Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 15, 2019,~~April 20, 2020, the registrant had ~~8,231,895~~7,728,917 and 2,035,184 shares of class A common stock and class B common stock outstanding, respectively.

	September 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	375,071		$	109,924		$	429,276		$	456,727
Restricted cash		798			862			2,742			1,089
Short-term investments		203,218			466,186			109,946			108,919
Accounts receivable, net		118,002			171,359			124,935			163,516
Prepaid expenses and other current assets		24,665			30,068			26,163			23,195
Total current assets		721,754			778,399			693,062			753,446
Property and equipment, net		51,993			51,919			47,623			50,154
Right-of-use assets		86,994			0			82,690			85,538
Deposits and other assets		7,455			8,134			7,757			8,024
Deferred tax assets, net		20,520			17,316			18,139			19,409
Total assets	$	888,716		$	855,768		$	849,271		$	916,571
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable, accrued expenses, and operating lease liabilities	$	28,626		$	33,684		$	32,539		$	33,919
Accrued compensation and employee benefits		41,829			48,045			35,207			48,792
Deferred revenue and advance payments		160,244			176,540			184,891			187,107
Total current liabilities		230,699			258,269			252,637			269,818
Deferred revenue and advance payments		4,487			6,469			3,660			4,344
Operating lease liabilities		105,291			0			100,251			103,424
Other long-term liabilities		32,786			61,262			31,273			30,400
Deferred tax liabilities		34			37			24			26
Total liabilities		373,297			326,037			387,845			408,012
Commitments and Contingencies
Stockholders’ Equity
Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; 0 shares issued or outstanding		0			0			0			0
Class A common stock, $0.001 par value; 330,000 shares authorized; 15,880 shares issued and 8,232 shares outstanding, and 15,837 shares issued and 8,552 shares outstanding, respectively		16			16
Class A common stock, $0.001 par value; 330,000 shares authorized; 15,891 shares issued and 7,729 shares outstanding, and 15,888 shares issued and 8,081 shares outstanding, respectively								16			16
Class B convertible common stock, $0.001 par value; 165,000 shares authorized; 2,035 shares issued and outstanding, and 2,035 shares issued and outstanding, respectively		2			2			2			2
Additional paid-in capital		590,158			576,957			597,087			593,583
Treasury stock, at cost; 7,648 shares and 7,285 shares, respectively		(634,405	)		(586,161	)
Treasury stock, at cost; 8,162 shares and 7,807 shares, respectively								(709,627	)		(658,880	)
Accumulated other comprehensive loss		(11,674	)		(10,217	)		(10,198	)		(9,651	)
Retained earnings		571,322			549,134			584,146			583,489
Total stockholders’ equity		515,419			529,731			461,426			508,559
Total liabilities and stockholders’ equity	$	888,716		$	855,768		$	849,271		$	916,571

The accompanying notes are an integral part of these Consolidated Financial Statements.

	Three Months Ended						Three Months Ended
	September 30,						March 31,
	2019			2018			2020			2019
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues:
Product licenses	$	18,972		$	20,264		$	12,584		$	18,291
Subscription services		7,894			7,240			7,968			7,144
Total product licenses and subscription services		26,866			27,504			20,552			25,435
Product support		72,885			74,463			71,158			71,450
Other services		19,942			20,185			19,714			18,481
Total revenues		119,693			122,152			111,424			115,366
Cost of revenues:
Product licenses		526			377			670			519
Subscription services		3,889			3,259			4,064			3,598
Total product licenses and subscription services		4,415			3,636			4,734			4,117
Product support		6,922			5,079			6,718			7,067
Other services		12,478			14,674			13,093			14,989
Total cost of revenues		23,815			23,389			24,545			26,173
Gross profit		95,878			98,763			86,879			89,193
Operating expenses:
Sales and marketing		43,935			45,429			39,518			48,760
Research and development		27,457			25,829			26,101			28,215
General and administrative		19,900			20,285			21,332			22,604
Total operating expenses		91,292			91,543			86,951			99,579
Income from operations		4,586			7,220
Loss from operations								(72	)		(10,386	)
Interest income, net		2,941			3,441			1,855			2,566
Other income, net		1,882			798
Income before income taxes		9,409			11,459
Benefit from income taxes		(291	)		(1,240	)
Net income		9,700			12,699
Basic earnings per share (1)	$	0.95		$	1.11
Weighted average shares outstanding used in computing basic earnings per share		10,251			11,467
Diluted earnings per share (1)	$	0.94		$	1.10
Weighted average shares outstanding used in computing diluted earnings per share		10,309			11,538
Other income (expense), net								434			(596	)
Income (loss) before income taxes								2,217			(8,416	)
Provision for (benefit from) income taxes								1,560			(510	)
Net income (loss)								657			(7,906	)
Basic earnings (loss) per share (1)							$	0.07		$	(0.77	)
Weighted average shares outstanding used in computing basic earnings (loss) per share								9,976			10,328
Diluted earnings (loss) per share (1)							$	0.07		$	(0.77	)
Weighted average shares outstanding used in computing diluted earnings (loss) per share								10,031			10,328

The accompanying notes are an integral part of these Consolidated Financial Statements.

Nine Months Ended

September 30,

2019

2018

(unaudited)

(unaudited)

Net income

$
22,188

$
19,200

Other comprehensive (loss) income, net of applicable taxes:

Foreign currency translation adjustment

(1,922
)

(3,059
)
Unrealized gain on short-term investments

465

0

Total other comprehensive loss

(1,457
)

(3,059
)
Comprehensive income

$
20,731

$
16,141

								Class B												Accumulated
				Class A				Convertible				Additional								Other
				Common Stock				Common Stock				Paid-in		Treasury Stock						Comprehensive			Retained
	Total			Shares		Amount		Shares		Amount		Capital		Shares			Amount			Income (Loss)			Earnings
Balance at January 1, 2019	$	529,731			15,837	$	16		2,035	$	2	$	576,957		(7,285	)	$	(586,161	)	$	(10,217	)	$	549,134
Net loss		(7,906	)		0		0		0		0		0		0			0			0			(7,906	)
Other comprehensive income		253			0		0		0		0		0		0			0			253			0
Issuance of class A common stock under stock option plans		1,507			13		0		0		0		1,507		0			0			0			0
Purchases of treasury stock		(48,244	)		0		0		0		0		0		(363	)		(48,244	)		0			0
Share-based compensation expense		2,965			0		0		0		0		2,965		0			0			0			0
Balance at March 31, 2019	$	478,306			15,850	$	16		2,035	$	2	$	581,429		(7,648	)	$	(634,405	)	$	(9,964	)	$	541,228
Net income		20,394			0		0		0		0		0		0			0			0			20,394
Other comprehensive income		654			0		0		0		0		0		0			0			654			0
Issuance of class A common stock under stock option plans		329			3		0		0		0		329		0			0			0			0
Share-based compensation expense		3,006			0		0		0		0		3,006		0			0			0			0
Balance at June 30, 2019	$	502,689			15,853	$	16		2,035	$	2	$	584,764		(7,648	)	$	(634,405	)	$	(9,310	)	$	561,622
Net income		9,700			0		0		0		0		0		0			0			0			9,700
Other comprehensive loss		(2,364	)		0		0		0		0		0		0			0			(2,364	)		0
Issuance of class A common stock under stock option plans		3,606			27		0		0		0		3,606		0			0			0			0
Share-based compensation expense		1,788			0		0		0		0		1,788		0			0			0			0
Balance at September 30, 2019	$	515,419			15,880	$	16		2,035	$	2	$	590,158		(7,648	)	$	(634,405	)	$	(11,674	)	$	571,322
Net income		12,167			0		0		0		0		0		0			0			0			12,167
Other comprehensive income		2,023			0		0		0		0		0		0			0			2,023			0
Issuance of class A common stock under stock option plans		1,127			8		0		0		0		1,127		0			0			0			0
Purchases of treasury stock		(24,475	)		0		0		0		0		0		(159	)		(24,475	)		0			0
Share-based compensation expense		2,298			0		0		0		0		2,298		0			0			0			0
Balance at December 31, 2019	$	508,559			15,888	$	16		2,035	$	2	$	593,583		(7,807	)	$	(658,880	)	$	(9,651	)	$	583,489
Net income		657			0		0		0		0		0		0			0			0			657
Other comprehensive loss		(547	)		0		0		0		0		0		0			0			(547	)		0
Issuance of class A common stock under stock option plans		340			3		0		0		0		340		0			0			0			0
Purchases of treasury stock		(50,747	)		0		0		0		0		0		(355	)		(50,747	)		0			0
Share-based compensation expense		3,164			0		0		0		0		3,164		0			0			0			0
Balance at March 31, 2020	$	461,426			15,891	$	16		2,035	$	2	$	597,087		(8,162	)	$	(709,627	)	$	(10,198	)	$	584,146

The accompanying notes are an integral part of these Consolidated Financial Statements.

Class B

Accumulated

Class A

Convertible

Additional

Other

Common Stock

Common Stock

Paid-in

Treasury Stock

Comprehensive

Retained

Total

Shares

Amount

Shares

Amount

Capital

Shares

Amount

Income (Loss)

Earnings

Balance at January 1, 2018

$
605,726

15,817

$
16

2,035

$
2

$
559,918

(6,405
)

$
(475,184
)

$
(5,659
)

$
526,633

Net income

1,673

0

0

0

0

0

0

0

0

1,673

Other comprehensive income

1,440

0

0

0

0

0

0

0

1,440

0

Share-based compensation expense

4,743

0

0

0

0

4,743

0

0

0

0

Balance at March 31, 2018

$
613,582

15,817

$
16

2,035

$
2

$
564,661

(6,405
)

$
(475,184
)

$
(4,219
)

$
528,306

Net income

4,828

0

0

0

0

0

0

0

0

4,828

Other comprehensive loss

(3,892
)

0

0

0

0

0

0

0

(3,892
)

0

Issuance of class A common stock under stock option plans

2,471

20

0

0

0

2,471

0

0

0

0

Share-based compensation expense

3,370

0

0

0

0

3,370

0

0

0

0

Balance at June 30, 2018

$
620,359

15,837

$
16

2,035

$
2

$
570,502

(6,405
)

$
(475,184
)

$
(8,111
)

$
533,134

Net income

12,699

0

0

0

0

0

0

0

0

12,699

Other comprehensive loss

(607
)

0

0

0

0

0

0

0

(607
)

0

Share-based compensation expense

2,972

0

0

0

0

2,972

0

0

0

0

Balance at September 30, 2018

$
635,423

15,837

$
16

2,035

$
2

$
573,474

(6,405
)

$
(475,184
)

$
(8,718
)

$
545,833

Net income

3,301

0

0

0

0

0

0

0

0

3,301

Other comprehensive loss

(1,499
)

0

0

0

0

0

0

0

(1,499
)

0

Purchases of treasury stock

(110,977
)

0

0

0

0

0

(880
)

(110,977
)

0

0

Share-based compensation expense

3,483

0

0

0

0

3,483

0

0

0

0

Balance at December 31, 2018

$
529,731

15,837

$
16

2,035

$
2

$
576,957

(7,285
)

$
(586,161
)

$
(10,217
)

$
549,134

Net loss

(7,906
)

0

0

0

0

0

0

0

0

(7,906
)
Other comprehensive income

253

0

0

0

0

0

0

0

253

0

Issuance of class A common stock under stock option plans

1,507

13

0

0

0

1,507

0

0

0

0

Purchases of treasury stock

(48,244
)

0

0

0

0

0

(363
)

(48,244
)

0

0

Share-based compensation expense

2,965

0

0

0

0

2,965

0

0

0

0

Balance at March 31, 2019

$
478,306

15,850

$
16

2,035

$
2

$
581,429

(7,648
)

$
(634,405
)

$
(9,964
)

$
541,228

Net income

20,394

0

0

0

0

0

0

0

0

20,394

Other comprehensive income

654

0

0

0

0

0

0

0

654

0

Issuance of class A common stock under stock option plans

329

3

0

0

0

329

0

0

0

0

Share-based compensation expense

3,006

0

0

0

0

3,006

0

0

0

0

Balance at June 30, 2019

$
502,689

15,853

$
16

2,035

$
2

$
584,764

(7,648
)

$
(634,405
)

$
(9,310
)

$
561,622

Net income

9,700

0

0

0

0

0

0

0

0

9,700

Other comprehensive loss

(2,364
)

0

0

0

0

0

0

0

(2,364
)

0

Issuance of class A common stock under stock option plans

3,606

27

0

0

0

3,606

0

0

0

0

Share-based compensation expense

1,788

0

0

0

0

1,788

0

0

0

0

Balance at September 30, 2019

$
515,419

15,880

$
16

2,035

$
2

$
590,158

(7,648
)

$
(634,405
)

$
(11,674
)

$
571,322

~~The accompanying notes are an integral part of these Consolidated Financial Statements.~~

	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2019			2018			2020			2019
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating activities:
Net income	$	22,188		$	19,200
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	657		$	(7,906	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		11,543			3,483			2,756			1,657
Write-offs and sales allowances		892			1,053
Reduction in carrying amount of right-of-use assets								2,053			2,007
Credit losses and sales allowances								828			827
Net realized loss on short-term investments		41			0			0			41
Deferred taxes		(3,352	)		(6,667	)		957			(1,694	)
Release of liabilities for unrecognized tax benefits		(1,077	)		0
Share-based compensation expense		7,887			11,132			3,111			3,017
Changes in operating assets and liabilities:
Accounts receivable		11,781			9,300			14,406			10,266
Prepaid expenses and other current assets		4,513			(1,075	)		(3,295	)		(3,070	)
Deposits and other assets		349			(956	)		84			(134	)
Accounts payable and accrued expenses		(11,618	)		(5,816	)		(154	)		(3,108	)
Accrued compensation and employee benefits		(7,368	)		(3,901	)		(13,031	)		(12,195	)
Deferred revenue and advance payments		23,612			(4,032	)		22,001			38,502
Operating lease liabilities		(6,394	)		0			(2,238	)		(2,074	)
Other long-term liabilities		(674	)		1,527			934			320
Net cash provided by operating activities		52,323			23,248			29,069			26,456
Investing activities:
Proceeds from redemption of short-term investments		589,357			348,980			10,000			314,403
Purchases of property and equipment		(9,382	)		(4,457	)		(661	)		(6,011	)
Purchases of short-term investments		(320,487	)		(674,528	)		(9,928	)		(138,099	)
Net cash provided by (used in) investing activities		259,488			(330,005	)
Net cash (used in) provided by investing activities								(589	)		170,293
Financing activities:
Proceeds from sale of class A common stock under exercise of employee stock options		5,442			2,471			340			1,507
Purchases of treasury stock		(48,244	)		0			(50,747	)		(48,244	)
Payments on capital lease obligations and other financing arrangements prior to the adoption of ASU 2016-02		0			(9	)
Net cash (used in) provided by financing activities		(42,802	)		2,462
Net cash used in financing activities								(50,407	)		(46,737	)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		(3,926	)		(3,904	)		(3,871	)		(1,133	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		265,083			(308,199	)
Net (decrease) increase in cash, cash equivalents, and restricted cash								(25,798	)		148,879
Cash, cash equivalents, and restricted cash, beginning of period		110,786			421,182			457,816			110,786
Cash, cash equivalents, and restricted cash, end of period	$	375,869		$	112,983		$	432,018		$	259,665

The accompanying notes are an integral part of these Consolidated Financial Statements.

The accompanying Consolidated Financial Statements of MicroStrategy Incorporated (“MicroStrategy” or the “Company”) are unaudited. In the opinion of management, all adjustments necessary for a fair statement of financial position and results of operations have been included. All such adjustments are of a normal recurring nature, unless otherwise disclosed. Interim results are not necessarily indicative of results for a full year.

Certain amounts in the prior year’s Consolidated Statements of Cash Flows have been reclassified to conform to current year presentation. In particular, reductions in the carrying amount of right-of-use (“ROU”) assets have been reclassified from “Depreciation and amortization” to “Reduction in carrying amount of right-of-use assets” in operating activities.

As discussed in Note 2, Recent Accounting Standards, to the Consolidated Financial Statements, the Company adopted Accounting Standards Update No. ~~2016-02,~~2016-13, ~~Leases~~Financial Instruments – Credit Losses (Topic ~~842),~~326): Measurement of Credit Losses on Financial Instruments, and its subsequent amendments (“ASU ~~2016-02”~~2016-13”), effective January 1, ~~2019.~~2020. Comparative prior period Consolidated Financial Statements have not been restated ~~and are not directly comparable to the current period Consolidated Financial Statements.~~for ASU 2016-13.

The Consolidated Financial Statements and Notes to Consolidated Financial Statements are presented as required by the United States Securities and Exchange Commission (“SEC”) and do not contain certain information included in the Company’s annual financial statements and notes. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. There have been no significant changes in the Company’s accounting policies since December 31, ~~2018,~~2019, except as discussed below with respect to the Company’s adoption of ASU ~~2016-02.~~2016-13.

The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company is not aware of any material subsequent event that would require recognition or disclosure.

~~ASU 2016-02 defines~~The Company periodically invests a ~~lease as a contract, or part~~portion of ~~a contract, that conveys the right to both (i) obtain economic benefits from~~its excess cash in short-term investment instruments. All highly liquid investments with stated maturity dates between three months and (ii) direct the use of an identified asset for a period of time in exchange for consideration. Under ASU 2016-02, the Company evaluates its contracts to determine if they contain a lease and classifies any lease components identified as an operating or finance lease. For each lease component, the Company recognizes a right-of-use (“ROU”) asset and a lease liability. ROU assets and lease liabilities are presented separately for operating and finance leases; however, the Company currently has no material finance leases. The Company’s operating leases are primarily related to office space in the United States and foreign locations.

In a contract that contains a lease, a component is an item or activity that transfers a good or service to the lessee. Such contracts may be comprised of lease components, non-lease components, and elements that are not components. Each lease component represents a lessee’s right to use an underlying asset in the contract if the lessee can benefitone year from the ~~right~~purchase date are classified as short-term investments. The Company determines the appropriate classification of ~~use~~its short-term investments at the time of purchase and reassesses the appropriateness of the ~~asset either on its own or together with other readily available resources and if the right~~classification at each reporting date.

All of use is neither highly dependent nor highly interrelated with other rights of use. Non-lease components include items such as common area maintenance and utilities provided by the lessor. The Company has elected the practical expedient provided in ASU 2016-02 to not separate lease components from non-lease components for office space, which is the Company’s ~~only material underlying asset class. For each lease~~short-term investments are in U.S. Treasury securities. All short-term investments have been classified as available-for-sale and are reported at fair value within ~~this asset class,~~“Short-term investments” on the non-lease components and related lease components are accounted for as a single lease component. Items or activities that do not transfer goods or services to the lessee, such as administrative tasks to set up the contract and reimbursement or payment of lessor costs, are not componentsaccompanying Consolidated Balance Sheets. The fair value of the ~~contract~~Company’s short-term investments is determined based on quoted market prices in active markets for identical securities (Level 1 inputs). Premiums and ~~therefore no contract consideration is allocated to such items or activities.~~

Consideration in the contract is comprised of any fixed payments and variable payments that depend on an index or rate. Payments in the Company’s operating lease arrangements are typically comprised of base office rent and parking fees. Costsdiscounts related to the Company’s ~~non-lease components, as described above,~~short-term investments are ~~generally variable~~amortized over the life of the investment and ~~do not depend~~recorded in earnings. Each reporting period, the Company determines the amount of unrealized holding gains and losses on ~~an index or rate and are therefore excluded from~~each individual security by comparing the ~~contract consideration allocated~~fair value to the ~~lease components. The Company’s operating lease arrangements generally do not contain any payments related to items or activities~~amortized cost. Unrealized holding gains and unrealized holding losses that are not ~~components.~~a result of a credit loss are reported in other comprehensive income (loss) until realized. Beginning January 1, 2020, unrealized holding losses that are a result of a credit loss are recorded in earnings, with the establishment of an allowance for credit losses.

The Company maintains an allowance for credit losses on its accounts receivable balances, which represents its best estimate of current expected credit losses over the contractual life of the accounts receivable. Beginning January 1, 2020, when evaluating the adequacy of its allowance for credit losses each reporting period, the Company analyzes accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivable balances, payment terms, geographic location, historical loss experience, current information, and future expectations. Each reporting period, the Company reassesses whether any accounts receivable no longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis. Changes to the allowance for credit losses are adjusted through credit loss expense, which is presented within “General and administrative” operating expenses in the Consolidated Statements of Operations.

Operating lease liabilities are initially and subsequently measured at the present value of unpaid lease payments, discounted at the discount rate of the lease. Operating lease ROU assets are initially measured as the sum of the initial lease liability, any initial direct costs incurred, and any prepaid lease payments, less any lease incentives received. The ROU asset is amortized over the term of the lease. A single lease expense is recorded within operating expenses in the consolidated statements of operations on a straight-line basis over the lease term. Variable lease payments that are not included in the measurement of the lease liability are recognized in the period when the obligations for those payments are incurred. In the Company’s lease agreements, these variable payments typically include certain taxes, utilities, and maintenance costs, and other fees.

The Company uses its incremental borrowing rate as the discount rate for all of its leases, as the rate implicit in the lease is not readily determinable in any of its lease contracts. As the Company has no history of publicly-traded debt, in order to estimate a collateralized borrowing rate curve, the Company first estimates a synthetic credit rating and then applies modeling methodologies to an unsecured borrowing rate curve. In determining the incremental borrowing rate of each lease, the Company uses a centralized treasury approach and considers the currency of the contract, the economic environment in which the lease exists, and the term of the lease.

The Company does not recognize lease liabilities or ROU assets for any short-term leases with a non-cancellable lease term of 12 months or less. Instead, the lease payments for these short-term leases are expensed on a straight-line basis over the lease term and any variable payments are recognized in the period when the obligations for those payments are incurred. The Company believes that, using this methodology, the expense recorded reasonably reflects the Company’s short-term lease commitments.

The Company adopted ASU ~~2016-02~~2016-13 effective as of January 1, ~~2019~~2020. Under ASU 2016-13, the Company applies a current expected credit loss (“CECL”) impairment model to its trade accounts receivable, in which lifetime expected credit losses on such financial assets are measured and ~~elected~~recognized at each reporting date based on historical, current, and forecasted information. Under the ~~transition option~~CECL model, trade accounts receivable with similar risk characteristics are analyzed on a collective (pooled) basis. ASU 2016-13 also changed the impairment accounting for available-for-sale debt securities, requiring credit losses to ~~apply~~be recorded through an allowance for credit losses rather than as a reduction in the ~~new lease requirements as~~amortized cost basis of the ~~adoption date without restating comparative periods presented in its financial statements. Additionally, the Company elected the package~~securities. Impairment due to factors other than credit loss will continue to be recorded through other comprehensive income (loss). All of practical expedients described in ASU 2016-02, which includes not reassessing the following: (i) lease classification of existing leases, (ii) whether expired or existing contracts contain leases, and (iii) initial direct costs for existing leases.

Upon adoption of ASU 2016-02, the Company recognized ROU assets of $88.8 million, total lease liabilities of $116.9 million, reductions in total deferred rent of $28.5 million, and reductions in prepaid expenses of $0.4 million in its 2019 beginning balances. All adjustments relate to the Company’s ~~operating leases;~~available-for-sale debt securities are in U.S. Treasury securities with stated maturity dates between three months and one year from the purchase date and any impairments are not expected to result from credit losses. Although classified as available-for-sale, the Company does not ~~have any material leases that are classified as finance leases. There was 0 cumulative effect adjustment~~generally intend to ~~the Company’s 2019 beginning retained earnings balance as~~sell these investments prior to their maturity dates, nor is it likely the Company ~~did not have material unamortized initial direct costs. Beginning in 2019, the Company presents the amortization~~would be required to sell these investments prior to recovery of ~~its operating ROU assets and the change in its operating lease liabilities within the operating activities section of its consolidated statements of cash flows.~~any impairment. The adoption of ~~ASU 2016-02~~this guidance did not have a material impact on the Company’s consolidated financial position, results of ~~operations.~~ operations, or cash flows. NaN cumulative-effect adjustment to retained earnings was made.

~~In August 2018, the FASB issued~~The Company adopted Accounting Standards Update No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract(“ (“ASU 2018-15”). effective as of January 1, 2020 and elected to apply the guidance prospectively. ASU 2018-15 requires customers in a hosting arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize and which costs to expense. ~~Under this model, customers would need to determine the nature of the implementation costs and the project stage in which they~~Customers are ~~incurred to determine which costs to capitalize or expense. Customers would be~~ required to amortize the capitalized implementation costs over the term of the hosting arrangement, which might extend beyond the noncancelable ~~period if there are options to extend or terminate.~~period. Financial statement presentation under ASU 2018-15 requires: (i) capitalized implementation costs be classified in the same balance sheet line item as the amounts prepaid for the related hosting arrangement; (ii) amortization of capitalized implementation costs be presented in the same income statement line item as the service fees for the related hosting arrangement; and (iii) cash flows related to capitalized implementation costs be presented within the same category of cash flow activity as the cash flows for the related hosting arrangement (i.e. operating activity). Prior to the adoption of ASU 2018-15, ~~also requires disclosures for~~the Company expensed as incurred all implementation costs related to cloud computing arrangements that were service contracts. As of March 31, 2020, the Company did not have any material capitalized implementation costs ~~including~~related to cloud computing arrangements that are service contracts.

In December 2019, the ~~nature~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of ~~the hosting arrangement and additional disclosures similar~~deferred tax liabilities related to ~~those required for major classes of depreciable assets.~~outside basis differences. The standard is effective for interim and annual periods beginning January 1, ~~2020. The Company plans to adopt this guidance~~2021, with certain amendments applied prospectively ~~to eligible costs incurred on or after January 1, 2020~~ and others requiring retrospective application. Early adoption is permitted, with any adjustments reflected as of the beginning of the fiscal year of adoption. If early adoption is elected, all changes as a result of the standard must be adopted in the ~~process of evaluating potential changes to related processes and internal controls.~~

~~In June 2016, the FASB issued Accounting Standards Update No. 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (“ASU 2016-13”), which requires the application of a current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost (including trade accounts receivable), net investments in leases, and certain off-balance-sheet credit exposures. Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information. Furthermore, the CECL model requires financial assets with similar risk characteristics to be analyzed on a collective (pooled) basis. ASU 2016-13 also changes the impairment accounting for available-for-sale debt securities, requiring credit losses to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. Impairment due to factors other than credit loss will continue to be recorded through other comprehensive income (loss). The standard is effective for interim and annual periods beginning January 1, 2020. A modified retrospective adoption method is required, with a cumulative-effect adjustment to the opening retained earnings balance in the period of adoption.same period. The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash ~~flows, and disclosures.~~flows.

The Company periodically invests a portion of its excess cash in short-term investment instruments. All of the Company’s short-term investments are in U.S. Treasury securities and all short-term investments have stated maturity dates between three months and one year from the purchase date. All short-term investments are included within “Short-term investments” on the accompanying Consolidated Balance Sheets. The fair value of the Company’s short-term investments is determined based on quoted market prices in active markets for identical securities (Level 1 inputs). As of September 30, 2019 and December 31, 2018, all short-term investments were classified as available-for-sale and reported at fair value.

The amortized cost and fair value of available-for-sale investments at ~~September 30, 2019~~March 31, 2020 were ~~$203.2~~$109.2 million and ~~$203.2~~$109.9 million, respectively. The amortized cost and fair value of available-for-sale investments at December 31, ~~2018~~2019 were ~~$466.6~~$108.8 million and ~~$466.2~~$108.9 million, respectively. The ~~total gross unrecognized holding losses accumulated in other comprehensive loss were not material as of September 30, 2019 and December 31, 2018. The total~~ gross unrecognized holding gains accumulated in other comprehensive loss were not material as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018. NaN other-than-temporary impairments related to these investments have been recognized as~~2019. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~ 2019, 0ne of the Company’s available-for-sale investments were in unrealized loss positions.

The Company invoices its customers in accordance with billing schedules established in each contract. The Company’s rights to consideration from customers are presented separately in the Company’s Consolidated Balance Sheets depending on whether those rights are conditional or unconditional.

The Company presents unconditional rights to consideration from customers within “Accounts receivable, net” in its Consolidated Balance Sheets. All of the Company’s contracts are generally non-cancellable and/or non-refundable, and therefore an unconditional right generally exists when the customer is billed or amounts are billable per the contract.

~~The Company maintains an~~Changes in the allowance for ~~doubtful accounts, which represents its best estimate of probable~~credit losses ~~and sales allowances. The Company evaluates~~were not material for the ~~adequacy of~~three months ended March 31, 2020. In estimating its allowance for ~~doubtful accounts~~credit losses as of March 31, 2020, the Company considered the impact from the pandemic caused by ~~considering the aging~~a novel strain of ~~receivable balances, historical experience,~~coronavirus (“COVID-19”) and ~~other currently available information. For the three~~considered additional risk pools and ~~nine months ended September 30, 2019, the Company’s write-offs~~reserves relating to customers in certain geographic areas and sales allowances totaled $0.1 million and $0.9 million, respectively. For the three and nine months ended September 30, 2018, the Company’s write-offs and sales allowances totaled $0.1 million and $1.1 million, respectively.industries.

~~In contrast, rights~~Rights to consideration that are subject to a condition other than the passage of time are considered contract assets and presented within “Prepaid expenses and other current assets” in the Consolidated Balance Sheets since the rights to consideration are expected to become unconditional and transfer to accounts receivable within one year. Contract assets generally consist of accrued sales and usage-based royalty revenue. In these arrangements, consideration is not billed or billable until the royalty reporting is received, generally in the subsequent quarter, at which time the contract asset transfers to accounts receivable and a true-up adjustment is recorded to revenue. These true-up adjustments are generally not material. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ there were 0 significant impairments to the Company’s contract assets, nor were there any significant changes in the timing of the Company’s contract assets being reclassified to accounts receivable. Contract assets included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheets consisted of $1.1 million and ~~$0.8~~$1.2 million in accrued sales and usage-based royalty revenue as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Contract liabilities are amounts received or due from customers in advance of the Company transferring the ~~products~~software or services to the customer. Revenue is subsequently recognized in the period(s) in which control of the ~~products~~software or services is transferred to the customer. The Company’s contract liabilities are presented as either current or non-current “Deferred revenue and advance payments” in the Consolidated Balance Sheets, depending on whether the ~~products~~software or services are expected to be transferred to the customer within the next year.

The Company’s “Accounts receivable, net” and “Deferred revenue and advance payments” balances in the Consolidated Balance Sheets include unpaid amounts related to contracts under which the Company has an enforceable right to invoice the customer for non-cancellable and/or non-refundable ~~products~~software and services. Changes in accounts receivable and changes in deferred revenue and advance payments are presented net of these unpaid amounts in “Operating activities” in the Consolidated Statements of Cash Flows.

Deferred revenue and advance payments (in thousands) from customers consisted of the following, as of:

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020, the Company recognized revenues of $69.2 million from amounts included in the total deferred revenue and advance payments balances at the beginning of 2020. During the three months ended March 31, 2019, the Company recognized revenues of ~~$36.1~~$67.0 million ~~and $154.1 million, respectively,~~ from amounts included in the total deferred revenue and advance payments balances at the beginning of 2019. During the three and nine months ended September 30, 2018, the Company recognized revenues of $39.2 million and $170.6 million, respectively, from amounts included in the total deferred revenue and advance payments balances at the beginning of 2018. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ there were no significant changes in the timing of revenue recognition on the Company’s deferred balances.

As of ~~September 30, 2019,~~March 31, 2020, the Company had an aggregate transaction price of ~~$164.7~~$188.6 million allocated to ~~unsatisfied~~remaining performance obligations related to product support, subscription services, other services, and, in limited cases, product licenses contracts. The Company expects to recognize ~~$160.2~~$184.9 million within the next 12 months and ~~$4.5~~$3.7 million ~~thereafter.~~thereafter.

The Company leases office space in the United States and foreign locations under operating lease agreements. Office space is the Company’s only material underlying asset class under operating lease agreements. The Company has no material finance leases.

Under the Company’s office space lease agreements, fixed payments and variable payments that depend on an index or rate are typically comprised of base rent and parking fees. Additionally, under these agreements the Company is generally responsible for certain variable payments that typically include certain taxes, utilities and maintenance costs, and other fees. These variable lease payments are generally based on the Company’s occupation or usage percentages and are subject to adjustments by the lessor.

As of ~~September 30, 2019,~~March 31, 2020, the Company’s ROU ~~asset~~assets and total lease ~~liability balances~~liabilities were ~~comprised of $72.2~~$69.9 million and ~~$98.9~~$96.1 million, respectively, for leases in the United States and ~~$14.8~~$12.8 million and ~~$15.7~~$13.7 million, respectively, for foreign leases. As of December 31, 2019, the Company’s ROU assets and total lease liabilities were $71.0 million and $97.5 million, respectively, for leases in the United States and $14.5 million and $15.5 million, respectively, for foreign leases. The Company’s most significant lease is for its corporate headquarters in ~~which it leases approximately 214,000 square feet of office space at a location in~~ Northern Virginia. The ROU asset and total lease liability ~~balances~~ related to the Company’s corporate headquarters lease were ~~$67.8~~$66.0 million and ~~$94.4~~$92.1 million, respectively, as of ~~September 30,~~March 31, 2020, and $66.9 million and $93.3 million, respectively, as of December 31, 2019. ~~The lease agreement for~~During the Company’s corporate headquarters location is set to expire in December 2030, with an option for the Company to extend the term for an additional five or 10 consecutive years. The Company is currently not reasonably certain it will exercise this renewal option and therefore has not included the renewal option in the lease term. Several of the Company’s remaining leases also contain options for renewal or options to terminate all or a portion of the leased space. The Company continually assesses the likelihood of exercising these options and recognizes an option as part of itsthree months ended March 31, 2020, there were 0 ROU assets ~~and~~obtained in exchange for new operating lease ~~liabilities if and when it is reasonably certain that it will exercise~~liabilities. During the ~~option.~~three months ended March 31, 2019, $1.0 million of ROU assets were obtained in exchange for new operating lease liabilities.

~~The following table presents the Company’s total lease cost and other lease details for the three and nine months ended September 30, 2019 (in thousands, except years and discount rates):~~

~~The following table presents the maturities of the Company’s operating lease liabilities as of September 30, 2019 (in thousands):~~

The following table shows future minimum payments under noncancellable operating leases and purchase agreements with initial terms of greater than one year, based on the expected due dates of the various installments as of December 31, 2018 (in thousands), as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, prior to the adoption of ASU 2016-02:

From time to time, the Company enters into certain types of contracts that require it to indemnify parties against third-party claims. These contracts primarily relate to agreements under which the Company assumes indemnity obligations for intellectual property infringement, as well as other obligations from time to time depending on arrangements negotiated with customers and other third parties. The conditions of these obligations vary. Thus, the overall maximum amount of the Company’s indemnification obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations and does not currently expect to incur any material obligations in the future. Accordingly, the Company has not recorded an indemnification liability on its ~~balance sheets~~Balance Sheets as of ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

See Note 5, Leases, to the Consolidated Financial Statements for information regarding the Company’s commitments that are related to lease agreements.

As a result of the U.S. government-enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), the Company recorded a final tax expense of $37.2 million related to the mandatory deemed repatriation transition tax (“Transition Tax”), of which $8.3 million was paid in 2018. As of September 30, 2019, $28.9 million of the Transition Tax was unpaid, of which $28.0 million is included in “Other long-term liabilities” and $0.9 million is included in “Accounts payable, accrued expenses, and operating lease liabilities” in the Company’s Consolidated Balance Sheets. See Note 8, Income Taxes, to the Consolidated Financial Statements for ~~further information.~~information regarding the Company’s commitments that are related to a mandatory deemed repatriation transition tax (“Transition Tax”) imposed under the U.S. Tax Cuts and Jobs Act (the “Tax Act”).

Following an internal review initiated in 2018, the Company believes that its Brazilian subsidiary failed or likely failed to comply with local procurement regulations in conducting business with certain Brazilian government entities.

On February 6, 2020, the Company learned that a Brazilian court has authorized the Brazilian Federal Police to use certain investigative measures in its investigation into alleged corruption and procurement fraud involving certain government officials, pertaining to a particular transaction. Pursuant to this court authorization, numerous entities and individuals across Brazil, which are unaffiliated with the Company, have been subject to the freezing of assets and other measures, including a reseller and a former employee of the Company’s Brazilian subsidiary. On February 6, 2020, the bank accounts of the Company’s Brazilian subsidiary were also frozen up to an amount of BRL 10.0 million, or approximately $2.3 million. As of March 31, 2020, the balance of these frozen bank accounts has been classified as “Restricted cash” in the Consolidated Balance Sheets. The transaction at issue is part of the basis of the previously reported failure or likely failure of the Brazilian subsidiary to comply with local procurement regulations. The Company is not a subject of the investigation, and the Company is not aware of any allegations that the former employee or the Company made any payments to Brazilian government officials.

While the Company believes that it is probable that the resolution of ~~this matter~~these Brazilian matters will result in a loss, the amount or range of loss is not reasonably estimable at this time. Given the stage of ~~the matter, no assurance can be given that~~these matters, the outcome ~~will not~~may result in a material impact on the Company’s earnings and financial results for the period in which any such liability is accrued. However, the Company believes that the outcome of ~~this matter~~these matters will not have a material effect on the Company’s financial position.

The Company is also involved in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, management does not expect the resolution of these legal proceedings to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company has contingent liabilities that, in management’s judgment, are not probable of assertion. If such unasserted contingent liabilities were to be asserted, or become probable of assertion, the Company may be required to record significant expenses and liabilities in the period in which these liabilities are asserted or become probable of assertion.

The Board of Directors ~~previously~~has authorized the Company’s repurchase of up to an aggregate of $800.0 million of its class A common stock from time to time on the open market through April 29, 2023 (the “Share Repurchase Program”), although the program may be suspended or discontinued by the Company at any time. The timing and amount of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions and other factors. The Share Repurchase Program may be funded using the Company’s working capital, as well as proceeds from any other funding arrangements that the Company may enter into in the future. During the three months ended ~~September 30, 2019,~~March 31, 2020, the Company ~~did 0t repurchase any~~repurchased an aggregate of 354,633 shares of its class A common stock at an average price per share of $143.10 and an aggregate cost of $50.7 million pursuant to the Share Repurchase Program. During the ~~nine~~three months ended ~~September 30,~~March 31, 2019, the Company repurchased an aggregate of 362,148 shares of its class A common stock at an average price per share of $133.21 and an aggregate cost of $48.2 million pursuant to the Share Repurchase Program. As of ~~September 30, 2019,~~March 31, 2020, the Company had repurchased an aggregate of ~~5,069,762~~5,584,090 shares of its class A common stock at an average price per share of ~~$99.51~~$103.82 and an aggregate cost of ~~$504.5~~$579.7 million pursuant to the Share Repurchase Program. As of March 31, 2020, $220.3 million of the Company’s class A common stock remained available for repurchase pursuant to the Share Repurchase Program. The average price per share and aggregate cost amounts disclosed above include broker commissions. ~~During the three and nine months ended September 30, 2018, the Company did 0t repurchase any shares of its class A common stock pursuant to the Share Repurchase Program.~~

The Company and its subsidiaries conduct business in the United States and various foreign countries and are subject to taxation in numerous domestic and foreign jurisdictions. As a result of its business activities, the Company files tax returns that are subject to examination by various U.S. federal, state, and local, and foreign tax authorities. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years before ~~2015.~~2016. However, due to the Company’s use of state net operating loss (“NOL”) carryovers in the United States, state tax authorities may attempt to reduce or fully offset the amount of state NOL carryovers from tax years ended 2011 and forward that the Company used in later tax years. The Company’s major foreign tax jurisdictions and tax years that remain subject to potential examination are Poland for tax years ~~2014~~2015 and forward, Spain, ~~for tax years 2015 and forward,~~ Germany, and Italy for tax years 2016 and forward, and the United Kingdom for tax years ~~2017~~2018 and forward. To date there have been no material audit assessments related to audits in any of the applicable foreign jurisdictions.

As of ~~September 30, 2019,~~March 31, 2020, the Company had unrecognized tax benefits of ~~$3.8~~$2.6 million, which are recorded in “Other long-term liabilities” in the Company’s Consolidated Balance Sheets. If recognized, ~~$3.2~~$2.5 million of these unrecognized tax benefits would impact the Company’s effective tax rate. The Company recognizes estimated accrued interest related to unrecognized income tax benefits in the provision for (benefit from) income tax accounts. Penalties relating to income taxes, if incurred, would also be recognized as a component of the Company’s provision for (benefit from) income taxes. Over the next 12 months, the amount of the Company’s liability for unrecognized tax benefits is not expected to ~~decrease~~change by ~~$1.2 million due to expiration of the applicable statute of limitations.~~a material amount. As of ~~September 30, 2019,~~March 31, 2020, the amount of cumulative accrued interest expense on unrecognized income tax benefits was approximately ~~$0.7~~$0.2 million.

The following table summarizes the Company’s deferred tax assets, net of deferred tax liabilities and valuation allowance (in thousands), as of:

The valuation ~~allowance~~allowances as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 primarily related to certain foreign tax credit carryforwards that, in the Company’s present estimation, more likely than not will not be realized.

The Company has estimated its annual effective tax rate for the full fiscal year ~~2019~~2020 and applied that rate to its income before income taxes in determining its provision for income taxes for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The Company also records discrete items in each respective period as appropriate. The estimated effective tax rate is subject to fluctuation based on the level and mix of earnings and losses by tax jurisdiction, foreign tax rate differentials, and the relative impact of permanent book to tax differences (e.g., non-deductible expenses). Each quarter, a cumulative adjustment is recorded for any fluctuations in the estimated annual effective tax rate as compared to the prior quarter. As a result of these factors, and due to potential changes in the Company’s period-to-period results, fluctuations in the Company’s effective tax rate and respective tax provisions or benefits may occur.

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company recorded a provision for income taxes of ~~$6.4~~$1.6 million that resulted in an effective tax rate of ~~22.4%~~70.4%, as compared to a benefit from income taxes of ~~$0.7~~$0.5 million that resulted in an effective tax rate of ~~(3.8)%~~6.1% for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The change in the effective tax rate in ~~2019~~2020 is mainly due to certain discrete items and the change in the expected proportion of U.S. versus foreign income. The most significant discrete item was a tax provision of $8.1 million on the $29.8 million gain from the sale of the Voice.com domain name in May 2019, as discussed in Note 12, Sale of Domain Name, to the Consolidated Financial Statements.

In the United States, the Tax Act reduced the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. Additionally, the Tax Act requires certain Global Intangible Low Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) to be included in the gross income of the CFCs’ U.S. shareholder. The Company has elected the “period cost method” and treats taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred. The Tax Act allows a U.S. corporation a deduction equal to a certain percentage of its foreign-derived intangible income (“FDII”). The Company estimated the impact of the GILTI tax and FDII deduction in determining its ~~2019~~2020 annual effective tax rate that is reflected in its provision for income taxes for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

The Tax Act also imposed a Transition Tax on previously untaxed accumulated and current earnings and profits of certain foreign subsidiaries of the Company. ~~The~~As a result of the Tax Act, the Company recorded a final tax expense of $37.2 million related to the Transition Tax, comprised of ~~which $8.3~~a provisional Transition Tax obligation of $40.3 million ~~was paid~~in 2017 and a subsequent $(3.1) million measurement-period adjustment in 2018. As of ~~September 30, 2019,~~March 31, 2020, $28.9 million of the Transition Tax was unpaid, of which $28.0 million was recorded in “Other long-term liabilities” and $0.9 million was recorded in “Accounts payable, accrued expenses, and operating lease liabilities” in the Company’s Consolidated Balance Sheets. The Company has elected to pay the Transition Tax over an eight-year period beginning in 2018, as permitted under the Tax Act.

The Company earns a significant amount of its revenues outside the United States and, as of December 31, ~~2018,~~2019, the Company’s accumulated foreign earnings and profits were ~~$397.4~~$431.2 million. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the amount of cash and cash equivalents and short-term investments held by the Company’s U.S. entities was ~~$311.9~~$245.8 million and ~~$173.6~~$289.4 million, respectively, and by the Company’s non-U.S. entities was ~~$266.4~~$293.4 million and ~~$402.5~~$276.2 million, respectively. As of ~~September 30, 2019,~~March 31, 2020, the Company intends to indefinitely reinvest ~~$197.4~~$231.2 million of its undistributed foreign earnings. This amount takes into consideration repatriations the Company made during the second quarter of 2019. After taking into account the Transition Tax described above, the Company expects such repatriation generated only an immaterial U.S. tax expense related to U.S. state income taxes.

In the United Kingdom, recently enacted legislation related to offshore receipts in respect of intangible property imposes a 20% tax on payments made by multinational companies that hold intangible property in low tax jurisdictions where the income derived from such intangible property results from sales within the United Kingdom. Based on currently available guidance issued by the tax authority, the Company believes that this tax does not apply to its operations in the United Kingdom.

In determining the Company’s provision for (benefit from) income taxes, net deferred tax assets, liabilities, and valuation allowances, management is required to make ~~judgments~~estimates and ~~estimates~~judgments related to projections of domestic and foreign profitability, the timing and extent of the utilization of NOL carryforwards, applicable tax rates, transfer pricing methods, and prudent and feasible tax planning strategies. As a multinational company, the Company is required to calculate and provide for estimated income tax liabilities for each of the tax jurisdictions in which it operates. This process involves estimating current tax obligations and exposures in each jurisdiction, as well as making judgments regarding the future recoverability of deferred tax assets. Changes in the estimated level of annual pre-tax income, changes in tax laws, particularly changes related to the utilization of NOLs in various jurisdictions, and changes resulting from tax audits can all affect the overall effective income tax rate, which, in turn, impacts the overall level of income tax expense or benefit and net income. In the United States, the Coronavirus Aid, Relief, and Economic Security Act was enacted on March 27, 2020 to provide broad-based economic relief to various sectors of the U.S. economy through a variety of means, including payroll and income tax deferrals and employee retention credits. The Company is currently in the process of evaluating the various COVID-19 pandemic relief packages available to the Company in countries where it operates and their potential impact to its Consolidated Financial Statements.

~~Judgments~~Estimates and ~~estimates~~judgments related to the Company’s projections and assumptions are inherently uncertain. Therefore, actual results could differ materially from projections. Currently, the Company expects to use its deferred tax assets, subject to Internal Revenue Code limitations, within the carryforward periods. Valuation allowances have been established where the Company has concluded that it is more likely than not that such deferred tax assets are not realizable. If the Company is unable to sustain or increase profitability in future periods, it may be required to increase the valuation allowance against the deferred tax assets, which could result in a charge that would materially adversely affect net income in the period in which the charge is incurred.

The Company’s 2013 Stock Incentive Plan (as amended, the “2013 Equity Plan”) authorizes the issuance of various types of share-based awards to the Company’s employees, officers, directors, and other eligible participants. As of ~~September 30, 2019,~~March 31, 2020, a total of 2,300,000 shares of the Company’s class A common stock were authorized for issuance under the 2013 Equity Plan. As of ~~September 30, 2019,~~March 31, 2020, there were ~~677,500~~391,850 shares of class A common stock reserved and available for future issuance under the 2013 Equity Plan.

~~During the three months ended September 30, 2019, 0 stock option awards were granted pursuant to the 2013 Equity Plan.~~ As of ~~September 30, 2019,~~March 31, 2020, there were options to purchase ~~1,326,233~~1,600,533 shares of class A common stock outstanding under the 2013 Equity Plan.

The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended ~~September 30, 2019:~~March 31, 2020:

Stock options outstanding as of ~~September 30, 2019~~March 31, 2020 are comprised of the following range of exercise prices per share (in thousands, except per share data and years):

An aggregate of ~~27,500~~99,375 stock options with an aggregate fair value of ~~$1.8~~$5.6 million vested during the three months ended ~~September 30, 2019.~~March 31, 2020. NaN stock option awards were granted during the three months ended ~~September 30, 2019.~~March 31, 2020. The weighted average grant date fair value of stock option awards using the Black-Scholes pricing model was ~~$50.57~~$54.85 for each share subject to a stock option granted during the three months ended ~~September 30, 2018~~March 31, 2019, based on the following assumptions:

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company recognized approximately ~~$1.8~~$3.2 million and $7.8 million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan. For the three and nine months ended September 30, 2018, the Company recognized approximately $3.0 ~~million and $11.1~~ million, respectively, in share-based compensation expense from stock options granted under the 2013 Equity Plan. As of ~~September 30, 2019,~~March 31, 2020, there was approximately ~~$21.0~~$32.7 million of total unrecognized share-based compensation expense related to unvested stock options. The Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately ~~2.5 years.~~ 3.0 years.

During the three months ended ~~September 30, 2019,~~March 31, 2020, the Company did 0t grant any “other stock-based awards” under the 2013 Equity Plan. For each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company did not recognize a material amount of share-based compensation expense from other stock-based awards. As of ~~September 30, 2019,~~March 31, 2020, there was approximately ~~$0.4~~$0.2 million of total unrecognized share-based compensation expense related to other stock-based awards. The Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately ~~2.7~~2.2 years, subject to additional fair value adjustments through the earlier of settlement or expiration.

The Company has two classes of common stock: class A common stock and class B common stock. Holders of class A common stock generally have the same rights, including rights to dividends, as holders of class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have 10 votes per share. Each share of class B common stock is convertible at any time, at the option of the holder, into one share of class A common stock. As such, basic and fully diluted earnings per share for class A common stock and for class B common stock are the same. The Company has never declared or paid any cash dividends on either class A or class B common stock. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there were 0 shares of preferred stock issued or outstanding.

Potential shares of common stock are included in the diluted earnings per share calculation when dilutive. Potential shares of common stock, consisting of common stock issuable upon exercise of outstanding stock options, are calculated using the treasury stock method.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, stock options issued under the 2013 Equity Plan to purchase a weighted average of approximately ~~863,000~~1,073,000 and ~~925,000~~1,471,000 shares of class A common stock, respectively, were excluded from the diluted earnings per share calculation because their impact would have been anti-dilutive. For the three and nine months ended September 30, 2018, stock options issued under the 2013 Equity Plan to purchase a weighted average of approximately 979,000 and 880,000 shares of class A common stock, respectively, were excluded from the diluted earnings per share calculation because their impact would have been anti-dilutive.

The Company manages its business in 1 reportable operating segment. The Company’s one reportable operating segment is engaged in the design, development, marketing, and sales of its software platform through licensing arrangements and ~~cloud-based~~cloud subscriptions and related services. The following table presents total revenues, gross profit, and long-lived assets, excluding long-term deferred tax assets, (in thousands) according to geographic region:

Geographic regions:	Domestic		EMEA		Other Regions		Consolidated		Domestic		EMEA		Other Regions		Consolidated
Three months ended September 30, 2019
Three months ended March 31, 2020
Total revenues	$	68,063	$	39,184	$	12,446	$	119,693	$	65,489	$	35,473	$	10,462	$	111,424
Gross profit	$	54,410	$	31,313	$	10,155	$	95,878	$	51,442	$	27,176	$	8,261	$	86,879
Three months ended September 30, 2018
Three months ended March 31, 2019
Total revenues	$	70,611	$	37,628	$	13,913	$	122,152	$	64,881	$	37,675	$	12,810	$	115,366
Gross profit	$	56,549	$	30,779	$	11,435	$	98,763	$	49,534	$	29,528	$	10,131	$	89,193
Nine months ended September 30, 2019
Total revenues	$	200,282	$	115,816	$	36,698	$	352,796
Gross profit	$	156,938	$	91,520	$	29,000	$	277,458
Nine months ended September 30, 2018
Total revenues	$	210,715	$	113,834	$	41,172	$	365,721
Gross profit	$	166,839	$	91,540	$	33,728	$	292,107
As of September 30, 2019
As of March 31, 2020
Long-lived assets	$	120,755	$	13,414	$	12,273	$	146,442	$	115,221	$	12,341	$	10,508	$	138,070
As of December 31, 2018
As of December 31, 2019
Long-lived assets	$	49,611	$	5,931	$	4,511	$	60,053	$	118,168	$	13,636	$	11,912	$	143,716

The domestic region consists of the United States and Canada. The EMEA region includes operations in Europe, the Middle East, and Africa. The other regions include all other foreign countries, generally comprising Latin America and the Asia Pacific region. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 0 individual foreign country accounted for 10% or more of total consolidated revenues.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 0 individual customer accounted for 10% or more of total consolidated revenues.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 0 individual foreign country accounted for 10% or more of total consolidated assets.

On May 30, 2019, the Company completed the sale of its Voice.com domain name for consideration of $30.0 million in cash (the “Domain Name Sale”). As of the date of the Domain Name Sale, the Company had 0 unamortized costs associated with the Voice.com domain name asset. The Company did not incur any material costs related to the Domain Name Sale. The Domain Name Sale resulted in a gain of $29.8 million in the second quarter of 2019, which was recorded as “Other income, net” for such quarter in the Consolidated Statements of Operations. The Company also recorded a discrete $8.1 million tax provision in the second quarter of 2019 related to the Domain Name Sale.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements regarding industry prospects and our results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. The important factors discussed under “Part II. Item 1A. Risk Factors,” among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations.

MicroStrategy^® is a ~~leading worldwide provider of~~global leader in enterprise analytics software and ~~mobility software. We are one~~services. Our vision is to enable Intelligence Everywhere^™. The MicroStrategy platform brings together data from our customers’ enterprise applications, such as their financial systems, human resources systems, and supply chain management and customer relationship management tools, and provides analytics for actionable insights. Customers can also use our consulting and education offerings to harness MicroStrategy’s innovative technology and empower their workforce to make better decisions.

Earlier this year, we released MicroStrategy 2020^™, the newest release of ~~the largest independent, publicly-traded~~our flagship enterprise analytics ~~vendors as measured by annual revenue.~~ platform. MicroStrategy 2020 allows our customers to build high-performance, governed, and secure applications that can scale across their enterprise. MicroStrategy 2020 highlights include:

Our customers include leading companies from a wide range of industries, including retail, consulting, technology, manufacturing, ~~finance,~~ banking, insurance, finance, healthcare, ~~education, and~~ telecommunications, as well as the public sector.

The analytics market is highly ~~competitive and subject to rapidly-changing technology paradigms.~~competitive. Our future success depends on ~~our ability to compete~~the effectiveness with ~~and~~which we can differentiate our ~~products~~offerings from those offered by ~~other analytics vendors, including~~ large software vendors that provide products across multiple lines of business, including one or more products that directly compete with our ~~products~~offerings, and other ~~vendors that offer competing self-service~~potential competitors across analytics ~~tools.~~implementation projects of varying sizes. We believe a key differentiator of MicroStrategy is our ~~offering of a single,~~modern, open, comprehensive enterprise platform that ~~uniquely features Federated Analytics, Transformational Mobility, and HyperIntelligence~~^™~~, which~~ can be ~~deployed~~extended to other tools and systems, can scale across the enterprise, is optimized for cloud or on-premises ~~or on multiple private~~deployments, and ~~public cloud platforms.~~

~~We continue to innovate~~can be combined with unique packages of our ~~platform by focusing on making it more usable, powerful, scalable, flexible,~~expert services and ~~secure. In the three months ended September 30, 2019, these innovations included:~~education offerings.

The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption. It has already disrupted global travel and supply chains and adversely impacted global commercial activity. Considerable uncertainty still surrounds COVID-19 and its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses. The travel restrictions, limits on hours of operations and/or closures of non-essential businesses, and other efforts to curb the spread of COVID-19 have significantly disrupted business activity globally.

During the first quarter of 2020, our product licenses revenues were negatively impacted by delays attributed to the impact of the COVID-19 pandemic on our customers’ operational priorities. As significant uncertainty exists concerning the impact of the COVID-19 pandemic on our customers’ and prospects’ business and operations in future periods, we may experience decreased product licenses revenues compared to prior year periods until the effects of the pandemic have subsided. Similarly, we may experience declines in our consulting revenues in future periods as our customers continue operating in remote work environments and aim to reduce expenses. Although we continued to see high renewal rates in our product support services during the first quarter of 2020, our product support revenues may be negatively impacted in future periods to the extent that customers require extended payment terms or determine not to renew their product support arrangements as part of their efforts to reduce expenses.

We are also continuing to adapt our operations to meet the challenges of this uncertain and rapidly evolving situation, including establishing remote working arrangements for our employees, limiting non-essential business travel, and transitioning towards virtual sales and marketing events. Our sales and marketing expenses decreased during the first quarter of 2020, and we expect these expenses will be lower compared to prior year periods due to the ongoing impact of the COVID-19 pandemic on worldwide travel and in-person marketing events.

Effects of the COVID-19 pandemic that may negatively impact our business in future periods include, but are not limited to: limitations on the ability of our customers to conduct their business, purchase our products and services, and make timely payments; curtailed consumer spending; deferred purchasing decisions; delayed consulting services implementations; and decreases in product licenses revenues driven by channel partners. We will continue to actively monitor the nature and extent of the impact to our business, operating results, and financial condition.

The following table sets forth certain operating highlights (in thousands) for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

We base our internal operating expense forecasts on expected revenue trends and strategic objectives. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed. Accordingly, any shortfall in revenue may cause significant variation in our operating results. We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Revenues

Product licenses

$
18,972

$
20,264

$
57,384

$
56,857

Subscription services

7,894

7,240

22,142

22,486

Total product licenses and subscription services

26,866

27,504

79,526

79,343

Product support

72,885

74,463

217,313

222,554

Other services

19,942

20,185

55,957

63,824

Total revenues

119,693

122,152

352,796

365,721

Cost of revenues

Product licenses

526

377

1,597

4,255

Subscription services

3,889

3,259

10,976

9,953

Total product licenses and subscription services

4,415

3,636

12,573

14,208

Product support

6,922

5,079

21,710

14,685

Other services

12,478

14,674

41,055

44,721

Total cost of revenues

23,815

23,389

75,338

73,614

Gross profit

95,878

98,763

277,458

292,107

Operating expenses

Sales and marketing

43,935

45,429

140,968

147,742

Research and development

27,457

25,829

83,436

74,471

General and administrative

19,900

20,285

63,684

63,756

Total operating expenses

91,292

91,543

288,088

285,969

Income (loss) from operations

$
4,586

$
7,220

$
(10,630
)

$
6,138

~~On May 30, 2019, we completed the Domain Name Sale, resulting in a one-time gain of $29.8 million and an associated discrete tax provision of $8.1 million during the second quarter of 2019.~~

As of ~~September 30, 2019,~~March 31, 2020, we had a total of ~~2,453~~2,363 employees, of whom ~~1,124~~1,043 were based in the United States and ~~1,329~~1,320 were based internationally. Of our 2,453 total employees, 616 were engaged in sales and marketing, 775 in research and development, 725 in subscription services, product support, consulting, and education, and 337 in finance, administration, and corporate operations. The following table summarizes employee headcount as of the dates indicated:

As discussed in Note 9, Share-based Compensation, to the Consolidated Financial Statements, we have outstanding stock options to purchase shares of our class A common stock and certain other stock-based awards under our 2013 Equity Plan. Share-based compensation expense (in thousands) from these awards was recognized in the following operating expense line items in our Consolidated Statements of Operations for the periods indicated:

As of ~~September 30, 2019,~~March 31, 2020, we estimated that approximately ~~$21.4~~$32.9 million of additional share-based compensation expense for awards granted under the 2013 Equity Plan will be recognized over a remaining weighted average period of ~~2.5~~3.0 years.

We are providing supplemental financial measures for (i) non-GAAP income (loss) from operations that excludes the impact of our share-based compensation arrangements and (ii) ~~net income and diluted earnings per share that exclude the impact from the Tax Act in the third quarter of 2018 and the Domain Name Sale in the second quarter of 2019, and (iii)~~ certain non-GAAP constant currency revenues, cost of revenues, and operating expenses that exclude foreign currency exchange rate fluctuations. These supplemental financial measures are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions.

We believe that these non-GAAP financial measures are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. The first supplemental financial measure excludes a significant non-cash expense that we believe is not reflective of our general business performance, and for which the accounting requires management judgment and the resulting share-based compensation expense could vary significantly in comparison to other companies. The second set of ~~supplemental financial measures excludes the impact from the Tax Act, which was a one-time tax charge, and the Domain Name Sale, which is outside of our normal business operations. The third set of~~

supplemental financial measures excludes changes resulting from fluctuations in foreign currency exchange rates so that results may be compared to the same period in the prior year on a ~~“constant currency”~~non-GAAP constant currency basis. We believe the use of these non-GAAP financial measures can also facilitate comparison of our operating results to those of our competitors.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect that share-based compensation expense, which is excluded from the first non-GAAP financial measure, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors. Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP. We rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP financial measures only supplementally.

The following is a reconciliation of our non-GAAP income (loss) from operations excluding the impact of our share-based compensation arrangements to its most directly comparable GAAP ~~measure~~measures (in thousands) for the periods indicated:

The following are reconciliations of ~~our~~certain non-GAAP net income and non-GAAP diluted earnings per share, in each case excluding the impact of the Tax Act in the third quarter of 2018 and the Domain Name Sale in the second quarter of 2019, to their most directly comparable GAAP measures (in thousands, except per share data) for the periods indicated:

~~The following are reconciliations of our non-GAAP “constant currency”~~constant currency revenues, cost of revenues, and operating expenses to their most directly comparable GAAP measures (in thousands) for the periods ~~indicated. We adopted Accounting Standards Update No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, and its subsequent amendments (“ASU 2014-09”) effective January 1, 2018. Where applicable, prior year information within the following reconciliations has been adjusted to reflect the full retrospective adoption of ASU 2014-09. indicated:

	Three Months Ended															Three Months Ended
	September 30,															March 31,
	GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)			GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
	2019		2019			2019		2018		2019			2019			2020		2020			2020		2019		2020			2020
Product licenses revenues	$	18,972	$	(921	)	$	19,893	$	20,264		-6.4	%		-1.8	%	$	12,584	$	(541	)	$	13,125	$	18,291		-31.2	%		-28.2	%
Subscription services revenues		7,894		(112	)		8,006		7,240		9.0	%		10.6	%		7,968		(36	)		8,004		7,144		11.5	%		12.0	%
Product support revenues		72,885		(1,400	)		74,285		74,463		-2.1	%		-0.2	%		71,158		(1,176	)		72,334		71,450		-0.4	%		1.2	%
Other services revenues		19,942		(455	)		20,397		20,185		-1.2	%		1.1	%		19,714		(255	)		19,969		18,481		6.7	%		8.1	%
Cost of product support revenues		6,922		(78	)		7,000		5,079		36.3	%		37.8	%		6,718		(79	)		6,797		7,067		-4.9	%		-3.8	%
Cost of other services revenues		12,478		(320	)		12,798		14,674		-15.0	%		-12.8	%		13,093		(289	)		13,382		14,989		-12.6	%		-10.7	%
Sales and marketing expenses		43,935		(990	)		44,925		45,429		-3.3	%		-1.1	%		39,518		(1,010	)		40,528		48,760		-19.0	%		-16.9	%
Research and development expenses		27,457		(205	)		27,662		25,829		6.3	%		7.1	%		26,101		(214	)		26,315		28,215		-7.5	%		-6.7	%
General and administrative expenses		19,900		(194	)		20,094		20,285		-1.9	%		-0.9	%		21,332		(199	)		21,531		22,604		-5.6	%		-4.7	%

	2018		2018			2018		2017		2018			2018			GAAP		Foreign Currency Exchange Rate Impact (1)			Non-GAAP Constant Currency (2)		GAAP		GAAP % Change			Non-GAAP Constant Currency % Change (3)
								(as adjusted)								2019		2019			2019		2018		2019			2019
Product licenses revenues	$	20,264	$	(861	)	$	21,125	$	22,356		-9.4	%		-5.5	%	$	18,291	$	(1,324	)	$	19,615	$	17,301		5.7	%		13.4	%
Subscription services revenues		7,240		(11	)		7,251		7,725		-6.3	%		-6.1	%		7,144		(113	)		7,257		7,662		-6.8	%		-5.3	%
Product support revenues		74,463		(1,206	)		75,669		72,881		2.2	%		3.8	%		71,450		(2,695	)		74,145		74,415		-4.0	%		-0.4	%
Other services revenues		20,185		(273	)		20,458		23,048		-12.4	%		-11.2	%		18,481		(812	)		19,293		23,589		-21.7	%		-18.2	%
Cost of product support revenues		5,079		(66	)		5,145		4,218		20.4	%		22.0	%		7,067		(188	)		7,255		4,796		47.4	%		51.3	%
Cost of other services revenues		14,674		(277	)		14,951		14,816		-1.0	%		0.9	%		14,989		(797	)		15,786		14,929		0.4	%		5.7	%
Sales and marketing expenses		45,429		(959	)		46,388		42,005		8.2	%		10.4	%		48,760		(1,684	)		50,444		51,335		-5.0	%		-1.7	%
Research and development expenses		25,829		(102	)		25,931		19,360		33.4	%		33.9	%		28,215		(410	)		28,625		23,560		19.8	%		21.5	%
General and administrative expenses		20,285		(184	)		20,469		19,082		6.3	%		7.3	%		22,604		(398	)		23,002		22,172		1.9	%		3.7	%

Nine Months Ended

September 30,

GAAP

Foreign Currency
Exchange Rate
Impact (1)

Non-GAAP
Constant
Currency (2)

GAAP

GAAP %
Change

Non-GAAP
Constant
Currency %
Change (3)

2019

2019

2019

2018

2019

2019

Product licenses revenues

$
57,384

$
(2,861
)

$
60,245

$
56,857

0.9
%

6.0
%
Subscription services revenues

22,142

(318
)

22,460

22,486

-1.5
%

-0.1
%
Product support revenues

217,313

(6,186
)

223,499

222,554

-2.4
%

0.4
%
Other services revenues

55,957

(1,870
)

57,827

63,824

-12.3
%

-9.4
%
Cost of product support revenues

21,710

(429
)

22,139

14,685

47.8
%

50.8
%
Cost of other services revenues

41,055

(1,616
)

42,671

44,721

-8.2
%

-4.6
%
Sales and marketing expenses

140,968

(4,056
)

145,024

147,742

-4.6
%

-1.8
%
Research and development expenses

83,436

(1,024
)

84,460

74,471

12.0
%

13.4
%
General and administrative expenses

63,684

(901
)

64,585

63,756

-0.1
%

1.3
%

2018

2018

2018

2017

2018

2018

(as adjusted)

Product licenses revenues

$
56,857

$
(197
)

$
57,054

$
62,730

-9.4
%

-9.0
%
Subscription services revenues

22,486

261

22,225

23,843

-5.7
%

-6.8
%
Product support revenues

222,554

2,902

219,652

214,159

3.9
%

2.6
%
Other services revenues

63,824

1,320

62,504

66,730

-4.4
%

-6.3
%
Cost of product support revenues

14,685

133

14,552

13,094

12.2
%

11.1
%
Cost of other services revenues

44,721

982

43,739

43,589

2.6
%

0.3
%
Sales and marketing expenses

147,742

1,002

146,740

123,213

19.9
%

19.1
%
Research and development expenses

74,471

657

73,814

57,347

29.9
%

28.7
%
General and administrative expenses

63,756

327

63,429

58,921

8.2
%

7.7
%

Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and equity, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates, particularly estimates relating to revenue recognition, have a material impact on our ~~financial statements. In some cases, changes in accounting estimates are reasonably likely to occur from period to period.~~Consolidated Financial Statements. Actual results and outcomes could differ from these estimates and assumptions.

The section “Critical Accounting Policies” included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 provides a more detailed explanation of the judgments made and a discussion of our accounting estimates and ~~policies.~~policies relating to revenue recognition. There have been no significant changes in such estimates and policies since December 31, ~~2018.~~2019.

Comparison of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~

Except as otherwise indicated herein, the term “domestic” refers to operations in the United States and Canada and the term “international” refers to operations outside of the United States and Canada.

Product licenses and subscription services revenues. The following table sets forth product licenses and subscription services revenues (in thousands) and related percentage changes for the periods indicated:

	Three Months Ended							Nine Months Ended							Three Months Ended
	September 30,				%			September 30,				%			March 31,				%
	2019		2018		Change			2019		2018		Change			2020		2019		Change
Product Licenses and Subscription Services Revenues:
Product Licenses
Domestic	$	10,618	$	10,192		4.2	%	$	31,337	$	29,341		6.8	%	$	6,985	$	9,194		-24.0	%
International		8,354		10,072		-17.1	%		26,047		27,516		-5.3	%		5,599		9,097		-38.5	%
Total product licenses revenues		18,972		20,264		-6.4	%		57,384		56,857		0.9	%		12,584		18,291		-31.2	%
Subscription Services
Domestic		5,439		5,710		-4.7	%		16,281		17,676		-7.9	%		5,968		5,463		9.2	%
International		2,455		1,530		60.5	%		5,861		4,810		21.9	%		2,000		1,681		19.0	%
Total subscription services revenues		7,894		7,240		9.0	%		22,142		22,486		-1.5	%		7,968		7,144		11.5	%
Total product licenses and subscription services revenues	$	26,866	$	27,504		-2.3	%	$	79,526	$	79,343		0.2	%	$	20,552	$	25,435		-19.2	%

The following table sets forth a summary, grouped by size, of the number of recognized product licenses transactions for the periods indicated:

The following table sets forth the recognized revenue (in thousands) attributable to product licenses transactions, grouped by size, and related percentage changes for the periods indicated:

	Three Months Ended							Nine Months Ended							Three Months Ended
	September 30,				%			September 30,				%			March 31,				%
	2019		2018		Change			2019		2018		Change			2020		2019		Change
Product Licenses Revenue Recognized in the Applicable Period:
More than $1.0 million in licenses revenue recognized	$	0	$	2,834		-100.0	%	$	9,981	$	7,790		28.1	%	$	0	$	2,402		-100.0	%
Between $0.5 million and $1.0 million in licenses revenue recognized		4,860		4,252		14.3	%		7,914		8,994		-12.0	%		2,302		2,061		11.7	%
Less than $0.5 million in licenses revenue recognized		14,112		13,178		7.1	%		39,489		40,073		-1.5	%		10,282		13,828		-25.6	%
Total		18,972		20,264		-6.4	%		57,384		56,857		0.9	%		12,584		18,291		-31.2	%
Domestic:
More than $1.0 million in licenses revenue recognized		0		1,367		-100.0	%		6,347		4,216		50.5	%		0		1,128		-100.0	%
Between $0.5 million and $1.0 million in licenses revenue recognized		3,252		1,252		159.7	%		4,794		3,872		23.8	%		1,308		549		138.3	%
Less than $0.5 million in licenses revenue recognized		7,366		7,573		-2.7	%		20,196		21,253		-5.0	%		5,677		7,517		-24.5	%
Total		10,618		10,192		4.2	%		31,337		29,341		6.8	%		6,985		9,194		-24.0	%
International:
More than $1.0 million in licenses revenue recognized		0		1,467		-100.0	%		3,634		3,574		1.7	%		0		1,274		-100.0	%
Between $0.5 million and $1.0 million in licenses revenue recognized		1,608		3,000		-46.4	%		3,120		5,122		-39.1	%		994		1,512		-34.3	%
Less than $0.5 million in licenses revenue recognized		6,746		5,605		20.4	%		19,293		18,820		2.5	%		4,605		6,311		-27.0	%
Total	$	8,354	$	10,072		-17.1	%	$	26,047	$	27,516		-5.3	%	$	5,599	$	9,097		-38.5	%

Product licenses revenues decreased ~~$1.3~~$5.7 million for the three months ended ~~September 30, 2019, as compared to the same period in the prior year. Product licenses revenues increased $0.5 million for the nine months ended September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year. For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ product licenses transactions with more than $0.5 million in recognized revenue represented ~~25.6%~~18.3% and ~~35.0%~~24.4%, respectively, of our product licenses revenues. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, our top three product licenses transactions totaled ~~$5.4~~$2.3 million in recognized revenue, or ~~9.4%~~18.3% of total product licenses revenues, compared to ~~$4.6~~$3.4 million, or ~~8.1%~~18.6% of total product licenses revenues, for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Due to the impact of the COVID-19 pandemic on companies worldwide, we experienced delays in closing certain product license deals during the first quarter of 2020 as customers shifted their attention to addressing operational challenges associated with the pandemic. We may experience decreased product licenses revenues compared to prior year periods until the effects of the pandemic have subsided.

Domestic product licenses revenues. Domestic product licenses revenues ~~increased $0.4~~decreased $2.2 million for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to a decrease in the average deal size of transactions with less than $0.5 million in recognized revenue and a decrease in the number of transactions with more than $1.0 million in

recognized revenue, partially offset by an increase in the number and average deal size of transactions with recognized revenue between $0.5 million and $1.0 million, partially offset by a decrease in the number of transactions with more than $1.0 million in recognized revenue and an decrease in the average deal size of transactions with less than $0.5 million in recognized revenue.million.

Domestic product licenses revenues increased $2.0 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to an increase in the number of transactions with more than $0.5 million in recognized revenue, partially offset by a decrease in the average deal size of transactions with less than $0.5 million in recognized revenue.

International product licenses revenues. International product licenses revenues decreased ~~$1.7~~$3.5 million for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to a decrease in the number of transactions ~~with more than $0.5 million in recognized revenue~~ and a ~~$0.9~~$0.5 million unfavorable foreign currency exchange ~~impact, partially offset by an increase in the number of transactions with less than $0.5 million in recognized revenue.~~impact.

International product licenses revenues decreased $1.5 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a decrease in the number of transactions with recognized revenue between $0.5 million and $1.0 million and a $2.9 million unfavorable foreign currency exchange impact, partially offset by an increase in the number of transactions with less than $0.5 million in recognized revenue.

Subscription services revenues. Subscription services revenues are derived ~~primarily~~ from ~~our~~the MicroStrategy Cloud Environment, a cloud ~~services offerings~~subscription service, that are recognized ~~on a subscription basis~~ratably over the service period ofin the contract. Subscription services revenues increased ~~$0.7~~$0.8 million for the three months ended September 30, 2019, as compared to the same period in the prior year, primarily due to revenues recognized in the third quarter of 2019 that were attributed to certain services previously performed. Subscription services revenues decreased $0.3 million for the nine months ended September 30, 2019,March 31, 2020, as compared to the same period in the prior year, primarily due to an ~~unfavorable foreign currency exchange impact.~~increase in the use of subscription services by existing customers.

Product support revenues. The following table sets forth product support revenues (in thousands) and related percentage changes for the periods indicated:

Product support revenues are derived from providing technical software support and software updates and upgrades to customers. Product support revenues are recognized ratably over the term of the contract, which is generally one year. Product support revenues ~~decreased $1.6 million~~did not materially change for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to an increase in new product support contracts, substantially offset by a ~~$1.4~~$1.2 million unfavorable foreign currency exchange impact. ~~Product~~Although our product support revenues ~~decreased $5.2 million for~~were not materially impacted by the ~~nine~~COVID-19 pandemic during the three months ended ~~September 30, 2019, as compared~~March 31, 2020, our product support revenues may be negatively impacted in future periods to the ~~same period in the prior year, primarily due~~extent that customers require extended payment terms or determine not to ~~a $6.2 million unfavorable foreign currency exchange impact, partially offset by an increase in new~~renew their product support ~~contracts.~~arrangements as part of their efforts to reduce expenses.

Other services revenues. The following table sets forth other services revenues (in thousands) and related percentage changes ~~in these revenues~~ for the periods indicated:

Consulting revenues. Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues ~~did not materially change~~increased $1.8 million for the three months ended ~~September 30, 2019, as compared to the same period in the prior year. Consulting revenues decreased $6.9 million for the nine months ended September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to an increase in billable hours, partially offset by a decrease in ~~billable hours worldwide and a $1.7 million unfavorable foreign currency exchange impact, partially offset by an increase in~~ average bill ~~rates.~~rates worldwide. Although our consulting revenues were not materially impacted by the COVID-19 pandemic during the three months ended March 31, 2020, we may experience declines in our consulting revenues in future periods as our customers continue operating in remote work environments and aim to reduce expenses.

Education revenues. Education revenues are derived from the education and training that we provide to our customers to enhance their ability to fully utilize the features and functionality of our software. These offerings include self-tutorials, custom course development, joint training with customers’ internal staff, and standard course offerings, with pricing dependent on the specific offering delivered. Education revenues decreased ~~$0.3 million and $1.0~~$0.6 million for the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020, as compared to the same ~~periods~~period in the prior year, primarily due to a ~~decrease~~reduction in ~~overall contract values.~~the average sales price of our education offerings.

Cost of revenues. The following table sets forth cost of revenues (in thousands) and related percentage changes for the periods indicated:

	Three Months Ended							Nine Months Ended							Three Months Ended
	September 30,				%			September 30,				%			March 31,				%
	2019		2018		Change			2019		2018		Change			2020		2019		Change
Cost of Revenues:
Product licenses and subscription services:
Product licenses	$	526	$	377		39.5	%	$	1,597	$	4,255		-62.5	%	$	670	$	519		29.1	%
Subscription services		3,889		3,259		19.3	%		10,976		9,953		10.3	%		4,064		3,598		13.0	%
Total product licenses and subscription services		4,415		3,636		21.4	%		12,573		14,208		-11.5	%		4,734		4,117		15.0	%
Product support		6,922		5,079		36.3	%		21,710		14,685		47.8	%		6,718		7,067		-4.9	%
Other services:
Consulting		11,102		12,996		-14.6	%		35,996		39,859		-9.7	%		11,428		12,985		-12.0	%
Education		1,376		1,678		-18.0	%		5,059		4,862		4.1	%		1,665		2,004		-16.9	%
Total other services		12,478		14,674		-15.0	%		41,055		44,721		-8.2	%		13,093		14,989		-12.6	%
Total cost of revenues	$	23,815	$	23,389		1.8	%	$	75,338	$	73,614		2.3	%	$	24,545	$	26,173		-6.2	%

Cost of product licenses revenues. Cost of product licenses revenues consists of ~~amortization of capitalized software development costs,~~ referral fees paid to channel partners, the costs of product manuals and media, and royalties paid to third-party software vendors. ~~Capitalized software development costs are generally amortized over a useful life of three years.~~

Cost of product licenses revenues did not materially change for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year. Cost of product licenses revenues decreased $2.7 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $2.5 million decrease in amortization of capitalized software development costs related to MicroStrategy 10, which became fully amortized in May 2018. As of September 30, 2019, all previously capitalized software development costs have been fully amortized.

Cost of subscription services revenues. Cost of subscription services revenues consists of equipment, facility and other related support costs, and personnel and related overhead costs. Cost of subscription services revenues ~~increased $0.6 million~~did not materially change for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior ~~year, primarily due to a $0.5 million increase in third-party hosting service provider fees and a $0.2 million increase in compensation and related costs due to an increase in staffing levels.~~year. Subscription services headcount increased ~~20.0%~~16.7% to 6663 at ~~September 30, 2019~~March 31, 2020 from 5554 at ~~September 30, 2018.~~March 31, 2019.

Cost of subscription services revenues increased $1.0 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $1.5 million increase in third-party hosting service provider fees, partially offset by a $0.3 million decrease in equipment, facility, and other related support costs.

Cost of product support revenues. Cost of product support revenues consists of personnel and related overhead costs. Cost of product support revenues increased $1.8 million for the three months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $1.8 million increase in compensation and related costs, ~~due to an increase in services provided by our consulting personnel~~including those under our Enterprise Support ~~program and an increase in product support staffing levels.~~program. Our Enterprise Support program utilizes primarily consulting personnel to provide product support to our customers at our discretion. Compensation related to consulting personnel providing Enterprise Support services is reported as cost of product support revenues. ~~Product support headcount increased 19.1% to 231 at September 30, 2019 from 194 at September 30, 2018.~~

As a result of the grant of awards under the 2013 Equity Plan, we expect that share-based compensation expense, a portion of which is recognized as cost of product support revenues, will continue to be a recurring expense. As of September 30, 2019, we estimated that approximately $0.8 million of additional share-based compensation expense will be recognized as cost of product support revenues over a remaining weighted average period of 2.4 years.

Cost of product support revenues ~~increased $7.0~~did not materially change for the three months ended March 31, 2020, as compared to the same period in the prior year. Product support headcount decreased 8.9% to 204 at March 31, 2020 from 224 at March 31, 2019.

Cost of consulting revenues. Cost of consulting revenues consists of personnel and related overhead costs, excluding those under our Enterprise Support program which are allocated to cost of product support revenues. Cost of consulting revenues decreased $1.6 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to a $6.5 million increase in compensation and related costs due to an increase in services provided by our consulting personnel under our Enterprise Support program and an increase in product support staffing levels and a $0.3 million increase in facility and other related support costs.

~~Cost of consulting revenues.~~ Cost of consulting revenues consists of personnel and related overhead costs. Cost of consulting revenues decreased $1.9 million for the three months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $1.4$0.8 million decrease in compensation and related costs ~~due to an increase in services provided by our consulting personnel under our Enterprise Support program, the associated costs of which are allocated to cost of product support revenues,~~ and a decrease in consulting staffing levels and a $0.3 million decrease in recruiting costs. Included in cost of consulting revenues for the three months ended September 30, 2019 is an aggregate $0.3 million favorable foreign currency exchange impact. Consulting headcount decreased 14.8% to 390 at September 30, 2019 from 458 at September 30, 2018.

As a result of the grant of awards under the 2013 Equity Plan, we expect that share-based compensation expense, a portion of which is recognized as cost of consulting revenues, will continue to be a recurring expense. As of September 30, 2019, we estimated that approximately $0.6 million of additional share-based compensation expense will be recognized as cost of consulting revenues over a remaining weighted average period of 3.2 years.

Cost of consulting revenues decreased $3.9 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $4.0 million decrease in compensation and related costs due to an increase in services provided by our consulting personnel under our Enterprise Support program, the associated costs of which are allocated to cost of product support revenues, and a decrease in consulting staffing levels, a $0.5 million decrease in recruiting costs, and a $0.3 million decrease in subcontractor costs, partially offset by a $0.6 million ~~increase~~decrease in travel and entertainment expenditures and a $0.3 million increase in facilities and other related support costs. Included in cost of consulting revenues for the nine months ended September 30, 2019 is an aggregate $1.5 million favorable foreign currency exchange impact.expenditures. Consulting headcount decreased 0.9% to 425 at March 31, 2020 from 429 at March 31, 2019.

Cost of education revenues. Cost of education revenues consists of personnel and related overhead costs. Cost of education revenues ~~decreased $0.3 million~~did not materially change for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior ~~year, primarily due to a $0.2 million decrease in compensation and related costs due to a decrease in staffing levels.~~year. Education headcount decreased ~~13.6%~~16.0% to 3842 at ~~September 30, 2019~~March 31, 2020 from 4450 at ~~September 30, 2018.~~March 31, 2019.

Cost of education revenues increased $0.2 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $0.1 million increase in subcontractor costs and a $0.1 million increase in compensation and related costs.

Sales and marketing expenses. Sales and marketing expenses consist of personnel costs, commissions, office facilities, travel, advertising, public relations programs, and promotional events, such as trade shows, seminars, and technical conferences. The following table sets forth sales and marketing expenses (in thousands) and related percentage changes for the periods indicated:

Sales and marketing expenses decreased ~~$1.5~~$9.2 million for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to a ~~$1.5~~$3.5 million decrease in variable compensation, including the cancellation of a sales employee awards event as a result of the COVID-19 pandemic, a $2.6 million decrease in employee salaries due to a decrease in staffing levels, a $1.0 million decrease in travel and entertainment expenditures, a $0.7 million decrease in marketing and advertising costs, a ~~$0.8~~$0.5 million decrease in facility and other related support costs, a $0.5 million decrease in the amortization of capitalized variable compensation, and a $0.5 million net decrease in share-based compensation expense, a $0.6 million decrease in subcontractor costs, a $0.6 million decrease in travel and entertainment expenditures, and a $0.2 million decrease in recruiting costs, partially offset by a $2.2 million increase in compensation and related costs due to increased variable compensation and a $0.3 million increase in facility and other related support costs.expense. The ~~$0.8~~$0.5 million net decrease in share-based compensation expense is primarily due to the forfeiture of certain stock options, ~~related to~~partially offset by the ~~departures~~grant of ~~two executive officers in July 2019.~~ additional awards under the 2013 Equity Plan.Included in sales and marketing expenses for the three months ended ~~September 30, 2019~~March 31, 2020 is an aggregate $1.0 million favorable foreign currency exchange impact. Sales and marketing headcount decreased ~~11.9%~~12.0% to ~~616~~594 at ~~September 30, 2019~~March 31, 2020 from ~~699~~675 at ~~September 30, 2018.~~

~~As a result of the grant of awards under the 2013 Equity Plan, we~~March 31, 2019. We expect that share-based compensation expense, a significant portion of which is recognized as sales and marketing expense, will continue to be a significant recurring expense. As of September 30, 2019, we estimated that approximately $6.5 million of additional share-based compensation expense will be recognized as sales and marketing expense over a remaining weighted average period of 2.7 years.

Sales and marketing expenses decreased $6.8 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $7.2 million decrease in marketing and advertising costs, a $2.4 million decrease in travel and entertainment expenditures, a $1.0 million decrease in recruiting costs, and a $0.6 million net decrease in share-based compensation expense, partially offset by a $2.4 million increase in compensation and related costs due to increased variable compensation, a $1.5 million increase in facility and other related support costs, and a $0.5 million increase in the amortization of capitalized variable compensation. The $0.6 million net decrease in share-based compensation expense is primarily due to the forfeiture of certain stock options, including those related to the departures of two executive officers in July 2019, and certain awards becoming fully vested, partially offset by the grant of additional awards under the 2013 Equity Plan. Included in sales and marketing expenses ~~for~~will be lower compared to prior year periods due to the ~~nine months ended September 30, 2019 is an aggregate $4.1 million favorable foreign currency exchange impact.~~ongoing impact of the COVID-19 pandemic on worldwide travel and in-person marketing events.

Research and development expenses. Research and development expenses consist of the personnel costs for our software engineering personnel, depreciation of equipment, and other related costs. The following table summarizes research and development expenses ~~and amortization of capitalized software development costs~~ (in thousands) and related percentage changes for the periods indicated:

Research and development expenses ~~increased $1.6~~decreased $2.1 million for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to a ~~$1.8~~$0.5 million ~~increase~~decrease in compensation and related costs due to ~~an increase~~a decrease in staffing levels, ~~and~~ a ~~$0.7~~$0.4 million ~~increase~~decrease in recruiting costs, ~~partially offset by~~ a $0.4 million decrease in employee relations expenses, a $0.3 million decrease in consulting and advisory costs, ~~a $0.2 million net decrease in share-based compensation expense,~~ and a ~~$0.2~~$0.3 million decrease in travel and entertainment expenditures. The increase in research and development expenses reflects our previously announced strategy to seek to take greater advantage of the opportunities in the market by increasing our research and development expenditures as we invest in our technology ~~products and personnel. The $0.2 million net decrease in share-based compensation expense is primarily due to certain awards becoming fully vested.~~infrastructure costs. Research and development headcount ~~increased 12.6%~~decreased 1.6% to ~~775~~721 at ~~September 30, 2019~~March 31, 2020 from ~~688~~733 at ~~September 30, 2018.~~March 31, 2019. Due to the pace of our software development efforts and frequency of our software releases, our software development costs are expensed as incurred. We do not expect to capitalize material software development costs in the near term.

As a result of the grant of awards under the 2013 Equity Plan, we expect that share-based compensation expense, a significant portion of which is recognized as research and development expense, will continue to be a significant recurring expense. As of September 30, 2019, we estimated that approximately $4.2 million of additional share-based compensation expense will be recognized as research and development expense over a remaining weighted average period of 2.2 years.

Research and development expenses increased $9.0 million for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to an $8.6 million increase in compensation and related costs due to an increase in staffing levels, a $0.8 million increase in facility and other related support costs, and a $0.3 million increase in employee relations expenses, partially offset by a $0.4 million net decrease in share-based compensation expense and a $0.3 million decrease in consulting and advisory costs. The $0.4 million net decrease in share-based compensation expense is primarily due to certain awards becoming fully vested. Included in research and development expenses for the three months ended September 30, 2019 is an aggregate $1.0 million favorable foreign currency exchange impact.

General and administrative expenses. General and administrative expenses consist of personnel and related overhead costs, and other costs of our executive, finance, human resources, information systems, and administrative departments, as well as third-party consulting, legal, and other professional fees. The following table sets forth general and administrative expenses (in thousands) and related percentage changes for the periods indicated:

General and administrative expenses decreased ~~$0.4~~$1.3 million for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, primarily due to a ~~$1.1~~$0.6 million decrease in legal, consulting, and other advisory costs, a ~~$0.3~~$0.5 million decrease in ~~travel~~facility and ~~entertainment expenditures,~~other related support costs, and a ~~$0.2~~$0.5 million decrease in recruiting costs, partially offset by a $0.7 million increase in write-offs to accounts receivable and a $0.5 million increase in facility and other related support costs. General and administrative headcount increased 3.4% to 337 at September 30, 2019 from 326 at September 30, 2018.

As a result of the grant of awards under the 2013 Equity Plan, we expect that share-based compensation expense, a significant portion of which is recognized as general and administrative expense, will continue to be a significant recurring expense. As of September 30, 2019, we estimated that approximately $9.3 million of additional share-based compensation expense will be recognized as general and administrative expense over a remaining weighted average period of 2.4 years.

~~General and administrative expenses did not materially change for the nine months ended September 30, 2019, as compared to the same period in the prior year, primarily due to a $2.3~~$0.6 million net ~~decrease~~increase in share-based compensation expense, a $1.9 million decrease in legal, consulting, and other advisory costs, a $0.9 million decrease in travel and entertainment expenditures, a $0.5 million decrease in recruiting costs, and a $0.2 million decrease in employee relations expenses, substantially offset by a $2.1 million increase in compensation and related costs due to an increase in staffing levels, a $1.8 million increase in facility and other related support costs, and a $1.5 million increase in write-offs to accounts receivable.expense. The ~~$2.3~~$0.6 million net ~~decrease~~increase in share-based compensation expense is primarily due to ~~certain awards becoming fully vested and the forfeiture of certain stock options, partially offset by~~ the grant of additional awards under the 2013 Equity ~~Plan. Included in general and administrative expenses for the three months ended September 30, 2019 is an aggregate $0.9 million favorable foreign currency exchange impact.~~

Other income, net is comprised primarily of proceeds from the Domain Name Sale and foreign currency transaction gains and losses. For the three months ended September 30, 2019, other income, net, of $1.9 million was comprised primarily of foreign currency transaction net gains arising mainly from the revaluation of U.S. dollar-denominated cash balances held at international locations,Plan, partially offset by ~~the revaluation of outstanding balances denominated in the British Pound, which has declined in value as compared~~certain awards becoming fully vested. General and administrative headcount decreased 4.6% to ~~the U.S. dollar. For the nine months ended September 30, 2019, other income, net, of $30.7 million was comprised primarily of a $29.8 million gain~~314 at March 31, 2020 from ~~the Domain Name Sale in the second quarter of 2019 and foreign currency transaction net gains arising mainly from the revaluation of U.S. dollar-denominated cash balances held~~329 at international locations, partially offset by the revaluation of outstanding balances denominated in the British Pound, which has declined in value as compared to the U.S. dollar. For the three and nine months ended September 30, 2018, other income, net, of $0.8 million and $3.7 million, respectively, were comprised primarily of foreign currency transaction net gains arising mainly from the revaluation of U.S. dollar-denominated cash balances held at international locations.March 31, 2019.

We have estimated an annual effective tax rate for the full fiscal year ~~2019~~2020 and applied that rate to the income before income taxes in determining the provision for income taxes for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. We also record discrete items in each respective period as appropriate. The estimated effective tax rate is subject to fluctuation based on the level and mix of earnings and losses by tax jurisdiction, foreign tax rate differentials, and the relative impact of permanent book to tax differences (e.g., non-deductible expenses). Each quarter, a cumulative adjustment is recorded for any fluctuations in the estimated annual effective tax rate as compared to the prior quarter. As a result of these factors, and due to potential changes in our period-to-period results, fluctuations in our effective tax rate and respective tax provisions or benefits may occur.

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we recorded a provision for income taxes of ~~$6.4~~$1.6 million that resulted in an effective tax rate of ~~22.4%~~70.4%, as compared to a benefit from income taxes of ~~$0.7~~$0.5 million that resulted in an effective tax rate of ~~(3.8)%~~6.1% for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The change in the effective tax rate in ~~2019~~2020 is mainly due to certain discrete items and the change in the expected proportion of U.S. versus foreign income. ~~The most significant discrete item was a tax provision of $8.1 million on the $29.8 million gain from the Domain Name Sale.~~

As of ~~September 30, 2019,~~March 31, 2020, we had no U.S. federal NOL carryforwards and we estimated that we had ~~$3.6~~$4.1 million of foreign NOL carryforwards. As of ~~September 30, 2019,~~March 31, 2020, we estimated that we had foreign NOL carryforwards, other temporary differences and carryforwards, and credits that resulted in deferred tax assets, net of valuation allowances and deferred tax liabilities, of ~~$20.5~~$18.1 million.

As of ~~September 30, 2019,~~March 31, 2020, we had a valuation allowance of ~~$1.5~~$2.1 million related to certain foreign tax credit carryforwards that, in our present estimation, more likely than not will not be realized.

If we are unable to sustain or increase profitability in future periods, we may be required to increase the valuation allowance against our deferred tax assets, which could result in a charge that would materially adversely affect net income in the period in which the charge is incurred. We will continue to regularly assess the realizability of deferred tax assets.

Deferred revenue and advance payments represent amounts received or due from our customers in advance of our transferring our ~~products~~software or services to the customer. Revenue is subsequently recognized in the period(s) in which control of the ~~products~~software or services ~~are~~is transferred to the customer.

The following table summarizes deferred revenue and advance payments (in thousands), as of:

	September 30,		December 31,		September 30,		March 31,		December 31,		March 31,
	2019		2018		2018		2020		2019		2019
Current:
Deferred product licenses revenue	$	470	$	1,768	$	584	$	131	$	481	$	555
Deferred subscription services revenue		12,812		13,508		11,736		16,567		16,561		15,641
Deferred product support revenue		139,402		152,501		131,185		161,135		161,670		166,306
Deferred other services revenue		7,560		8,763		7,538		7,058		8,395		7,568
Total current deferred revenue and advance payments	$	160,244	$	176,540	$	151,043	$	184,891	$	187,107	$	190,070
Non-current:
Deferred product licenses revenue	$	368	$	542	$	730	$	262	$	293	$	479
Deferred subscription services revenue		142		2,384		0		84		97		247
Deferred product support revenue		3,440		3,091		3,701		2,789		3,417		3,231
Deferred other services revenue		537		452		492		525		537		582
Total non-current deferred revenue and advance payments	$	4,487	$	6,469	$	4,923	$	3,660	$	4,344	$	4,539
Total current and non-current:
Deferred product licenses revenue	$	838	$	2,310	$	1,314	$	393	$	774	$	1,034
Deferred subscription services revenue		12,954		15,892		11,736		16,651		16,658		15,888
Deferred product support revenue		142,842		155,592		134,886		163,924		165,087		169,537
Deferred other services revenue		8,097		9,215		8,030		7,583		8,932		8,150
Total current and non-current deferred revenue and advance payments	$	164,731	$	183,009	$	155,966	$	188,551	$	191,451	$	194,609

Total deferred revenue and advance payments decreased ~~$18.3~~$2.9 million as of ~~September 30, 2019,~~March 31, 2020, as compared to December 31, ~~2018,~~2019, primarily due to ~~the recognition of previously deferred product support, subscription services, product licenses, and other services revenues and~~ a decrease in our international deferred revenue balances from the general strengthening of the U.S. ~~dollar.~~dollar and the recognition of previously deferred other services and product licenses revenues, partially offset by an increase in deferred revenues from new product support contracts. Total deferred revenue and advance payments ~~increased $8.8~~decreased $6.1 million as of ~~September 30, 2019,~~March 31, 2020, as compared to ~~September 30, 2018,~~March 31, 2019, primarily due to ~~an increase in deferred revenue from new product support and subscription services contracts, partially offset by the recognition of previously deferred product licenses revenues and~~ a decrease in our international deferred revenue balances from the general strengthening of the U.S. ~~dollar.~~dollar and the recognition of previously deferred product support, product licenses, and other services revenues, partially offset by an increase in deferred revenues from new subscription services contracts.

We expect to recognize approximately ~~$160.2~~$184.9 million of deferred revenue and advance payments over the next 12 months. However, the timing and ultimate recognition of our deferred revenue and advance payments depend on our satisfaction of various performance obligations, and the amount of deferred revenue and advance payments at any date should not be considered indicative of revenues for any succeeding period.

Liquidity. Our principal sources of liquidity are cash and cash equivalents and on-going collection of our accounts receivable. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments, certificates of deposit, and U.S. Treasury securities. We also periodically invest a portion of our excess cash in short-term investments with stated maturity dates between three months and one year from the purchase date.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the amount of cash and cash equivalents and short-term investments held by our U.S. entities was ~~$311.9~~$245.8 million and ~~$173.6~~$289.4 million, respectively, and by our non-U.S. entities was ~~$266.4~~$293.4 million and ~~$402.5~~$276.2 million, respectively. We earn a significant amount of our revenues outside the United States and our accumulated foreign earnings and profits as of December 31, ~~2018~~2019 were ~~$397.4~~$431.2 million. As of ~~September 30, 2019~~March 31, 2020, we intend to indefinitely reinvest ~~$197.4~~$231.2 million of our undistributed foreign earnings. This amount takes into consideration repatriations we made during the second quarter of 2019. After taking into account the Transition Tax, we expect such repatriation generated only an immaterial U.S. tax expense related to U.S. state income taxes. We do not anticipate needing to repatriate additional cash or cash equivalents held by non-U.S. entities to the United States to finance our U.S. operations.

We believe that existing cash and cash equivalents and short-term investments held by us and cash and cash equivalents anticipated to be generated by us are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months.

The following table sets forth a summary of our cash flows (in thousands) and related percentage changes for the periods indicated:

Net cash provided by operating activities. The primary source of our cash provided by operating activities is cash collections of our accounts receivable from customers following the sales and renewals of our ~~software~~product licenses ~~technical software~~and product support, ~~software updates and upgrades,~~ as well as consulting, education, and subscription services. Our primary uses of cash in operating activities are for personnel-related expenditures for software development, personnel-related expenditures for providing consulting, education, and subscription services, and for sales and marketing costs, general and administrative costs, and income taxes.

Net cash provided by operating activities ~~was $52.3 million and $23.2~~increased $2.6 million for the ~~nine~~three months ended ~~September 30, 2019 and 2018, respectively. The increase in net cash provided by operating activities during the nine months ended September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, ~~was~~ due to ~~a $19.2~~an $8.6 million increase ~~from changes~~ in ~~operating assets~~net income and ~~liabilities,~~ a ~~$6.9~~$3.9 million increase from changes in non-cash items, partially offset by a $9.8 million decrease from changes in operating assets and ~~a $3.0 million increase in net income.~~liabilities. Non-cash items consist primarily of depreciation and amortization, ~~write-offs~~reduction in the carrying amount of ROU assets, credit losses and sales allowances, ~~release of liabilities for unrecognized tax benefits,~~ deferred taxes, and share-based compensation expense.

Net cash (used in) provided by ~~(used in)~~ investing activities. The changes in net cash (used in) provided by ~~(used in)~~ investing activities relate to purchases and redemptions of short-term investments and expenditures on property and equipment. Net cash ~~provided by investing activities was $259.5 million and net cash~~ used in investing activities ~~was $330.0~~increased $170.9 million for the ~~nine~~three months ended ~~September 30, 2019 and 2018, respectively. The increase in net cash provided by investing activities for the nine months ended September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, ~~was~~ due to a ~~$354.0~~$304.4 million decrease ~~in purchases of short-term investments and a $240.4 million increase~~ in proceeds from the redemption of short-term investments, partially offset by a ~~$4.9~~$128.2 million ~~increase~~decrease in purchases of short-term investments and a $5.4 million decrease in purchases of property and equipment.

Net cash ~~(used in) provided by~~used in financing activities. The changes in net cash (used in) provided by financing activities primarily relate to the purchase of treasury stock and the exercise of stock options under the 2013 Equity Plan. Net cash used in financing activities ~~was $42.8 million and net cash provided by financing activities was $2.5~~increased $3.7 million for the ~~nine~~three months ended ~~September 30, 2019 and 2018, respectively. The increase in net cash used in financing activities for the nine months ended September 30, 2019,~~March 31, 2020, as compared to the same period in the prior year, ~~was~~ due to a ~~$48.2~~$2.5 million increase in purchases of treasury stock ~~partially offset by~~and a ~~$3.0~~$1.2 million ~~increase~~decrease in proceeds from the exercise of stock options under the 2013 Equity Plan.

Share repurchases. See “Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” of this Quarterly Report and Note 7, Treasury Stock, to the Consolidated Financial Statements for further information.

The following table shows future minimum payments under noncancellable operating leases and purchase agreements with initial terms of greater than one year and anticipated payments related to the Transition Tax resulting from the Tax Act, based on the expected due dates of the various installments as of ~~September 30, 2019~~March 31, 2020 (in thousands):

Unrecognized tax benefits. As of ~~September 30, 2019,~~March 31, 2020, we had ~~$3.8~~$2.6 million of total gross unrecognized tax benefits, including ~~penalty and~~accrued interest, ~~accrued,~~ recorded in ~~other~~“Other long-term liabilities.” The timing of any payments that could result from these unrecognized tax benefits will depend on a number of factors, and accordingly the amount and period of any future payments cannot be estimated. We do not expect any significant tax ~~payment~~payments related to these obligations during ~~2019.~~2020.

Off-balance sheet arrangements. As of ~~September 30, 2019,~~March 31, 2020, we did not have any off-balance sheet arrangements that had a material impact on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

See Note 2, Recent Accounting Standards, to the Consolidated Financial Statements for further information.

The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.

We are exposed to the impact of both interest rate changes and foreign currency fluctuations.

Interest Rate Risk. We face exposure to changes in interest rates primarily relating to our investments. We generally invest our excess cash in short-term, highly-rated, fixed-rate financial instruments. These fixed-rate instruments are subject to interest rate risk and may fall in value if interest rates increase. We do not hold or invest in these fixed-rate instruments for trading purposes or speculation. As of ~~September 30, 2019,~~March 31, 2020, we held approximately ~~$203.2~~$109.9 million of investments in U.S. Treasury securities with stated maturity dates between three months and one year from the purchase date.

Foreign Currency Risk. We conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our Consolidated Financial Statements. International revenues accounted for ~~43.1%~~41.2% and ~~42.2%~~43.8% of our total revenues for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 43.2% and 42.4% of our total revenues for the nine months ended September 30, 2019 and 2018,~~ respectively. We anticipate that international revenues will continue to account for a significant portion of our total revenues. The functional currency of each of our foreign subsidiaries is generally the local currency.

Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the applicable ~~balance sheet~~Balance Sheet date and any resulting translation adjustments are included as an adjustment to stockholders’ equity. Revenues and expenses generated from these subsidiaries are translated at average monthly exchange rates during the quarter in which the transactions occur. Gains and losses from transactions in local currencies are included in net ~~income.~~income (loss).

As a result of transacting in multiple currencies and reporting our ~~financial statements~~Consolidated Financial Statements in U.S. dollars, our operating results may be adversely impacted by currency exchange rate fluctuations in the future. The impact of foreign currency exchange rate fluctuations on current and comparable periods is described in the “Non-GAAP Financial Measures” section under ~~“Item~~“Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We cannot predict the effect of exchange rate fluctuations upon our future results. We attempt to minimize our foreign currency risk by converting our excess foreign currency held in foreign jurisdictions to U.S. dollar-denominated cash and investment accounts.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, a 10% adverse change in foreign currency exchange rates versus the U.S. dollar would have each decreased our aggregate reported cash and cash equivalents and short-term investments by 0.3%. If average exchange rates during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 had changed unfavorably by 10%, our revenues for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 would have decreased by ~~3.9%~~2.8%. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, our revenues were lower by ~~3.1%~~1.8% as a result of a ~~6.1%~~1.4% unfavorable change in weighted average exchange rates, as compared to the same period in the prior year.

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ~~not~~ effective at the reasonable assurance ~~level due to the material weaknesses in our internal controls disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.~~

As described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, we have been implementing a remediation plan to address the material weaknesses disclosed in such Annual Report. These material weaknesses will not be considered fully remediated until the applicable controls operate for a sufficient period of time and management concludes, through testing, that these controls are operating effectively. We expect to complete the remediation of these material weaknesses prior to the end of the fiscal year ending December 31, 2019.level.

Changes in Internal Controls. During the nine months ended September 30, 2019, we implemented new internal controls to facilitate our adoption of ASU 2016-02 and help ensure the proper identification, accounting, and reporting of material lease arrangements. Other than as disclosed above under “Material Weaknesses and Status of Remediation” and the new internal controls related to our adoption of ASU 2016-02, there have been no changesNo change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting. During the nine months ended September 30, 2019, we implemented a new human resources management system. We continue to assess the impact of this new system on our internal control over financial reporting, but do not currently expect to make significant changes to our existing internal controls.

We are involved in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows.

You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

If any of the following risks occurs, our business, financial condition, or results of operations could be materially adversely affected. In such case, the market price of our class A common stock could decline, and you may lose all or part of your investment.

Our quarterly operating results, revenues, and expenses may fluctuate significantly, which could have an adverse effect on the market price of our stock

For many reasons, including those described below, our operating results, revenues, and expenses have varied in the past and may vary significantly in the future from quarter to quarter. These fluctuations could have an adverse effect on the market price of our class A common stock.

Fluctuations in Quarterly Operating Results. Our quarterly operating results may fluctuate, in part, as a result of:

Limited Ability to Adjust Expenses. We base our operating expense budgets on expected revenue trends and strategic objectives. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in revenue may cause significant variation in operating results in any quarter. For example, if our revenues in the future are not sufficient to offset our operating expenses, or we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, we may incur operating losses.

Based on the above factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is possible that in one or more future quarters, our operating results may be below the expectations of public market analysts and investors. In that event, the market price of our class A common stock may fall.

The market price of our class A common stock has been and may continue to be volatile

The market price of our class A common stock historically has been volatile and may continue to be volatile. The market price of our class A common stock may fluctuate widely in response to various factors, some of which are beyond our control. These factors include, but are not limited to:

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies in those markets. These broad market and industry factors may seriously harm the market price of our class A common stock, regardless of our actual operating performance.

We generated net income for the ~~nine~~three months ended ~~September 30, 2019;~~March 31, 2020; however, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. If our revenues are not sufficient to offset our operating expenses, or we are unable to adjust our operating expenses in a timely manner in response to any shortfall in anticipated revenue, we may incur operating losses in future periods, our profitability may decrease, or we may cease to be profitable. As a result, our business, results of operations, and financial condition may be materially adversely affected.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$20.5~~$18.1 million of deferred tax assets, net of a ~~$1.5~~$2.1 million valuation allowance. If we are unable to sustain or increase profitability in the future, we may be required to increase the valuation allowance against these deferred tax assets, which could result in a charge that would materially adversely affect net income in the period in which the charge is incurred.

We face risks related to the COVID-19 pandemic that could significantly disrupt our business and operating results.

The COVID-19 pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets. Many countries have instituted quarantines and travel restrictions and closed or limited hours of operations of non-essential offices and retail centers, which are adversely impacting a number of industries such as travel, leisure, hospitality, and retail. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the global economy and consumer confidence. The COVID-19 pandemic could have a sustained adverse impact on economic and market conditions and trigger a period of global economic slowdown, which could decrease technology spending, adversely affect demand for our offerings, and harm our business and operating results.

During the first quarter of 2020, our product licenses revenues were negatively impacted by delays attributed to the impact of the COVID-19 pandemic on our customers’ operational priorities. As significant uncertainty exists concerning the impact of the COVID-19 pandemic on our customers’ and prospects’ business and operations in future periods, we may experience decreased product licenses revenues compared to prior year periods until the effects of the pandemic have subsided. We may also experience declines in our consulting revenues in future periods as our customers continue operating in remote work environments and aim to reduce expenses. Our product support revenues may also be negatively impacted in future periods to the extent that customers require extended payment terms or determine not to renew their product support arrangements as part of their efforts to reduce expenses.

In light of the uncertain and rapidly evolving situation relating to COVID-19, we have taken precautionary measures intended to reduce the risk of the virus to our employees, customers, and communities in which we operate. We have established remote working arrangements for our employees, placed restrictions on non-essential business travel, and begun transitioning towards virtual sales and marketing events. We expect that many of our customers and partners are doing the same. As a result of these precautionary measures, there could be a negative impact on our sales, marketing, and customer success efforts, continued delays in our sales cycles, delays in the release or delivery of new or enhanced offerings or unexpected changes to such offerings, or operational or other challenges, any of which could significantly disrupt our business and operating results.

Considerable uncertainty still surrounds COVID-19 and its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses. Although we continue to actively monitor the situation and may take further actions as may be required by government authorities or as more information and public health guidance become available, the full extent to which COVID-19 impacts our business and operating results will depend on future developments, which are highly uncertain and cannot be predicted.

Economic uncertainty, ~~and~~ increased competition, ~~for our customers, particularly in~~and the ~~retail industry,~~effects of the COVID-19 pandemic could materially adversely affect our business and results of operations

The U.S. and other significant markets have experienced cyclical downturns, and worldwide economic conditions remain uncertain. Economic uncertainty and associated macroeconomic conditions make it extremely difficult for our customers and us to accurately forecast and plan future business activities and could cause our customers to slow spending on our ~~products and services,~~offerings, which could delay and lengthen sales cycles. Furthermore, during uncertain economic times, our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts and our results would be negatively impacted.

Furthermore, wesome of our customers have ~~a significant number of customers in the retail industry, which has~~ experienced ~~intense~~increased competition and ~~structural changes.~~significant adverse impacts from the COVID-19 pandemic and related containment and mitigation measures. A significant economic downturn, or the intensification of competition, ~~in this industry~~or adverse effects of the COVID-19 pandemic may cause organizations to reduce their ~~capital~~ expenditures in general or specifically reduce their spending on information technology (“IT”). ~~In addition, customers in this industry~~Customers may delay or cancel IT projects or seek to lower their costs by renegotiating vendor contracts. Customers with excess IT resources may choose to develop in-house software solutions rather than obtain those solutions from us. ~~Consumers have increasingly migrated toward large e-commerce platforms and other online applications. As a result, the retail industry has experienced consolidation and other ownership changes.~~ In the future, retailers may further consolidate, undergo restructurings or reorganizations, or realign their affiliations, any of which could decrease the number of competitors within the retail industry, reducing the number of potential customers for our offerings. Moreover,addition, our competitors may respond to challenging market conditions by lowering prices and attempting to lure away our customers.

We cannot predict the timing, strength, or duration of any economic slowdown, any intensification of competition, the extent of adverse impacts to the economy from the COVID-19 pandemic, or the timing or strength of any subsequent recovery ~~generally, or competitive and structural changes in the retail industry.~~generally. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, and results of operations could be materially adversely affected.

We are subject to income taxes and non-income taxes in a variety of domestic and foreign jurisdictions. Our future income ~~taxes~~tax liability could be materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates,

earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the amount of unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations thereof.

In the United States, the Tax Act was enacted in December 2017, bringing about broad changes in the existing corporate tax system. Over time, the Tax Act may result in material impacts to our results of operations and may affect customer behavior and our ability to forecast our effective tax rate. Many aspects of the Tax Act are unclear at this time and remain subject to pending regulatory and accounting guidance. As a result, we have not yet been able to determine the full impact of the Tax Act on our business, operating results, and financial condition. As additional regulatory guidance is issued by the Internal Revenue Service, accounting treatment is clarified, and we perform additional analysis on the application of the Tax Act, our tax obligations and effective tax rate could be materially affected.

In the United Kingdom, legislation imposing a tax related to offshore receipts in respect of intangible property held in low tax jurisdictions became effective in April 2019. Certain aspects of this legislation and its implementation remain unclear at this time, and, as a result, we have not yet been able to determine the full impact of the legislation on our business, operating results, or financial condition. We expect that additional regulations or guidance may be issued and the accounting treatment of the new tax may be clarified. This legislation may materially increase our tax obligations with respect to the applicable receipts, which could have a material adverse effect on our results of operations.

Further changes in the tax laws of foreign jurisdictions could arise, including as a result of the project undertaken by the Organisation for Economic Co-operation and Development (“OECD”) to combat base erosion and profit shifting (“BEPS”). The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, make substantial changes to numerous long-standing tax positions and principles. These changes, many of which have been adopted or are under active consideration by OECD members and/or other countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

Our determination of our tax liability is subject to review by applicable domestic and foreign tax authorities. Any adverse outcome of such reviews could have an adverse effect on our operating results and financial condition. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain.

We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion. If such unasserted contingent liabilities were to be asserted, or become probable of assertion, we may be required to record significant expenses and liabilities in the period in which these liabilities are asserted or become probable of assertion.

As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may materially affect our financial results in future periods in which we change our estimates of our tax obligations or in which the ultimate tax outcome is determined.

If the market for analytics ~~products~~software fails to grow as we expect or if businesses fail to adopt our offerings, our business, operating results, and financial condition could be materially adversely affected

~~Nearly all of our revenues to date have come~~Our revenue is derived from sales of our analytics ~~products~~software and related ~~technical support, consulting, and education~~ services. We expect these sales to account for a large portion of our revenues for the foreseeable future. Although demand for analytics ~~products~~software has grown in recent years, the market for analytics offerings continues to evolve. Resistance from consumer and privacy groups to commercial collection, use, and sharing of data on spending patterns and other personal behavior (including individuals’ online or offline activities, mobile data, sensor data, social data, web log data, Internet of Things data, and other personal data) has grown in recent years and our customers, potential customers, or the public in general may perceive that use of our analytics ~~products~~software could violate individual privacy rights. In addition, increasing government restrictions on the collection, use, and transfer of personal data could impair the further growth of the market for analytics ~~products.~~software. We cannot be sure that this market will continue to grow or, even if it does grow, that businesses will adopt our solutions.

We have spent, and intend to keep spending, considerable resources to educate potential customers about analytics offerings in general and our offerings in particular. However, we cannot be sure that these expenditures will help any of our offerings achieve any additional market acceptance. If the market fails to grow or grows more slowly than we currently expect or businesses fail to adopt our offerings, our business, operating results, and financial condition could be materially adversely affected.

Our ~~products~~offerings face intense competition, which may lead to lower prices for our ~~products and services,~~offerings, reduced gross margins, loss of market share, and reduced revenue

The analytics market is highly competitive and subject to rapidly changing technology paradigms. Within the analytics space, we compete with many different software vendors, including IBM, Microsoft, Oracle, Qlik, Salesforce, ~~SAP,~~ and ~~the SAS Institute.~~SAP. Our future success depends on the effectiveness with which we can differentiate our offerings and compete with these vendors and other potential competitors across analytics implementation projects of varying sizes. Our ability to compete successfully in our markets depends on a number of factors, both within and outside of our control. Some of these factors include ~~product~~software deployment options; analytical,

mobility, data discovery, and visualization capabilities; performance and scalability; the quality and reliability of our customer service and support; licensing model; and brand recognition. Failure to compete successfully in any one of these or other areas may reduce the demand for our ~~products,~~offerings, as well as materially adversely affect our revenue from both existing and prospective customers.

Some of our competitors have longer operating histories and significantly greater financial, technical, and marketing resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion, sale, and marketing of their offerings than we can, such as offering certain analytics products free of charge when bundled with other ~~software offerings.~~products. In addition, many of our competitors have strong relationships with current and potential customers, extensive industry and specialized business knowledge, as well as corresponding proprietary technologies that they can leverage, such as multidimensional databases and enterprise resource planning repositories. As a result, they may be able to prevent us from penetrating new accounts or expanding within existing accounts.

Increased competition may lead to price cuts, reduced gross margins, and loss of market share. We may not be able to compete successfully against current and future competitors, and the failure to meet the competitive pressures we face may have a material adverse effect on our business, operating results, and financial condition.

Current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others. By doing so, these competitors may increase their ability to meet the needs of our potential customers by their expanded offerings. Our current or prospective channel partners may establish cooperative relationships with our current or future competitors. These relationships may limit our ability to sell our analytics offerings through specific distribution channels. Accordingly, new competitors or alliances among current and future competitors may emerge and rapidly gain significant market share. These developments could limit our ability to obtain revenues from new customers and to sustain software maintenance revenues from our installed customer base. In addition, basic office productivity software suites, such as Microsoft Office, could evolve to offer advanced analysis and reporting capabilities that may reduce the demand for our analytics offerings.

We depend on revenue from a single ~~suite of products~~software platform and related services as well as revenue from our installed customer base

Our revenue is derived from sales of our software platform and related ~~services account for a substantial portion of our revenue.~~services. Because of this revenue concentration, our business could be harmed by a decline in demand for, or in the adoption or prices of, ~~these products~~our platform and related services as a result of, among other factors, any change in our pricing or packaging model, increased competition, maturation in the markets for ~~these products,~~our platform, or other risks described in this Quarterly Report.

We also depend on our installed customer base for a substantial portion of our revenue. We have contracts for cloud subscriptions that provide recurring revenues to us, as well as contracts with our license customers for ongoing support and ~~maintenance, as well as contracts for cloud-based subscription services that provide recurring revenues to us.~~maintenance. In addition, our installed customer base has historically generated additional new license and services revenues for us. If our existing customers cancel or fail to renew their service contracts or fail to ~~purchase~~make additional ~~products or services,~~purchases from us, our revenue could decrease and our operating results could be materially adversely affected.

If we are unable to develop and release ~~product enhancements and~~ new offerings and software enhancements to respond to rapid technological change, new customer requirements, or evolving industry standards in a timely and cost-effective manner, our business, operating results, and financial condition could be materially adversely affected

The market for our offerings is characterized by frequent new offerings and software enhancements in response to rapid technological change, ~~frequent~~ new ~~product introductions and enhancements, changing~~ customer ~~demands,~~requirements, and evolving industry standards. The introduction of offerings embodying new technologies can quickly make existing offerings obsolete and unmarketable. We believe that our future success depends largely on our ability to:

Analytics applications are inherently complex, and it can take a long time and require significant research and development expenditures to develop and test new offerings and ~~product~~software enhancements. In addition, customers may delay their purchasing decisions because they anticipate that new or enhanced versions of our offerings will soon become available. We cannot be sure that we will succeed in developing, marketing, and delivering, on a timely and cost-effective basis, new or enhanced offerings that respond

to technological change, or new customer requirements, or evolving industry standards, nor can we be sure that any new or enhanced offerings will achieve market acceptance. Moreover, even if we introduce a new offering, we may experience a decline in revenues of our existing offerings that is not fully matched by the new offering’s revenue. For example, customers may delay making purchases of a new offering to permit them to make a more thorough evaluation of the offering or until industry and marketplace reviews become widely available. Some customers may hesitate migrating to a new offering due to concerns regarding the complexity of migration or performance issues that may occur in product infancy. In addition, we may lose existing customers who choose a competitor’s offering rather than migrate to our new offering. This could result in a temporary or permanent revenue shortfall and materially adversely affect our ~~business.~~business, operating results, and financial condition.

A substantial customer shift in the deployment of the MicroStrategy ~~Analytics~~^™platform from a ~~perpetual software~~product license model to ~~our~~a cloud ~~services~~ subscription model could affect the timing of revenue recognition, reduce product licenses and product support revenues, and materially adversely affect our operating results

We offer our analytics platform in the form of a ~~perpetual software~~product license ~~and~~or a ~~cloud-based~~cloud subscription. The payment streams and revenue recognition timing for our ~~perpetual software~~product licenses are different from those for our ~~cloud-based~~cloud subscriptions. For ~~perpetual software~~product licenses, customers typically pay us a lump sum soon after entering into a ~~software~~ license agreement and we typically recognize product licenses revenue ~~is typically recognized upon delivery~~when control of the ~~software~~license is transferred to the customer. For ~~cloud-based~~cloud subscriptions, customers typically make periodic payments over the subscription period and ~~revenue is typically recognized~~we recognize subscription services revenues ratably over the subscription period. As a result, if a substantial number of current customers shift to, ~~subscribing,~~ or new customers ~~subscribe, to our~~purchase, cloud ~~services offerings~~subscriptions instead of ~~purchasing perpetual software~~product licenses, ~~for MicroStrategy Analytics,~~ the resulting change in payment terms and revenue recognition may result in our recognizing less revenue in the reporting period in which the sale transactions are consummated than has been the case in prior periods, with more revenue being recognized in future periods. This change in the timing of revenue recognition could materially adversely affect our operating results and cash flows for the periods during which such a shift or change in purchasing occurs. Accordingly, in any particular reporting period, cloud subscription sales ~~of our cloud offering~~ could ~~cannibalize~~negatively impact product license sales ~~of our on-premises offerings~~ to our existing and prospective customers, which could ~~negatively impact~~reduce product licenses and product support revenues.

Our investment in new business strategies and initiatives could disrupt the operations of our ongoing business and present risks that we have not adequately anticipated

We have invested, and in the future may invest, in new business strategies and initiatives. For example, ~~in recent years~~ we have introduced a number of innovative technologies designed to enable companies to capitalize on Big Data, mobile applications, ~~cloud-based~~cloud services, security, Internet of Things, and artificial intelligence trends in the marketplace. These endeavors may involve significant risks and uncertainties, including distraction of management from other business operations, the dedication of significant research and development, sales and marketing, and other resources to these new initiatives at the expense of our other business operations, generation of insufficient revenue to offset expenses associated with new initiatives, incompatibility of our new technologies with third-party platforms, inadequate return of capital, and other risks that we may not have adequately anticipated. Because new strategies and initiatives are inherently risky, these strategies and initiatives may not be successful and could materially adversely affect our financial condition and operating results.

Business disruptions, including interruptions, delays, or failures of our systems, third-party data center hosting facility or other third-party services, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our stock

A significant portion of our research and development activities or certain other critical business operations are concentrated in facilities in Northern Virginia, China, and Poland. In addition, we serve our customers and manage certain critical internal processes using a third-party data center hosting facility located in the United States and other third-party services, including AWS, ~~Microsoft~~ Azure, and other cloud services. We could experience a disruption or failure of our systems or the third-party hosting facility or other services that we use. Such disruptions or failures could include a natural disaster, fire, cyber-attack, act of terrorism, geopolitical conflict, the effects of climate change, or other catastrophic event, as well as power outages or telecommunications infrastructure outages, or a decision by one of our third-party service providers to close facilities that we use without adequate notice or to materially change the pricing or terms of their services, or other unanticipated problems with the third-party services that we use, including a failure to meet service standards.

We are a highly automated business and any such disruptions or failures could (i) result in the destruction or disruption of any of our critical business operations, controls or procedures, or IT systems, (ii) severely affect our ability to conduct normal business operations, including delaying completion of sales and provision of services, (iii) result in a material weakness in our internal control over financial reporting, (iv) cause our customers to terminate their subscriptions, (v) result in our issuing credits to customers or paying penalties or fines, (vi) harm our reputation, (vii) adversely affect our attrition rates or our ability to attract new customers, or

(viii) cause our offerings to be perceived as not being secure, any of which could materially adversely affect our future operating results.

For example, as described in “Part I. Item 4. Controls and Procedures,” our internal control over financial reporting is not effective because of certain material weaknesses in our internal controls previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. We are implementing remedial measures and, while there can be no assurance that our efforts will be successful, we expect to complete the remediation of these material weaknesses prior to the end of the fiscal year ending December 31, 2019. If we are unable to remediate these material weaknesses with respect to future periods or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, management may need to devote significant resources to improving internal controls, our ability to meet reporting obligations could be adversely affected, and investors’ confidence in our financial statements may be negatively affected, which could have a material adverse effect on our operating results and the market price of our stock.

We use channel partners and if we are unable to maintain successful relationships with them, our business, operating results, and financial condition could be materially adversely affected

In addition to our direct sales force, we use channel partners, such as ~~resellers, value-added resellers,~~ system integrators, consulting firms, resellers, solution providers, managed service providers, OEMs, and technology ~~partners~~companies, to license and support our ~~products.~~offerings. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, transactions by channel partners for which we recognized ~~revenues~~revenue accounted for ~~27.8%~~26.8% of our total product licenses revenues. Our channel partners may offer customers the products and services of several different companies, including offerings that compete with ours. Because our channel partners generally do not have exclusive relationships with us, we cannot be certain that they will prioritize or devote adequate resources to selling our ~~products.~~offerings. Moreover, divergence in strategy or contract defaults by any of these channel partners may materially adversely affect our ability to develop, market, sell, or support our offerings.

Although we believe that direct sales will continue to account for a majority of our product licenses revenues, we seek to maintain a significant level of sales activities through our channel partners. There can be no assurance that our channel partners will continue to cooperate with us. In addition, actions taken or not taken by such parties may materially adversely affect us. Our ability to achieve revenue growth in the future will depend in part on our ability to maintain successful relationships with our channel partners. If we are unable to maintain our relationships with these channel partners, our business, operating results, and financial condition could be materially adversely affected.

In addition, we rely on our channel partners to operate in accordance with applicable laws and regulatory requirements. If they fail to do so, we may need to incur significant costs in responding to investigations or enforcement actions or paying penalties assessed by the applicable authorities. We also rely on our channel partners to operate in accordance with the terms of their contractual agreements with us. For example, some of our agreements with our channel partners prescribe the terms and conditions pursuant to which they are authorized to resell or distribute our software and offer technical support and related services. If our channel partners do not comply with their contractual obligations to us, our business, operating results, and financial condition may be materially adversely affected. We also rely on our channel partners to operate in accordance with applicable laws and regulatory requirements. If they fail to do so, we may need to incur significant costs in responding to investigations or enforcement actions or paying penalties assessed by the applicable authorities.

Our recognition of deferred revenue and advance payments is subject to future performance obligations and may not be representative of revenues for succeeding periods

Our current and non-current deferred revenue and advance payments totaled ~~$164.7~~$188.6 million as of ~~September 30, 2019.~~March 31, 2020. The timing and ultimate recognition of our deferred revenue and advance payments depend on various factors, including our performance of various service obligations.

Because of the possibility of customer changes or delays in customer development or implementation schedules or budgets, and the need for us to satisfactorily perform product support and other services, deferred revenue and advance payments at any particular date may not be representative of actual revenue for any succeeding period.

Our international operations are complex and expose us to risks that could have a material adverse effect on our business, operating results, and financial condition

We receive a significant portion of our total revenues from international sales and conduct our business activities in various foreign countries, including some emerging markets where we have limited experience, where the challenges of conducting our business can be significantly different from those we have faced in more developed markets, and where business practices may create internal control risks. International revenues accounted for ~~43.1%~~41.2% and ~~42.2%~~43.8% of our total revenues for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 43.2% and 42.4% of our total revenues for the nine months ended September 30, 2019 and 2018,~~ respectively. Our international operations require significant management attention and financial resources.

~~There are certain risks inherent in our~~Our international business activities expose us to additional risks, including:

Disruptions to trade, weakening of economic conditions, economic and legal uncertainties, or changes in currency rates may adversely affect our business, financial condition, operating results, and cash flows. For example, we may face heightened risks in connection with our international operations as a result of the ~~impending~~ withdrawal of the United Kingdom from the European Union, commonly referred to as “Brexit.” The future effects of Brexit are uncertain and will depend on, among other things, the terms of any agreements the United Kingdom ~~makes to retain~~enters into governing U.K. access to E.U. and other markets either during athe transitional period that is currently scheduled to end on December 31, 2020 or more permanently. Brexit could, among other outcomes, disrupt the free movement of goods, services, and people ~~between the United Kingdom and the European Union and significantly disrupt trade~~ between the United Kingdom and the European Union. Brexit could also lead to legal uncertainty and potentially divergent national laws and regulations, including tax laws and regulations, as the United Kingdom determines which E.U. laws to replace or replicate. In addition, the Trump administration has called for substantial changes to U.S. foreign trade policy, including the imposition of greater restrictions on international trade and significant increases in tariffs on goods imported into the United States, and has increased tariffs on certain goods imported into the United States from a number of foreign markets, following which retaliatory tariffs have been imposed on exports of certain U.S. goods to those markets. These tariffs and any further escalation of protectionist trade measures could adversely affect the markets in which we sell our ~~products and services~~offerings and, in turn, our business, financial condition, operating results, and cash flows.

Changes to the U.S. taxation of our international income, or changes in foreign tax laws, could have a material effect on our future operating results. For example, the Tax Act brought about, among other items, corporate income tax rate changes, the modification or elimination of certain tax incentives, changes to the existing regime for taxing overseas earnings, and measures to prevent BEPS, and the United Kingdom adopted legislation imposing a tax related to offshore receipts in respect of intangible property held in low tax jurisdictions.

In addition, from time to time, we may undertake various potential intercompany transactions and legal entity restructurings that involve our international subsidiaries. We consider various factors in evaluating these potential transactions and restructurings, including the alignment of our corporate structure with our organizational objectives, the operational and tax efficiency of our corporate structure, and the long-term cash flows and cash needs of our business. Such transactions and restructurings could negatively impact our overall tax rate and result in additional tax liabilities.

Moreover, compliance with foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, local laws prohibiting corrupt payments to government officials, and local laws relating to procurement, contracting, and antitrust. These laws and regulations also include import and export requirements and economic and trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce based on U.S. foreign policy and national security goals against targeted foreign states, organizations, and individuals. Although we have implemented policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees,

channel partners, and other persons with whom we do business will not take actions in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to ~~offer~~sell our ~~products and services~~offerings to one or more countries, and could also materially damage our reputation and our brand.

These factors may have a material adverse effect on our future sales and, consequently, on our business, operating results, and financial condition.

We may lose sales, or sales may be delayed, due to the long sales and implementation cycles of certain of our ~~products and services,~~offerings, which could reduce our revenues

To date, our customers have typically invested substantial time, money, and other resources and involved many people in the decision to ~~license~~purchase our software ~~products~~ and ~~purchase our~~ related services. As a result, we may wait nine months or more after the first contact with a customer for that customer to place an order while it seeks internal approval for the purchase of our ~~products~~software or services. During this long sales cycle, events may occur that affect the size and/or timing of the order or even cause it to be canceled. For example, our competitors may introduce new offerings, or the customer’s own budget and purchasing priorities may change.

Even after an order is placed, the time it takes to deploy our ~~products~~software and complete services engagements can vary widely. Implementing some of our offerings can take several months, depending on the customer’s needs, and may begin only with a pilot program. It may be difficult to deploy our ~~products~~software if the customer has complicated deployment requirements, such as deployments that involve integrating databases, hardware, and software from different vendors. If a customer hires a third party to deploy our ~~products,~~software, we cannot be sure that our ~~products~~software will be deployed successfully.

Our results in any particular period may depend on the number and volume of large transactions in that period and these transactions may involve lengthier, more complex, and more unpredictable sales cycles than other transactions

As existing and potential customers seek to standardize on a single analytics vendor or require greater vendor capacity to meet their growing analytics needs, our business may experience larger transactions at the enterprise level and larger transactions may account for a greater proportion of our business. The presence or absence of one or more large transactions in a particular period may have a material positive or negative effect on our revenue and operating results for that period. For the ~~nine~~three months ended ~~September 30, 2019 and 2018,~~March 31, 2020, our top three product licenses transactions with recognized revenue totaled ~~$5.4~~$2.3 million, ~~and $4.6 million, respectively,~~ or ~~9.4% and 8.1%~~18.3% of total product licenses revenues, ~~respectively.~~compared to $3.4 million, or 18.6% of total product licenses revenues, for the three months ended March 31, 2019. These transactions represent significant business and financial decisions for our customers, require considerable effort on the part of customers to assess alternative products, and often require additional levels of management approval. In addition, large transactions are often more complex than smaller transactions. These factors generally lengthen the typical sales cycle and increase the risk that customers may postpone or delay purchasing decisions from one period to a subsequent period or that customers will alter their purchasing requirements. We may also encounter greater competition and pricing pressure in larger transactions, and the sales effort and service delivery scope for larger transactions may require us to use additional resources to execute the transactions. These factors could result in lower than anticipated revenue and earnings for a particular period or lower estimated revenue and earnings in future periods.

We face a variety of risks in doing business with U.S. and foreign federal, state, and local governments and government agencies, including risks related to the procurement process, budget constraints and cycles, termination of contracts, and compliance with government contracting requirements

Our customers include the U.S. government and a number of state and local governments and government agencies. There are a variety of risks in doing business with government entities, including:

Procurement. Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring us to incur significant up-front time and expense without any assurance that we will win a contract.

Budgetary Constraints and Cycles. Demand and payment for our ~~products and services~~offerings are impacted by public sector budgetary cycles and funding availability, with funding reductions or delays adversely impacting public sector demand for our ~~products and services.~~offerings.

Termination of Contracts. Public sector customers often have contractual or other legal rights to terminate contracts for convenience or due to a default. If a contract is terminated for convenience, which can occur if the customer’s needs change, we may only be able to collect fees for ~~products~~software or services delivered prior to termination and settlement expenses. If a contract is terminated due to a default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative ~~products~~software or services.

Compliance with Government Contracting Requirements. Government contractors are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typically found in commercial

contracts. These may include rights with respect to price protection, the accuracy of information provided to the government, contractor compliance with socio-economic policies, and other terms that are particular to government contracts. Federal, state, and local governments and government agencies routinely investigate and audit contractors for compliance with these requirements. If, as a result of an audit or review, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, ~~costs associated with the triggering of price reduction clauses,~~ fines, and suspensions or debarment from future government business and we may suffer harm to our reputation.

Our customers also include a number of foreign governments and government agencies. Similar procurement, budgetary, contract, and audit risks also apply to our doing business with these entities. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources. In certain jurisdictions, our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these difficulties could materially adversely affect our business and results of operations.

We depend on technology licensed to us by third parties, and the loss of this technology could impair our software, delay implementation of our offerings, or force us to pay higher license fees

We license third-party technologies that are incorporated into or utilized by our existing offerings. There can be no assurance that the licenses for such third-party technologies will not be terminated or that we will be able to license third-party ~~software~~technologies for future offerings. In addition, we may be unable to renegotiate acceptable third-party license terms, or we may be subject to infringement liability if third-party ~~software~~technologies that we license is found to infringe intellectual property rights of others. Changes in or the loss of third-party licenses could lead to a material increase in our costs or to our ~~software~~ offerings becoming inoperable or their performance being materially reduced. As a result, we may need to incur additional development costs to help ensure continued performance of our offerings, and we may experience a decreased demand for our offerings.

If we are unable to recruit or retain skilled personnel, or if we lose the services of our Chairman of the Board of Directors, President & Chief Executive Officer, our business, operating results, and financial condition could be materially adversely affected

Our future success depends on our continuing ability to attract, train, assimilate, and retain highly skilled personnel. Competition for these employees is intense, and competition may be amplified by evolving restrictions on immigration, travel, or availability of visas for skilled technology workers. We may not be able to retain our current key employees or attract, train, assimilate, and retain other highly skilled personnel in the future. Competition for qualified employees in the technology industry has historically been high, particularly for software engineers and other technical positions. Our future success also depends in large part on the continued service of Michael J. Saylor, our Chairman of the Board of Directors, President & Chief Executive Officer. If we lose the services of Mr. Saylor, or if we are unable to attract, train, assimilate, and retain the highly skilled personnel we need, our business, operating results, and financial condition could be materially adversely affected.

~~The~~Changes in third-party software or systems or the emergence of new industry standards ~~may~~could materially adversely affect the operation of and demand for our existing ~~offerings~~software

The ~~emergence~~functionalities of our software depend in part on the ability of our software to interface with our customers’ IT infrastructure and cloud environments, including software applications, network infrastructure, and end user devices, which are supplied to our customers by various other vendors. When new or updated versions of these third-party software or systems are introduced, or new industry standards in related fields emerge, we may ~~materially adversely affect the demand for~~be required to develop updated versions of or enhancements to our ~~existing offerings. This could happen if~~software to help ensure that it continues to effectively interoperate with our customers’ IT infrastructure and cloud environments. If new or modified operating systems are introduced or new web standards and technologies or new standards in the field of ~~operating system support~~database access technology emerge that are incompatible with ~~customer deployments of~~ our software, ~~offerings. For example, if~~and we are unable to adapt our software ~~offerings~~ on a timely basis, ~~to new standards in database access technology,~~ the ability of our software ~~offerings~~ to deliver reports, access customer databases, or otherwise perform key functions could be ~~impaired.~~impaired, which may impact our customers’ satisfaction with our software and potentially result in breach of warranty claims or other claims. For example, the release of the Google Chrome version 80 browser and Microsoft’s recent Windows security update enabling LDAP hardening affected some existing MicroStrategy software deployments, as a result of which we were required to make certain changes to our software. Development efforts to maintain the interoperability of our software with our customers’ IT infrastructure and cloud environments could require substantial capital investment and employee resources, and we may not be able to update our software quickly, cost-effectively, or at all. If we are unable to update our software in a timely manner, demand for our software could be materially adversely affected.

The nature of our software ~~offerings~~ makes ~~them~~it particularly susceptible to undetected errors, bugs, or security vulnerabilities, which could cause problems with how the ~~offerings perform~~software performs and, in turn, reduce demand for our ~~offerings,~~software, reduce our revenue, and lead to litigation claims against us

Software as complex as ours may contain undetected errors, bugs, or security vulnerabilities. Although we test our software ~~offerings~~ extensively, we have in the past discovered software errors, bugs, or security vulnerabilities in our offerings after their introduction. Despite testing by us and our current and potential customers, errors, bugs, or security vulnerabilities may be found in new offerings or releases after commercial shipments begin. This could result in lost revenue, damage to our reputation, or delays in market acceptance, which could have a material adverse effect on our business, operating results, and financial condition. We may also need to expend resources and capital to correct these defects if they occur.

Our agreements with customers typically contain provisions designed to limit our exposure to product liability, warranty, and other claims. It is possible, however, that these provisions may not be effective under the laws of certain domestic or international jurisdictions and we may be exposed to product liability, warranty, and other claims. A successful product liability claim against us could have a material adverse effect on our business, operating results, and financial condition.

Changes in laws or regulations relating to privacy or the collection, processing, disclosure, storage, localization, or transmission of personal data, or any actual or perceived failure by us or our third-party service providers to comply with such laws and regulations, contractual obligations, or applicable privacy policies, could materially adversely affect our business

Aspects of our business, including our ~~cloud services and~~ digital identity ~~offerings,~~offering and the cloud environments we manage, involve collecting, processing, disclosing, storing, and transmitting personal data, which are subject to certain privacy policies, contractual obligations, and U.S. federal, U.S. state, and foreign laws, regulations, and directives relating to privacy and data protection. ~~The~~We store a substantial amount of customer and employee data, ~~that we store through~~including personal data, on our ~~cloud services offerings,~~ networks and other systems ~~including personal data, is increasing.~~and the cloud environments we manage. In addition, the types of data subject to protection as personal data in the European Union, the United States, and elsewhere, including Asia and Latin America, have been expanding. In recent years, the collection and use of personal data by companies have come under increased regulatory and public scrutiny, especially in relation to the collection and processing of sensitive data, such as healthcare, biometric, genetic, financial services, and government data, children’s data, precise location data, and data regarding a person’s race or ethnic origins, political opinions, religious or philosophical beliefs, trade union membership, or sex life or sexual orientation. For example, in the United States, protected health information is subject to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). HIPAA has been supplemented by the Health Information Technology for Economic and Clinical Health Act with the result of increased civil and criminal penalties for noncompliance. Entities performing certain functions that engage in creating, receiving, maintaining, or transmitting protected health information provided by covered entities and other business associates are directly subject to enforcement under HIPAA. Our access to protected health information through ~~our~~the cloud ~~services offerings~~environments we manage triggers obligations to comply with certain privacy rules and data security requirements under HIPAA.

Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us or our third-party service providers to comply with applicable privacy policies, contractual obligations, or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by domestic or foreign government entities or others, including private plaintiffs in litigation. Such proceedings could result in the imposition of sanctions, fines, penalties, liabilities, government orders, and/or orders arising out of private proceedings, requiring that we change our data practices, any of which could have a material adverse effect on our business, operating results, reputation, and financial condition.

Various U.S. federal, U.S. state, and foreign legislative, regulatory, or other government bodies may enact new or additional laws or regulations, or issue rulings that invalidate prior laws or regulations, concerning privacy, data storage, data protection, and cross-border transfer of data that could materially adversely impact our business. For example, in the European Union, the General Data Protection Regulation (“GDPR”) took effect in May 2018. GDPR governs data practices and privacy, establishes ~~new~~ requirements regarding the handling and security of personal data, requires disclosure of data breaches to individuals, customers, and data protection authorities in certain circumstances, requires companies to honor data subjects’ requests relating to their personal data, permits regulators to impose fines of up to €20,000,000 or 4% of global annual revenue, whichever is higher, and establishes a private right of action. Furthermore, a new ePrivacy Regulation, regulating electronic communications, was proposed in 2017 and is under consideration by the European Commission, the European Parliament, and the European Council.

~~In addition, we~~Brazil also enacted the Lei Geral de Proteção de Dados (the Brazilian General Data Protection Law), which will impose requirements largely similar to GDPR on products and services offered to users in Brazil, effective in August 2020. We may also be subject to a cybersecurity law that went into effect in China in June 2017 that has uncertain but broad application and imposes a number of new privacy and data security obligations, including a data localization requirement for certain types of data.

The state of California has also adopted a new comprehensive privacy law, the California Consumer Protection Act (“CCPA”), modeled largely on GDPR, that ~~is scheduled to take~~took effect on January 1, 2020 and is expected to become enforceable no later than July 1, 2020. The final scope of the CCPA remains unclear at this time since the California Attorney General is engaged in rulemaking proceedings pursuant to the CCPA and there are several bills pending in the California legislature to potentially amend the CCPA. While the final scope of the CCPA remains unclear, it is likely that we willWe may be required to devote substantial resources to implement and maintain compliance with the CCPA, and noncompliance could carry the threat of regulatory investigations and fines or private litigation. In addition, several states are also now considering bills similar to the CCPA.

Furthermore, the U.S. Congress is considering comprehensive privacy legislation. At this time, it is unclear whether it will in fact pass such a law and if so, when and what it will require and prohibit. Moreover, it is not clear whether any such legislation would give the Federal Trade Commission (“FTC”) any new authority to impose civil penalties for violations of the Federal Trade Commission Act in the first instance, or whether the U.S. Congress will grant the FTC rulemaking authority over privacy and information security.

Complying with these and other changing requirements could cause us or our customers to incur substantial costs or pay substantial fines or penalties, require us to change our business practices, require us to take on more onerous obligations in our contracts, or limit our ability to provide certain ~~products and services~~offerings in certain jurisdictions, any of which could materially adversely affect our business and operating results. In addition, mechanisms for lawfully transferring personal data from the European Union to the United States and certain other countries are being challenged in European courts, which could lead to uncertainty about the legality of such transfers, or burdensome or inconsistent legal requirements. New laws or regulations restricting or limiting the collection or use of mobile data could also reduce demand for certain of our ~~services~~offerings or require changes to our business practices, which could materially adversely affect our business and operating results.

If we or our third-party service providers experience a security breach and unauthorized parties obtain access to our customers’, prospects’, vendors’, or channel partners’ data, our data, or our ~~cloud services offerings,~~ networks or other systems, or the cloud environments we manage, our offerings may be perceived as not being secure, our reputation may be harmed, demand for our offerings may be reduced, our operations may be disrupted, we may incur significant legal and financial liabilities, and our business could be materially adversely affected

As part of our business, we process, store, and transmit our customers’, prospects’, vendors’, and channel partners’ information and data as well as our own, including in our ~~cloud services offerings,~~ networks and other ~~systems.~~systems and the cloud environments we manage. There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against all current or future security threats. For example, security measures may be breached as a result of technological error, computer viruses, or third-party action, including intentional misconduct by computer hackers, physical break-ins, the actions of state actors, industrial espionage, fraudulent inducement of employees, customers, or channel partners to disclose sensitive information such as user names or passwords, and employee, customer, or channel partner error or malfeasance. We have experienced attempts by third parties to identify and exploit ~~product~~software and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized access to our or our customers’ or service providers’ cloud ~~offerings,~~environments, networks, and other systems.

A security breach could result in unauthorized access to or disclosure, modification, misuse, loss, or destruction of our customers’, prospects’, vendors’, or channel partners’ data, our data (including our proprietary information, intellectual property, or trade secrets), or our ~~cloud services offerings,~~ networks or other ~~systems.~~systems, or the cloud environments we manage. Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate, detect, or mitigate attempted security breaches and implement adequate preventative measures. Third parties may also conduct attacks designed to prevent access to critical data or systems through ransomware or temporarily deny customers access to our cloud ~~services.~~ environments.

Any security breach or successful denial of service attack could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt our normal business operations, require us to spend material resources to investigate or correct the breach, require us to notify affected customers or individuals and/or applicable regulators and others, and provide identity theft protection services to individuals under applicable laws, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and materially adversely affect our revenue and operating results. Our software operates in conjunction with and is dependent on third-party products and components across a broad ecosystem. If there is a security vulnerability in one of these products or components, and if there is a security exploit targeting it, we could face increased costs, liability claims, customer dissatisfaction, reduced revenue, or harm to our reputation or competitive position. These risks will increase as we continue to grow the number and scale of our ~~cloud-based offerings,~~cloud subscriptions and process, store, and transmit increasingly large amounts of our customers’, prospects’, vendors’, channel partners’, and our own information and data, which may include proprietary or confidential data or personal or other identifying information. Moreover, if a high-profile security breach occurs with respect to an industry peer, our customers and potential customers may lose trust in the security of business intelligence or analytics platforms generally, which could adversely impact our ability to retain existing customers or attract new ones.

Our intellectual property is valuable, and any inability to protect it could reduce the value of our ~~products, services,~~offerings and brand

We rely on a combination of copyrights, patents, trademarks, trade secrets, confidentiality procedures, and contractual commitments to protect our intellectual property worldwide. Despite our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or reverse engineer portions of our ~~products~~software or otherwise obtain and use our intellectual property. Any intellectual property owned by us may be invalidated, circumvented, or challenged. Any of our pending or future intellectual property applications, whether or not currently being challenged, may not be issued with the scope we seek, if at all. Moreover, amendments to and developing jurisprudence regarding U.S. and international law may affect our ability to protect our intellectual property and defend against claims of infringement. In addition, although we generally enter into confidentiality agreements with our employees and contractors, ~~our former employees and contractors may seek employment with our business partners, customers, or competitors, and~~ there can be no assurance that the confidential nature of our intellectual property will be maintained. Furthermore, the laws of some countries do not provide the same level of protection of our intellectual property as do the laws of the United States. If we cannot protect our intellectual property against unauthorized copying or use, we may not remain competitive.

We periodically receive notices from third parties claiming we are infringing their intellectual property rights, principally patent, copyright, and trademark rights. We expect the number of such claims will increase as we continue to expand our offerings and branding, the number of offerings and level of competition in our industry segments grow, the functionality of offerings overlaps, and the volume of issued patents, patent applications, and copyright and trademark registrations continues to increase. Responding to any infringement claim, regardless of its validity, could:

Additionally, while we monitor our use of third-party software, including open source software, we cannot assure you that our processes for controlling such use in our ~~products~~offerings will be effective. If we fail to comply with the terms or conditions associated with third-party software that we use, including any changes to the license terms or conditions that may occur, if we inadvertently embed certain types of third-party software into one or more of our ~~products,~~offerings, or if third-party software that we license is found to infringe the intellectual property rights of others, we could subject ourselves to infringement liability and be required to re-engineer our ~~products,~~offerings, discontinue the sale of our ~~products~~offerings if re-engineering could not be accomplished on a timely or cost-effective basis, or make available to certain third parties or generally available, in source code form, our proprietary code, any of which could materially adversely affect our business, operating results, and financial condition.

If a successful infringement claim is made against us and we fail to develop or license a substitute technology or brand name, as applicable, our business, results of operations, financial condition, or cash flows could be materially adversely affected.

Because of the rights of our two classes of common stock and because we are controlled by Michael J. Saylor, who beneficially owns the majority of our class B common stock, Mr. Saylor could transfer control of MicroStrategy to a third party without the approval of our Board of Directors or our other stockholders, prevent a third party from acquiring us, or limit the ability of our other stockholders to influence corporate matters

We have two classes of common stock: class A common stock and class B common stock. Holders of our class A common stock generally have the same rights as holders of our class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share. As of ~~October 15, 2019,~~April 20, 2020, holders of our class B common stock owned 2,035,184 shares of class B common stock, or ~~71.2%~~72.5% of the total voting power. As of ~~October 15, 2019,~~April 20, 2020, Mr. Saylor, our Chairman of the Board of Directors, President & Chief Executive Officer, beneficially owned 2,011,668 shares of class B common stock, or ~~70.4%~~71.6% of the total voting power. Accordingly, Mr. Saylor can control MicroStrategy through his ability to determine the outcome of elections of our directors, amend our certificate of incorporation and by-laws, and take other actions requiring the vote or consent of stockholders, including mergers, going-private transactions, and other extraordinary transactions and their terms.

Our certificate of incorporation allows holders of class B common stock to transfer shares of class B common stock, subject to the approval of stockholders holding a majority of the outstanding class B common stock. Mr. Saylor ~~or a group of stockholders holding a majority of the outstanding class B common stock~~ could, without the approval of our Board of Directors or our other stockholders, transfer voting control of MicroStrategy to a third party. Such a transfer of control could have a material adverse effect on our business, operating results, and financial condition. Mr. Saylor ~~or a group of stockholders holding a majority of the outstanding class B common stock~~ could also prevent a change of control of MicroStrategy, regardless of whether holders of class A common stock might otherwise receive a premium for their shares over the then current market price. In addition, this concentrated control limits stockholders’ ability to influence corporate matters and, as a result, we may take actions that our non-controlling stockholders do not view as beneficial or that conflict with their interests. As a result, the market price of our class A common stock could be materially adversely affected.

Our status as a “controlled company” could make our class A common stock less attractive to some investors or otherwise materially adversely affect our stock price

Because we qualify as a “controlled company” under the corporate governance rules for Nasdaq-listed companies, we are not required to have independent directors comprise a majority of our Board of Directors. Additionally, our Board of Directors is not required to have an independent compensation or nominating committee, or to have the independent directors exercise the nominating function. We are also not required to have the compensation of our executive officers be determined by a compensation committee of independent directors. In addition, we are not required to empower our Compensation Committee with the authority to engage the services of any compensation consultants, legal counsel, or other advisors, or to have the Compensation Committee assess the independence of compensation consultants, legal counsel, and other advisors that it engages.

In light of our status as a controlled company, our Board of Directors has determined not to establish an independent nominating committee or have its independent directors exercise the nominating function and has elected instead to have the Board of Directors be directly responsible for nominating members of the Board. A majority of our Board of Directors is currently comprised of independent directors, and our Board of Directors has established a Compensation Committee comprised entirely of independent directors. The Compensation Committee determines the compensation of our Chief Executive Officer. However, our Board of Directors has authorized our Chief Executive Officer to determine the compensation of executive officers other than himself, rather than having such compensation determined by the Compensation Committee, except that certain performance-based executive officer compensation is determined by the Compensation Committee. Awards under our 2013 Equity Plan are also approved by the Compensation Committee. Additionally, while our Compensation Committee is empowered with the authority to retain and terminate outside counsel, compensation consultants, and other experts or consultants, it is not required to assess their independence.

Although currently a majority of our Board of Directors is comprised of independent directors and the Compensation Committee is comprised entirely of independent directors, we may elect in the future not to have independent directors constitute a majority of the Board of Directors or the Compensation Committee, our Chief Executive Officer’s compensation determined by a compensation committee of independent directors, or a compensation committee of the Board of Directors at all.

Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections that are afforded to stockholders of companies that are required to follow all of the corporate governance rules for Nasdaq-listed companies. Our status as a controlled company could make our class A common stock less attractive to some investors or otherwise materially adversely affect our stock price.

~~During the three months ended September 30, 2019, we did not repurchase any~~The following table provides information about our repurchases of equity securities that are registered by us pursuant to Section 12 of the Exchange ~~Act. See Note 7, Treasury Stock, to~~Act during the ~~Consolidated Financial Statements in “Part I. Item 1. Financial Statements” for further information regarding our Share Repurchase Program.~~periods indicated:

On ~~October 29, 2019,~~April 28, 2020, we issued a press release announcing the Company’s financial results for the quarter ended ~~September 30, 2019.~~March 31, 2020. A copy of this press release is attached as Exhibit 99.1 to this Quarterly Report. The information regarding this press release in this Item 5 (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

On April 23, 2020, Lisa Mayr resigned from her position as our Senior Executive Vice President & Chief Financial Officer. In connection with her resignation, on April 26, 2020, Ms. Mayr entered into an agreement with the Company (the “Agreement”). The Agreement provides Ms. Mayr with the following severance payments and benefits: (i) a lump-sum cash payment of $275,000, which is equal to six months of her base salary; and (ii) retention by Ms. Mayr of a one-time reporting bonus of $100,000 paid to her in connection with the commencement of her employment and an advance bonus payment with respect to 2020 of $300,000 that was paid to her in January 2020. The Agreement also includes a general release of claims and certain other covenants in favor of the Company.

The foregoing summary of the Agreement is qualified in its entirety by reference to the full text of the Agreement, a copy of which is filed as Exhibit 10.1 to this Quarterly Report and incorporated herein by reference.

In connection with Ms. Mayr’s resignation, we appointed Phong Le, our Senior Executive Vice President & Chief Operating Officer, to succeed Ms. Mayr as our Chief Financial Officer, effective immediately. In addition to his new responsibilities as Chief Financial Officer, Mr. Le will continue to serve as our Senior Executive Vice President & Chief Operating Officer. Mr. Le will continue to report to Michael Saylor, our Chairman, President & Chief Executive Officer.

On April 23, 2020, our Chief Executive Officer established annual discretionary cash bonus targets for the following executive officers of the Company in the amounts set forth opposite their respective names, effective as of January 1, 2020:

Awards pursuant to the foregoing discretionary cash bonus targets will be determined by our Chief Executive Officer based on his subjective evaluation of the applicable executive’s performance in the context of general economic and industry conditions and Company performance during 2020.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of Each Class		Trading Symbol		Name of Each Exchange on which Registered
Class A common stock, par value $0.001 per share		MSTR		The Nasdaq Global Select Market

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1

	Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	1

	Consolidated Statements of Operations for the Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	2

	Consolidated Statements of ~~Operations~~Comprehensive Income (Loss) for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	3

	Consolidated Statements of ~~Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018~~Stockholders’ Equity as of March 31, 2020	4

	Consolidated Statements of ~~Stockholders’ Equity as of September 30,~~Cash Flows for the Three Months Ended March 31, 2020 and 2019	5

	~~Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018~~	6

	Notes to Consolidated Financial Statements	76

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1816

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3327

Item 4.	Controls and Procedures	3428

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3529

Item 1A.	Risk Factors	3529

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4842

Item 5.	Other Information	4843

Item 6.	Exhibits	4843

	September 30, 2019
	Three Months Ended			Nine Months Ended
Lease cost:
Operating lease cost	$	3,704		$	11,311
Short-term lease cost		397			1,612
Variable lease cost		372			967
Total lease cost	$	4,473		$	13,890
Other information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,854		$	11,743
ROU assets obtained in exchange for new operating lease liabilities	$	0		$	5,016
Weighted-average remaining lease term in years – operating leases		10.2			10.2
Weighted-average discount rate – operating leases		6.0	%		6.0	%

For the period ended September 30,
2020	$	15,855
2021		15,699
2022		15,141
2023		15,416
2024		13,550
Thereafter		79,072
Total lease payments		154,733
Less: imputed interest		(40,130	)
Total	$	114,603

Reported as:
Current operating lease liabilities	$	9,312
Non-current operating lease liabilities		105,291
Total	$	114,603

	Operating Leases
Year	Amount
2019	$	27,768
2020		25,583
2021		18,573
2022		15,694
2023		15,607
Thereafter		92,347
	$	195,572

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

	Stock Options Outstanding									Stock Options Outstanding
				Weighted Average		Aggregate		Weighted Average					Weighted Average		Aggregate		Weighted Average
				Exercise Price		Intrinsic		Remaining Contractual					Exercise Price		Intrinsic		Remaining Contractual
	Shares			Per Share		Value		Term (Years)		Shares			Per Share		Value		Term (Years)
Balance as of July 1, 2019		1,459		$	137.05
Balance as of January 1, 2020											1,634		$	141.60
Granted		0		$	0						0		$	0
Exercised		(27	)	$	131.14	$	287				(3	)	$	130.85	$	53
Forfeited/Expired		(106	)	$	135.28						(30	)	$	152.22
Balance as of September 30, 2019		1,326		$	137.32
Exercisable as of September 30, 2019		842		$	137.96	$	15,742		5.5
Expected to vest as of September 30, 2019		484		$	136.20	$	7,870		8.5
Balance as of March 31, 2020											1,601		$	141.41
Exercisable as of March 31, 2020											925		$	137.95	$	0		4.9
Expected to vest as of March 31, 2020											676		$	146.13	$	0		9.0
Total		1,326		$	137.32	$	23,612		6.6		1,601		$	141.41	$	0		6.7

	Stock Options Outstanding at September 30, 2019						Stock Options Outstanding at March 31, 2020
			Weighted Average		Weighted Average				Weighted Average		Weighted Average
			Exercise Price		Remaining Contractual				Exercise Price		Remaining Contractual
Range of Exercise Prices per Share	Shares		Per Share		Term (Years)		Shares		Per Share		Term (Years)
$119.02 - $140.00		1,058	$	126.05		6.7		941	$	125.65		5.6
$140.01 - $160.00		0	$	0		0.0		412	$	152.21		9.6
$160.01 - $180.00		113	$	167.75		5.4		95	$	169.07		5.0
$180.01 - $201.25		155	$	191.97		6.9		153	$	192.11		6.3
Total		1,326	$	137.32		6.6		1,601	$	141.41		6.7

	Three months ended
	~~September 30,~~March 31,
	~~2018~~2019
Expected term of options in years		6.3
Expected volatility		~~34.5~~	33.4	%
Risk-free interest rate		~~2.9~~	2.5	%
Expected dividend yield			0.0	%


	Three Months Ended March 31,						%
	2020			2019			Change
Net cash provided by operating activities	$	29,069		$	26,456			9.9	%
Net cash (used in) provided by investing activities	$	(589	)	$	170,293			-100.3	%
Net cash used in financing activities	$	(50,407	)	$	(46,737	)		7.9	%

	Payments due by period ended September 30,										Payments due by period ended March 31,
	Total		2020		2021-2022		2023-2024		Thereafter		Total		2021		2022-2023		2024-2025		Thereafter
Contractual Obligations:
Operating leases	$	163,347	$	16,758	$	32,569	$	30,351	$	83,669	$	154,593	$	16,546	$	32,250	$	29,163	$	76,634
Purchase obligations		21,270		6,807		11,715		1,356		1,392		14,938		9,178		3,361		1,351		1,048
Transition Tax		28,935		896		5,903		12,913		9,223		28,935		896		5,903		12,913		9,223
Total	$	213,552	$	24,461	$	50,187	$	44,620	$	94,284	$	198,466	$	26,620	$	41,514	$	43,427	$	86,905

	(a)		(b)		(c)		(d)
Period	Total Number of Shares (or Units) Purchased		Average Price Paid per Share (or Unit) (1)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
January 1, 2020 – January 31, 2020		0	N/A			0	$	271,012,425
February 1, 2020 – February 29, 2020		202,206	$	149.32		202,206	$	240,818,533
March 1, 2020 – March 31, 2020		152,427	$	134.84		152,427	$	220,265,129
Total:		354,633	$	143.10		354,633	$	220,265,129

Phong Q. Le	$	750,000
Senior Executive Vice President, Chief Operating Officer & Chief Financial Officer
Timothy E. Lang	$	500,000
Senior Executive Vice President & Chief Technology Officer
W. Ming Shao	$	500,000
Senior Executive Vice President & General Counsel

Exhibit Number		Description

3.1		Second Restated Certificate of Incorporation of the registrant (incorporated herein by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003 (File No. 000-24435)).

3.2		Amended and Restated By-Laws of the registrant (incorporated herein by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the SEC on January 30, 2015 (File No. 000-24435)).

4.1		Form of Certificate of Class A Common Stock of the registrant (incorporated herein by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2003 (File No. 000-24435)).

10.1†		Agreement, dated as of April 26, 2020, by and between the registrant and Lisa Mayr.

31.1		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Chairman of the Board of Directors, President & Chief Executive Officer.

31.2		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Senior Executive Vice President ~~Chief Operating Officer~~ & Chief Financial Officer.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Press release, dated ~~October 29, 2019,~~April 28, 2020, regarding the Company’s financial results for the quarter ended ~~September 30, 2019.~~March 31, 2020.

101.INS		Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase.

104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

		MICROSTRATEGY INCORPORATED

		By:	/s/ Michael J. Saylor
			Michael J. Saylor
			Chairman of the Board of Directors,
			President & Chief Executive Officer

		By:	/s/ Phong Le
			Phong Le
			Senior Executive Vice President,
			Chief Operating Officer & Chief Financial Officer