the process of deploying it, but I can say anecdotally that there has been fantastic interest in it.

I do think that most of our customers will move to it, but we can't stay how long it's going to take them to actually put it into production in their own environments.

How about on the UNIX platform -- I know you guys -- I think it now supports three different platforms.

I guess, how has adoption been on the UNIX platform?

And are you seeing maybe Solaris a little bit more than the others?

Or is there any one of the three more dominant than the others?

There doesn't seem to be any real trend for any of the flavors of UNIX versus any of the others.

Right now they all seem to be picking up nicely.

We do expect a more universal edition adoption in the future.

It is moving quite nicely.

What is your guy's policy for all the talk about duel core processors?

And you guys have a pretty big Win Tel base out there.

How are you going to price as people decide to use a duel core?

Is it going to the same pricing as if it was one, or are you going to charge twice?

Right now, the way that we view dual core processors is effectively two processors.

And so as we go out and customers buy our capacity model, which is a CPU-based pricing, we would treat a dual core processor as two processors.

Okay.

I'm afraid to ask this question, but can you guys share headcount?

We're going to focus on the just the financial highlights here Dave, and then we will look at that for potential inclusion in the 10-Q.

I'll pass on it.

I'm done.

Frank Sparacino, First Analysis.

Mike, maybe for you, I'm just curious when you're in the field now do you operate any differently given the fact that you're really not held accountable to any revenue targets for Q1?

Do you manage the business any differently?

And I guess maybe alongside that is are the customers reacting any differently to you maybe because you're not under the same pressure as someone else would be in terms of making a number for the quarter?

I think we've always tried to manage for the long-term, but it's always important and we try to keep it in the forefront of our thinking, with regard to all of our customer relationships, the number one thing is for us to work with them to create value.

So we want them to use as much of our software as they can.

We want them to build as many applications as they can.

Invariably we have budget issues to overcome with them -- they have money now or they will have money in the future -- or there are purchasing issues -- there's a certain way they want to purchase -- or there are political issues, or there are other sorts of issues to overcome an order to develop a really strong partnership.

I think that to the extent that you take a longer-term view and you're not trying to get it perfect in a week, or you're not jamming or forcing the customer, then I think they react very favorably to that.

I think that just taking a long view and being very patient with customers is always a good thing for them and for us.

Our best customers we've got relationships that go back ten years or more.

What we have found generally is that the best business we get comes out of them in year two, year three, year three, year four, year five as we keep nurturing them and cultivating them.

So do I think we do a better job of this than some software companies?

Yes, I think there's some software companies who are more short-term focused and I think it's to their detriment.

I think that we're continually and always striving to improve our own standards.

And we would like to the very best long-term partner for customers in the BI business.

Maybe second question, when you look at the first quarter, I'm curious if there were any significant deals related to customers migrating to the UNIX platform from the intelligent server perspective.

We don't have specifics to talk about on the call, but anecdotally it seems to me that we have had a number of customers who have made large commitments to us, and one of the components was the UNIX platform.

I think that being available on different flavors of UNIX gives comfort to a lot of IT departments.

If I have two or three platforms and you support them all, it certainly gives you a warm fuzzy and it makes you much more likely to, say, make a larger or longer than I would have otherwise because it removes one possible impediment in the future.

No one wants to make a commitment to a product and then find out that they have to explain to their boss why they can't run it on a new data center or try to work around an issue like that.

So to the extent that they feel like we're supporting all these platforms, we're a better corporate citizen.

Being a better corporate citizen is always a good thing when you're selling into enterprise IT departments.

And I think with the release of our UNIX products and with the release of 8, I think our products become a better corporate citizen for these guys.

Thank you.

Patrick Mason, Pacific Growth Equity.

Just curious.

You mentioned Grant Thornton is the new auditors, I guess, or accountants.

Any reason why that particular firm was chosen and any transition issues you expect?

We chose Grant Thornton because we thought that they would be the best fit with our corporation at this point in time.

We don't anticipate any special transition issues.

As far as just major product releases, do you have any others scheduled for 2005?

Just refresh my memory on that.

I know that you just launched 8.

You have a UNIX product out there.

Is there anything else that might be in the queue that we should be aware of?

I think to right now we think the rest of 2005 is going to be fairly smooth.

There's no one particular major product we're keyed on for the rest of year, but there will be a number of minor in line upgrades, bug fixes, improvements in each of the various products in our suite as the year goes on and as we learn more about how they are being deployed in the field.

Otherwise it should be a fairly smooth process.

It seems like in the past since like 8.0 was released, Q4 you capitalized some software there and that was more of a significant hit on that quarter.

You make it sound like there shouldn't be any of those kind of bigger hits throughout '05 due to the product schedule.

We don't have on our schedule any major product release over the coming few quarters.

Just on the competitive landscape, any change there?

We continue to see, as we have for the last year are two, BusinessObjects and Cognos as our two principal competitors.

I think that they're doing a decent job creating energy and momentum in customers and prospects, and we have to fight every day with them to win over the minds and hearts of prospects.

Having said that, I think we're holding our fair share, and doing better than perhaps we were even previously thanks to the new interface in 8 and the new infrastructure in MicroStrategy 8.

Last question; do you guys you find you're getting penetration down into smaller accounts, like towards the mid-market from the enterprise level?

We've always had a mid-market business, although probably not as large as that as BusinessObjects or a Cognos.

There's no significant change that I can discern in our business this past quarter from previous quarters in the middle market.

Thanks a lot.

Mark Verbeck, Smith Barney.

Michael, would you care to comment on the quarter, kind of how it measured up in terms of was business kind of coming in; was it a difficult quarter; somewhere in between?

Just kind of give us of flavor of what the environment was like for you this quarter.

During the first quarter, we did have our MicroStrategy World event and we released MicroStrategy 8.

Those were probably two exciting things that happened that don't happen in other quarters of the year.

But other than those two things, it was a pretty normal first quarter, and it was a pretty normal quarter as quarters go.

Didn't feel like there was anything especially different.

How about the restricted cash increase?

Can you tell me what's behind that change?

That was basically related to terminating our line of credit and then setting up security for the office building for our headquarters location.

Okay.

And then finally, I see that while you have utilized very little of the current outstanding share repurchase allotment, you've increased it to essentially all of your available cash.

Can you help me understand your thinking there?

We don't have any special commentary on that.

I think the Board just felt it was appropriate at this point in time.

Okay, great.

Thanks.

Tom Ernst, Deutsche Bank.

Michael, an observation.

I think as I look across the software universe, most stocks or other stocks with the kind of growth you have, 20% better revenue growth or 50% earnings growth, $4 per share roughly in earnings or even better than that with 150 in NOL tax shield, I would anticipate a valuation in that stock price well north of $100.

The market for some reason deeply distrusts the numbers, the growth opportunity.

What can you tell the market to give comfort that you're doing the right thing to create growth and to create shareholder value?

We're pretty excited about our business.

We're putting out some great technology.

In fact, MicroStrategy 8 is probably the best piece of software we've ever shipped into the marketplace, and it reflects the last decade of our experience.

We've got a very focused technology team.

We're working very hard this year on services and support consulting education to go along with it.

We're very pleased with the success our customers are having in deploying it, we're very pleased with applications they're building.

I think that every quarter that goes by our customers are more successful and our software is a bit better.

And we feel very good about our ability to compete against the competitors in the BI market.

And so that would be my response to anybody's question in that regard.

What do you think the market most is misunderstanding, because this is a huge deviation in my mind?

We're focused on selling the software and we don't really focus upon the stock.

We focus upon our customers.

We focus upon the software and the services we can provide them.

I know that's an easy answer, but you are running a public institution.

Isn't there a responsibility to pulling the shareholders in into the value you're creating and getting them onboard?

I kind of side with Warren Buffett on this particular issue, which is over the long-term the market is a weighing machine -- it will weigh our cash flows; it will weigh our cumulative success over time with our customer base and generating revenues and managing our costs and growing our customer base.

So I think we'll just look to the long-term with regard to that, and we try to focus upon long-term shareholder value creation.

Let me focus on one specific issue that I hear, and frankly I get in field checks.

It seems that when speaking to most -- and I mean a large majority of your large customers -- that most would not (indiscernible) the relationship they have with MicroStrategy is a good one.

In fact, they would say it was downright bottom 10% for software vendors, feeling that they've been forced through some very aggressive heavy-handed compliance audits in which they've cut significantly large license revenue checks.

The question is how do you give investors a comfort that all of the strong growth we've seen here recently, because it certainly seems that a significant part of that is not just due to twisting the customers' arms for aggressive compliance license audits?

First of all, we do business with more than 1000 companies, and every one of them is extraordinarily successful.

And many of them, as you know are, in the retail industry or the banking industry.

By definition, if you're a retailer, for example, you negotiate with 5000 vendors every single day of your life.

And you negotiate at arm's length, and those are all very challenging negotiations.

Otherwise, none of those retailers would be in business.

The most successful retailers, like Wal-Mart, for example, are well-known and legendary for sometimes the difficult negotiations they have with their vendors.

So we are expecting that our customers are going to negotiate with us.

They expect to negotiate with us.

We resolve the great majority of all of these matters fairly quickly.

Just like anything, if there's 1000 things that get done and 1 of them is a bit more difficult than the other 999, you're more likely to hear about the 1 and you're not likely to hear about the 999.

So it's very important for us in running a business to focus upon statistically what's going on across all of our customer bases.

And at the same time, I'm very proud of our relationship with our customers.

There's no customer out there -- not the ones that love us, not the ones that don't love us -- that doesn't get more value from our software than they pay us.

And in fact, most of our customers get substantially more value from our software than they pay us, and they wouldn't get any of that value if we didn't actually create the stuff and provide it to them and them service them.

So the whole basis of our business is a value proposition, and you can be sure that when you're dealing with sophisticated Global 2000 companies, they're not out looking to do charitable favors for software vendors.

So while we may have some difficult customer discussions, we work very hard at resolving them and we resolve pretty quickly.

If you look at the other side of this equation -- and this is something I would tell anybody -- independent surveys, and you'll see some if you dig around, independent surveys consistently show us to be the number one vendor in the BI market with regard to customer loyalty.

So maybe you can find 1 out of 100 customers that's concerned about doing business with us, but that's because the other 40 are still doing business.

In other cases you might have a lot more customers that would just drop one of our competitors and not bother to complain; they just don't do business with them.

But we do have extremely high customer loyalty stats.

The OLAP survey has shown to have a high customer loyalty stats, and they're all in excess of the other vendors that you might point to.

So we don't think that over the long-term these are material.

We think that we're doing the right thing, and I think the proof is in the pudding if you look at our success year-over-year.

We're kind of out on our own on this, because we really don't know how much of the revenue growth has been due to new sales versus how much has been due to the compliance or audit collections.

But it certainly seems like a large amount.

One thing I'd like to ask.

It seems that certainly your end users are successful with the product.

And I don't think any on The Street doubts you on that.

That certainly checks out.

But when you speak to people with purchase authority, it seems that particularly among the bigger historical customers that I would pose that the referenceability is well under 50% at this point.

How do you salvage that kind of referenceability and that kind of bad will that has been created?

Again, I don't agree with you on either of those conclusions.

I think you're just making an assertion which is unsupported by any statistics.

Interviewing six people around a dinner table and dividing six by three or something, some number, is not all that scientific.

We do, as I said, do business with 1200, 1300, 1500 customers at any given time.

So we have a pretty good idea of what the number is.

I would point out that with regard to enterprise software, there are lots of enterprise software companies, but the two most successful in the world have been SAP and Oracle.

And if you were to go do a media search of the last ten years of trade press publications on SAP and Oracle for customer issues, you would find something far in excess -- many, many, many stories about people that had difficult circumstances with both of those customers.

And yet both of those companies overcame any of their traditional historic customer issues and were very, very successful.

And so I can point out a lot of other companies that never had any of those stories written about them, but they all failed dismally.

So I think what is very important is to work very hard to construct a wholesome relationship with a customer, and sometimes that requires a dialogue.

But that doesn't mean that you're going be successful in the market, never having a disagreement with anybody.

I think we do have some disagreement, and we're willing to work through those in a very mature fashion.

Meanwhile, though, the statistics are probably more important than any anecdotes, and the statistics support us.

We do have the highest customer loyalty rates in the industry based upon independent studies.

And if the majority of our revenue is coming from existing customers instead of new customers, that doesn't really prove your point at all.

It proves the opposite of your point, which is that our customers are doing business with us.

Nathan Schneiderman, Wedbush Morgan Securities.

I wanted to start out with a couple of questions for Art.

Art, could you clarify your statements about the tax provision this quarter?

As I understood you said it's a $4.6 million provision, but 3.8 million of that was of a onetime nature.

No.

I was just referencing the change in our deferred taxes on the consolidated statement of cash flows that shows that we had a non-cash change of 3.8 million.

Okay, that wasn't related to the tax provision?

It is related to the tax provision, but it's not onetime nonrecurring.

Now that you have had some time to get your arms around the issue, can you help us with tax rate modeling on a go-forward basis?

I'm not prepared to discuss that in detail.

Generally Accepted Accounting Principles require us to come up with an annualized effective tax rate, and we apply that on a quarterly basis, and then we updated each quarter.

So it's really something that we just look out on a quarter-by-quarter basis.

Okay.

Shifting to Michael, I was hoping you might be able to give us some insight into what you're thinking in terms of the medium-term outlook for the growth in the business.

For example, in your own planning do you feel like it's appropriate to expect a positive license comp for the license revenue component of your business for the second half of the year?

Or are you expecting lower or higher levels than that?

We don't think is especially useful to engage in a lot of predictions about the near-term or specific predictions about numbers that have not yet come to pass.

In terms of the growth prospects of the business, we feel good about our relationships with our existing customers, and we feel good about the way our customers are using our technology.

And it seems to me that people are on average building larger databases; they're deploying to more people; their building more applications; the applications are more valuable and more useful, and they're more sophisticated.

And they're becoming, if anything, just a little bit more dependent and more demanding on the technology.

I think those are all fairly good trends for a technology vendor in our space like ourselves.

So I would say that we're optimistic about our future prospects.

Michael, when you look back at 2004, what you see in the numbers is incredible growth on the international license revenue side, but not much growth of the domestic side.

This is just looking back at 2004.

I was hoping you could help us look backward and explain the way you see it what was going on there.

Do you think there were problems in the Americas?

And if so, can you speak to how you may have addressed them?

There are some issues that are product related sometimes that drive growth.

Sometimes it's management related.

Sometimes there are macroeconomic issues and sometimes their currency issues.

So from quarter to quarter the balance of growth drivers will vary.

I think that we have improved our management in certain parts of the world over the past 18 months, and I think has helped our growth.

In other places, if we already had a pretty stable management, then improving it wouldn't be as easy to do.

So I think the US business has been a bit more mature, and so that might be a factor.

I think the euro has fluctuated against the dollar in a way that has had a growth impact on American companies doing business in Europe over the past 18 months.

I don't know what will happen in the future with regard to currencies.

I think we try to do our best with shipping our product, but that's pretty constant around the world.

Different markets are growing at different rates, and sometimes they slow down at different rates and sometimes they speed up at different rates.

So looking forward I think it will just be a combination of all these things.

And what we try to do is controlled everything we can control, and then the macroeconomics work themselves out, and the combination of those things give us our results.

Do you feel there was a pause in buying in Q1 due to the just released MicroStrategy 8 product?

We think we've managed our transition from MicroStrategy 7 to MicroStrategy 8 fairly well.

We have had a bit of experience with this over the past decade.

I don't think it caught by surprise.

And I think in general everything is moving very smoothly in that regard, and I wouldn't choose to highlight any particular purchasing dynamic there.

Peter Goldmacher, SG Cowen.

I believe the way you guys are thinking about the business in the long-term is the right way to do it.

But when I talk to people inside your organization I don't get the sense that there's any backing off on getting deals done in a timely fashion.

There still seems to be a lot of managerial oversight and still sort of an internal -- I get the sense that there's still an internally quarter close (ph) focus inside the Company.

Can you comment on that please?

I think is pretty important to have discipline.

And managerial oversight would be a virtue for us.

We're in favor of good management.

We're in favor of discipline, and we try to improve our discipline with regard to our sales and marketing and service and business operations every single quarter.

We're hoping to become more disciplined as time goes on.

We think that's a virtue in this market.

I think that we have to be careful to make sure that we don't rush business forward when it's ahead of its time.

I think that's not good.

But having said that, I think it's also good to set goals and drive tempo.

And it's important for us not to just wait for things to happen.

I think in the enterprise software business you have to make things happen.

So it's really good for everybody to be driven on a certain metronome and be driving hard in order to get things done because the future is uncertain.

We never know what will happen.

So if we can actually cement a commitment and move forward with a product that creates value for the customer today, then there is a certain value to that rather than waiting on the future.

So our overall strategy is to try to be balanced in this regard.

But if you're marching on an internal plan, and I suspect it is a rigid plan with near-term goals, can help us understand what you are reluctant to share those goals with The Street?

As we have said in the past, we don't think it's especially helpful to engage in a lot of speculation about what future results will be.

And with regard to our goals and our management direction, we actually focus more on things we can control internally.

So we're more interested in did we provide good service to the customer, and did we make sure their product worked, and did we install it properly, and is their application creating value, and have we trained our people and properly certified them.

All of these things are interesting to us, and we have thousands of pages of documentation that we used to track them all.

I don't think they would be especially helpful or interesting to the public.

I think if you listen to the tone of the questions on the call you have heard virtually everyone say it would be extremely helpful if you would share something with the people that own your Company.

So what are the discussions with the Board like on that topic?

Does the Board back you 100% on this or is their internal debate on how forthcoming you should be, because I think it's pretty clear that we would all appreciate something that a couple of very cursory financial highlights.

There are a lot of people that like the Company and would like to get more involved but just have a really hard time investing in the black box you've created.

I think that there's quite a bit of information here in the P&L, and we've highlighted the balance sheet, and we've highlighted the cash-flow statement.

And if you look over the past 12 weeks, we have had a ton of information about customer wins, and the technology, and our customers successes.

And of course we just had our big user conference, which had something on the order of dozens and dozens of information sessions for anybody that chose to attend.

We just put out our 10-K, which is fairly voluminous in its disclosure.

And of course we have 10-Qs.

There's a lot of information out there, and we think it's very important for us to share this with the people and the public -- with the public shareholders.

We have the highest respect for that.

And we expect to continue doing that.

Can you comment on the Board's take?

Does the Board support you?

I don't think you represent your disclosure accurately.

I think you give only very cursory income statement and balance sheet metrics.

If you compare yourself to virtually any other peer in the BI space they are generally far more forthcoming with metrics that are very helpful.

First of all, we don't comment on Board discussions.

With regard to your comparisons on BI companies, I understand that you're doing comparisons, but there are a lot of other public companies out there and we try to actually focus on how to become a great company as opposed to how to be comparatively good versus BI companies.

There are companies that don't give quarterly conference calls at all. 50% of the market doesn't give guidance of all.

There are companies like Warren Buffett's company that don't answer questions but once a year.

So there's are lots other ways that companies to do business in the world.

And we actually try to take a broader view towards public company behavior, and then we think about what's best for the long-term for the Company and for the shareholders.

And we pride ourselves on at least trying to consider these things from first principles, as opposed to just follow the crowd or try to emulate what are competitors do.

I would caution you against comparisons with Warren Buffett and Wal-Mart.

These are established companies that are well understood by The Street.

I would just -- my final comment would be it would be extremely helpful for everyone, and I think it would help the stock immensely, if you guys would reconsider your policy.

Thanks for your comments.

Robert Schwartz, Jefferies & Co.

I'd like to go back to your K, that historical information, and follow-up on Mason's question more directly.

In last year you lost market share in North America against virtually every one of your major competitors on license basis.

Your licenses grew 1.6%, and I'm wondering what you're doing to try to get back that share.

I don't think you're correct on part of those assertions.

I don't think we lost share and I don't think our licenses grew 1.6%, so I don't know how to answer that question.

Okay, well, let me give you the numbers.

If you look at your K, it says that you did $53,848,000 in product licenses in 2004 when you (indiscernible) the difference between total revenues and international revenues.

And then the year before that it does -- mathematics gets you to 53 million and 5.

So I'm sorry you're not aware of it, but that math works out to 1.6% growth, which is significantly less in North America than either Cognos or BusinessObjects, which you cited as your major competitors.

So I'm wondering why you lost share mathematically -- it's straight math, isn't it? -- and what are you doing to address it?

You catch me at a disadvantage here because I don't have the 10-K in front of me.

I don't see the line you're pointing at, nor the context of it.

It's actually a couple of line.

You have got a line where you give revenue breakdown on page 27 -- product licenses of 96995 in '04; 77221 in '03.

And you give the same international numbers, which is 43147 in 2004 and 24,216.

So the difference of that would be North America, wouldn't it?

Or is there some other region you're selling into besides international?

So, you're focus upon North American business in 2004 (multiple speakers)

Product licenses, yes, which is a pretty good metric of growth of new business.

Yes, I guess I would say that we look at our business over the last year, and it seems to be growing in a fairly healthy manner.

And there are lots and lots of software companies that aren't growing.

I think we grow on a top line and a bottom line basis more than most software companies during 2004.

And so we don't, I think, get caught up in micro calculations of an individual segment.

If the overall business is growing, and we feel comfortable with the way that it is developing, then I think that satisfies us.

I don't think that having it grow perfectly in any possible definable bucket necessarily makes for a more robust growth strategy for us.

No.

You grew dramatically on total, which was -- and all of that growth took place in Europe, which is a different segmented market than North America.

And it's the one set of statistics that you're required to required to report to.

And if you don't want to address the question, it's fine not to address the question.

But to say that the difference between Europe and North America is irrelevant sort of begs the question.

The fact that you weren't aware that you didn't grow in North America I think is shocking in and of itself.

I Guess I don't understand why you can't answer the question why you did grow in North America and what you're doing to address it.

First of all, I think that the overall business consists of a lot more than just licenses.

There's also support revenues and education revenues, consulting revenues.

And as we have said in past calls, when we look at the business we look at it holistically.

I think that focusing just on license revenues in some ways is a fairly narrow focus, and it's not necessarily the most healthy way to view an intellectual property business, given the fact that license revenues are by nature nonrecurring for the most part whereas all the other service revenue streams are recurring.

So I'm not terribly troubled by a particular comparisons if you're just pinpointing a license number for us versus someone else.

I haven't studied the particular numbers you're looking at, so I can't give you any more detailed insight.

But in general and holistically we try to look at the big picture, which is how does the business look on a worldwide basis; how is it trending over time; and how are the various types of revenues growing over time.

And if we're satisfied and happy with the way that's going on, I think we're happy with the business.

Okay, thank you.

All my other questions have gone unanswered as well.

Michael Nemeroff, Maxim Group.

A question for Michael.

Michael, how quickly do you think the BI and what rate of growth do you think the BI industry is growing?

And do you target growing faster or slower than the industry for the year?

I don't have the exact number for (multiple speakers)

Rough estimates would suffice.

Sorry, I don't have an estimate for the growth rate of the BI industry.

And probably more importantly, we don't have a particular target for how we want to grow vis-a-vis the BI industry.

I think that we're more interested in just having healthy growth in our own segment of the marketplace.

And as long as we are growing in a healthy fashion in our segment of the marketplace, I think we're satisfied.

So your segment of the marketplace is the BI industry, so how do you measure yourself against what you have just said was your own segment?

How do you determine whether your success outside of the qualitative and quantitative customers success metrics?

I don't want to quibble, but the fact is we've always prided ourselves in being on the top of the BI pyramid.

So our segment would be to the enterprise industrial strength segment of the BI industry.

In that place our average customer database is 25 times bigger than our next competitor.

So it's almost like saying we're in the engine business, and we sell jet engines and they sell lawnmower engines.

So if you were to pull out a statistic of the growth in lawnmower engines and ask me whether I was happy with growing faster or slower than that, I would say I'm not sure exactly how relevant that is.

Our target customer is going to be the customer that has got a huge amount of data, a very sophisticated application, industrial strength enterprise administration requirement and maybe a lot of users.

And on the other hand, if you were to look at BO and Cognos, they would be quite happy with customers that would be much smaller in data scale, much smaller in user count, much less sophisticated in application.

They might have -- I think they have got 50,000 customers each or something like that.

Don't quote me on it, but that's what I read last time.

We're not even trying to get 50,000 customers.

We're happy with a much smaller number of customer relationships that are of much higher quality.

And our drivers for growth are a bit different.

So what drives their business and what grows it may not always be the same as what drives our business.

We would like to see customers go from 5000 users to 50,000 users.

Whether or not they do that is more a function of technology, and our customer service, and the ability of us to support them than it is any macroeconomic increase in the demand for seats on the low-end of the market.

And so that's why I just think that it's a more sophisticated question, and we have to break it down into more segments than the ones that the plain vanilla BI analyst would potentially use.

Art, you mentioned that currency had an impact on the quarter.

Could you give us what that impact was during the quarter on both the revenue and the expenses?

Actually, I didn't mention currency.

But based on what we looked at during the quarter it looks like the euro weakened a bit, probably 5 or 6%.

And the pound also weakened a bit.

So that's going to have obviously a similar effect on the revenue generated internationally, as well as on the expense side.

So they netted out against each other, is that what you're saying?

No.

So revenue was negatively impacted and expenses were positively impacted?

Yes, that's correct, but they didn't offset.

I thought you were asking me if they offset.

Sanju, could you qualitatively talk about the size of the sales force relative to, let's say, fourth quarter and maybe the beginning of the same period last year, and what your targets are, whether to grow or shrink it, over the next couple of quarters?

I know that we're not at this point giving out exact (multiple speakers) information.

I can tell you that we're bullish about the prospects for leveraging the technology that we have and we are out aggressively hiring.

Okay, thank you very much.

Davin Kapuri (ph), C.E.

Unterberg Towbin

A couple of questions.

You mentioned you have internal objectives around customer satisfaction and how customers are adopting your technology.

Do you also have internal quarterly financial objectives?

We occasionally set different targets or different budgets for different departments, but we do them across dozens of different departments and dozens of different revenue units.

We don't normally discuss those with the public.

Okay, but internally you would be managing something like license revenue generation for the quarter?

For the most part the metric we try to manage to is contribution.

And so we're very focused upon what is the contribution of any field unit.

And contribution is revenue minus cost, as best as we can determine it.

So that's our key metric.

And then you would be managing that on a quarterly basis?

Different people have different measures.

Some are focused quarterly, and then some are focused annually, and then of course a lot of people have compensation plans and structures that are driven transaction by transaction or even monthly.

I was wondering looking back at adoption cycles for 8.0 if you could comment on any catalyst that could lead to faster or slower adoption of 8.0 within your installed base.

Within the installed base, as I said before, certainly their reaction to 8 has been positive.

We've provided it to customers that are active -- that have active maintenance contracts.

So there's no financial impediment from them picking up 8 and moving forward with it.

And because the upgrade is quite easy -- that is, they can install it, point to their existing metadata and get it running -- it's not difficult to upgrade.

That is, there's no torturous migration strategy or path, as you may have heard about with some of our competitors.

I think what's going to more effectively drive it is just their own deployment cycle for the projects they have underway.

We find that it often takes anywhere from 12 to 18 months after we put out a new technology for customers to pick it up and try it out and then put it into production.

So we don't expect to go any faster or slower than that.

And again, we are enthused about the very positive feedback.

We just have to wait for people to incorporate it into their upgrade plans.

Do you have support expiring for any of your prior versions within the next couple of quarters? 7.2 I think is the last product that you're supporting right now.

When does support for that expire?

I don't know with respect to 7.2 and 7.5 when exactly the support will expire.

But certainly customers that are currently up on 7.5 will have the ability to stay on 7.5 for quite some time.

And 7.2?

Again, I don't have the exact time when we actually sunset support on 7.2, but that's something we can get you separately or after the call.

Via press release or e-mail?

How would you communicate?

That's probably part of our tech support policy.

I don't know what they have said on it at this point.

So whatever our tech support policy is on that subject, whatever they've announced, we will be happy to share with you.

We just don't know what they have said.

Could you give us an update on the status of the compliance audits?

Are they all done?

Are they done across all geographies, or are there certain geographies where there is still some opportunity to do that?

We don't really have anything to announce with regard to that particular question.

Thank you.

David Hilal, Friedman Billings.

Mike, I understand you're managing the Company for the long-term, and hence your new policies.

And you may not care about the short-term volatility in the stock or shareholder value in the short-term or investors for the short-term.

However, assuming there's still a decent amount of employee ownership what does it do for morale within the Company?

Your stock could go up and down tomorrow nicely and be half of what was a few months ago.

Does this create an internal problem in terms of employee morale, and is that something you do care about?

We're all focused on selling software and in selling services here and making our customers successful.

So we encourage people not to pay much attention to the stock or the stock market.

I'm quite confident that that's working just fine, and I'm looking forward more so to our customers' successes and to our operating our business than thinking about any of these other issues you're talking about.

Frank Sparacino, First Analysis.

My questions have been answered.

Thanks.

I would like to thank everybody for being here with us today.

We appreciate your time, and we will look forward to speaking with you again in 12 weeks.

Meanwhile, have a good summer.

Thank you for joining today's MicroStrategy first-quarter 2005 earnings release conference call.

You may now disconnect.