SAN FRANCISCO (03/20/2000) - MicroStrategy Inc. saw its share price plunge more than 60 percent today after the software and services firm announced it was revising its revenue and operating results downwards for both fiscal 1998 and 1999.
The revisions are designed to bring MicroStrategy into compliance with new U.S.
Securities and Exchange Commission (SEC) guidelines concerning how software companies report their revenue, company officials said in a statement issued today. The changes will affect the timing of when MicroStrategy reports sales from large projects, but won't affect the net cash flow or amount of revenue that the company ultimately expects to report, the officials added.
However, such assurances weren't sufficient to placate Wall Street.
MicroStrategy's shares on the Nasdaq stock market fell $140 today to close at $86.75, a drop of 61.7 percent over Friday's closing price.
In addition, the company today was slapped with a class-action lawsuit on behalf of all shareholders who bought common stock in MicroStrategy between June 11, 1998 and March 17, 2000. The complaint filed in the U.S. District Court by lawyers Schiffrin & Barroway LLP alleges that MicroStrategy and some of its executives reported false and misleading financial results over that period, in particular, overstating the firm's results during fiscal 1998 and 1999.
The news comes a few days after Michael Saylor, MicroStrategy's billionaire president and chief executive officer, pledged to donate $100 million to start a free online university. [See "No More Pencils, No More Books...," March 17.] Published reports put Saylor's personal loss at around $3 billion as a result of MicroStrategy's stock-slide.
In a statement today, Saylor said the revisions in the company's results reflect changes in MicroStrategy's business model, which has shifted towards increasingly complex financial deals that involve both license and services fees. Some sales that include service relationships will be accounted for using "contract accounting," which spreads the recognition of revenues over the entire contract period. The effect of the alterations will be to defer the time when revenue is recognized for large, complex contracts that combine both products and services, company officials said.
As a result of the changes, MicroStrategy will reduce its fiscal 1999 reported revenue from $205.3 million to between $150 million and $155 million, and its results of operations from a diluted net income per share of 15 cents to a diluted loss per share of between 43 cents and 51 cents. Deferred revenue at Dec. 31, 1999 will increase from $16.8 million to between $66.5 million and $76.5 million, the company added.
MicroStrategy will also reduce its reported revenues for fiscal 1998 from $106.4 million to between $95.9 million and $100.9 million, and its results of operations from a diluted net income per share of 8 cents to a diluted net income per share of between 1 cent and 4 cents, according to the company's statement.
In light of the revisions, MicroStrategy said today that its operating results for the first quarter of 2000 are likely to be below analysts' current estimates. The company also said it will postpone plans for a proposed follow-on public offering.
The revisions follow a recent detailed review of the MicroStrategy's larger contracts and future business strategy by the firm's auditor PricewaterhouseCoopers LLP, who also worked with the company on the reporting of its fiscal 1998 and 1999 financial results.
"The accounting rules governing the software industry, and, in particular, software revenue recognition, are complicated," according to a statement from MicroStrategy attributed to PricewaterhouseCoopers. "This is particularly true in an evolving business like MicroStrategy's. In light of these facts, we agree with the company's decision to take the action announced today."
MicroStrategy will report the details of the revisions to its 1999 year-end results in its annual 10-K report, due to be filed with the SEC on or before March 30, 2000.
Based in Vienna, Virginia, MicroStrategy can be contacted at +1-703-848-8600, and on the Web at http://www.microstrategy.com/.