Microstrategy Inc (MSTR) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MicroStrategy second-quarter earnings call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Michael Saylor, Chairman and CEO.

Please proceed, sir.

Hello.

This is Michael Saylor.

I'm the Chairman and the CEO of MicroStrategy.

I want to welcome all of you here to today's conference call regarding our 2015 second-quarter financial results.

I'm here with our presidents, Jonathan Klein and Paul Zolfaghari and our CFO, Doug Thede.

First, I'd like to pass the floor to Doug who's going to read the Safe Harbor statement and make some comments on our results for the second quarter.

Thank you, Michael.

Various remarks we may make about our future expectations, plans and prospects may 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 most recent annual report on form 10-K filed with the SEC.

These statements reflect our views only as of today and should not be reflected upon as representing our views at any subsequent date.

We anticipate the subsequent events and developments that will cause the Company's views to change.

While the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so.

Also, during the course of today's call, we will refer to certain non-GAAP financial measures.

There's a reconciliation schedule showing GAAP versus non-GAAP results currently available on our press release issued after close of market today, which is located on our website at www.microStrategy.com.

Now, I'd like to move to some comments related to our financial results.

And, as I assume that you've seen all the press release earlier today, I thought it was best to simply, as we usually do, make some brief stop observations on our second-quarter results.

As stated in the press release, our total revenue of $133 million reflects a decline of 6% from the second quarter of 2014.

While consistent with many multinational corporations, we too experienced strong foreign currency headwinds in the second quarter, which impacted our revenue by over 6%.

So essentially, we were flat on a total revenue basis, on a constant currency prospective.

Our product license and subscription services revenues were $36.4 million, increasing 3% or $1.2 million from the second quarter of 2014.

While our North American region saw a year-over-year increase of almost 21%, driven both by a 22% increase in subscription services and a 21% increase in product licenses, which reflects an increase in the number of deals over $1 million from two in the second quarter of 2014, to five in the second quarter of 2015.

Our international region saw a 25% year-over-year decline, reflecting the impact of foreign currency headwinds, as well as some weakness in our international markets.

Product support revenues for the second quarter of 2015 were $70.7 million versus $74.6 million for the second quarter of 2014.

Our North American region grew 1%, however our international region saw year-over-year decline of over 13%, due entirely to strong foreign currency headwinds.

The cost side of the business, we continued to see the results from our restructuring efforts other related cost-saving initiatives.

We experienced a reduction of almost $47 million in operating expenses for the second quarter of 2015, as compared to the prior year period.

Breaking things down further, as compared to the -- breaking things down further as compared to the prior year period, sales and marketing expense for the second quarter of 2015 decreased $25 million, research and development expenses for the second quarter 2015 decreased almost $18 million, and reflected over $4 million in capitalized software development costs.

Finally, G&A costs for the second quarter of 2015 declined $4 million.

As a result, we had net income of $22.5 million, or $1.95 of diluted earnings per share in the second quarter of 2015, as compared to a loss of $10.3 million or $0.91 loss per share on a diluted basis in the second quarter of 2014.

Moving briefly to the balance sheet, I'd like to highlight that it continues to reflect a solid financial foundation for MicroStrategy.

At the end of the second quarter of 2015, we had cash, cash equivalents and short-term investments totaling $427.9 million, and no debt.

Second-quarter 2015 operating cash flow was $36.2 million, compared to $3.6 million in the second quarter of 2014.

Our total gross deferred revenue balance at the end of the second quarter of 2015 totaled $194.7 million, compared to $212.5 million at the end of the second quarter of 2014.

Furthermore, at the end of the second quarter of 2015, we had additional future minimum commitments by our customers to purchase our goods and services of $128 million, as compared to $123 million as of the end of the second quarter of 2014.

As was the case with our revenue, foreign currency headwinds also had an impact on our balance sheet, including on our deferred revenue and commitments, a partition of which is denominated in non-US dollar currencies.

Now with that, I'd like to turn back to Michael for some additional remarks.

Thanks, Doug.

I think we're pleased with the second quarter and the way things worked out.

At the corporate level, we were able to grow our product bookings and that's very important to us.

It would be easier and we would have done better if we didn't have the kind of currency headwinds we're working with.

But, everybody in America have the same issue, so I'm pleased that we are able to maintain our business at our current level against that headwind and grow it a bit.

Our focus has been on being more efficient and we have been able to dramatically reduce our sales and marketing expenses and reduce structural costs in other parts of the business.

But more importantly, I think we were focused upon spending our money more wisely and so, I think there's a lot more attention that we put into that and we are able to generate a good result.

The combination of being more efficient with our sales and marketing activity, and also structuring ourselves in a more efficient way, resulted in an improvement in our operating income and I think we were able to generate a healthy operating income in the quarter.

We were also able to generate healthy cash flow and I'm pleased both with the operating result as well as the cash generation.

We shipped a version of our product we call secure enterprise 10 in the quarter.

Secure enterprise 10 as in essence an integration of all of our MicroStrategy technology for analytics, with all of our MicroStrategy mobility technology, with all of our Usher security technology.

All on a single package.

So, now, we're actually going to the market with a single platform for the enterprise and we are supporting the mobility, the analytics and the security application capabilities that customers are looking for.

That integration was a great achievement.

It was great because we got all of our version 10 functionality out the door.

But, it was also great because we were able to unify and integrate everything we're doing in a single package.

And that has a lot of benefits to our sales and marketing efficiency, as well as our services effectiveness and our overall corporate efficiency.

We also recruited a new CFO in the quarter and you'll hear from him soon.

We've covered that in our press release.

That was an overhang on the Company that a number of you had questions about.

With regard to the technology, I'd like to say a few more things.

Our version 10 release has a dramatically improved desktop analytics capability, which we think is very important for us to compete and grow in the marketplace.

We also have a dramatically improved server and in-memory analytics, which provide people with the ability to deploy very large applications that have very rapid response time.

We noted in our press release we've got some customers that have deployed up to 2 billion rows in a single cube they are getting extremely rapid speed of thought response time from that.

That's a great benefit to everybody in our customer base and anyone that's looking to do deployments of enterprise analytics.

We deployed some dramatic upgrades to our administrative suite, including a new operations manager, which gives us a great degree of administrative control and scalability.

And, has been welcomed by our customers.

We stripped out flash from our web interface.

Many of you might have been reading headlines about flash is dead and flash is not so good anymore.

It turns out that flash has gone from being an asset four years ago to being a bit of a liability now.

And we've given people a much more flexible interface to deploy web applications that leverages HTML5 and it makes it slicker, more flexible, more functional, and that has been a big win with the customer base.

And then, finally, in the area of security.

We put out a new software development kit that allows you to integrate Usher into other enterprise applications.

We think that's really critical for our enterprise security platform offering.

It was received enthusiastically by lots of people that are evaluating Usher as an enterprise security platform, right now.

We were also able to ship a version of Usher for the Apple Watch, which is just a really slick and exciting capability right now.

The ability to use a watch as a multi-factor authentication device in order to provide you with security as you log into a website or as you try to access a corporate firewall, is more and more interesting.

I don't have to tell all of you, but just about every day, there's something in the press about someone's password-protected system failing and exposing the entire enterprise to a cyber attack.

It happened with OPM and is devastating for the US government, devastating for lots of other companies.

I think we are right on the cusp of every legitimate corporation or enterprise in the world realizing that it's completely unacceptable to protect your corporate digital assets with a password anymore.

So, being positioned the way we are with multi-factor authentication built right into our enterprise analytics platform, is a great boon.

Having Usher as our up-sell, cross-sell opportunity is nice.

And being able to deploy that on an Apple Watch and wearables in general I think is really an exciting opportunity for us and we will put that in the market early and first in the second quarter.

In terms of our overall focus, I think, for those of you who would have been on these calls previously, you know that during Q3 and Q4 of last year our focus was primarily on cost management and restructuring of the Company.

During the first two quarters of this year, our focus has been on that restructuring, on implementing new organizations and bringing in new leadership.

And, integrating our product lines together, so that we have one go-to-market offering and a much more efficient slipstream through the marketplace.

I think as we look out into Q3 and Q4, our focus begins to shift to one of growth and sales and marketing execution.

Services execution and on top of the sales and marketing and service execution items, we are enthusiastic, we are working on the next set of upgrades to our technology.

We got really exciting things we are working on in the analytics area, with our tools, with our servers, we've got a dramatic improvement to our cloud offering with our Secure Cloud that's coming out this quarter and starting to become more broadly utilized, I'm excited about that.

We've got some really exciting things that we are doing in the area of mobility.

To get much more rapid out-of-the-box enterprise mobile apps that are going to appeal to our analytics customers.

And mobile productivity apps that will appeal to all of our customers and mobile security apps.

So, clearly, those are the things that are going to make us successful over the long term.

With regard to general business, clearly, we had a positive surprise in Q2 from the point of view of expectations.

I would encourage everyone to keep in mind that Q3 is normally a bit slower quarter than Q2 or Q4 in the enterprise software space.

We're going to be shifting from a mode of tight control of cost to a mode of investment, and starting to grow the Company and spending more money to hire people and put in place sales and marketing capabilities and technical capabilities from this point forward.

So, I would think that from here, I wouldn't be expecting the same degree of surprises in terms of cost savings that you've seen in the past.

We are more interested, at this point, in building from a solid foundation and taking advantage of our unique technical capability and our unique opportunity in the marketplace in order to grow our market share.

And, cultivate much deeper, richer relations with our customers.

With that, I think I'd be happy to take any questions from people in the audience and from our analysts.

(Operator Instructions)

Karl Keirstead from Deutsche Bank.

Michael, I've got a couple of questions for you.

First, over the last 12 months, you've downsized MicroStrategy's headcount by about 40%.

So, the fact that you posted revenue and subscription growth of 3% in 2Q is remarkable.

So, congratulations on that achievement.

I wanted to press a little bit on how you've pulled off that positive surprise, as you mentioned.

In particular, the surprise to me anyway, is a 21% license growth in North America, I presume it was too early for any kind of version 10 lift?

So do you mind exploring that a little bit with us, where that came from and was there anything one-time in nature worth flagging so that we set our second half expectations accurately?

Thank you.

Good question.

We've been bearing down, I think, on sales execution and the marketplace.

We brought in some new members to the Management team.

We brought in a new head of America sales and we brought in a new head of international.

And, we also brought in a new head of worldwide sales.

I think they brought in some new talent.

So, we've actually improved our talent in the direct sales organization.

I think we also have just more eyeballs on this because all of those people were in effect augmenting Paul Zolfaghari, who was also focused upon this and I have focused much more on this, myself.

So, I think we have more people and more brain power focused upon sales execution and that certainly contributed to our performance.

We reorganized the sales organization, into about 35 sales business units with clearer lines of authority and I think we had more like 3, 4, 5,6 different sales hierarchies last year.

So, lots of different lines of authority and now I think we've simplified it and flattened that organization and I think that speeds up decision-making a bit.

We've been upgrading our sales systems and becoming much more intense with regard to tracking of activity and opportunity.

I think that's a bit helpful.

So, I would probably put my fingers on those things as the primary reason why we are able to perform.

Obviously, I also think that we've got a really strong customer base and our customers like the technology.

There has generally been, aside from the currency fluctuations which drive everybody crazy in a certain way, the macroeconomy that we're selling into and the interest in enterprise software and enterprise analytics has been a good thing.

In terms of one time, I wouldn't characterize any one time thing in Q2.

But other than that, I would say we are just going to look forward, put our nose back to the grind stone and keep working.

Got it.

Thank you, Michael.

A second one has to do with your comments on the cost control.

In the quarter just reported, you posted almost 30% non-GAAP operating margins and that's obviously become a big part of the story for the investment community.

So, when I hear you mentioning that going forward you might be shifting from tight cost control to dialing up the spending a little bit, I think it's worthwhile to ask you, if you don't mind, outlining your margin targets to the extent you can by dialing up the spending again.

Are we talking about margins from this 30% peak eroding materially, or should they be relatively stable as you invest the upside?

Maybe some context in terms of what you mean by increasing the investment spend and what that might mean for this critical part of at least the stock story?

Thank you.

I guess I would say if you are plotting operating margin as a percentage, I wouldn't straight-line, extrapolate north from where we've been over the past four quarters.

Clearly, my goal has always been to get us above 20% operating margins.

I think that the low 20% is unhealthy.

I think that when you get above 30%, you start to look pretty impressive.

I'm not going to say I'm trying to run south to the minimum.

I'm not going to say I'm going to hit the maximum.

I do think that I make allowances.

If I were making a broad-based strategy I'd say that if I was growing in a really healthy fashion on the top line, I would have more tolerance to move toward the lower end of my range.

And if I'm not going to grow the top line dramatically, then I would probably tend to control costs much more tightly.

And I think we aired on the side of conservatism to a certain degree over the past year because we thought it was important for credibility.

Right now, I'm just looking for a happy medium.

Got it.

That's very helpful framework for us.

Thank you for that.

I will cede the mic for the other analysts on the call.

Thanks, and congrats again.

Greg McDowell from JMP Securities.

Thank you very much.

Appreciate you taking the time.

I want to drill into version 10 a little bit.

I know it's only been out for a brief period of time, but I was wondering if you could comment if any license in the quarter was driven by the release of version 10?

And along those lines, if you could sort of talk through the potential incremental license opportunity for version 10?

And maybe a third part of that question is, is there anything in 10 that would lead to increased up tick rates in the customer base and would we potentially see that play out on the services line, or on any other line at the moment?

Thanks.

I'm going to put Paul Zolfaghari on the phone to answer the first part of that question.

Thanks, Greg.

I'd say we, and something we've been saying at the symposia series as I know I think may have even attended, we feel very good about the release, in terms of the capabilities that it brings to the marketplace.

Emblematic of what the Company has done over the years in terms of trying to support the needs and the requirements of the enterprise.

And we think particularly with what version 10 brings, is a fuller feature set for us that we think addresses a good bit of what the market is, what the market is looking for.

I think, certainly, customers within the quarter, because 10 was released within the quarter, so you have companies that would have known, post the release date, which I think was GA the last week in May, that would have been certainly aware of 10, either having tested it or knowing that it was coming out.

But certainly I can imagine would have been something they were evaluating since that would've been the most recent version of the software.

I don't think there's any particular financial calculations that we've done about how much it's driven revenue or any speculation on what it would do for the future.

We do though feel that it's a good, strong release of the software and does give us a good, comprehensive message for a number of the organizations in the marketplace.

Great.

I did notice at the symposium that there is the desktop license that you weren't previously charging for.

How should we think about the existing customer base who are big MicroStrategy users, potentially adopting the desktop and what sort of uplift that the desktop product could give to the model?

Well, I'd say -- the way we think about desktop, it is a new product.

So it's product that would be available to the installed customer base.

There are some customers that may choose desktop in lieu of the web and the mobile interface, there's some that may chose it in addition to it.

The way we think about desktop is it's just a stronger portfolio of offerings to try to meet the customers at wherever their needs and their requirements are.

Over the last couple of years, the buying public has demonstrated an interest and a desire in having a desktop environment in which to consume enterprise analytics and so MicroStrategy 10 includes that as a part of our portfolio.

It's unclear to us how much of the market our customer base will move in that direction, but what we do know is we feel good about having it.

Because, it's another alternative and another opportunity for customers to buy at an interface level but still allow enough to present the MicroStrategy story around an agile enterprise analytics, which we think is a strong story going forward.

Great.

Thanks.

One more question and I will get back in the queue.

Could you just comment on the traction of Usher, so far?

Obviously, that was talked about at the symposium.

I was wondering -- we knew there was a lot of pilots going on, three, six months ago, and maybe if you could talk about the migration from the pilot phase to the production phase and whether or not you are starting to see Usher numbers become a material part of license, or even a small portion of license.

What sort of growth and traction you are seeing there?

Thanks.

I'm going to have Jonathan Klein answer that question.

Hi Greg, thanks for the question.

We are seeing Usher open up a whole new set of opportunities for us.

It's catalyzing a set a partner relationships that we haven't had before and a major manufacturers and system integrators are very interested in Usher.

In particularly, we have spent a lot of time and resources building out our SDKs and APIs to allow our partners and even customers to build Usher functionality directly into their own products and offerings.

So, we are finding that, that has been a wise investment because it's generating a significant amount of interest and a set of new customers and partners.

MicroStrategy 10, of course, as Mike mentioned earlier, includes Usher functionality and so we have some customers that are deploying Usher on top of MicroStrategy and we believe that that's been a factor in our customers' decision to license our core platform technology.

So we're seeing interest, significant interest, kind of across the spectrum where we are getting into major financial services, RFPs and government opportunities.

We have nothing that we are able to announce at this time.

But, we are very pleased with the progress and the interest in Usher, at this point.

Thank you.

Frank Sparacino from First Analysis Securities.

Doug, maybe first for you.

Just on the subscription line, can you just talk through the seasonality in that business, just looking at the decline from Q1 to Q2 in terms of the deferred subscription revenue?

I guess that would be the first question.

From a seasonality standpoint, I think that the overall offering, if you just kind of track the normal buying cycles related to any of our enterprise software standpoint, so clearly Q1 would be low.

We did have some runoff, but it's still -- we are seeing some good revenue growth from our subscription services businesses.

Mike maybe for you, along the same lines, can you talk about, in your conversations with existing customers as well as new customers, just the appetite for MicroStrategy cloud?

I'll go into cloud -- we've got a healthy cloud business right now, the Secure Cloud reflects a dramatic improvement in that cloud offering.

And the Secure Cloud is really a story that we are delivering to the marketplace starting in Q3.

It's a completely -- in a way, it is a re-platform version of our cloud in the Amazon AWS environment.

What used to take us a matter of a team of a few people, a few weeks to do, we are now zeroing in on being able to do in a single click in less than five minutes.

So, I think that in essence, we're converting the cloud business from a hosted service with people involved that had a value proposition, to being much more of a productized service offering where the capital intensity is being covered by Amazon AWS.

We are in essence just giving you MicroStrategy Secure Enterprise 10, but out of the cloud.

In terms of interest in that, I think it's going to be very, very interesting to lots of our customers.

We are already starting to see that jump.

So I'm optimistic on the Secure Cloud.

I think that we're going to actually see that be much more successful than our cloud business has been on the previous cloud platform that we had.

Of course from a strategic point of view, with AWS up 81% year-over-year, it's pretty clear that Amazon is going to be the go-to enterprise cloud backend for anybody that wants to be aggressive in this space.

By us moving to the Amazon platform, we've freed ourselves of the ability to either buy hardware, to get in the data center business, or to compete with anybody in the data center business.

We've actually freed up a lot of our resources that were primarily doing back-end data center type hosting work and now they are kind of moving forward to add value by building application solutions on the fly very rapidly.

So, I'm happy about that.

But, I don't have anything more specific to announce at this point.

Thank you, guys.

John Rizzuto from SunTrust.

This question is more anecdotal than anything.

But, when we look at the BI analytics space over the last several years, we got really enamored with -- the world got really enamored with the desktop solution, real simple, easy to use, desk top solution.

Forgot about what the enterprise platform was doing.

With MicroStrategy 10, you seem to answer that question.

You could have both.

Now, assuming this is -- assuming that you get traction you want, MicroStrategy 10 on the desktop can compete with anything to get from the client-side self-service BI, as well as we still give you what you really do need.

And, you'd still need your enterprise functionality of a platform.

A, do you agree with that shift in strategy, and then B, how do you plan to leverage that going forward in the marketplace to say, you know what, we think we've hit it and now, we are going to expand on that first in your customer base, then second to grab new customers?

Again, this is an anecdotal question about how the world has changed, how do you respond to those changes, where do you think you are and how you think you're going to leverage that going forward?

It's a good point.

We do agree with your thesis.

In the 25 years that I've been in this business, we've seen all sorts of point solutions come and go and invariably, someone says, oh, I have dashboards and then they grow really fast for a while.

Then hit a wall and they disappear.

Somebody else says, oh, we have in-memory something and they grow fast and they disappear and somebody else says I have this application and they grow fast and disappear.

I think that there was an opportunity in the market to jump on top of this space, right between where we are and where excel ends.

And tableau, did a pretty good job of delivering desktop analytics and have been growing great and executing great in that space.

Our view toward this is, we definitely needed to dramatically improve our desktop experience and MicroStrategy 10 is really the first strong installment in that.

But, we've got a couple of additional things up our sleeve that we'll be delivering in the market.

I think you are going to continue to increase the strength and the productivity of our desktop environment.

But, I think from desktop, you moved to department and from department, you move to enterprise.

From enterprise, you move to global enterprise/cloud.

The Company that wins the whole enchilada here is the Company that allows someone to download a desktop application, find an enterprise data source, build an enterprise application, test it and then deploy it in a limited fashion.

Then, scale it up broadly to deploy to 20,000 users.

With enterprise grade security and personalization.

In the ideal world, it's one analyst sitting next to the CEO who did it all within one week.

That's what everybody's looking for.

Clearly, in the world of excel, you managed to create one spreadsheet.

You show it to the CEO and you'd never deploy it to anybody.

In the world of tableau, you create a couple of cool things that are a bit more powerful than a spreadsheet and you show it to 8 people and maybe if you are lucky, you share it to 80 people, but it's not very well personalized.

The world that we see, MicroStrategy 10 and beyond, is I create that really, really interesting application, show it to the CEO.

He has me show it to 50 people and before we know it, 50,000 people are actually running.

Those 50,000 people are going to want a real industrial-strength platform, either in the enterprise and that's what our secure enterprise is.

Or they want to click on a button, spin up a very, very powerful Amazon instance, and then move it to Australia or to Ireland, or to Germany.

They want to make it 10 times bigger until they decide to make it elastically smaller.

They want to do that with industrial-strength administration, security and personalization.

That's what we're doing with the Secure Cloud.

We are well-positioned and all of these various point solutions that pop up here and there, they are very motivational and they can be successful in their own right.

I think you hit a wall if you can't get global multinational bank to deploy to 100,000 users, 47 different applications and secure them properly.

I think that we're really good, there.

Where we've seen extraordinary opportunity for us is harness this cloud thing, which is just exploding.

You've got to scratch your head and look at what Amazon is doing.

Anybody that's been watching this industry realizes that if I can deploy in a matter of 40 minutes what used to take 40 days, or 4 months or 4 years to do with $10 million or $20 million capital, that's a game changer.

A real game changer.

We are taking our industrial-strength platform and putting it on that rocketship, and I think that's really interesting.

I think the other interesting thing is, let's harness the full power of the desktop.

Desktops today are 100 times more powerful than they ever were.

So things that didn't used to make sense have to be rethought and they make sense now.

The combination of turbo-charging your desktop and turbo-charging your server, I think, is a very exciting message that all of our customers are enthusiastic about.

Ultimately, whoever can do it all, you know, is going to be the vendor of choice for the mega enterprises.

It's certainly our commitment, our intent to be that Company.

Great.

One follow-up, Mike, on that.

One of the things you built your stuff from the beginning, you built it yourself, it's all your own technology.

Nobody will ever complain about your acumen when it comes to designing, developing and deploying software.

Going forward, will this give you the ability, or are you targeting the ability or looking at the benefits of increasing your cadence, of bringing new functionality to the market?

Yes.

That's a good question.

I'm a real big fan of cadence, actually.

So, one of the things we've done behind the scenes in the past 12 months, that we didn't really touch on is, we've dramatically accelerated the cadence everywhere in the Company.

You see some of the results in sales and services and marketing, with our operating results, which have dramatically improved.

What you can't see in the operating results is the fact that we've dramatically restructured our technology organization and we've installed agile programming discipline, we brought in some products like Rally that would allow us to start to develop software in two week iterations.

We've moved from a waterfall approach and I think more hierarchical organization to a much more agile, transparent organization and one of the simple results of that is that we've settled upon a quarterly release schedule for enterprise software platforms.

Our secure enterprise 10 and our Secure Cloud platform are going to be released every single quarter from this point forward, as opposed to waiting a year or running six to nine month beta cycles.

So, I think that's a great asset for us.

I feel really comfortable about that and I'm enthused at our new tech leadership and our tech organizational approach.

I think it should allow us to make some dramatic improvements, both in our tools and in our clients and in our servers and in other areas of the business on a quarterly basis, as opposed to an annual or biannual basis.

Great.

Thank you.

Very good.

Very informative.

Follow-up from Karl Keirstead from Deutsche Bank.

Two, actually.

Michael, the overall headcount was down another 9% in the second quarter.

Given your comments about a pivot to growth, is it fair to say that you've now right-sized MicroStrategy and that the headcount should stabilize or even grow a little bit in 3Q?

Thank you.

I think that somewhere in Q3, there are some areas where I can still see a little bit of efficiency and there are other areas where I want to add headcount.

So, we're back to a balanced view toward that.

If we didn't bottom in Q2 then we will probably bottom out in headcount in Q3 and grow from there.

I can't tell you the exact weak inflection point.

But, we're approaching it.

Got it.

That's all I need.

One follow-up for Doug.

Doug, you mentioned that the FX impact on total revenues was about 6%.

Was it similar for license growth and DR growth?

Thanks.

From a constant currency standpoint, we were basically flat on a year-over-year basis out of total revenue.

For cross licenses, we're up 5%, on subscription services we'd be up 22%.

Across the port we'd be up 2% and then for the other services, we'd still be down, we'd down 13% versus the 20% for GAAP.

That all nets out to zero on a constant currency basis.

Got it.

The FX impact on DR, was the one last one, Doug?

That number, I don't have.

No worries.

That's very helpful.

Thanks a lot.

Follow-up from Greg McDowell from JMP Securities.

Just a few quick ones.

We didn't talk much about international.

Obviously, North America, there was tremendous strength there.

I know a lot of it is currency.

Is there maybe a lag effect with the restructuring efforts from late last year and some of the international markets are just starting to feel it?

Could you just expand on the international markets a bit?

This is Michael.

I don't have off the top of my head, or perceive any particular asymmetry in the past 12 months that I would think would be worthwhile to highlight to investors right now.

I think that there's been, over -- a macroeconomic shift, on a constant currency basis, a macroeconomic shift toward the US over the past couple of years, just as the US economy has been strong.

And you can see that by looking at the employment right here versus the employment rate in Europe and other places.

People see that across various industries.

Our business has slightly shifted more toward the US with that.

I think we feel very comfortable with the help of our international business and our international customers and international management team.

Sometimes, I guess sometimes, you can't move quite as aggressively internationally for a number of reasons, as you could in the US.

There's some things that lag a little bit.

On the other hand, we are a bit more conservative about how we operate and how we grow international, too.

We wouldn't feel a need to either cut cost or increase cost in the same way.

Just because most of them, most of the people internationally are in highly leveraged roles, dealing with key customers in key accounts.

They are leveraging work that is coming out of the US, in order to do their jobs.

So, if I had something that was interesting to share with you, that I thought was worth highlighting, I would.

But, I don't.

My last one, and I think I asked a similar question a year ago.

A great problem you guys have, is your cash generation capabilities.

We're approaching $0.5 billion in cash on the balance sheet and tremendous free cash flow generation, given almost 30% operating margins.

I was just wondering, can you remind us of your capital allocation strategy, at this point?

I think our view was, it's very important for us to illustrate that we could generate strong cash flows in order to keep credibility in the marketplace.

One of our capital allocation strategies is, on the day the marketplace decides to dramatically underprice our stock, we're going to buy it all back.

I would tell you that.

I just can't tell you what that day will be.

I can't tell you in advance, for a lot of different reasons.

I think that we are prepared to buy back the stock if we feel there is some irrational move in the marketplace.

It doesn't make sense.

We are prepared to use the capital to grow the business, if we actually see a corporate opportunity that's fairly priced and that makes sense.

We also are prepared to hold it and be conservative custodians of that capital, if that's what the right thing is to do.

I think that over the next 12 months, we'll probably see a bit more volatility this way and that.

Based upon a cursory look at the marketplace and I think we'll feel comfortable to be standing ready with our powder dry to act.

Great.

That's all I have.

Thank you, gentlemen.

John Rizzuto from SunTrust.

It was -- Paul, I know you've been on the symposium tour, the MicroStrategy 10 symposium tour over the last six to eight weeks.

Multiple cities.

What's the feeling with customers?

Positive, neutral, excited, enthusiastic?

Just characterize how your customer base is reacting to MicroStrategy 10?

Just to anecdote a characterization would be very positive feedback from the release, because I think what they see is continued innovation on behalf of our company, which they've come to trust.

If you think about who we are as a Company, companies do business with us because over the last two decades or so we've barely been leading in terms of innovation and customer service and support.

I think they see 10 is a continuation of the evolution of the Company Mike started 20 some years ago and I think we consider it a profound and important release.

So, you'd hope to have -- and I'm happy to report -- we've had very good, very solid, very positive feedback from our customer base about what this product does and gives for us.

We just have quite a bit of work to do to make sure the message gets out there and we bring it to full realization.

But, from a feedback about the release standpoint, certainly I would say it's been positive.

It's worthwhile to note it seems like it's standing room only everywhere we go.

Candidly, some of the analysts from the call were at the event, so they can see that for themselves.

You can see on our website, we are oversubscribed.

All these events, they been sold out in advance.

It's something that Mike and I actually talked about a few days ago, one of the things, not just that it's a large number of people, but what we've been impressed by is the caliber of people coming to these events is actually very good, too.

People that are more senior, because we are meeting them in their location, where they live and giving them an opportunity to understand what we're doing.

I think they appreciate that.

Appreciate the professionalism by which we've manage the event.

I'd say the feedback has been good and positive and we just hope to build on that momentum for the second half of the year.

Thank you.

Okay.

I will go ahead and thank everybody for being on the call today and thank you for your continued interest and continued support.

We're looking forward to the year ahead and until this time 12 weeks from now, have a good summer.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may now disconnect.

Everyone, have a great day.