Microstrategy Inc (MSTR) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MicroStrategy Second Quarter 2017 Earnings Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host for today, Michael Saylor, Chairman, President and CEO.

You may begin.

Hi, this is Michael Saylor.

I'm the Chairman, President and CEO of MicroStrategy.

I would like to welcome all of you to today's conference call regarding our 2017 second quarter financial results.

I'm here with our CFO, Phong Le.

First, I'd 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 second 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 relied upon as representing our views as 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'll 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.

On to our financials for the second quarter.

Overall, our product license revenue results in Q2 2017 were below our expectations.

However, we continue to see strength in other areas of our business including cloud, maintenance renewals and consulting and education.

A shortfall in product license revenue contributed to declines in overall revenue, operating income and diluted earnings per share.

Product license revenues declined 19% year-over-year, total revenues declined 2% year-over-year, operating income declined 26% year-over-year and diluted earnings per share declined 41% year-over-year.

Subscription services revenue grew 7%.

Services revenue increased 9% year-over-year and continue to experience strong maintenance renewal rate.

In addition, we managed our cost to corporate budget with operating expenses growing 3% year-over-year, while headcount grew 6% year-over-year, primarily in the area of sales and marketing.

Internally, we continue to execute with discipline.

Based on our last -- based on our latest employee engagement survey, our people across the organization are more engaged than ever.

Let's start with more detail on revenues.

Total revenue for Q2 2017 was $121 million, a 2.5% -- or a 2% decrease year-over-year.

We experienced foreign currency headwinds in Q2 2017, which negatively impacted our revenues by $1.4 million or 1%.

Product license revenues were $19 million in Q2 2017, a $4.3 million or 19% decrease year-over-year.

Our North American business represented 60% of our total product licenses revenue compared to 58% for the same period in 2016.

The primary reasons for our product license revenue decline in Q2 were: one, increasing competitive noise from newer entrants to the business intelligence market; two, insufficient traction attracting prospects to our offering; and three, sector weakness, especially in retail.

We have plans underway to address each of these that Mike and I will share later.

Our subscription services revenue, primarily driven by our cloud customers, was $8 million in Q2 2017, a 7% increase over Q2 2016.

We continue to see strong interest in our cloud offering, especially as it relates to our newly launched MicroStrategy on AWS offering.

Our support revenue was $71 million in Q2 2017, a slight 1% decrease year-over-year, with foreign currency changes negatively impacting such revenue by $0.8 million or 1%.

Our customer satisfaction levels and maintenance renewal rates continue to be high.

Our recently lower product license revenues had an impact on new maintenance license revenues.

Our services revenue was $22 million in Q2 2017, a 9% increase year-over-year.

This reflects growing momentum in our services business, where we saw increases in average bill rate in our consulting business and revenues in our training business, resulting in improved gross margins for services from 28% to 34% on a year-over-year basis.

We are benefiting from a multiyear effort to transform our services business with a focus on higher-margin, higher-value work, sales and services leadership and teaming and a greater focus on customer success.

Turning to cost.

We closely manage our cost structure while investing in our business.

Q2 cost of revenues were $24 million, a 1% increase year-over-year.

Q2 operating expenses were $81 million, a 3% increase year-over-year.

Sales and marketing expenses increased 10% year-over-year with a 19% increase in headcount.

Research and development expenses increased 2% year-over-year with flat headcount, and general and administrative expenses decreased 7% year-over-year with a 4% decrease in headcount.

We had income from operations of $16 million in Q2 2017, and an operating margin at 13%, a 26% decrease in operating income from the same period a year ago largely due to weakness in product license revenue.

Our net income was $11 million in Q2 2017, a decrease of 41% from the same period a year ago.

This was impacted by $2.6 million in other expenses primarily due to foreign exchange losses as a result of a weaker dollar.

Diluted earnings per share was $0.96 in Q2 2017, down from $1.64 in the same period a year ago.

We had cash, cash equivalent and short-term investments of $632 million at the end of Q2 2017 and continue to have no debt.

3 years ago, we successfully restructured our business and reduced operating expenses by 32%.

Over the last 2 years, we took steps internally to transform our people, processes and products.

We increased headcount 8% while transforming the leadership of the organization.

We rebuilt 56 processes in the company and key business systems and released 9 quarterly versions of MicroStrategy 10.

However, our external environment continues to rapidly evolve.

Newer entrants to the business intelligence space are investing significant amounts in marketing and technology.

As the enterprise analytics market evolves, we believe that it's important to increase our brand and field marketing investments as well as further grow our technology team.

We also believe it's important to increase our focus in investments, our -- and our customers and employees.

As we enter the next 3-year phase of MicroStrategy, our resolve to grow the company will be greater and more focused than ever.

In our last 3 years, we've been focused on cost controls and building the product processes and people with which to scale the organization.

This resulted in relatively flat top line growth and operating margins generally in the 20% to 30% range.

We expect our next phase to be marked by profitable revenue growth, though we expect to make additional investments in key areas, such as sales, marketing and technology to address the evolving BI market and opportunities for growth, even if this results to single-digit operating margin.

Now I'd like to turn it back to Michael Saylor.

Thanks, Phong.

I have comments in 4 different areas.

I thought I'd start with a review of the last 3 years of our restructuring plan; and then some observations over the course of that time and my travels; and then a financial assessment following our Q2 results; and then I'm going to talk about our 3-year growth plan going forward.

So first of all, a postmortem on the last 3 years.

Over the last 3 years, putting everything in perspective, we rationalized our product lines to a single platform.

We centralized our corporate operations to Tysons Corner.

We overhauled and integrated our corporate systems that we use to run the business across account planning, sales, HR, recruiting, consulting, tech support, product development and our overall employee portal.

We modernized our core product, moving from version 9 to version 10, and reengineered substantially that platform to open it up to be open and modern to new APIs and new data sources.

We implemented an enterprise analytics architecture called Aqueduct on top of MicroStrategy 10 using version 10 dashboards.

We rebuilt the management team and refocused on a single mission.

We built up 50 new corporate programs to drive business performance.

We implemented a new BU business strategy on a worldwide basis and rolled it out.

We implemented a new set of financial controls to drive strong margins.

We generated $300 million in cash and built -- and almost doubled our balance sheet strength.

And as the CEO, I reengage with customers, traveling to just about every major city in the United States, Europe, Middle East and the Pacific region, probably about 100 places, and met with nearly 1,000 customers one on one.

So my observations from that time and from that travel.

After having met with those 1,000 customers and spent so much time on these systems, I've concluded, we have very deep loyalty within our customer base, and there are tens of thousands of MicroStrategy applications built on our platform deployed to millions of end users.

The opportunity has never been greater if we can meet our customers' needs.

Now our customers' needs expanding.

There's a dramatic expanding universe of customer requirements.

They want powerful, integrated, intuitive tools to build applications.

They want support for more data sources.

They want more powerful gateways and faster drivers.

They want support for more client devices and more form factors.

They want us to support more APIs, more emerging protocols and they want better software development kits so they can integrate and embed our analytics into their custom applications.

They want better, faster, more agile, easier-to-use cloud tools and capabilities.

They want real-time analytics at both the client and the server level.

They want better self-service capabilities for enterprise analytics.

They want more product localization and more features related to that.

They want tightly integrated IoT and identity features, and they want more proactive enterprise configuration and architectural support.

And they need us to do all these things, and they depend upon us to do them.

And so that is our opportunity, but that is also our challenge.

If I look at the Q2 results from a financial point of view, I'm disappointed with the license sales and the growth rate in the first 2 quarters of 2017, and we've got a hard time growing, given the current level of noise in the marketplace combined with the expanding universe of customer requirements.

And we're going to have a hard time growing if we continue to spend at our current rate on technology and marketing.

The noise in the marketplace doesn't just come from our competitors.

It's coming from just about all the midsize and emerging enterprise software companies.

They're all fighting for a share of wallet within the enterprise.

And so as the big data companies like the Clouderas and the MapRs and the like come on to the scene, they're all creating noise.

The BI players are creating noise.

There's noise coming from large platforms, small platforms, point solutions and applications, and more money is flowing in the market than ever before, and that's creating more marketing energy and more messages that have to be sifted through by a fairly fixed number of Global 2000 IT executives and CxOs.

I think it's unrealistic to expect to grow the business in the current environment while maintaining operating margins north of 20%.

It was reasonable for us to run at higher margin to generate large cash flows during our last 3-year growth phase as we were rebuilding the product, installing new programs, rebuilding our system and consolidating our operations.

In fact, I don't think we were ready to drive much harder the growth engine because we were busy taking the engine apart and putting it back together again.

For the next stage of our corporate growth, though, as we look forward for the next 3 years, we're going to need to direct the majority of the firm's excess cash flow to marketing- and technology-related growth initiatives.

This conclusion is based both on our own experience and my observations in the marketplace and also a review of the strategy and the results of our competitors and the comparable midsize enterprise software firms in the marketplace that are defining the market and the voice of the market today.

Generally, these firms are -- they're spending substantially all their cash flows or even going cash negative in order to get their message out and to stay relevant.

Our strong balance sheet is best put to use in this fashion.

We are in the lucky position of having a strong balance sheet, and what that means is we don't really need to generate our cash.

What we need to do is take the cash that we generate going forward and invest it in improving the product, the offering and the brand so that we can continue to find new customers and expand our footprint.

And so that takes me to my 3-year growth plan looking forward.

The last 3 years, I think, were rebuilding, consolidation, integration phase.

And it left us with a strong balance sheet and a strong platform to grow from.

The next 3 years, we're going to continue to run our existing sales and services programs while placing new emphasis and new funding in 2 major areas: marketing and technology.

In the marketing area, I expect that we'll increase our marketing expenditures by a factor of 2 to 3x more than we are right now.

We're going to have to aggressively lean into the market, and that means begin to increase the funding of our corporate marketing programs, which means CxO- and CIO-level messaging and branding communications via advertising, digital channels and other channels.

I think an addition of corporate marketing will be increasing our field marketing programs, which means dramatically expanded trade show presence and dramatically expanded event presence.

We're going to increase our partner marketing, which means increased levels of field supports for partners, new partner programs to educate them and support them and certify them and new co-marketing programs with partners so that we can tap in their channel and draw them into ours.

And we're going to need to invest in additional product marketing programs directed at analysts, influencers and educational programs in order to get the product message out into the marketplace.

I think all of those things will help us to build our brands, spread our footprint and to rise above the noise.

In the technology area, I expect that we will increase our technology and engineering headcount by 30% to 50%, and we are going to pursue additional programs to accelerate our technology development effort and to expand it in areas of big data, gateways and drivers.

We're going to expand in enterprise data and financial reporting.

We're going to increase our efforts around artificial intelligence, around software development kits and APIs, increase our investments in mobility and IoT.

We've earmarked and targeted investments in localization and in platform configuration and performance optimization.

We'll also increase our investment in cloud deployment administration and integrated enterprise tools.

And I think the combination of accelerated product development combined with dramatic increases in marketing will provide us with the kind of energy that we need in order to drive the company's top line forward and to grow the business.

Now I believe -- obviously, this is going to cost more money.

We're going to get some of it back in the form of revenue.

There will probably be a delay as to when we get that revenue back, and we can't be sure of the timing.

But we're prepared for our operating margins to shrink into the single digits if necessary.

And I believe, as I look out over the next 3 years, the most prudent and responsible thing to do for the customers, for the shareholders, for the partners and for the entire MicroStrategy ecosystem is for us to take our excess cash flow and to begin to reinvest it much more aggressively in the business in order to seize the market opportunity and to rise above the noise.

And so with that, I think we'll open up the floor for questions.

(Operator Instructions) And our first question comes from Karl Keirstead of Deutsche Bank.

So just to drill in on some of these drivers to the growth challenges.

Michael, you talked about the competitive noise, but haven't you been experiencing this for the last year, 18 months?

What's really changed from the gang that you just described?

Because it feels like they've been creating noise for a little while, and for a long time MicroStrategy, was successful in delivering your message around a more enterprise-grade solution.

What's changed really in the last couple of months or quarter or 2?

I think what's changed is, of course, they've been -- the marketplace has been a noisy environment, and we haven't been growing in that environment in the past 12 months.

So in fact, I believe that the noise is actually an impediment for us to grow the business, but I don't think we come to the conclusion that we are going to have to spend substantially more money on marketing and business development programs and technology programs until we'd actually see it play out.

So what's changed is one more year.

And in a year, we got a year of information about how our programs are going to work in the market, and also, we've got a year during which we've furthered our product transition and installed the systems and the programs we wanted to install.

So I don't think we were ready to spend a lot more in marketing or technology development a year ago because we were busy tooling the business and putting in place all these programs.

So we couldn't even if we wanted to.

But we also -- I don't think we were sure that we needed to.

I think what's happened now is that we have one more year of experience.

We've got the results from Q1 and Q2 that are telling us that it's a difficult market, it is not getting any easier.

And we've also got the chassis, the product chassis and the corporate chassis tuned to the level where we believe they can bear a bit more investment and more intensity.

And I would say, it's kind of like -- if you want to use an athlete analogy, we've been exercising really hard and now we want to build big muscles and we need to eat more, and maybe we're not putting enough protein in the system.

Protein, in this analogy, is feed money to the marketing program and feed intelligent engineers into the technology program so that we can build a brand and build a product.

Got it.

That makes sense.

And maybe as a follow-up, as you think about this 3-year plan, I know you probably don't want to get cornered into a growth target, but obviously, the flip side of taking your margins from what in the first half were sort of high teens down to potentially less than 10% is that with the lag, I completely understand, you should see a revenue growth acceleration.

So when you look a couple of years out, let's say, to 2019, you pick the time frame, what kind of revenue growth rate are you aspiring to on the back of this greater spending level?

I think that our goal with regard to growth is we want to have a company that's growing revenue on the double digits.

We want to be north of 10%.

I think if we're in the single digits, we're -- I don't think we would be satisfied with that long term.

I think we want to be in the teens.

Got it.

Okay.

I'll sneak in one more.

We didn't touch on it too much in the -- in your comments, Michael, but Phong, you mentioned there was a little bit of sector weakness maybe in the retail industry.

Can you just remind us what -- I know you don't typically break out your vertical exposure, but how big is that retail sector?

And maybe a little color on how tough it was during 2Q.

Yes, Karl, our retail sector is anywhere about 10% to 20% of our bookings, depending on the quarter and our maintenance revenue.

And what we're finding more and more with retail customers is a willingness to spend but no money to spend, right?

And so we'll have deals in any particular quarter where the customer really does want to expand on MicroStrategy but doesn't have the budget, and therefore is kicking the can down 2, 3 quarters, even to the following year.

And we're seeing that happen more and more.

Now on the other hand, there's large retail customers who are the ones who are taking the share from the other ones, the more digitized customers who have an appetite to spend on the other side.

So there's an opportunity there.

But we're definitely feeling the retail weakness.

We saw it in Q2, for sure.

And our next question comes from Abhey Lamba of Mizuho Securities.

Thanks, Mike, for the detailed explanation.

That makes a lot of sense.

But can you elaborate on as you're making these investments, some of those competitors who make noise are also moving in that direction, and you're coming from a little bit behind in some categories.

So what is it that you're seeing in your product and your customer base or in your ecosystem that gives you confidence that, with these increased investments, you will be able to beat the competition and get back to double-digit growth?

Yes, good question.

Well, I think that we're -- that we've got a very strong franchise in the area of analytics and mobility and we've got a good story, but it turns out that not many people are hearing the story and not nearly as many as we'd like are aware of the story.

So I believe that we'll win if we can get invited into the dance, and we're just not getting into as many.

If we look at our competition, I think there's 2 aspects to this.

One is the companies like Tableau and the like are just spending gargantuan amounts of money to be out in the trade, and they're in places where we're just not showing up.

And if we simply show up, I think that our product will compare favorably to theirs.

But if we don't show up, we don't actually get to prospect at all, and so we don't get a chance to compete.

And so I think, in that particular case, we have to make sure that we're on the same channels, and that means we need to spend money in the trade marketing to get there.

I think there's another source of noise, not from direct end-client competitors.

If someone is marketing a new cloud thing or a new analytic app or a new data source, they're not an end-client competitor, but they're making a lot of noise to get attention of a buyer, and they're grabbing a portion of the budget share.

And the budgets at the enterprise IT level are fixed, and so they could go to an integrator, they could go to a data provider, they could go to an analytics provider or platform provider, depending upon who's got the ear and the attention of the buyer.

So in that respect, if you take an example like Cloudera, Cloudera's spending extremely large amounts of money coming out of the gate.

They don't really take -- they wouldn't take the win away from us because they're not an end-client tool.

But if they got the budget, then they would actually be taking the money from us if they actually have the relation with the customer.

So building to your -- building to the ideal revenue level means you really have to rise above the noise created by anybody from Salesforce to a big data company to an application company or a BI company, and they're all out there generating turbulence in the market.

So if we take a conservative approach and we're not in all those digital transformation trade shows and we're not shaking and rattling our cage enough, then it turns out that the entire conversation gets dominated by some other enterprise technology provider and we're not part of it.

So that's why I think that it's important for us to get more heavily engaged.

As for how we're going to win, we're going to win because we've got a really good solution that does unique things, allows you to deploy compelling analytic and mobile apps that no one else can deploy.

We just have to build a relationship with the enterprise and partner with them, and they have to know about us and they have to hear from us often.

Another piece that gives us confidence in our solution and our ability to grow, is our existing customer base.

The customer satisfaction continues to increase.

Our maintenance renewal rates continue to be at an all-time high.

And so there is power in our platform for our customers, and they're choosing to stay with MicroStrategy because they believe it's a superior technical solution for the enterprise and that we're the best alternative out there.

The challenge, as Mike says, is with folks who are not our existing customers.

And we do find, in competitive situations, we're losing and being told, "You are the better solution, but the business users wanted something that they've touched and played with and felt before or heard of before." And that's where an aggressive field marketing campaign and branding activity will allow us to compete better in those types of situations where we believe we should be able to win and can be able to win from a technical perspective.

Got it.

Just 2 quick follow-ups on this.

So you highlighted like a lot of go-to-market initiatives where you plan to invest.

And as part of that, you had -- a couple of quarters ago, you started the free download thing to attract new customers.

So what was the feedback or what was the bottleneck in getting that strategy to get the desired results?

And secondly, Michael, I think you also mentioned about investments in the product.

Can you talk a little bit about which areas of product do you need to be -- have to be more competitive in this space?

Yes, good question.

I think the desktop download program has worked well.

What we're providing is a desktop analytics tool, and you can create a desktop dashboard, but the desktop analytics space is kind of a low-margin commodity space.

There's not a lot of revenue to be had there.

And so where the real money is, is in the enterprise.

So if I'm able to build a dashboard and deploy it via an enterprise platform to hundreds or thousands of people with a shared enterprise data set and a shared security model, that's a revenue generator.

If I can deploy it to mobile devices from a shared enterprise platform, that's a revenue generator.

Now the challenge for us right now is that our desktop download doesn't allow you to build and deploy web and mobile applications.

It simply allows you to build dashboards that are stand-alone.

And so our technical strategy in order to dramatically increase our footprint is to create -- to upgrade that desktop product by creating something called workstation.

And workstation is an enterprise-grade tool that would allow you to build an analytic application you could deploy to your enterprise via the web and via mobile, all from a single workstation product that you download.

So to say it another way, if I have a few hours, I can download the desktop product today, I can build a dashboard, and I've got stand-alone analytics.

But when we put the workstation in the marketplace, I would be able to download the workstation, and in a few hours maybe a few days, build an application I deploy to the entire enterprise.

That would represent a dramatic increase in productivity for enterprise development community.

And we've been hard at work on that, and we are expecting to bring the first version of that to marketplace sometime this year and to substantially finish the feature set of that next year.

And as we put the workstation into the marketplace, I think we'll take the amount of energy it takes to deploy MicroStrategy full-featured enterprise applications dramatically down will simply and accelerate that process, and that will help us to build and to grow our customer base.

And our next question comes from Greg McDowell of JMP Securities.

I think a lot of investors are going to understandably sort of ask how this is going to transpire over the next 3 years, because I think some of your investor base went through this already when you took operating margins down before, and we didn't see sort of the revenue growth return, and then we saw the spike in operating margins through the transformation you went to starting in 2015.

And I think a lot of investors are going to ask, well, what happens at the end of the next 3 years if we don't see the double-digit revenue growth and if we're at operating margins in the single digits?

I mean, what's next?

And I don't mean to sound like the skeptic, I'm just trying to sort of anticipate what questions we're going to get tomorrow and what questions you'll get as members of the leadership team.

So I don't know, I guess those are my comments, and my question is what happens to this business if this change doesn't happen in the way you anticipate?

Well, it's good business, and we've got very, very deeply loyal customers, and they've got great applications.

And I meet customers all the time that they tell me they started working with us 20 years ago, and they've got 65,000 MicroStrategy reports distributed to tens of thousands of users that's not going away any time soon, and they're waiting for us to take them to the next level.

So I actually think it's going to work, and I think that it's pretty clear there's a lot of technology investments we need to make, and the wisest course of action is to move full speed ahead and make them.

I think it's also clear that just about everywhere we go, we have people saying, you're a really well-kept secret, and why don't people know about this and you should get out and spread the gospel a bit more.

So I expect that our investments in marketing and technology are going to result in the growth of the business.

And obviously, just like everything we do here, we review it every single quarter.

We review it every single quarter internally and we review it every single quarter externally with the investors.

So in 3 years, the investors will have had 12 quarterly updates, during which they're going to have a very, very intricate blow-by-blow, deeply analyzed breakdown of exactly what's working and what's not working.

All right?

And I think that it will be pretty clear what we do next.

I think, Greg, you're asking a very fair question, and it's one I ask myself, not having been here during 2010, '11, where the operating margins started to decrease with slight revenue increases.

And from an objective point of view, looking back at those years at MicroStrategy, it's almost an entirely different company at this point in time.

And so the market is in a different place for sure, but our company, in terms of our software platform, in terms of the leadership and the people we have in place, in terms of the processes and the intensity of the processes and transparency into our systems and, frankly, as Mike pointed out the transparency you get into watching us every single quarter, is quite different this time around.

And so where from afar it may seem like the same story being played over again, it's on a very different company than what occurred last time.

No, no, I appreciate the detailed response from both of you.

One quick follow-up.

The message I'm hearing that is that you're going to essentially double down on the analytics market when I think everyone on the call recognizes some of the competitive noise in the market and just how crowded the market is.

And you've -- MicroStrategy, as a company, has had some success in the past going into some adjacent markets like, I think, Alarm.com was an investment for you guys many years ago.

The security business with Usher is something.

So I guess, given the cash flow generation profile of this business and the strong balance sheet, how do you think about sticking to your knitting in the analytics market versus using this cash and trying to go after a different market that's not as crowded?

Well, I think that with regard to our balance sheet, we've been very conservative and responsible because we wanted to make sure that, that served as a source of stability for the business over the long term.

I think, what we're really talking about here is increasing the degree of focus of the business on the core business, and I think that's the least risky, most prudent thing for us to do right now.

And in a way, you could characterize it as increasing the expenditure, the scope of these areas.

But the truth is we're really building back our technology -- our technology chops, we're building them back on top of the version 10 chassis after having restructured and reengineered the product, and it's an appropriate thing to do.

And we're building back some of our marketing intensity that we cut back on 3 years ago, and the answers to being prudent like -- things like some of the trade show, marketing and the rest.

We used to do a lot more of that, and we pulled back on it because we couldn't get clear transparency.

We didn't feel like we had the controls over it that we wanted to have.

And so now that we've actually built new systems and controls in marketing and new systems and controls in technology, I think we got a matrix and a transparency that allows us to spend more money and be more comfortable with it.

(Operator Instructions) And our next question comes from Walter Pritchard of Citi.

This is Tyler Radke on for Walter.

I just wanted to clarify your commentary on the competitive environment.

And it seemed like Phong mentioned that, that was a source of potential weakness here in Q2.

And if I just contrast your commentary this quarter with what you said in Q1, with Birst getting bought and Tableau and Click kind of having some of their challenges, I was just wondering if you could kind of provide some context as to what's changed since then.

And then, if you've seen anyone in particular maybe making more noise relative to last quarter, that'll be helpful as well.

I think the universe is full of lots if not -- certainly not dozens, but it could be even 100 enterprise technology vendors in the data analytics mobility space that all want to get noticed, especially in the analytics space.

Some of them public, a lot of them private, privately funded, and all of them desperately spending money in order to get their story heard, whatever the story might be.

I think the great majority of all of them will disappear.

They're all going to either be bought or amalgamated or merge out of existence, up to and including even Tableau, I think, will eventually disappear.

It'll be bought by somebody because they don't have committed shareholder bases and they operate with extremely aggressive, more near-term goals.

But that doesn't change the fact that they're still spending lots of money, creating lots of noise in the market and you have to fight your way through that.

Be it -- some of -- you've got the Lookers of the world and the Domos of the world, and Looker will say you have to do this thing, and Domo will say you have to do that thing.

They've all got their narrative, whatever their narrative is.

And typically, the narrative is here's the new thing and the old stuff is no longer relevant.

And then you have to work your way through that and get into those sales cycles.

I think, if we contrast ourself to Tableau, they must be spending, if not 5x, 10x as much money on marketing as we're spending.

Some gargantuan amount of money, and that means that they just can drench, they can pour money and pour people just in every event, everywhere all the time, and it's becoming clear, based on what we've seen, that we're going to have to step up our game and increase the volume if we want to be noticed in that cacophony of noise.

Now I'm not -- it's not that I'm worried that we're going to not win.

I actually think that one of our strategies which has been very successful for the past 15 years is wait for our competitors to implode, and 99 of the last one hundred have imploded.

It's just a matter of time.

But what we're talking about here is growth.

I'm sure we'll be standing, but the question is how big will we be?

And if we -- if we're more conservative, I think we'll cede the parts of the market and market share to all these various players.

And if we get louder, I think we'll grab our fair share of the market and will be better for everybody associated with MicroStrategy for us to do that.

So that's what I think about that right now.

Got it.

And then if I look at your sales and marketing headcount, that's grown for about 2 years in a row, and you don't split out the composition of sales versus marketing, but I guess if you were to kind of evaluate your progress over the last 2 years and seeing where your headcount growth has been, would you just say that kind of some of the challenges have been more on the -- on kind of generating the pipeline versus the actual execution?

And related to that, can you talk about kind of your plans to improve productivity on the sale side?

I think we've got a really strong enterprise sales team right now, and we're pleased with it.

And I think we've grown marketing a bit.

We'll probably grow the marketing headcount a bit more than we grow sales headcount.

And I think the big moving part in marketing is discretionary expenditures with advertising and trade shows and other programs and co-marketing and partner programs as opposed to headcount-related.

You need a few people to execute these programs, but really, what you need is dollars to execute the program.

I believe that we will move the needle on headcount, and I expect we'll add hundreds of heads to the company over the course of the year or so.

But they'll be primarily in the area of technology.

So where we need heads and where we need talent is in engineering and product development.

We actually just need more dollars, a little bit of executive talent, but really a lot more dollars in the area of sales and marketing because the team is pretty complete for the most part.

And Tyler, in terms of the increases in headcount we've had in sales over the last year, as you know, we've built up sales team a reasonable amount.

We're happy with the team we have in place.

We'd like to see improved execution, improved productivity.

And the best way to improve their productivity is by providing through a marketing engine, better quality leads and better quality opportunities.

So that's where we think we'll start to see some real improvement in productivity of the sales team.

Got it.

And if I could just sneak in 2 quick ones on the quarter here.

So if I look at the maintenance revenue, Phong, if I'm doing my math correctly, it looked like, well, it did grow on a sequential basis; it was down just slightly year-over-year on a constant currency basis.

What was driving that?

I think you mentioned something along the lines of retail impacting the maintenance revenue.

It wasn't so much retail.

I mean, there's really 2 components to maintenance revenue, Tyler, as you know.

One is the renewal of maintenance of our existing customer base, and that continues to be quite strong.

And the second is adding new customers to the maintenance revenue.

And as we see slowdown in our bookings, which we saw for the last 3 quarters on a year-over-year basis, booking is going down, that then has a lagging, dampening effect on the overall maintenance revenue.

So that's the reason we've seen it go down on a year-over-year basis.

And then last question, just on international, I noticed that was -- it was probably weaker than the U.S., especially on kind of the mid and large deal size.

What was driving that?

I wouldn't call out anything in particular about international this quarter that was weaker than any other segment, weaker than North America.

So I would say that's more just general volatility, and we expect international still to be an important part of the growth.

Ladies and gentlemen, this does conclude our question-and-answer session.

I would now like to turn the call back over to Mr. Saylor for any further remarks.

I want to thank everybody for being with us today.

And for all of our shareholders, we appreciate your support, and we look forward to speaking with you again in 12 weeks.

All the best.

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

This concludes today's program.

You may all disconnect.

Everyone, have a great day.