Good day, ladies and gentlemen and welcome to the MicroStrategy Q4 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your Mr. Michael Saylor, Chairman of the Board and Chief Executive Officer. Please go ahead.

Hello. This is Michael Saylor. I am the Chairman and CEO of MicroStrategy. I want to welcome you all to today’s conference call regarding our 2014 fourth quarter financial results. I’m here with our Presidents Jonathan Klein and Paul Zolfaghari, and our CFO Doug Thede. First, I’d like to pass the floor to Doug who is going to read the Safe Harbor statements and make some comments on our results for the fourth quarter.

Thank you, Michael. Appreciate it. Various remarks 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 reflected upon as representing our views at any subsequent date. We anticipate subsequent events and development will cause the company’s view to change. However, 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. Now turning to the press release we issued earlier today, since I assume that you’ve all seen the press release, I thought it was best to simply note some highlights and make some brief observations on our fourth quarter results. As stated in the press release, our total revenue of $149 million reflected a decline in our product license and subscription services as compared to the fourth quarter of 2013. While we did have a promising 64% increase in our subscription services revenue, this was more than offset by a decline in our on-premises product licenses revenue, which approximately 56% was generated domestically and 44% internationally. Our product support revenues grew 3% from the fourth quarter of 2013, reflecting continued strong renewal…

Thanks Doug. As Doug said, during the third and the fourth quarter of last year, we spent a considerable effort restructuring the firm and we streamlined our operations. We reduced our cost structure. We refocused our executives, I think around a new set of objectives. But clearly with regard to the revenues in the fourth quarter, we were disappointed and although they weren’t what we wanted, they weren’t completely unexpected either. I would attribute our product license revenue results in Q4 to a couple of factors. One I think was and the obvious explanation is the distraction of senior management in the sales organization as we are going through the restructuring. But I also think that the weak results were a result of weak execution in the sales, marketing and technology organizations of the company. And to that effect, we’ve replaced senior executives throughout the sales, marketing and technology organization in the past three to six months. We have a new head of worldwide sales, David Rennyson who just started with us at the beginning of the year. We have a new Head of Technology, Tim Lang and he just started with us in the back half of this year. And we have a new Head of Marketing, Mark Gamble. I think all three of them are better suited to the role of operational execution, especially in the 2015 timeframe and I’ve been pretty pleased with what I’ve seen so far. I'm optimistic that the execution within the business is going to improve and that we are going to deliver products in a more timely fashion, that our marketing messages are going to align with those products better and with the sales organization more effectively, and that the sales organization is going to execute better both in the field, the…

[Operator instructions] Our first question comes from the line of Karl Keirstead with Deutsche Bank. Your line is now open. Please proceed with your question.

Thank you. I've got two. I'll direct one to Michael, and then the second one to Doug. Michael, on the revenue side, I think most investors on this line were prepared for some weakness given the obvious risk that you are taking MicroStrategy through a big reorg, and there would be some distraction and execution issues. So perhaps the magnitude is a little better, but not a surprise. But I think where everybody could use a little direction is, if we assume that 4Q is a little bit of an anomaly and we try to look out to 2015, I just wanted to ask you directly how confident you are on the back of the 10% revenue decline that MicroStrategy posted in the fourth quarter, how confident are you that you can post positive total revenue growth in 2015?

I think the fourth quarter is always more volatile, right? You are either going to get more upside or more downside just because of the seasonality of the business. I agree that it's more volatile than we like. As I look out at Q1 through Q4 of this year, I feel like we’ve got a stronger product offering this year than we had last year, and we’ve got a stronger management team and we’ve got stronger business processes in place. So I’m cautiously optimistic.

Okay, great. And then, Doug, I want to ask you, on the margin side, the non-GAAP operating margins of almost 27%, I really wanted to ask you how good a benchmark that is thinking forward. On the one hand, I would argue one should never extrapolate from the fourth quarter, given that it tends to be the seasonally strong quarter. But in this case it certainly wasn't seasonally strong for MicroStrategy and my guess is you really didn't get a full quarter of the cost-cutting benefits dropping into that operating margin line. So that would lead me to conclude that you could sustain this kind of level. So I'm not asking you for precise margin guidance for 2015, but for those of us that want to at least use 27% as a benchmark to model up or down, what are some of the things you might offer us to sharpen our outlook for 2015?

Well, the one thing that you should always take a look at and it doesn’t show up to a non-GAAP reconciling item, but it is the capitalization of the software. We had as I mentioned capitalized $6.1 million in software cost, meaning that we incurred the costs, but as opposed to expensing it, we basically put it to our balance sheet and we’ll amortize it once the asset -- once the software goes live we’ll amortize that over three years. You should definitely take a look at that piece of it. But look, we’ve obviously cut a lot of costs and I won't say 27% is the margin I think we’ve talked to about a lot lower number in prior conversations. But we are happy with our cost cutting. We’re happy at the fact the restructuring is essentially over and we are going to be watching our cost and making sure as I mentioned before that we are getting the ROI on this cost going forward.

Okay. Thank you both, and we'll see you tomorrow at the event.

[Operator instruction.] Our next question comes from the line of Greg McDowell with JMP Securities. Your line is now open. Please proceed with your question.

Thanks for taking my questions. Another execution-related question: I was just wondering if you could maybe dive a little bit deeper into some of the execution-related dynamics, and whether you would characterize some of these deals as just merely pushing off into the New Year, or versus competitive losses, versus deal shrinkage. And I guess as a second part of that question, have some of the deals that pushed into 2015 closed already?

This is Michael. I think that the causes of the results in Q4 were multi-faceted enough that I would hesitate to put my finger around any one of those thing that you mentioned. I do think that as we look into 2015, a stronger sales operations function with new leadership, and we have a new executive in charge of sales operations will be helpful, I think that a new sales leadership organization at the top will be helpful. I think that we had some slippage, not of deals, but we actually expected we would bring our share to market earlier and our MicroStrategy product line would come to market earlier. I think that delivering our new products will be helpful to us and they will catalyze new demand and open up some new application opportunities for us in 2015 that we weren’t able to capitalize in the fourth quarter of 2014. I think that there are some opportunities in the marketing area to improve our business development and our marketing and messaging focus. I think we missed out on some of those things in Q4, but I see every indication that our marketing organization is being fired on many more cylinders right now and it's become much well aligned with our product and our sales operation. So I think those things will helpful as well. The core underlying business I think is extremely healthy and you can see that in the very healthy maintenance base and renewal basis, a large customer base out there for us to sell to. The secret to selling to them is to bring something new to the table. So a refresh of our analytics line, a refresh of our mobile line, a refresh of our cloud offering and a GA on our security offering, those are all going to be very good factors for us. I think a refresh on our educational offerings to bring them in line with 2015 market needs is going to be another useful thing for us. And I think that just managing the operational details of the business more closely and carefully are all going to be helpful. And so if we do these things is 2015 I think we are going to see good results versus 2014.

Okay, thank you. One quick follow-up related specifically to security offering and Usher. Certainly we've heard a lot about a lot of active pilots and that's great to hear. And I know you have a number of large customers looking at the product and looking at the solution. But as we think about Usher this year, how should investors -- how should we measure success of Usher this year, besides revenue of course? Is it number of go-lives? Is it number of deployments? Just how are you guys thinking about at the end of 2015 whether or not Usher was a success or not? What are some of the benchmarks we should look for?

I think when we consider the product line, clearly we want it to look like a material business for us in revenue terms, which means it needs to get north of $10 million as quickly as we can. If we haven’t got a material revenue business by the end of the year, then I think we’re all pretty disappointed. How much beyond that and how fast it goes is always the question. I think with regard to non-material revenue items, we are going to want to see a lot of reference customers and reference deployments that we can use in our marketing and in our sales process. Visible successes with reputable enterprises as they deploy is the second factor. I think the third factor is we want to see this enterprise security platform embraced by our partner community. There are organizations which have 10 to 100 times the cloud in the marketplace than we have. Really big banking partners, really big facilities and physical access control partners, really large defense contractors and really large system integrators. As they start to get more comfortable with it and start to put it into their operations, that could be a big game changer for us. And I think those are the three things that we’d be looking four. Some of them are more leading indicators than the others.

That's helpful. Thank you very much.

[Operator instruction] I'm not showing any further question at this time.

Okay. I want to thank everybody for being with us today. I appreciate your time and your attention and we look forward to speaking with you in 12 more weeks.