Microstrategy Inc (MSTR) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MicroStrategy fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to introduce your first speaker for today, Michael Saylor, President, Chairman of the Board, and Chief Executive Officer. You have the floor, sir.

Hello, this is Michael Saylor and I'm the Chairman and CEO of MicroStrategy. I want to welcome all of you today to our conference call regarding our 2015 fourth-quarter financial results. I'm here with our CFO, Phong Le. First, I would like to pass the floor to Phong, who's going to read the Safe Harbor statement and make some comments on our results for the fourth quarter.

Thank you, Michael, and good evening, everyone. Various remarks that 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 quarterly report on Form 10-Q filed with the SEC.

These statements reflect our views only as of today and should not be reflected upon as representing our views of any subsequent date. We anticipate that subsequent events and developments may 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 in our press release issued after the close of market today, which is located on our website at www.MicroStrategy.com.

Now I will turn to our financial results for the fourth quarter. Overall we are very pleased with our Q4 2015 performance. We believe this was driven by gains from our operational improvements in the business that we've been working on throughout the year as well as the increase traction that our management team has achieved to date. As a summary year over year, product license revenues increased 19%, operating expenses decreased 12%, and operating income increased 38%.

I'll first focus on revenue. Total revenue for Q4 2015 was $144 million, a 4% decrease year over year. We continued to experience foreign currency headwinds in Q4, which negatively impacted our revenues by $8.8 million, or 6%. Revenues excluding services, which are primarily consulting, was $119 million in Q4 2015, a 3% increase year over year, with foreign currency changes negatively impacting such revenue by $7.3 million, or 6%.

Product license revenue was $42 million in Q4 2015, a 19% increase year over year, with foreign currency changes negatively impacting such revenues by $3.3 million, or 7%. Our international business continues to show strength, and in Q4 2015 it represented 49% of our total product license revenue. Our strong Q4 product license revenue was primarily driven by improved execution and profits.

As our sales teams are growing and experienced and our new processes are being implemented and hardened, we are able to put better value propositions and more competitive offers in front of our customers earlier in the deal process. This improved execution deal flow also led to lower rates of revenue reallocations and deferrals in Q4 2015.

In Q4 we closed 18 product license deals with recognized revenue greater than $500,000, compared to 12 deals in Q4 of 2014. Our subscription services revenue, primarily driven by our cloud customers, was $8 million in Q4 2015. This was a 26% increase over Q4 2014 and a 15% increase over Q3 2015. And subscription services revenues were trending lower due in part to platform migration [delays].

Our support revenue was $70 million in Q4 2015. This represents a 6% decrease year over year with foreign currency changes negatively impacting such revenue by $3.9 million or 5%. Our declining support revenue was primarily driven by declining trend in product license sales in the previous 12 months, as well as some delays and invoicing in Q4 2015, both of which we expect to improve going forward.

Finally, our services business continues to see a decline year over year. Services revenue was $24 million in Q4 2015, compared to $33 million in Q4 2014. This represents a 28% decrease year over year with foreign currency changes negatively impacting such revenue by $1.4 million, or (inaudible). We continue to focus on gross margins in our consulting business and saw margins increase this quarter.

Turning to costs, we continue to see the benefits of our organizational streamlining and generally more prudent cost control throughout the business. Operating expenses were $74 million in Q4 2015, down 12% from Q4 2014, and 18% when normalizing for $6 million in capitalized research and development costs in Q4 2014. Research and development expenses were $17 million in Q4 2015, down 14% when normalizing capitalization impacts that occurred in Q4 2014. Sales and marketing expenses for Q4 2015 were down 16% year over year despite the strong performance in product license revenue.

General administrative expenses for Q4 2015 were down 12% year over year and were 12% of revenues in Q4 2015. Our continued focus on product and process disciplines, as well as cost control, resulted in income from operations of $46 million in Q4 2015 and an operating margin of 32%. It's a 38% increase in operating income from the same period a year ago.

Moving to the balance sheet, we had cash, cash equivalents, and short-term investments of $486 million at the end of Q4 2015 and continue to have no debt. Net cash from operating activities during the fourth quarter of 2015 was $26 million compared to negative $2 million during the same period a year ago.

Turning to 2016, we continue to work on refining our operational processes across key areas like sales and marketing, technology and IT, services and support, and back-office functions. We also intend to strategically invest in growing the business, recruit more people to grow headcount and key functions, and further increase the productivity of our sales force.

We continue to be optimistic about our ability to grow revenue while managing attractive operating margin for 2016. Now I'd like to turn it back to Michael Saylor.

Thanks, Phong. All of you have the press release and all the numbers with you, so you can read it, but I'd like to make a few comments on the quarter and the year in question. If I focus in on the fourth quarter, I think the high-level takeaways that are interesting are our product revenue performance up nearly 20%, as Phong pointed out. We're really pleased about that, and we felt that execution was strong in the fourth quarter, especially compared to a year ago.

And I think the other thing that is not quite so clear is sales productivity was up somewhere north of 35%, between 35% and 40% depending on how you measure it, so it was a much tighter sales and marketing team that was doing a lot more with less. And I attribute that to focus and discipline over the course of the 12 months.

As he pointed out, the operating margins north of 30% I think is a very salient thing. I think that this quarter was definitely one of our best on an operational basis in the history of the Company, and we managed it in a fairly difficult transition year. If I look at the overall year 2015, I think the things that leap out at you are, year over year, our operating income went from $5 million to $134 million. It was a pretty amazing change in the operational efficiency of the business.

We took a really hard view scrutinizing every single thing that we do in the business, and although I'm sure we didn't find every efficiency we could, and there's always something more lurking under the table you can get at, I thought we did a decent job of finding all of the low-hanging fruit in the straightforward efficiencies, and we executed well on that. If you look at the EPS number, you see the EPS went from $0.44 a share to $9.18 a share. I think that's, again, another extraordinary operational improvement for us, and I am delighted to see that.

The operating cash flow of the business went from $14.6 million in 2014 to $149.7 million, so that was just a dramatic increase in the business. And on the technology front, what you don't see from the numbers is that we actually consolidated half a dozen different technology efforts and we delivered in each quarter a major deliverable. We delivered 9s, and then we delivered version 10, then we delivered version 10.1, and then we delivered version 10.2 during the year.

So if you take all of these things together, there's a lot of work on cost management and there's was lot of work selling and selling more efficiently and re-gearing the team. And I got to give a lot of credit of that to the management team that I am just thrilled with. Our Senior Executive Vice President of Sales is a gentleman, David Rennyson, who took the reins of sales at the beginning of 2015 and so he's got four quarters under his belt running enterprise sales at MicroStrategy. I thought that each quarter was a bit stronger than the previous one from a sales execution point of view.

We have a Senior Executive Vice President of Technology, Tim Lang. Tim really started leading the technology function in the last quarter of the previous year, 2014, and he's now been not quite 18 months, I suppose, in the role. And he oversaw the delivery of 9s, 10, 10.1 and 10.2, and through this time period, he supervised rationalization, a restructuring of our entire tech function, and consolidation and focusing of all of our tech efforts on a single platform.

And so the 10.2 platform today has all of MicroStrategy's analytics, mobility, and security functionality in it, and it's supported by a unified team of developers that I think are operating more efficiently than we have in a long, long time. I think you can see that efficiency of technology operations in our financial results and hitting the bottom line.

Phong has taken over as our Senior Executive Vice President of Finance, our CFO, and he is also supervising the HR function and facilities and other major corporate functions and he's been doing that since September. And I think that we had superior execution between sales and finance and better cooperation in Q4, and that benefited our financial results, and we've been moving, I think, fairly quickly to execute in areas that are helpful to the business.

And then we have another gentleman I will highlight by the name of Michael [Tay]. He is the Senior Executive Vice President of Services worldwide. And since the beginning of September, he's had responsibility for the support function, the consulting function, the education function, the customer satisfaction function throughout the business. These four executives are pivotal to our performance. They're supported by a number of other executives that I won't highlight here today that are making just great contributions across HR and IT, marketing, and the like.

I have personally assumed a much more hands-on role throughout the year working directly with these executives driving product development and process enhancements. I've enjoyed it and I feel that you can see the result in the numbers.

You know, as a result of all the changes we have made, as well as due to our ongoing commitment to closely manage our cost structure, the Company decided to eliminate a layer of management by eliminating the office of the President recently. This streamlining should position us well for profitable growth in the coming year.

Moving on to the coming year, if you look at our plan for 2016, we are now 18 months into a three-year turnaround. Year one was a consolidation and all about rationalization, and that started in the middle of 2014 and proceeded through the middle of 2015. We're in the middle of year two right now, and our focus has been on product and process excellence.

Year three is going to be all about growth and market expansion. So here we are 18 months into this transition. You can divine in the results, if you look at the finances closely, that each quarter brings with it a new advance in our business plan, and we make progress, I think, at a steady and deliberate rate.

My product initiatives in 2016 cross a variety of areas. Our focus is to steadily improve the single product platform we put in the market, so we want that product to run on more platforms. We're going to enhance the functionality of MicroStrategy 10 on Windows and on AWS and on Linux in 2016. We are going to continue to drive our scalability initiatives.

We are focused upon some enhancements to provide better speed to deployment to allow people to get up and running with applications faster and deploy more rapidly. We've got an exciting agenda to deliver new gateways to the market that will support big data and network applications and physical access control applications.

We've got some interesting initiatives to improve our client capabilities, both delivering improvements to our badges for security and improvements to dossiers for analytics and mobility. And we're driving hard on some interesting tools initiatives to make our tools more powerful and easier and more productive to use.

If we focus upon the big picture, our idea is let's improve our product, but let's improve our processes. Our process initiatives include improving our sales processes like business development and account planning and global alliances. And we made some great inroads on those last year, but I'm looking forward to improving them even more this year.

We've also got a set of exciting services process initiatives in areas of engagement management and support management, customer satisfaction and services integration and quality that we'll be driving in 2016. We continue to drive even more intricate and effective business planning, budgeting, HR and employee education initiatives out of the finance and HR function. And in the technology organization, we've got some quality assurance, product management, and product development process initiatives to get to even more streamlined, efficient, effective development moving forward.

So if I move my gaze to the marketplace, I would say the market outlook in 2016 is better than ever. There's tremendous excitement in the area of big data. People want to do analytics on big data sources like they do with Spark and Presto, and we're right in the middle of that.

There's a lot of enthusiasm to deploy cloud-based applications. We're enthusiastic about our opportunities to grow by harnessing the power of the cloud. Mobility is -- continues to expand and is better than ever, I think, and being embraced by all enterprise. There's more analytics to be done than ever before and data is -- continues to accumulate in an avalanche, and then security continues to escalate in the agenda of most enterprises.

So those are all the key themes for us. The market is very fertile right now. We're excited about the potential of our platform to serve all these market opportunities. So we head in the new year with a unified product platform, we've got a fresh, energized management team. The entire management team now is new to the Company since we began to turn around 18 months ago, and I think that they're enthusiastic and well suited and organized for this role.

We've got a solid business operation that we've been tightening and refining over the past 12 months, and I personally have more enthusiasm than ever. So I wanted to thank all of you for your support. We appreciate -- we appreciate your consistent enthusiasm for operation, and I will now open up the floor to questions from the analysts.

(Operator Instructions)

Karl Keirstead, Deutsche Bank.

Thank you. Michael and Phong, congratulations on that 35% operating margin. Really best in class. Michael, I wanted to go back to couple of calls ago, I think it was the 2Q call where you painted an operating margin brand of 20% to 30%. I think you sent low-end of growth is quite strong, high-end of growth is slow. Now that you've actually well exceeded that upper end would you re-think the appropriate margin band that we should think about 2016 or are you still encouraging us to think about that 20% to 30% level? Thank you.

I think a healthy enterprise software company runs margins in the 20s. I would probably sacrifice margin in the 30s if I thought it would get me more growth on the topline.

I don't think I would encourage anybody to change their expectation of what we are looking to do. We'd like to maintain profitability in the 20% range and north of that, and we'd like to generate topline growth that we achieve in an accretive fashion. We are always looking for the perfect balance, and the ideal balance is a growing company that's profitable.

Got it. That make sense. And if I could ask a second one. On the new version 10 product what kind of uptake did you see in the fourth quarter in terms of seed expansions or desktop purchases that may have contributed to that stronger license performance? Or perhaps the bulk of that activity is slated to come in first half 2016? Where are we in terms of seeing that lift from that new product? Thank you.

I think that the results in Q4 were due to a variety of factors. I think people are enthusiastic about the new product but I think that the sales team executed well. I thought that the overall organization is working together better than it has been. I think that we put in place a bunch of new sales executives in the earlier part of the year and I thought as the year progressed they settled more comfortably into their roles.

I think that the market is eagerly anticipating and did eagerly anticipate the 10.2 release but that didn't really arrive until the end of December so I think that we will get benefits from our 10.2 release in 2016 as we look forward.

Great. Okay very good color, and congrats again on the good results.

Greg McDowell, JMP Securities.

Hi guys, this is Rishi Jaluria dialing in for Greg McDowell. Thanks for taking my question. In general, this shift away from co-presidents as you've talked about to kind of streamline the organization, was this change just basically isolated there, or has it had any effect on your senior sales leadership?

Well it's really isolated just to the elimination of the office of the President. The sales leadership has reported up to David Rennyson and there is no change with regard to that structure.

Got it. Okay. That's helpful. In terms of -- I know you stated in the past that you will disclose revenue for Usher basically when it gets big enough, but I just wanted to get an idea, especially with Usher 3.0 coming out three months ago, how the product is tracking relative to your expectations?

We are really enthusiastic about the security market and I think that the product that we're bringing to market keeps getting better. We've had some nice wins in 2015 and we're expecting some really exciting things in 2016. But we're not quite ready to disclose Usher as a standalone business right now.

Got it. Okay. Just looking at your headcount numbers it looks like there's a first time in quite a while that headcount actually ticked up and -- are you in a place where you can maybe opportunistically start adding sales reps and areas where you perhaps need more people?

You know, we're going to be fairly deliberately and aggressively hiring in 2016 across a variety of different parts of the business. We feel like we've got a strong set of financial controls in place and most of the budgetary and financial reforms we put in place at the beginning of last year seem to have taken hold nicely.

So there is a lot of enthusiasm to hire salespeople and we're out aggressively hiring salespeople right now and we are also looking to hire other talents across the support engineering, software engineering, and professional services area. I think rightly you picked up that we hit an inflection point somewhere in the middle of the year and now we're beginning to grow again and we are pleased with that.

Okay great, and this is the last one for me and I'll jump back into the queue. Kind of going back to Usher, without disclosing too much details, do you have maybe some color of those wins that you talked about or any idea that we can have how many sort of pilots you may be running with Usher?

We've had some nice wins with some retailers. A retailer deploying to thousands of employees and targeting hundreds of thousands of customers and that's a nice check box for us. On the other hand we have a higher education institution targeting a deployment to tens of thousands of students. That's another nice check box for us. And then we had a really nice finance organization that started deploying a small number and then a larger number of its employees through both logical and physical access, and that's another check for us.

So we are seeing interest from very, very legitimate enterprises across lots of different vertical use cases and they are touching on various parts of our product line, and so we're pretty pleased with that. And as I look forward I see many, many pilots and many, many sales opportunities beginning to bubble up from our field organization. So I'm optimistic it's auspicious beginnings for the year.

Thank you very much.

Abhey Lamba, Mizuho Securities.

Yes, thank you. Congrats on a good quarter. Mike, (inaudible) is it primarily in physical security, or are you seeing some [attacks] in data security as well and where are you in terms of getting some partner support to push that offering?

You know there is tremendous interest in logical security and cyber security right now, and there is a surprising amount of interest in physical access. Our great opportunity here is that we have folded Usher directly into the 10.2 platform so that we have a single unified, enterprise platform and from that platform we can serve someone with logical access to the network, logical access to the applications, or physically to their facilities.

And when we do any of those things we are able to deploy enterprise mobility apps for productivity and communication, and we are also able to deploy enterprise analytics apps that are built on our core platform. So in the logical space we're competing against some focused two factor authentication players, and we're differentiating by having physical access and analytics, and mobile apps.

And the physical space, there's not that much competition right now. It's really just kind of a nice opportunity and a differentiator for us and with regard to our existing customers, security is really an add-on differentiator. Take our mobility apps take our analytical apps and then add security as a nice cherry on top with some whipped cream.

So the security business, it plays in lots of different aspects of our business. It's a great differentiator and our analytics and mobility business is I think a great differentiator for us in the security space. If I thought there was any one thing that predominated in interest more so than the others I would highlight it. But I think probably the thing that we're most enthusiastic about is that there seems to be sort of broad-based enthusiasm for all these ideas.

Got it, and one clarification, you mentioned about the transition plan (inaudible) one month into a three year transition. I just wanted to clarify should we expect license [growth] in 2016 or do we need to wait for 2017 for consistent growth?

We're expecting to grow in 2016.

Got it. And can you comment on what kind of growth we could expect?

I don't have any particular detailed color to offer on that but we're looking forward to profitable growth in 2016.

Got it. Thank you. Thanks for taking my question.

Yun Kim, Brean Capital.

Thank you. Congratulations on a strong quarter especially on licensed business. It seems that overall mix of large deals has been increasing over the past several quarter.

If you can give us some sense on what's driving those large deals? I'm assuming your decision to integrate a bundle analytics, mobile, and security has something to do with it, but if you can give us some insights into the drivers behind your success in large deal activity and whether or not we can expect that trend to continue in 2016?

Yes, Yun, this is Phong, thanks for the question. If you look at our distribution of deals across, I'll call it greater than $500,000, $250,00 to $500,000, [$100,000 to $250,000] and less than that, the distribution hasn't actually change that significantly. We did have more large deals in 2015 fourth quarter than we did in 2014 fourth quarter but we also had more medium-size deals and more small deals.

I wouldn't say that our growth has been disproportionately towards large deals. And as you had the question around sort of what's driving the success rate the general driver of the success rate as Mike and I both alluded to is more seasoned team and much better execution in sort of the details of the deals, the processes etc. I think was a large contributor we saw in the fourth quarter.

Can you expect the distribution of deals to remain much the same in 2016?

We don't have anything to indicate that it won't but we'll have to see how it will turn out.

Okay great. And then Michael, have you looked at the market demand evolving this past year and into 2016, obviously you have a strong BI capability that's integrated with a strong security and mobile solution. But do you see an opportunity out there where you feel that you need to have -- which you don't have but you need to have to be better positioned and whether or not you feel that you can develop those features and functions internally or simply are you at all open to making some acquisitions to get there?

We feel like we have a great unified enterprise platform for developing a suite of applications across analytics, mobility, or security functional areas, and I think that's a strength for us. I think organic growth has always been a strength.

I believe that we couldn't achieve the kind of financial efficiencies that we've achieved if we didn't focus upon streamlined organic growth. I think that if I were to go and strap five or six or seven businesses together it would be a little bit more difficult. So certainly I would never say never with regard to anything we might do.

If there was an intelligent acquisition and it made sense we would look at it but right now our business plan is to is to invest in our existing enterprise sales organization, continue to drive our processes and process disciplines, and to continue to refine our products, and continue to make it better.

And I don't think that we need to go acquire any particular new technology in order to grow the business. I think that the market opportunity is there and there's a market demand for what we have and I think that the customer base will react well to us if we simply continue to do what we do well and do more of it.

Great. Just one last just -- a model question. When do you see the inflection point on your maintenance revenue business starting to show year-over-year growth again? And then just -- do you think you'll remind us what's the dynamics behind the maintenance revenue showing sequential decline in Q4? It happened the last couple years. Thanks

On the maintenance revenue I think I've mentioned as it relates to the year-over-year decline in 2015 in our fourth quarter. There were two primary drivers. One is we have had sort of a trailing 12 month depression and product license revenue and so that's probably the biggest driver of where our maintenance revenue goes, it's just how much product are we selling.

And the second piece is we did have some delays, process related delays, early in the fourth quarter this year that were related to us getting invoices out and getting customers to sign up for maintenance revenue.

Both of those I think as you see the increased structural license revenue we've improved the processes. It should go away pretty rapidly in 2016 and so we would expect to see an inflection point there at some point in time also.

Okay great, thank you so much.

John Rizzuto, SunTrust.

Thank you. Good afternoon everyone. Phong, [in lieu] -- if you can, can you provide for us some of the details of the improved processes, improved visibility, internally that you're going through. And I'm particularly interested in just really allocating up budgets, thing, and in particular the processes for increasing those budgets or -- and increasing headcount.

And then on the sales in the forecasting discipline, and as much as you can, as much as you are comfortable with, telling us what's there now, what wasn't there before? What are the things that you see the give you an increasing level of confidence from what you think it was like or in quarters prior?

Yes John, thanks. It's a really good question and you know as an example on a budgeting and planning side we'd had implemented a MicroStrategy driven solution that we internally called [Merit] where we create 231 business units in the organization, both revenue-generating and sales and services, and cost -- cost centers in our back-office solution -- or back office areas.

And at that level, that sort of 231 business unit level we created budget, [so] the cost and revenue and margin budget that included headcount also for each of the organizations. Really the fourth quarter was the first I would say really starting to use that solution in the first quarter this year is where we really created budgets for 2016 going forward. Which then on a quarterly basis we review the results, we adjust as we go along, and I have visibility into every cost line item and headcount line item and revenue line item in the business as a result of that, again using our MicroStrategy tools.

I think I've alluded to some folks in general, it's a great wealth of information that I'm not used to having in the past and that information, even though we look at it quarterly and sit down quarterly with the business units, we are able to get daily updates on that. And that holds both for cost and revenues. But similarly on the sales side, we sit down and create a sales budget and a forecast for the full year.

We get daily updates feeding from our front end sales systems into our MicroStrategy merit budgeting system. So I feel and I think Mike, we share this, in the business unit leads we have a great grasp on how the revenue is looking and how the costs are looking pretty much on a daily basis.

Great. And you have -- and I imagine the benefit of that is being able to make the adjustments. Have you started to been able to start making the adjustments kind of in real-time now to where you see problems however you might define a problem, and are you starting to see that efficiency start to pick up?

Yes, I think so. Even though we have the data daily I'd say we're not necessarily making daily adjustments at 231 businesses.

Right.

But we do look at the business on a pretty regular basis and make adjustments especially as it relates to headcount. As you know that drives 70% of our cost so we do make pretty frequent adjustments and decisions as to where best to employ our (inaudible).

Okay great, and Michael a little bit of follow-up from last quarter -- what we talked about last quarter. You said look, three main focus areas on MicroStrategy 10. A little update on each if we may and that was A, you're in stall base and focusing on your installed base and seeing the uptake and driving uptake at 10 there.

The second thing that you talked about was versus the point solution and continuously monitoring your success versus those point solutions. Third and finally was there's a lot of -- which was really surprising the way you emphasized how big a problem this was -- a lot of legacy BI vendors and solutions out there that are just no longer viable that need to be replaced so.. Anything new or an update in the quarter along those three areas?

I think you hit the nail on the head with regard to all of them. I wouldn't say there's anything new. I would say that we had a little bit of electricity and enthusiasm that came from the new version of our product which people are excited about. There's a tremendous enthusiasm with 10.2.

I would say there's enthusiasm with regard to the security product and we had some nice business that developed because people are finally starting to get the security religion. I would say that our -- we've got I think a real world-class enterprise sales team and they just really come on during the year and I'm very impressed with some of things that they are doing. And I think that -- I think that we came out of a difficult 2014 but as 2015 marched forward you know our momentum kicked up, and we're going to 2016 with a lot of momentum.

I would say the business intelligence divisions of Oracle, SAP, and IBM, I don't think they could say the same. I don't really think that they are picking up momentum as the year goes on. I think if anything there's a bit of energy draining out of some of the larger conglomerates and enthusiasm to drive the business forward is not quite there. So I think that relatively speaking we've got more opportunities to chase after competitive replacement now than we had a year ago.

I think that in 2016 as we continue to drive our message we're going to get good results if we crank up the marketing, as we put even more skilled enterprise sales people into the mix, and as we recruit away or take the enterprise sales people from our competitors that maybe aren't doing quite as well as us.

And I think that every turn on the product you know is just one more reason for someone to switch to us, and the enterprise imperative, the requirement that you actually deploy enterprise reporting, and enterprise analytics across thousands of people with sophisticated security requirements, I think that imperative is growing. It's still there, it's not going away, and yet there were 100 BI tools 10 years ago and every single quarter another one of them falls out of support or starts to look long in the tooth.

I think there's more and more opportunities there if you've got the relationships with the enterprise and you can go sell those things, so we got our work ahead of us. But it's good work and it will be very profitable work for us, so I think we know how to do it.

Okay great. Just one final question on the follow-up. I don't even know if this is an important question from your perspective, but if you looked at your installed base how many would you say are upgraded at 10 at this point from 9 or prior versions?

I think in 2016 we'll see a large, large amount of -- number of our installed base customers upgrading to 10. I couldn't give you the exact number but I think that it's on the agenda for a great many of them in 2016.

Okay so the vast majority is still (inaudible), is that fair?

I think that we've got the great majority of our revenue opportunity ahead of us for 10. I think that 9 is a strong product and we actually sold a lot of license based on application (inaudible) on the 9 platform during 2015 and I think that we'll probably just continue to sell licenses based on the 9 platform in 2016.

But I think that the 10 platform is opening up new opportunities for us especially with areas like big data and mobility and security and there's enthusiasm there. I think that if I had to estimate you know a big environment like this, or a big enterprise customer base where they're going from a version like 9 to a version like 10 they can do it over 36 months.

So it's not like in 12 months everybody moves. It won't take them 10 years but it's not 10 months either right it's a multi-year thing depending upon how many applications are deployed and how intricate they are and the agenda of the organization. So you sometimes have to be patient about those sort of things.

Okay. Great. Thanks for your time and congratulations on the continued progress on streamlining.

Thank you.

Greg McDowell, JMP Securities.

Hi, this is Rishi Jaluria again. A couple quick questions here. First kind of a housekeeping question for you Phong. Looking at the tax rate, it looks like it was particularly low in the quarter, roughly around 17% if I'm not mistaken. What was the driver for why it was particularly low this quarter and how should we be thinking about what sort of tax rate we should be using in our model for next year?

Good question Rishi. If you -- most of the driver was sort of a catch-up from previous quarters. So if we just isolate Q4 the effective tax rate was closer to 23% to 24% range and even that is lower than we've seen in some of our previous quarters, primarily driven by increased percentage of revenue from international.

But, you know, we did 24% last quarter, adjusted this quarter in the 23% to 24% range, you know a lot of what you can project going forward will really be based on the distribution of international versus US-based sales and revenue. So to the extent that it stays the same distribution as the fourth quarter then you can see that rate continue in that basis.

Great. Two ones for you, Michael, and then I'll jump off. With MicroStrategy World coming up soon do you think it's going to be any different than what we've seen prior years, should we be looking for anything new on the product side or in terms of new features?

MicroStrategy World is in Miami Beach, it's coming up soon. I encourage everyone to come to MicroStrategy world. It's going to be a great, great conference. Know it'll be the best product we've ever shown and I think it will be the best MicroStrategy World we've ever had.

I'm looking forward to seeing anyone that's there. You can expect that we'll be going through all of the new features that we have to offer. I personally reviewed the agenda for MicroStrategy World and there's something like 150 distinct sessions that are taking place, and we touch on uses of the platform across every major gateway, every major use case, all the different solutions and as -- there's a lot of fairly detailed solutions seminar that will be interesting to people that actually want to deploy applications and production.

And in terms of you know how it's different than a year ago, I think that this year we're a lot more focused upon hands on deployment of technical solutions and so I think it's a great educational conference for people that want to go and figure out how to deploy a revolutionary app in their enterprise. I think there's less marketing fluff. I think there's more technology substance to it.

And so if you want hands on then I think you won't be disappointed at our conference. And I think that the breadth of the platform this year is greater than ever so you're going to -- given the fact that 10 has been in the market for a while, you'll see more stuff on big data, you'll see more discussion of deployment of various security apps, you'll see some really exciting new things you can do in mobile applications, and I think you'll see some really cool stuff that we're doing with the cloud especially in Amazon AWS environment.

And so I think it's just really a practitioner's heaven if you are excited about enterprise, analytics, mobility, and security and I'd encourage anyone that's interested in seeing the kind of value we can bring to the market with our platform, I'd encourage you to come and check it out for yourself.

Great, great, looking forward to it. Last one, just kind of taking a little bit of a step back especially given where the tech market and the tech landscape is right now, are you starting to see any signs of a slowdown here or is it just kind of continuing as it's been or picking up, or what are you seeing out there?

I mean I think we're all as aware as you are of the macro dynamics with the interest rate fluctuations and the China market fluctuations and Europe currency doing this and the other thing. The primary impact of the macroeconomic market on us has primarily been the currency headwind.

Given the fact with the weakening of currencies in Latin America and the weakening of currencies in Europe and other parts of the world it means that -- it means that revenues in America translate a bit better than revenues outside of America don't quite fall to the bottom line or to the topline as fast.

Having said that the fact that the currency headwinds are blowing doesn't change the underlying demand. I think we see people just as enthusiastic for technology as they have been. If anything world-wide enthusiasm for technology is greater. Everywhere in the world people are anxious to get their hands on big data, they are anxious to deploy cloud apps, they're anxious to deploy mobile apps, they are anxious for more security.

So I don't really see the macro trend dampening demand. I do see you know some volatility rocking people this way and that way and I see you know the currency changes changing sometimes the dynamics. As -- if you were a macro trader I would be at a loss to give you good insight right now; it's a very frightening environment. But as an enterprise software company you know we typically have our cost of selling and services denominated and the currency of the local country we do business in, so I feel like we're pretty well hedged with regard to all these things as currencies fluctuate.

And you know -- as things evolve the big macro trend is that everybody in the world wants more American technology. That's the big trend. And everybody wants more American technology and that's translating to a strengthening of the dollar and that's translating to a progression, a proliferation of the English language, and that's translating to a proliferation of US regulatory code and people embracing American law.

I think that the general macro trends if anything are very good for the US economy. I think they are good for US technology providers. I think that they are good for US investors as long as you haven't taken a short position on America, right?

If you [love] America you'll probably do just fine, and if anything it's a bit more challenging for international technology companies to compete against American technology companies. There are exceptions here and there of course but in general I think that we'll get through it and we'll all be just fine once the markets adjustment themselves as they are seeking to do.

Okay great, thank you. Congrats on the quarter, guys.

Thank you.

Frank Sparacino, First Analysis.

Hi guys. I will keep it short since we are running rather long. Phong and Mike maybe just to start, on the investment in the sales side of things for 2016 would you care to quantify in terms of what you think you will add capacity wise? Should we be expecting a number that's fairly nominal or kind of a double-digit growth in terms of people and that side of the business?

I think it'll be a paste growth, Frank. I don't think it's going to blow your mind away the number of people that we're growing in sales. And as John asked earlier we're going to measure the performance of each of the sales folks that we have currently as we always do and the folks that we add to make sure that on a monthly and a quarterly basis to his make sure that the additions are generating revenues we're looking for.

Okay and maybe last from me. Mike this is probably more of a broader sort of technology question. If you look at some of the trends on the data warehouse and data management side of things sort of the back end of the equation, you know lots happened in terms of database and data processing with some of the newer technologies in the market.

I don't know how much about it has impacted MicroStrategy on the front end, but are there any particular trends that you see that are good or bad for the front end? Am I think that there's involving enthusiasm for non-traditional relational data sources. So there's a bubbling enthusiasm that's taking place for what people -- people call the category big data but what they mean is they're enthusiastic about Hadoop, or they're enthusiastic about Google Big Query, or another approach to storing large volumes of data other than the traditional enterprise relational data base.

I think that's a trend that benefits us because we've been early to the market to support those kind of data sources with drivers and gateways. I think the companies that can't -- this is the sort of thing where the traditional enterprise BI companies that were delivered -- or parts were delivered 10 years ago where the tech teams have stop investing aggressively, they're going to find that those front ends are going to be increasingly obsolete because they are not going to be able to switch over and draw analytics off of these new data structures.

So I think that that's one trend. It helps us, it's also an opportunity, but it's a threat to anybody that doesn't stay ahead of it. I think another trend is the growing power of the AWS cloud -- cloud in general, but especially the Amazon cloud. And as that continues to blow as a wind you start to think why do I want to spend 24 months and millions of dollars to build the data center operation if I might theoretically snap my fingers and spend something up in 24 hours or 24 minutes. I think that that will continue to proliferate.

In terms of other major trends, the trends are our business strategy. One, big data; two, cloud; three, mobile; four, security. Mobile just gets stronger and more and more people wanted to [ploy] applications on iPads. The iPad Pro is the best iPad for business use ever. You can -- the Surface has gone from a kind of fizzled product launch to being a legitimate product that is being embraced by the enterprise.

I think you see most companies thinking I want my dashboards on my laptop, I want my dashboard on my tablet, I want my dashboard on my mobile phone and if I can't actually deploy that information to my mobile device then I got to go get another product for that. And of course security is just everywhere. Everybody wants better security and they want easier more powerful security.

So those four things are the trends. Companies that can invest and stay on top of those things I think stay vital and vibrant. I think the organizations that deployed a banded report in the year 2003 that are still running in the still APIs with the same interfaces, they're going to increasingly be put in containment and then people are going to looking for a new platform to re-build and re-deploy that application that takes advantage of modern technology.

Okay. I want to thank everybody for being here today. We appreciate your support and we're thrilled with our results for the year and also for the quarter. I hope you definitely can join us at MicroStrategy World in Miami Beach in a couple of weeks. If so I will see you there, if not I will look forward to speaking with you all in 12 weeks. Take care.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program, and you may all disconnect your telephone lines at this time. Everyone have a great afternoon.