Ladies and gentlemen, thank you for standing by, and welcome to the MicroStrategy Q1 2020 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions].I would now like to hand the conference over to your speaker today, Michael Saylor, Chairman, President and CEO. Please go ahead.

Hello. This is Michael Saylor. I'm the Chairman, President and CEO of MicroStrategy. I'd like to welcome all of you to today's conference call regarding our 2020 first quarter financial results. This has been quite an unusual and eventful quarter for the world; and for MicroStrategy, we’re about to share an update. I will start with the change in our leadership team. Lisa Mayr has decided to resign from MicroStrategy to pursue other opportunities. We wish her well. I’m happy to announce that in her place Phong Le has agreed to resume his duties as CFO in addition to continuing his role of COO. He is here with me today and we will start by sharing our Safe Harbor notice.

Thank you, Michael, and good evening, everyone. Some of the information we provide during today’s call regarding our future expectations, plans and prospects may constitute forward-looking statements. Actual results may differ materially from those forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-Q filed with the SEC. We assume no obligation to update these forward-looking statements which speak only as of today. Also during today's call we'll refer to certain non-GAAP financial measures. Reconciliations showing GAAP versus non-GAAP results are available in our earnings release which was issued today and is available on our website, www.microstrategy.com.I'd like to begin by saying we hope you and your families are staying safe and healthy in this difficult time. The COVID-19 pandemic is an unprecedented global emergency that’s fundamentally changed our business as being done, at least in the near term. At MicroStrategy we've successfully instituted a work from home initiative for all of our employees. I am pleased that how quickly we're able to make this transition. While working from home is not a perfect substitute for our normal working environment, it does present challenges. I want to thank all MicroStrategy employees for quickly adapting to the situation and their dedication to ensuring our customers' success.Before I review our first quarter results, I want to reiterate a few key points about MicroStrategy’s financial strength that we believe are particularly important in the current environment. As the management team, we will take the steps necessary to work through this economics and public health crisis, while also helping to ensure we're making the investments necessary to capitalize on our market strength.We have a strong balance sheet with more than $500 million of cash and short-term investments and no debt. MicroStrategy is a 30 year old business…

Thanks, Phong. Yes, as Phong said, there are challenging times, but we feel pretty good about the path ahead. We're pretty seasoned company. We’ve been around 30 years. We've lived through a number of other crises. About every 10 years, there's normally a difficult time. I think our balance sheet is a great asset. We're sitting on all cash with no debt and so we’re -- we can calmly think about how we want to move forward.I think we've made the right structural decisions over the last few years to create a very efficient P&L. We're structured to generate cash flow. We've got very stable recurring revenues. We've got flexible cost structure. I'm enthusiastic about the fact that we have a modern open platform. What we're seeing in 2020 is a major digital transformation and certainly one transformation is to work remotely via Zoom. And the other transformation is work out of the cloud. And so we're really looking at, what I'll think of is, as an explosive virtual wave of change.We’re positioned well with it because our platform runs equally well on AWS or Azure, and because we support Windows and Linux, we can move seamlessly between the enterprise and the cloud and we're well positioned to bring online Google support later this year. I believe that we're going to see increasingly companies are going to want to be able to move between AWS, Azure and Google as they become more dependent upon cloud bandwidth.Our Enterprise Intelligent offering is in more demand than ever I think. Our HyperIntelligence, mobile intelligence and web intelligence, all still resonate very, very well with the marketplace. We've got a good remote delivery model. We can deliver our software remotely and have. We’ve learned that we can deliver services remotely. We restructured our education…

Thank you. Our first question comes from the line of Tyler Radke with Citi. Your line is now open.

Maybe you could start with you Phong, appreciate the color on some of the trends that you're seeing out in the field. Maybe if you could just elaborate in terms of, if there's particular verticals or a segment of customers that you're seeing those deal slippages come from, are those the same customers that you perhaps anticipate renewal rates to be pressured. And do you have any sense on when those headwinds could reverse? I am just trying to understand if you anticipate the renewal rates to be worse? Are they turning off MicroStrategy or they’re just going off support? Maybe it would just be helpful to clarify that. Thanks.

Hey, Tyler. Thanks for the question and I hope you're doing well too. As far as the deal slippage from Q1, as I mentioned, a lot of it happened in the last few weeks of the quarter and it wasn't necessarily any particular industry or segment. A lot of what we heard from customers who are still very interested in our software and incremental purchases was especially, hey, we're just really focused on business continuity right now, so where an IT department was ready to implement increased usage for MicroStrategy. They were now just figuring out how to make sure every one of their employees had locked laptops so they could work offline or work from home. And that isn't particularly in any industry. It was really just a lot of customers would have had to turn and focus on that sort of immediate first couple of weeks. And those cases, we're continuing those discussions now and most of them have gotten through the first two to four weeks of disruption. And I think those deal cycles are looking positive. So that's sort of the first part.On the renewal rates, I think it's early to tell. Certainly there's some impact from customers who are seeing revenues decrease in areas like travel and hospitality and restaurants and those areas. But it's not sort of a predominant case of where our customers are concentrated. Nor is it -- nor are we in a place where we can say we're predicting a trend yet. I think as we're seeing in the world and we're seeing sort of in the macroeconomic sort of environment, I think Q2 will tell us and tell a lot of our customers a lot about sort of where this is all going to go.So as I mentioned in sort of our prepared remarks, it's still early to predict how this will impact our product support revenue streams. But as Mike mentioned, I mentioned, we're well prepared to be reactive and proactive with our customers.

And just to follow up on that I guess if I look at the deferred product support revenue, I know you talked about some -- a few different dynamics in terms of invoicing and delays that wasn't sure if that was on the subscription or product support line. But with product support, deferred product support being down roughly 5 million year-over-year. Is that kind of what you're looking at in terms of the concerns of potentially seeing that the headwind itself in reported revenue or is it something in the pipeline that, that gave you the caution on the support rates?

Yes, I think the only thing that you really point to as far as actual financial impacts is our product license revenue. And as I mentioned, that's because we pick up a lot of that in the last couple of weeks of the quarter. The slight decline in product support revenue was primarily related; one, to FX impact, which we continue to see some headwinds there; and two, some of that revenue moving from product support over to subscription. So nothing immediate. We definitely are having conversations, right, like even in the last few weeks with customers who are asking for delayed payment terms. We're seeing a lot of that, right? Our standard payment terms of 30 days and we have customers asking for 90 days, 180 days. And then we do have a small section of distressed customers who are asking for relief on their maintenance. So nothing sort of in the actual Q1 financials I’d point to, but more conversations we're having with customers through our customer success channels and through our sales channels.

Great. And then my last question, I apologize I joined the call a couple of minutes late. But could you just talk about the CFO transition and I think that, that probably caught a lot of folks by surprise given that the short tenure that Lisa Mayr had, but what -- anything that call out there and then are there other plans to hire another full time CFO and what are your just thoughts on that transition?

Nothing as far as the transition itself. Lisa, sort of resigning and going on to look for other opportunities that I think is worth expansion. I did this job six months ago for four years. I'm actually looking forward to doing it again. So fortunately for her, maybe, unfortunately for all of you, you get to talk to me again and more. And as far as our plans going forward, I don’t-- we're not immediately planning on searching for a CFO. I think the nice part is as I ramped up in the second half of the last year with sales and consulting, I was able to put in a pretty strong leadership team and a deep bench. We've promoted a bunch of people from within, so I feel like the leadership and sales and consulting has really stepped up, which allows me to better split my time between finance and operations. And I'm actually really looking forward to it and hopefully you guys all are too.

Next question comes from the line of Hamed Khorsand with BWS Financial. Your line is now open.

So a few questions here. Is there any risk of less usage of customers have employees working from home? Would they need less services in consulting?

Yes, a good question Hamed and it's maybe two parts. In terms of use of our software, I think the answer is no. If you look, study sort of previous downturns in the economy, we noticed that people using our software for operational purposes, especially, tends to increase, not decrease. As people work from home we'll see more of a move to the cloud. And if supply chains get more complex and I would say more scrutiny, I think our software will increase in usage too. So on a per customer basis, they're still operating. I'm not too worried there. On the consulting side, I do think when people are working from home there is less of an interest in spinning up large consulting engagements and major IT improvements and capital spend associated with consulting. We saw a little bit of that towards the end of the Q1 and we're seeing some of that in Q2. So I do expect for the period of the COVID-19 disruption, a impact on our consulting revenues.

And then how you’re navigating this environment as far as sales goes and hitting quotas, if quotas exist at this point just given that everyone you would be targeting is working from home?

It's interesting, if you'd asked me six weeks ago, I would've said we're still figuring it all out. We have fortunately been in an environment where all of our sales people generally speaking, are working remotely anyways. So it's not as if it's a major change to how they operate. The differences instead of meeting a customer in an office, in the middle of Manhattan or London or in the Bay area, they're doing it remotely via Zoom or WebEx and actually it gives them an opportunity to increase productivity so that they're not traveling three, four hours a day and they're able to meet 3 to 4x the number of customers. So we've actually seen some pleasant outcomes there. And the customers are getting used to it too.On the side of quotas, yes, when you're down 30% year-over-year in product license revenue, I think sales people look at Q1 and do worry about their ability to make money. As I sort of mentioned earlier, the pipeline is strong. And so I think people see positive outcomes as we go through the rest of the year. And our hope is that our customers start to transition from a reactionary focus on business continuity mode to a proactive take advantage of the situation and really start to invest in analytics again. And I think that'll be positive for our sales folks. So I think we'll learn a lot as to how our customers and our sales folks will react in Q2.

And last question, though, any upgrades gets done when companies have employees working remotely? I mean what’s the enticement to do anything?

That's been -- and Mike talked about it, the pleasant surprise with our business, if you will, is we gave out free education expecting maybe a few thousand customers in our sort of best case scenario to take it in over 15,000 unique customers and partners signed up for education. And what realize is while people are working from home, they actually have more time and they want to brush up on their resume and they want to brush up on their experiences.With upgrade, especially because it's free, it's the perfect substitute for capital investment, either in software or in services. And we found -- we've actually improved our ability to upgrade remotely and we're seeing good positive outcomes and upticks in upgrade activity also. So, those were, I would say, two scenarios where we actually took advantage of the current situation to give something back to our customers. And obviously, customers who get educated on MicroStrategy and upgrade to our latest platform show that they're highly engaged with our software. And when the time is right, they'll buy more education, they'll buy more services, they'll buy more software. So we've been pleased with how we've been able to pivot on that. And I think the customers see it as a very positive sort of thing for us to do in a time of need for them.

Thank you. We have no further questions at this time. I would like to turn the call back over to Michael Saylor for closing remarks.

I want to thank everybody for your support over the past 12 weeks. I want to wish you all the best to come. I know it's very difficult time. We appreciate you being with us today and all the best. We'll speak with you in 12 more weeks. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.