Good afternoon, ladies and gentlemen, and welcome to the MicroStrategy Q2 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.I would now like to turn the conference over to your host, Mr. Michael Saylor, Chairman, President and CEO. Sir, you may now begin your conference.

Hello. This is Michael Saylor. I'm the Chairman, President and CEO of MicroStrategy. I'd like to welcome all of you today to today's conference call regarding our 2019 second quarter financial results. I'm here with our Chief Operating Officer and 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 the 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. Reconciliation schedule showing GAAP versus non-GAAP results are available in the Form 10-Q we filed with the SEC after the close of market today and in our press release that was also issued today, which is located on our website at www.microstrategy.com.We are generally pleased with our performance in the second quarter, which demonstrate continued progress executing on our strategic objectives. MicroStrategy 2019 is driving demand for our software, a redesigned and repackage MicroStrategy Cloud Enterprise product that's showing initial signs of success and our proactive enterprise support offering is increasing customer engagement.Internally our executive team, employees and departments are as tightly aligned as we've ever been. The consolidation our competitive environment needs will be the largest independent business intelligence platform company in the world. We believe this is an advantage for customers who want open BI platforms that are not tied to a particular enterprise software stack.As…

Thank you, Phong. I'd like to touch on a few areas of interest. I'm incredibly excited about where we are as we move into the second half of 2019. On the marketing front, our HyperIntelligence and our federated analytics messaging and messages are resonating really well with customers and partners and prospects.I feel like they have repositioned the company from being a legacy enterprise platform vendor to being a modern analytics and intelligence architecture. And so they're helping us a lot with new business development as well as recruiting morale. It's really been a big shot in the arm for our existing customers as they work to build excitement for MicroStrategy deployments within their enterprises. And they allow us to work really, really effectively with other tools like PowerBI and Tableau and Excel and the like as well as a lot of the data science platforms like Jupiter and SDKs like Xcode and Swift et cetera.So activating the analyst community, the data scientist community and the software application developer community is a big part of MicroStrategy's enterprise platform strategy. And MicroStrategy 2019 really dramatically upgraded our ability to do this.We really started hammering on these messages the beginning of the year. We've now got enough feedback from the market to have a high comfort level that they are working and they are the right decisions.Following the Tableau acquisition by Salesforce, there are now five major full stack vendors in the business intelligence space: SAP, IBM, Oracle, Salesforce and Microsoft. The market needs and it desires an independent intelligence platform vendor. MicroStrategy is now the leading independent platform in this space and we have good support from the analyst community and a strong set of assets offer the market.I think if you move around the industry, you see Oracle's got a…

[Operator Instructions] Your first question comes from the line of Hamed Khorsand from BWS Financial. Your line is now open.

Could you first-off talk about the headcount reduction in sales and marketing and how that actually does not impact any kind of future revenue growth potential?

Hi Hamed, it's Phong. It's a good question. As you probably noted over the last couple of years, we added quite a few headcount to sales and marketing. In some cases, these were overlay folks in the sales teams. In some cases, these are adding to regions that were sort of growth regions in the second and third world countries. And in some cases, these were marketing heads to further some of our digital marketing work and some of our business development.And I think what we observed over the last year or so is that they were not adding the level of revenue or productivity that we expected or needed. And so we're able to reduce them while still increasing revenue and overall productivity. And we looked at each of those very closely and worked very closely with our field teams to make sure we're making the right decisions. But ultimately for the kind of growth we need, there's still a lot of room in the headcount we have. And so, I don't think headcount is really the lever to grow. I think its more productivity out of our existing high-performance reps.

Okay. And then, could you just talk about this, HyperIntelligence? I mean last quarter you were talking about having in dozens now you're talking about 50. How fast can you get these customers upgraded this year, as far as those 500 that you're targeting?

Yeah. So, there's a couple of sort of things in that question there. First just in terms of our upgrade activity, we've had pretty good traction. We had entered the year knowing that we wanted to upgrade the vast majority of our enterprise customers, by the middle of 2020. And we're on pace for that.Upgrading the customers is going to result in potential upsell. And as you mentioned, we did about 30 revenue-generating HyperIntelligence deals in Q1. And we saw about 50 this quarter. And we expect to continue to accelerate that.And the nice thing is, as customers take 2019. They tend to get a demo or proof-of-concept of HyperIntelligence. And we find everyone that does that demo of proof-of-concept is instantly, enamored with the product.And then, it's a matter of them figuring out, what are the right use cases for HyperIntelligence. And so there's a bit of a snowball effect, as we see certain customers have certain use cases, where we will share it with other prospects and customers. And we continue to see a lot of good traction.The other nice thing about HyperIntelligence that Mike talked about a little bit is, it's really a new product widget and it positions us as an innovative BI Company again. So our sales people get excited about it, our customers get excited about it. It creates this aura of innovation in the company.And then our marketing folks get excited about it. And our prospects get excited about it. So, it still continues to go really well. And we add product features every quarter, right?We launched HyperIntelligence in Q4, as a web-based product. In Q1, we added a mobile capability. And now in Q2 we've added an, Outlook-based capabilities. So we're able to continue to add, feature functionality every quarter.

Okay. And then, as far as the customers that have upgraded so far this year .What are you seeing as far as incremental revenue coming from them? Are they broadening the usage within the work force?

Yeah. I think when we see customers upgrade, they tend to do so with the expectation, that they're either going to increase their footprint of MicroStrategy at the current enterprise that they're in.Or they increase the usage of additional tools, like our mobility tools, Library and Dossier or HyperIntelligence or Federated Analytics. We haven't published. And we're not going to report on sort of the incremental revenue that comes from customers upgrading.But we're seeing a positive trend there. And of course you can imagine its not immediate revenue right like a customer may upgrade to MicroStrategy 2019 in Q1, which then initiates the sales cycle, which are typical sales cycles six to 12 months.

Okay, thank you.

Your second question comes from the line of Tyler Radke. Your line is now open.

Thank you. Good afternoon. Did you talk about the contribution from HyperIntelligence in the quarter? I know you talked about 50 deals that included that. But just give us a sense on the magnitude of the revenue contribution?

Yeah Tyler it's a good question. We're not yet prepared to break out revenue associated with HyperIntelligence. I would say it's not a significantly material amount or product license revenue yet.It's a noticeable contribution. And more so than just a specific, set of revenue coming from HyperIntelligence is the fact that a customer is interested in, buying more overall licenses of MicroStrategy at which they attach HyperIntelligence.So HyperIntelligence is creating, like as I mentioned, sort of an aura of innovation and confidence in MicroStrategy the product overall. Also, I'm not sure we'll ever really be able to break out product-specific revenue on things like HyperIntelligence or Frederated Analytics.As you probably know we tend to sell the products together. And then discount them together. So it's hard to break out product revenue contribution from any particular product.

Great and then maybe a question for Michael, You talked about how the acquisition of Tableau by Sales force is kind of creating an opportunity. Have you seen any signs thus far either changes in win rates or just anything competitively, that gives you that confidence, or any other color that you've seen along the competitive front that gives you more confidence there would be great?

Recently, as recently as about a year and half ago, the usual suspects were Tableau and Click and they were the hot cool newcomers spending huge amounts of money with new technology. And as soon as Click got taken private, we noticed that they lost a step. And a year after that privatization, the consensus across our entire sales organization is Click is not nearly so competitive or aggressive, anymore nor are they being taken seriously. They've got an enormous brain drain of sales, marketing and technology talent and kind of the energy has fled out of it.Tableau's acquisition with Salesforce is a newer thing and it won't – it's not even yet closed, I assume. So if we look out a year from now, I think that we'll be in a position to give you some concrete takeaways from that. But it's already having an impact on analyst perceptions and customer perceptions. Everybody's got to just go through the calculation of what does this mean for support for the Salesforce Cloud versus the AWS Cloud versus the Azure Cloud. And they are different very different culture. Salesforce of course famous – has been very successful, with a very famous slogan that they ran for 20 years in advertising, and it was no software like they don't ship it, you can't buy it, you can't download it. There is none. And Tableau is almost diametrically opposed success, which is they created a very nice piece of software running on a PC workstation for an analyst, who is fatigued from Excel and wanted to download something, pay for it with a credit card and build something cooler. So there is two different technical strategies there. And then how is that going to morph into the future, nobody knows but a lot…

Great. I appreciate the perspective. And if I could just ask one more for Phong. Maybe talk a little bit more about your expectations for the back half of this year. I think obviously nice to see kind of the first quarter of growth on growth in a while here. Comps are easier in the second half of this year. What are you thinking in terms of overall license revenue or license revenue growth and overall revenue growth as we get to the second half? Thank you.

Yes. Thanks, Tyler. As I mentioned in my prepared remarks, I think we saw a reasonably good product license revenue growth on a constant currency basis in the first half of the year and we'd like to see that continued trend in the second half of the year. I think our support business has been chugging along and it's been consistently growing in that 1% to 2% range on a constant currency basis. And I think that's a good run rate for that business given our product license revenue growth.I think on a services basis that's been an area of decline as we refocused that business. And I think with some of the actions that Mike had mentioned around more competitive rates and some consolidating and rebranding and repackaging of our services business, we should start to see that business turn around. And our goal as I mentioned before is to continue to streamline the business and cut some costs and generate some positive operating margin. So my expectation is the second half of the year is more of the same with the first half if not better.

Thank you.

[Operator Instructions] We have a follow-up question from Hamed Khorsand. Your line is now open.

Hey, just want to understand your -- as far as your confidence here in the business, what are you seeing in the pipeline of bookings that's giving you this kind of confidence? And you're talking about Click and Tableau, but are you picking any of the people from there, or are you taking advantage of the sales flip-up? And could you just provide a little bit more of a granular color towards that commentary you're making on the call?

Yes, Hamed. I mean first of all just from a pure pipeline perspective, I think Marge has been here for about a year now half of which she has been able to leverage the success in the 2019 platform and a lot of the operational changes she's put in place to the marketing team and the business development team. And so, we are seeing a material increase in our pipeline and further increase quality of the pipeline and in our ability of the sales team to convert the pipeline.As far as our observation, vis-à-vis competitors like Click, I think it's less so that we're seeing more and more wins against some of our competitors, but we are seeing fewer of those competitors in the marketplace and so that gives us some more strength. That said, PowerBI and Tableau continued to be very strong competitors and we go give them more and more. So the competitive environment, I wouldn't say is getting stronger or weaker. It's about the same. And as far as Mike's comments about the consolidation in the marketplace, I think those are more longer-term views into where this business may go over time.

Okay. My last question is this voice.com sale, was this just a onetime event? Are you looking to liquidate your entire portfolio now, or is it just purely from a solicitation standpoint of someone coming to you?

We're opportunistic on these sorts of transactions. We certainly would never be in a rush. We held some of these domains for 20 years and we're prepared to hold them for many more years until we find someone that values them more than we value them. So, I think we're willing to enter into strategic transactions if we find the right partner, if we think it's a worthwhile endeavor but we're in no hurry.

All right. Thank you

Ladies and gentlemen, I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Michael Saylor. Sir, you may proceed.

Well I'd like to thank everybody for their support. We appreciate it. We're looking forward to the third quarter and we'll speak to you all again in 12 weeks. Enjoy the rest of your summer.

This concludes today's conference. Thank you for your participation and have a wonderful day. You may now all disconnect.