Strategy Inc (MSTR) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the MicroStrategy Second Quarter 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 comment over to Mr. Michael Saylor, Chairman and CEO. Please proceed sir.

Hell, this is Michael Saylor. I am the Chairman and the CEO of MicroStrategy. I want to welcome all of you here to today’s conference call regarding our 2015 second quarter financial results. I'm here with our Presidents, Jonathan Klein and Paul Zolfaghari, and our CFO Douglas Thede. First, I'd like to pass the floor to Doug, who's going to read the safe harbor statement and make some comments on our results for the second quarter.

Thank you, Michael. So, 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 annual report on Form 10-K filed with the SEC. These statements reflect our views only as of today and should not be reflected upon as representing our views of any subsequent date. We anticipate that subsequent events and developments will 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 on our press release issued after the close of market today, which is located on our website at www.microstrategy.com. Now, I’d like to move to some comment relate to our financial results. And as if I have assumed that you’ve seen the press release earlier today, I thought it was best to simply as I usually do make some brief observations on our second quarter results. As stated in the press release, our total revenue $133 million reflects a decline of 6% from the second quarter of 2014. That consistent with many multinational corporations, we too experienced strong foreign currency headwinds in the second quarter, which impacted our revenue by over 6%. So essentially we were flat on a total revenue basis on a constant currency perspective. Our product license and subscription services revenue were $36.4 million, increasing 3% or $1.2 million from the second quarter of 2014. While our North American region saw a year-over-year increase of almost 21%, driven both a 22% increase in subscription services and 21% increase in product licenses, which reflects an increase in the number of deals over $1 million from $2 million in the second quarter of 2014 to $5 million in the second quarter of 2015. On international region saw 25% year-over-year decline, reflected the impact of foreign currency headwinds as well as some weakness in our international markets. Product support revenues for the second quarter of 2015 were $70.7 million versus $74.6 million for the second quarter of 2014. Our North American region grew 1%, however, our international region saw a year-over-year decline of over 13% due entirely to a strong foreign currency headwind. Moving to the cost side of the business, we continue to see the results of our restructuring efforts and other related cost-saving initiatives. We experienced a reduction of over $47 million in operating expenses for the second quarter of 2015 as compared to the prior-year period. Breaking this down further, as compared to the prior year period, sales and marketing expense for the second quarter of 2015 decreased $25 million, research and development expenses for the second quarter of 2015 decreased almost $18 million, and reflected over $4 million in capitalized software development costs. Finally, G&A costs for the second quarter of 2015 declined $ million. As a result, we had net income of $22.5 million or $1.95 of diluted earnings per share in the second quarter of 2015, as compared to a loss of $10.3 million or a $0.91 loss per share on a diluted basis in the second quarter of 2014. Moving briefly to the balance sheet, I'd like to highlight that it continues to reflect the solid financial foundation for MicroStrategy. At the end of the second quarter of 2015, we had cash, cash equivalents and short-term investments totaling $427.9 million, and no debt. Second quarter 2015 operating cash flow was $36.2 million compared to $3.6 million in the second quarter of 2014. Our total gross deferred revenue balance at the end of the second quarter of 2015 totaled $194.7 million, compared to $212.5 million at the end of the second quarter of 2014. Furthermore, at the end of the second quarter of 2014, we had additional future minimum commitments by our customers to purchase our goods and services of $128 million as compared to $123 million as of the end of the second quarter of 2014. As was the case with our revenue, foreign currency headwinds also had an impact on our balance sheet, including on our deferred revenue and commitments, a portion of which is denominated in non-U.S. dollar currencies. Now with that I'd like to turn it back to Michael for some additional remarks.

Thanks, Doug. I think we’re pleased with the second quarter and the way things worked out. At the corporate level, we are able to grow our product bookings and that’s very important to us. It would easier what is done better if we didn’t have the kind of currency headwinds when working with but everybody in America has the same issue. So I am pleased that we are able to maintain our business at our current level against that headwind and grow it a bit. Our focus has been in being more efficient and we’re able to dramatically reduce our sales and marketing expenses and reduce structural costs in other parts of the business. But more importantly, I think we were focused upon spending our money more wisely and so I think there is a lot more attention that we put into that and we’re able to generate a good result. The combination of being more efficient with our sales and marketing activity and also structuring our self in a more efficient way, resulted an improvement in our operating income and I think we’re able to generate a healthy operating income in the quarter. We’re also able to generate healthy cash flow and I am pleased both with the operating result as well as the cash generation. We shipped a version of our product we call Secure Enterprise 10 in the quarter. And Secure Enterprise 10 is an essence and integration of all of our MicroStrategy technology for analytics with all of our MicroStrategy mobility technology with all of our Usher security technology all in a single package. So now we’re actually going to the market with this a single platform for the enterprise and we’re supporting the mobility, the analytics and the security application capabilities that customers are looking for, so that integration was a great achievement. It was great because we got all of our version 10 functionality out the door, but it was also great because we’re able to unify and integrate everything we’re doing in a single package. And that has a lot of benefits to our sales and marketing efficiency as well as our services effectiveness and our overall corporate efficiency. We also recruited a new CFO in the quarter and you’ll hear from him soon. We’ve covered that in our press release and I was an overhang on the company that number of you had question about. With regard to the technology, I’d like say a few more things. Our version 10 release has a dramatically improved desktop analytics capability, which we think is very important for us to compete and grow in the market place. We also have a dramatically improved server and in-memory analytics which provide people with the ability to deploy very, very large applications that have very rapid response time. We’ve noted in our press release, we’ve got some customers that have deployed up to 2 billion rows in a single cube and they are getting extremely rapid speed of thought response time from that. That’s a great benefit to everybody in our customer base and anyone who is looking to do deployments of enterprise analytics. We deployed some dramatic upgrades to our administrative suite including a new Operations Manager which gives us a great degree of administrative control and scalability and has been welcomed to buy our customers. We striped out flash from our web interface, many of you might have been reading headlines about flash is dead and flash is not so good anymore. It turns out the flash has gone from being an asset four years ago to being a bit of a liability now and we’ve given a much more flexibly interface to deploy web applications that leverages HTML5 and it makes it slicker more flexible, more functional. And that’s been a big win with the customer base. And then finally in the area of security, we put on a new software development kit that allows you to integrate Usher into other enterprise applications and we think that’s really critical for our enterprise security platform offering and it was received enthusiastically by lots of people that are evaluating Ushers and enterprise security platform right now. And we’re also able to ship a version of Usher for the Apple Watch, which is just a really slick and exciting capability right now. The ability used a watch as a multifactor authentication device in order to provide you with securities you log into a website or as you try to access a corporate firewall is more and more interesting. I don’t have to tell all of you, but just about every day there is something in the press about someone’s password protected system failing and exposing the entire enterprise to a cyber-attack that happen with OPM and is devastating for the U.S. government, it’s devastating for lots of other companies. And I think that we’re right on a cached every legitimate corporation enterprise and the world realizing that it’s completely unacceptable to protect your corporate digital assets with a password anymore. So being positioned the way we are with multifactor authentication build right into our enterprise analytics platform is a great boon having Usher as an up-sell, cross-sell opportunity as this nice and being able to deploy that on an Apple launch and wearable is general in think is really exciting opportunity for us and we able to put that in a market early and first in the second quarter. In terms of our overall focus, I think for those of you who have been on these calls previously, you know during Q3 and Q4 of last year, our focus was primarily on cost management and restructuring of the company. During the first two quarters of this year, our focus has been on that restructuring on implementing new organizations and bringing a new leadership and intergrading our product lines together so that we have one go-to-market offering and a much more efficient flip stream through the marketplace. And I think as we looking out into Q3 and Q4, our focus began to shift to one of growth and sales and marketing execution, services execution. And on top of the sales and marketing and service execution items, we’re enthusiastically working on the next set of upgrades to our technology. And we’ve got I think really exciting the things we’re working on in the analytics with our tools, with our servers. We’ve got a dramatic improvement to our cloud offering with our secure cloud that’s coming out this quarter and starting to become more broadly utilized. I am excited about that. And we’ve got some really exciting things that we’re doing in the area of mobility to get much more rapid out of the box enterprise mobile apps that are going to appeal to our analytics customers and mobile productivity apps that will appeal to all of our customers and mobile security apps. So clearly so are the things that are going to make a successful over the long term. With regard to general business, clearly we had a positive surprise in Q2 from the point of expectations. And I would encourage everyone to keep in mind that Q3 is normally a bit slower quarter than the Q2 or Q4 in the enterprise software space. And we’re going to be shifting from a mode of tight control of cost to a mode of investment is starting to grow the company and spending more money to hire people and put in place sales and marketing capabilities and technical capabilities in this point forward. So I would think that from here I wouldn’t be expecting the same degree of surprises in terms of cost savings that you’ve seen in the past. We’re more interested at this point and building from a solid foundation and taking advantage of our unique technical capability and our unique opportunity in the marketplace in order to grow our market share and cultivate much deeper richer relations with our customers. And with that, I think I’d be happy to take any questions from people and the audience and from our analyst.

Thank you. [Operator Instructions] And our first question comes from line of Karl Keirstead from Deutsche Bank. Please go ahead, sir.

Hi thank you. Michael I’ve got a couple for questions for you. First, over the last 12 months, you’ve downsized MicroStrategy’s headcount by about 40% and so to the fact that you posted revenue in subscription growth of 3% in 2Q is remarkable, so congratulations on that achievement. I wanted to press a little bit on how you’ve pulled that positive surprise as you mentioned and in particular the surprise to me anyway is that 21% license growth in North America. I presume it was too early for any kind of version 10 lift, so do you mind exploring that a little bit with us where that came from and was there anything one time in nature worth flagging so that we set our second half expectations accurately? Thank you.

Good question. We’ve been bearing down I think on sales execution and the marketplace. We brought some new members to the management team, we brought in a new Head of Americas Sales and we bought in a new Head of International and we also brought in a new Head of Worldwide sales and I think they brought in some new talents. So we’ve actually improved our talent in the direct sales organization. I think we also have just more eyeballs on this because all of those people were in effect augmenting Paul Zolfaghari, who was also focused upon this and I have focused much more on this myself. So I think we have more people and more brain power focused upon sales execution and that’s certainly contributed to our performance. We reorganized the sales organization into about 35 sales business units with clear lines of authority. And I think we have more like three, four, five, six different sales hire last year, so lots of different lines of authority and now I think we simplified it and flatten that organization and I think that speeds up decision making a bit. We’ve been upgrading our sales systems and becoming much more intense with regard to tracking of activity and opportunity. And I think that’s bit helpful. And I would probably put my fingers on those things as the primary reason why we’re able to perform. Obviously, I also think that we’ve got a really strong customer base and our customers like the technology. And there is generally been a side from the currency fluctuations which diver everybody crazy in a certain way the macro economy that we’re selling into and the interest in enterprise, software and enterprise analytics has been a good thing. In terms of onetime, I wouldn’t characterize any onetime thing in Q2, but other than that I would we just going to look forward put our nose back to the grindstone to keep working.

Got it. Okay, thank you, Michael. And second one has to do with your comments on the cost control. So in the quarter just reported you posted almost 30% non-GAAP operating margins and that’s obviously become a big part of the story for the investment community. So when I hear you mentioning that going forward, you might be shifting from tight cost control to dialing up the spending a little bit. I think it’s worthwhile to ask you if you don’t mind soft of outlining your margin targets to the extend you can by dialing up the spending again. Are we talking about margins from this 30% peak eroding materially or should they relatively stable as you invest the upside, maybe some context in terms of what you mean by increasing the investment spend and what that might mean for this critical part of the at least the stock story? Thank you.

But I guess I would say is if you are planning operating margin as a percentage, I wouldn’t straight line extrapolate north somewhere we’ve been over the past four quarters. Clearly my goal is always been to get us about 20% operating margins and I think that below 20% is unhealthy. I think that when you get about 30%, you started to look pretty impressive. I am not going to say, I am trying to run self to the minimum. I am not going to say I am going to hit the maximum. I do think that I make allowances. If I am making a broad based strategy, I’d say that if I was growing in a really healthy fashion on the top line, I would have more courage to more toward the lower end of my range. And if I am not going to grow the top line dramatically, then I would probably tend to control cost much more tightly and I think we aired on the side of conservatism to a certain degree over the past year because we thought it was important for credibility. And right now I am just looking for a happy medium.

Got it. Okay, actually that’s very helpful framework for us. Thank you for that and I’ll feed the mike for the other analysts on the call. Thanks and congrats again.

Our next question comes from the line of Greg McDowell from JMP Securities. Your line is open,

Great, thank you very much. I appreciate you taking the time. I want to drill into version 10 a little bit. I know it’s only been out for a brief period of time, but I was wondering if you could comment if any license in the quarter was driven by a release of version 10 and a long as lines if you could sort of talk through the potential incremental licensed opportunity for version 10? And may a third part of that question is just, is there anything intend that would lead to maybe increased uptick breeds in the customer base and would we potentially see that play out on the service of line or any other lines of the model? Thanks.

You know I am going to put Paul Zolfaghari on the phone to answer the first part of that question, so.

Thanks Greg. I think we and something we’ve been saying at this symposium series is as you know what I think may have even attended, we feel very good about the release in terms of the capabilities that it brings to the marketplace. Emblematic, I think what the company has done over the years in terms of try and support the meet and the requirements of the enterprise and we think particularly what 10 brings is a fuller feature set for us that we think addresses good that what the market is if the market is looking for. I think certainly customers within the quarter because 10 was released within the quarter, you have companies that would have known post the release date which I think was GA the last week in May. That would have been certainly aware of 10 either having tested if you know they was coming out that certainly I can imagine would have been something they were valuating since that would have been the more recent version of the software, but I don’t think there is any particular financial calculations that we’ve done about how much it’s driven revenue or any speculate saw what it will do for the future, we do feel it’s a good strong release of the software and does give us a good comprehensive message for a number of the organization in the marketplace.

Great and I did notice that the symposium that there is a - the desktop license that you weren’t previously charging for. How should we think about sort of the existing customer base who are big MicroStrategy users potentially adopting the desktop and what sort of uplift that the desktop product could give to the model?

Well, I’d say the way we think about desktop is it’s a net. It is a new product. So it’s a product that would available to the installed customer base. There are some customers that may choose desktop then the web and the mobile interface. There is some that may choose it an addition to it. The way we think about desktop is it just a stronger portfolio of offerings to try to meet the customer at whatever their needs and the requirements are. And over the last of years, the buying public has demonstrated an interest in a desire in having a desktop environment in which to consumer enterprise analytics and so MicroStrategy 10 includes that for as a part of our portfolio. So it’s unclear to ask how much up the market our customer base will move in that direction but what we do now is we feel good about having it because it’s another alternation and another opportunity for customers to buy in an interface level, but still allowing us to present the MicroStrategy’s ways of around the as your enterprise analytics which we think is a strong story going forward.

Great, thanks. One more question and then I’ll get back in the queue. Can you just comment on the traction of so far I mean obviously that was talked at the symposium but, I was wondering - we knew there was a lot of pilots going on three, six ago and maybe if you could talk about the migration from the pilot phase, the production phase and whether or not you are starting to see Usher numbers become a material part of license or even a small portion of license, but just what sort of growth and traction you are seeing there? Thanks.

I am going to have Jonathan Klein answer that question.

Greg thanks for the question. You know we’re seeing Usher opening up a whole new set of opportunities for us, it’s catalyzing a set of partner relationships that we haven’t had before kind of major manufactures and system integrators are very interested in Usher. In particular, we’ve spent a lot of time and resources building out our SDKs and APIs to allow our partners and even customers to build Usher functionality directly into their own products and offerings. And so we’re finding that’s been a wise investment because it’s generating a significant amount of interest in set of new customers and new partners. MicroStrategy 10 of course as Mike mentioned earlier includes Usher functionality and so we have some customers that are deploying Usher on top of MicroStrategy and we believe that that’s been a factor and our customers’ decision to license our core platform technology. But we’re seeing interest, a significant interest kind of across the spectrum where we’re getting into like major financial services, RFPs and government opportunities. We have nothing that we’re able to announce at this time, but we’re very pleased with the progress and the interest in Usher at this point.

Thank you.

Our next question comes from the line of Frank Sparacino from First Analysis Securities. Your line is open, please go ahead.

Hi Guys. Doug maybe first for you, just on the subscription line, can you just talk through the seasonality in that business just looking at the decline from Q1 to Q2 in terms of the different subscription revenue? I guess would be the first question.

From a seasonality standpoint, I think that the overall offering to describe fact the normal buying cycles related to any of our enterprise software’s standpoint, so clearly Q2 is typically can low. I mean we did have some runoff but it’s still - we’re still seeing some new revenue growth from our subscription services business.

And Mike maybe for you just along the same lines. Can you talk about, in you conversations with existing customers as well as new customers just the appetite for MicroStrategy cloud?

Yeah, so with regard to cloud, we’ve got a healthy cloud business right now and the secure cloud reflects a dramatic improvement in that cloud offering. And the secured cloud is really a story that we’re delivering to the marketplace starting in Q3. It’s completely, in a way, it’s a re-platform version of our cloud in the Amazon AWS environment. And what used to take us a matter of a team of a few people a few weeks to do. We are now zeroing in on being able to do in a single click in less than five minutes. So I think that an essence we’re converting the cloud business from a hostage service with people involved that had a value proposition to being much more of a productized service offering where the capital intensity is being covered by Amazon AWS and where an essence just giving you MicroStrategy a secure enterprise 10 but out of the cloud . In terms of interest or not, I think it’s going to be very, very interesting to lots of our customers. And we’re already starting to see that jump. So I am optimistic on the secure cloud. I think that we’re going actually see that be much more successful than our cloud business has been on the previous cloud platform that we had. And of course from a strategic point of view, with AWS up 81% year-over-year, it’s pretty clear that Amazon is going to be the go-to enterprise cloud backend for anybody that wants to be aggressive in the space. And by us moving to the Amazon platform, we’re freed our self be able to buy to either buy hardware to get into the datacenter business or to compete within datacenter business and we’ve actually freed up a lot of our resources that we’re primarily doing back in datacenter and try hosting work. And now they are kind of moving forward add value by building application solutions on the fly very rapidly. So I am happy about that but I don’t have anything more specific to announce at this point.

Thank you, guys.

Our next question comes from John Rizzuto from SunTrust. Your line is open, please go ahead.

Thank you. This question is more anecdotal than anything, but when we look at the BI analytics base over the last several years, we got really enamored where the world got really enamored with the desktop solution, feel simple that use to a desktop solution that forgot about what the enterprise platform was doing? With MircoStrategy 10, you seemed to answer that question, you could have both. Now assuming this is the right, presuming that you get traction you want MicroStrategy 10 in the desktop can compete with anything you get from the client side self-service BI as well as we still give you what you really do need and you’d still need this enterprise functionality of a platform. A, do you agree with that shift in strategy and then B, how you plan to leverage that going forward in the marketplace to say, you know what we think we’ve hit it and now we’re going to expand on that first in your customer base then second, can grab new customer. So again, it’s an anecdotal question about how the world has changed, have you respond to those changes, where you think you are and how you think you are going to leverage that going forward?

Yeah, it’s a good point. And we do agree with your thesis and the 25 years that I’ve been in this business, we’ve see all sorts of deployed solutions coming going and variably it’s a - someone says oh, I have dashboards and then they grow really faster awhile and then they had a wall and they disappear. And then somebody else says oh, we have en memory something and they grow fast and they disappear. And somebody else says I have this application, they grow fast and disappear. You know I think that there was an opportunity in the market to kind of jump on top on the space right between where we are and where XO and Tableau did a pretty good job of delivering desktop analytics and have been growing great and executing great in that space. Our view toward this is we definitely needed to dramatically improve our desktop experience and MicroStrategy 10 is really the first stall installment in that. We’ve got a couple of additional things up our sleeve that will be delivering the market. I think we are going to continue to increase the strength and the productivity of our desktop environment. But I think from desktop you move to department, from department you move to enterprise and from enterprise you move to global enterprise/cloud. And the company that wins the whole end, so lot of here is the company that allows someone to download a desktop application, find an enterprise date source, build an enterprise application, test it and then deploy it in a limited fashion then scale it up broadly to deployed a 20,000 users with enterprise grade security and personalization. And the - in the ideal world, it’s one analyst sitting next to the CEO who did it all within one week. Right and that’s whatever he is looking for, clearing in the world of XO, you manage to create one spreadsheet, you show it to the CEO and you never deploy it to anybody. And world the Tableau, you create a couple of cool things that have been more powerful than the spreadsheet and you show it to eight people and maybe if you can, if you are lucky you share it to 80 people, but it’s not very well personalized. The world that we see MicroStrategy 10 and beyond is I create that really, really interesting application show it to the CEO, he asked to show it to 50 people and before we know it 50,000 people are actually running. Almost 50,000 people are going to want a real industrial strength platform either in the enterprise and that’s what our secure enterprise is or they want to click on a button, spin up a very, very powerful Amazon incidence and then move it to Australia or to Ireland or to Germany and then they want to make it 10 times bigger until you decide to make it elastically smaller and they want to do that with the industrial strength administration security and personalization. And that’s what we are doing with the secure cloud. I think we’re well positioned and all of these various point solutions that popup here and there I think they are very motivational and they can be successful in their own right. But I think he had a wall if you can’t get global multinational bank to deploy to a 100,000 users 47 different applications and secure them properly. And I think that we’re really good there, where we’ve seen extraordinary opportunity for us is furnish this cloud thing which is just exploding right, I mean you got to scratch your head, look what Amazon is doing and anybody that’s been watching this industry realize is that if I can deploy in a matter of 40 minutes what you should take 40 days or four months or four years to do with 10 million or 20 million capital, that’s a game changer, right, real game changer. And we’re taking our industrial strength platform and putting it on that rocket ship and I think that’s really interesting. And I think the other interesting thing is what’s furnished the full power of the desktop. And desktops today are 100 times more powerful than they ever were. And so things that didn’t used to make sense have to be rethought and they make sense now. And the combination of turbo charging of desktop and turbo charging your server I think is a very exciting message that all of our customers are enthusiastic about. Ultimately whoever can do it all is going to be the vender of choice for the mega enterprises and it’s certainly aren’t comment aren’t intend to be that company.

Great. Just one more follow-up Michael on that, one other thing you build your stuff from the beginning, you built yourself all your own technology, nobody will even complain about your acumen when it comes to designing, developing and deploying software. Going forward would just give you ability or are you targeting the ability or looking at the benefits of increasing your cadence of bringing new functionality to the market?

Yeah, that’s a good question. I am real big fan of the cadence actually and so one other thing we’ve done behind the scenes in the past 12 months that we didn’t really touch on is we’ve dramatically accelerated the cadence everywhere in the company. And you see some of the results in sales and services and marketing with our operating results which have dramatically improved. What you can’t see in the operating results are the - is a fact that we’ve dramatically restructured our technology organization and we’ve installed agile programming discipline. We brought in some products like rally they would allow us that started to develop software in two week iterations. And we’ve moved from a waterfall approach and I think a more hierarchical organization to a much more agile transparent organization. And one other simple result of that is we’ve settle upon our quarterly released schedule for enterprise software platform. So our secure enterprise 10 and our secure cloud platform are going to be released every single quarter from this point forward as opposed to waiting a year or running six to nine months data cycles. So I think that’s a great asset for us. I feel really comfortable about that and I am enthused at our new tech leadership and our tech organizational approach. I think it should allow us to make some dramatic improvements both in our tools and in our clients and in our servers and in other areas of the business on a quarterly basis as opposed to an annual-by-annual basis.

Great, thank you, very good, very informal - very informative.

We do have a follow-up question from the line of Karl Keirstead from Deutsche Bank. Your line is open.

Thanks. Thank you. To actually Michael, the overall headcount was down another 9% in the second quarter. And given your comments amount a pivot to growth, is it fair to say that you’ve now right sized MicroStrategy and that the headcount should stabilize or even grow a little bit in 3Q? Thank you.

Well, I think that somewhere in Q3 that there is some areas where I can still see a little bit of efficiency and there are other areas I want to add headcount. So we’re back to a balanced view toward that and we didn’t bottom in Q2 then we’ll probably bottom out headcount in Q3 and grow from there. I can’t tell you the exact week inflection point but we’re approaching it.

Got it, that’s all I need, thank you and then one follow-up for Doug. Doug, you mentioned that the FX impact on total revenues was about 6%, was it similar for license growth and DR growth? Thanks.

Yeah, so looking from a constant currency standpoint, right, so we’re basically flat on a year-over-year basis on our total revenue. For product licenses, we’re up 5%; description services, we be up 22%; and products to port, we be up 2%; and then for kind of the other services, we still be down, be down 13% versus the 20 for GAAP, so all that kind of nets out to zero on a constant currency basis.

Got it, and then just the FX impact on DR was the one last one Doug?

That number I don’t have.

Okay, no worries. That’s very helpful, thanks a lot.

Okay.

Our next follow-up comes from the line of Greg McDowell from JMP Securities. Your line is open.

Hi, thank you, just a few quick ones. We didn’t talk much about international, I mean obviously North America, there was tremendous strength and I know a lot of it is currency. But is there may be a lag effect with the restructuring efforts from late last year and some of the international markets are just starting to feel it or could you just expand on the international markets a bit?

This is Michael. I don’t have off the top of my head or perceive any particular entry [ph] in the past 12 months that I would think would be worthwhile to highlight to investors right now. I think that there has been over the - a macroeconomic shift on a constant currency basis, a macroeconomic shift toward the U.S. over the past couple of years just as the U.S. economy has been strong and you can see that by looking at the employment rate here versus the employment right in Europe and other places and so. Here people see that across various industries. So our business is slightly shifted more toward the U.S. with that. But I think we feel very comfortable with the health of our international business and our international customers and international management team. And sometimes - I guess sometimes here you can’t move quite as aggressively internationally for a number of reason as you could in the U.S. And so there is some things that lag a little bit but on the other hand, we’re bit more conservative about how we operate and how we grow international to. So we wouldn’t see our need to either cut cost of increase cost in the same way just because most of them - most of the people internationally are in highly leverage walls dealing with key customers and key accounts and they are levering work that’s coming out of the U.S. in order to do those jobs. So if I add something what’s interesting to share with you, I thought was we’re highlighting I would, but I don’t.

And then my last one and I think ask simpler question, but a great problem you guys have is your cash generation capabilities and we’re approaching $0.5 billion in cash on the balance sheet in command us free cash flow generating given almost 30% operating margins. So I just wondering like what - can you just remind us of your capital allocation strategy at this point?

You know, I think our view was it’s very important for us to illustrate that we could generate strong cash flows in order to keep credibility in the marketplace. One of our capital allocation strategies is on the day the marketplace decides to dramatically underprice our stock, we’re going to buy it all back. And I would tell you that.

Okay.

I just can’t tell you what that day will be and I can’t tell in advance for a lot of different reason. But I think that we’re prepared to buyback the stock if we feel there is some irrational move in the marketplace, it doesn’t make sense. We’re prepared to use the capital to growth the business if we actually see a corporate opportunity that’s fairly priced and that makes sense. We also are prepared to hold it and be conservative custodians of that capital if that’s what the right as to do. And I think that over the next 12 months, we’ll probably see a bit more volatility this way and that based upon of course we look at the marketplace and I think we feel comfortable to be standing ready with our powders dried.

Great, that’s all I had, thank you gentlemen.

Thank you. We do have another question from the line of John Rizzuto from SunTrust. Please go ahead. Mr. Rizzuto, please proceed with your question.

Oh, sorry about that, I mute myself. Anyway, it was a point, I know you’ve been on the symposium toward the MicroStrategy 10, symposium tour over the last six day weeks in multiple cities, what’s the feeling with customers, positive, neutral, excited, enthusiastic, just characterize how your customer base is reacting in MicroStrategy 10?

Well, I mean just anecdotal characterization would be very positive feedback from the release because of - I think what they see is continued innovation on the half of our company which they’ve come to trust. And look if you think about what fully is a company, companies do business with us because over the last two decades or so we fairly did leading in terms of innovation and customer service and support. So I think they just see 10 as a continuation of the evolution of the company. Mike started 20 some years ago and I think we considered a profound and important release. So you’d hope to have and I am happy to report we’ve had very good, very solid, very positive feedback from our customer base about what this product does and gives for us. We just have a quite a bit of work to do to make sure the message gets out there and we bring it to full realization. But from a feedback about the release standpoint, certainly I would it’s been positive.

Worthwhile to note that it’s seems like it’s standing remodeling everywhere we go.

Well, I mean that’s - you know candidly some of the analyst on the call at the event, so they can see for themselves. So it wouldn’t - I mean you could see on our website, we are oversubscribed, so at always events they have been sold out in advance and it’s something that Mike and I actually talked about a few days ago one other things not just had, it’s a large number of people what we’ve been impressed by as the caliber the people coming to these events is actually very good to people that are more senior because we are meeting M&N their location where they live and giving M&N opportunity to understand what we’re doing and I think they appreciate that, appreciate professionalism by which we’ve managed the event. And I said feedbacks been good and positive. We just hope to build a momentum for the second half of the year.

Perfect. Thank you.

Okay, I’ll go ahead and thank everybody for being on the call today and thank you for your continued interest and continued support. We’re looking forward to the year ahead and until this time 12 weeks for now. Have a good summer.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may now disconnect. Everyone have a great day.