Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MicroStrategy’s Fourth Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. Now, I’d like to welcome and turn the call to Mr. Michael Saylor, Chairman, President and CEO.

Hello, this is Michael Saylor. I am the Chairman, President, CEO of MicroStrategy. I’d like to welcome all of you to today's conference call regarding our 2016 fourth quarter financial results. I'm here with our CFO, Phong Le. First, I’d like to pass the floor to Phong, who is 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 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 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. Turning to our financial results. Overall, our Q4 financial results were in line with our expectation. We are also pleased with our overall full year 2016 financial performance. We believe we made the right investments in sales and marketing, research and development, internal systems, and recruiting, retaining and developing our people to start 2017 strong. At the same time, we continue to build a strong balance sheet. We are optimistic that these actions will help us growth as a company in 2017. Let’s start with more detail on revenues. Total revenue for Q4 2016 was $140 million, a $3.4 million or a 2% decrease year-over-year and an 8% increase quarter-over-quarter. We’ve experienced foreign currency headwinds in Q4…

Thanks, Phong. I’d like to share a few thoughts on my view of 2016 and the year in review and then I will speak about our prospects in 2017. With regard to 2016, I believe we made a number of strives forward in the business. We strengthened our product offering through a series of feature releases each quarter and we also delivered a platform release midyear, which provided a stable platform for our customers to migrate from 9 to 10 on. And that resulted in superior scalability, stability and deployability on our platform and I believe it’s been well received. We extended our product offerings in 2016. On the Desktop, we improved our desktop product dramatically and functionality as the year progressed. And Phong quoted out we got to the point where we’ve had 60,000 plus downloads of the product and we see this as a great tool for us to make entrées into the desktop analytics space and bring more people into the MicroStrategy ecosystem. We also improved our mobile offering in 2016 incorporating support for Version 10.4 into our mobile product improving functionality for offline, online access and parity between Android and iOS devices. And I have anecdotally heard from many of our customers that they are pleased with the improvements we made in the products and it’s made it much more deployable. So, I think we’ve positioned ourself well for a continued growth in mobile going forward. We improved our cloud offering in 2016 moving from what was really a package of technique that we sold as a service at the beginning of the year to the point where we actually have the set of deployment tools, administrative tools and management tools that we can distribute to our customers so that they can deploy our platform on…

Thank you. [Operator Instructions] And our first question is from the line of Abhey Lamba with Mizuho Securities. Please go ahead.

Yeah, thank you. Thanks for all the color on your initiatives into 2017, Mike. Can you drill upon the impact of this free download version that you started? When should we start seeing some revenues starting to flow from the pipeline you are generating there?

Yeah, I think that our expectations with regard to free download is that it’s going to generate more leads and open more prospects for us and we are going to use that in order to build our pipeline and funnel in. An you know, sales cycles in this industry run anywhere from six to nine months, so as we build our pipeline, I think we will see revenues flow from those leads in a normal expected enterprise timeframe.

Got it. And, Phong, you mentioned we should expect growth in 2017, should it be more uniform through the year or could there be chance of some choppiness along the way and is that a comment for total revenues or can we see license revenues also in 2017?

I think, Abhey, you saw in 2016 quite a bit of choppiness as we started to rev up the growth engine and I think it’s probably – it’s likely to be expected that we will still continue to see choppiness in 2017 especially the nature of the work that we do and the deals that we sell are so big, obviously, as our pipeline fills up and we get more larger volume deals and small volume deals to pad the choppiness, it will get better over time. The comment as far as growth in general was in regards to overall revenue growth.

Got it. And my last question is your hiring this quarter was much more moderate versus the prior three quarters, is it just a function of this being the fourth quarter or are you taking more prudent approach on expenses as you head into 2017? That’s it for me and congrats on a good quarter.

Yeah, as it relates to hiring in Q4, we do have some seasonality with our hiring. A lot of our hiring happens at the campus level in the U.S. and internationally, so we tend to see spikes in Q1 and Q3 as a result of that. So there is nothing as it relates to sort of the flow down in Q4 that I would say – I would relate to a general slowdown overall.

Thank you.

And our next question comes from the line of Jobin Mathew with Deutsche Bank. Please go ahead.

Hi, guys. Congrats on the quarter. Thanks for taking my question. This is Jobin on behalf of Karl Keirstead. So, just on the license revenues, so obviously I thought this was good quarter where deferred revenues were up 9%, support revenues showed a slight acceleration, headcount was good, but license was down 8% despite this being a seasonally strong fourth quarter. Do you guys have any comments there? Did you guys benefit from any additional pickup than normal in the third quarter? Is there a reason why fourth quarter licenses maybe came a little behind where we were expecting our – was this really in line with your expectation and could there be something that we are not seeing in the number, which would suggest there could be more licenses from the Version 10 upgrade cycle to come in next year?

Hi, Jobin, as far as just sort of the overall revenue trend, the outcome in Q4 was about what we expected, not significantly higher and not significantly lower. So we thought it as a reasonably good product license revenue quarter. We had a pretty touch comp versus Q4 last year. As you know, we had an extremely strong Q4 last year buoyed by a variety of deals across the board. We also had very good improvement in overall revenue in Q4 as a result of the pickup on the deferred revenue side and we thought sort of the opposite effect this year in Q4. I wouldn’t attribute that anything to just sort of other than the nature of some of the deals we saw. So if you’re to back out into sort of more of a bookings number, it actually was – looked a lot more flat than the product license revenue did. As far as the Version 10 buying cycle, I wouldn’t relate anything that occurred in Q4 to that and we are still seeing great traction in Version 10 [indiscernible] overall.

Got it. And in terms of your comments for next year, I know you said you guys are planning for revenue growth, but what are your margin expectations, can you hold operating margins steady in 2017 at the levels of 2016?

I think the goal as we’ve been managing the business today is to try to grow our cost with our revenue growth. I think what you saw in 2016 was revenue was flat to down a little bit and we did – 2016 was an investment year, right, where we were pretty more confident in the business to really get us on a trajectory for growth in 2017. As we go into 2017, the overall objective is to grow cost in line with revenue and try to keep our margins generally flat or within the range that we’ve talked about, which is that sort of 20% to 30% range, which we think overall is strong for enterprise software company.

Got it. In terms of your services revenues now beginning to come back, is that a function of more implementations happening, is that a function of you guys hiring for more training people, what’s driving that? Is that hiring in expectation of more demand or is that demand led pick in services revenues?

Yeah, I think, Jobin, as you are looking through the overall big picture of services revenues all the way from 2014 till now, we’ve been focusing on higher margin, higher build rate services and as a result, we started to swap out some of our lower build rate lower margin work, some of our sub-contractor work. And that really a two year evolution. Along the way also we were much more focused on the product license business in growing that and developing that and the consulting business was an area that we knew would – the growth would follow with the growth in the product license area. So we did see from Q3 to Q4, starting to see that flatten out. The decline in the business overall and we do hope to see that started to flattening out, if you will, sort of the bottom of the curve.

Okay, thank you. Thanks again.

And our next question comes from the line of Tyler Radke with Citi. Please go ahead.

Hi, good evening. I was hoping that you could touch on the overall execution in Q4. Phong, you mentioned that large deals were up I think over 70% year-over-year, but obviously license was down. So could you just kind of walk us through the puts and takes on overall execution?

I think overall execution was good, Tyler, and we did have some great deals over $1 million that we’re very pleased with, with some very large institutions across many different industries. I wouldn’t say anything execution wise is note worthy. There were not any significant split deals that were any different than any other particular quarter. We did have slightly deferral rates as a result of the nature of some of our deals that took place, but I wouldn’t consider that an execution mix or an execution issue. It’s just the lumpy nature of some of the deals that we end up doing in Q4. So I think the execution of sales in general continues to improve for the organization and we like where we ended up in Q4 from a product booking perspective.

Got it. And then on the cloud business, you guys talked a lot about that this quarter and just down like there is lot of excitement particularly around the AWS product but if I look at your subscription revenue which I believe is the correct line item to be looking at to measure the traction, that actually decelerated from Q3 and only increased sequentially a little bit. So just wondering how we should be thinking about performance of that business and that’s the right line to look at?

Yes, overall with the cloud business and I think Mike has mentioned as we started to retool the business focused on AWS in 2015, we started to rollout a lot better cloud tools spin up environments and to allow our customers to start to self serve on cloud, which we are pretty excited about and we think it’s pretty strategic in the business overall. As far as the deceleration that you’re seeing overall in our subscription business, I wouldn’t note that as anything specific about the cloud business. If you look at it on a full year basis year-over-year, we saw a 10% increase in subscription services revenue which we are pretty happy with as far as structure of our business 10% I would say is pretty strong. We look to see that on the product license side too and I think we have a platform that we can really grow into 2017.

And then last question on Usher, can you comment on how the Q4 performance was there? Any major wins? And then Mike, I’ve been here you mentioned Usher is key focus area for 2017, maybe I just missed it but can you talk about what your expectations are for the product into next year and if any of your investment plans there have changed? Thank you.

I think Usher remains a developmental business for us and so it’s earlier stage but in fact it’s been folded into our enterprise mobility offering. And so when I say we’re going to focus on enterprise mobility in 2017, I include Usher as one of the drivers because Usher includes a couple of really nice mobile capabilities that our customers are enthusiastic about. I think that our enterprise mobile business in 2017 will be benefited from Usher. And at some point, we’ll probably want to breakout some of the results but right now I think we are satisfied with the supporting role it is playing driving on mobile initiatives.

All right. Next question comes from the line of Greg McDowell with JMP Securities. Please go ahead.

Great. Thank you so much. Hi guys. Phong, one question for you and then I have one follow-up question. You mentioned $3.6 million reversal of an accrual and I think that was on the other income line. Could you just give us a little more details on what that reversal was?

If you look back at our Q1 financial statements, we go into some detail about the accrual and you could find the details there.

Okay. And then I notice that maintenance grew close to 3%, I think that was the fastest growth rate in a couple of years and I was just wondering if there was something different about what you’re doing with your maintenance agreements? Whether you’re putting in some – renewal rates are going up or you’re up in pricing a little bit but I was just wondering if you talk about maintenance and how sustainable this year-over-year growth rate is as we get into 2017? Thanks.

If you look at our overall maintenance business and Mike mentioned a lot of process improvements we put in place, so we have a customer success or customer support process that we have now in place. That’s really our sales team, our support team and our finance teams working together in conjunction to focus on the maintenance business. It is I would say a complete revamp of how we handle the business and so we’re pretty happy with the way that’s improved the business overall and it’s a combination of things, better tech support, its consistent health checks that we do on a quarterly basis with our customers, its collaboration and communication between our support folks and our customer success folks and our sales teams, it’s holding to increases in rates on a year-over-year basis that we’ve often allowed ourselves to negotiate out. And so it’s really across the board and then obviously the product has gotten better too and that’s made our customers more satisfied. As Mike mentioned, our customer satisfaction scores have increased significantly when you look at fourth quarter of last year and fourth quarter this year. We’ve gotten back to renewal rates that we believe are industry leading and what [indiscernible] and I think that should continue in 2017.

Great. That’s helpful. Thank you.

And our next question is from the line of Frank Sparacino with First Analysis. Please go ahead.

I guess, Phong, I just wanted to go back to the reversal comment, that $3.4 million should be added back on the G&A line so exiting the year, G&A is more $17.5 million expense rate?

That’s correct. Yes.

And then, Mike, just going back to your comments around your conversations with clients, MicroStrategy has been pushing on the mobile front for a long time, having been very successful there and I guess what I’m trying to figure out is what’s new incremental there that’s – a business that you can monetize, how do you generate new revenue from some of these new mobile initiatives that you’re talking about? And then is there anything else and those conversations with clients that stands out to you around spending as it relates to MicroStrategy or just BI in general?

Yes, good questions. First of all, our enterprise mobility offering is number of things but partly it’s the MicroStrategy mobile analytics clients and partly it’s the MicroStrategy badge and the MicroStrategy Usher mobile app. And so there are different clients and we license them independently. So as customers increase the number of mobile clients they deployed and there is a revenue opportunity for us. We expect that broader deployment of mobile may actually drive some additional server modules in 2017 and beyond that will be rolling out. So I think that that’s another opportunity for us. And of course, as customers deploy mobile applications, they normally deploy more apps to more users and so it even drives capacity licensing or named user licensing as they get more prolific. And lunch I had with about 18 customers just last week. I went on table and asked them, what their most exciting initiatives for project rollouts were in 2017? And probably three quarters of them all said, they are rolling out mobile applications on our platform and they are very excited about it. So I think that we’ve been offering mobile for a while but in 2017 I sense that the mobile wave is stronger than it has been in previous years and I also believe that we have a better offering and a broader offering. So I think these are all auspicious signs.

Thank you guys.

And ladies and gentlemen, this concludes our Q&A session. I would like to turn the call back to Michael Saylor for any final remarks.

I’d like to thank everybody for your support and we look forward to seeing you again in three months, so all the best for the New Year. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.