This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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 below under "Item 1A. Risk Factors," among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein. 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.

Overview

We are a worldwide provider of business intelligence software that enables companies to analyze the raw data stored across their enterprise to reveal the trends and insights needed to develop solutions to manage their business effectively. Our software delivers this information to workgroups, the enterprise and extranet communities via e-mail, web, fax, wireless and voice communication channels. Businesses can use our software platform to develop user-friendly solutions, proactively refine revenue-generating strategies, enhance cost-efficiency and productivity and improve customer relationships.

The MicroStrategy software platform enables users to query and analyze the most detailed, transaction-level databases, turning data into business intelligence and delivering boardroom quality reports and alerts about the users' business processes. Our web-based architecture provides reporting, security, performance and standards that are critical for web deployment. With intranet deployments, our products provide employees with information to enable them to make better, more cost-effective business decisions. With extranet deployments, enterprises can use the MicroStrategy software platform to build stronger relationships by linking customers and suppliers via the Internet. We also offer a comprehensive set of consulting, education, technical support and technical advisory services for our customers and strategic partners.

Our core business intelligence ("BI") business derives its revenues from product licenses and product support and other services. Product licenses revenues are derived from the sale of software licenses for our MicroStrategy 9™ business intelligence platform and related products. We license our software to end users through our direct sales organization and through indirect sales channels, such as resellers, systems integrators and original equipment manufacturers, or OEMs. Our arrangements with customers typically include: (a) an end-user license fee paid for the use of our products in perpetuity or over a specified term; (b) an annual maintenance agreement that provides for software updates and upgrades and technical support for an annual fee; and (c) a services work order for implementation, consulting and training, generally for a fee determined on a time-and-materials basis or, in certain circumstances, a fixed-fee.

During the nine months ended September 30, 2009, we operated two non-core businesses, Alarm.com and Angel.com, which focus outside of the BI software and services market. Alarm.com is a provider of web-enabled residential and commercial security and activity monitoring technology, and Angel.com is a provider of interactive voice response services. In March 2008 we committed to a plan to sell our Alarm.com business. Accordingly, the financial results for Alarm.com were classified as discontinued operations in the nine months ended September 30, 2008.

On February 13, 2009, we completed the sale of our equity interest in Alarm.com for consideration of $24.5 million in cash net of post-closing purchase price adjustments and transaction costs totaling $3.3 million in the aggregate, resulting in a gain of $14.4 million, net of tax. Accordingly, on our Consolidated Balance Sheets, we classified the associated assets and liabilities of the Alarm.com business as held-for-sale in accordance with Accounting Standards Codification ("ASC") Topic No. 360, "Property, Plant and Equipment", or ASC 360 (formerly Statement of Financial Accounting Standard ("SFAS") No. 144,

"Accounting for the Impairment of Long-Lived Assets", or SFAS 144). In our Consolidated Statements of Operations, we classified the operations of the Alarm.com business as Income (Loss) from Discontinued Operations, net of tax, because we do not expect to have significant continuing involvement or cash flows from this business after the divestiture. All assets and liabilities that are reported in these financial statements as "held-for-sale" are reported at the lower of the carrying cost or fair value less cost to sell.

The following table sets forth certain operating highlights for the three and nine months ended September 30, 2009 and 2008 (in thousands):

                                           Core BI Business             Angel.com                    Consolidated
                                          Three Months Ended       Three Months Ended             Three Months Ended
                                            September 30,             September 30,                 September 30,
                                           2009         2008       2009           2008             2009         2008
Revenues
Product licenses                        $    34,443   $ 24,787   $      -        $    -         $    34,443   $ 24,787
Product support and other services           65,721     63,153          -             -              65,721     63,153
Angel.com services                               -          -        3,853         2,688              3,853      2,688

Total revenues                              100,164     87,940       3,853         2,688            104,017     90,628


Cost of revenues
Product licenses                              1,947        422          -             -               1,947        422
Product support and other services           13,048     15,908          -             -              13,048     15,908
Angel.com services                               -          -        1,544           396              1,544        396

Total cost of revenues                       14,995     16,330       1,544           396             16,539     16,726

Gross profit                                 85,169     71,610       2,309         2,292             87,478     73,902


Operating expenses
Sales and marketing                          30,364     33,767       1,125         2,121             31,489     35,888
Research and development                     10,443      5,234         957           688             11,400      5,922
General and administrative                   13,817     14,679         387            65 (a)         14,204     14,744

Total operating expenses                     54,624     53,680       2,469         2,874             57,093     56,554

Income (loss) from operations           $    30,545   $ 17,930   $    (160 )     $  (582 )      $    30,385   $ 17,348

(a) An insignificant amount of general and administrative services was provided to the Angel.com business unit by MicroStrategy's core business operations during the three months ended September 30, 2008.

                                       Core BI Business            Angel.com                   Consolidated
                                       Nine Months Ended       Nine Months Ended             Nine Months Ended
                                         September 30,           September 30,                 September 30,
                                       2009        2008        2009          2008            2009        2008

Revenues
Product licenses                     $  71,897   $  67,966   $     -       $     -         $  71,897   $  67,966
Product support and other services     190,451     189,629         -             -           190,451     189,629
Angel.com services                          -           -       9,669         7,793            9,669       7,793

Total revenues                         262,348     257,595      9,669         7,793          272,017     265,388


Cost of revenues
Product licenses                         4,523       1,442         -             -             4,523       1,442
Product support and other services      38,780      44,602         -             -            38,780      44,602
Angel.com services                          -           -       3,834         1,296            3,834       1,296

Total cost of revenues                  43,303      46,044      3,834         1,296           47,137      47,340

Gross profit                           219,045     211,551      5,835         6,497          224,880     218,048


Operating expenses
Sales and marketing                     90,012      93,962      3,364         6,098           93,376     100,060
Research and development                27,582      22,229      2,825         2,220           30,407      24,449
General and administrative              40,077      46,840      1,271          215  (a)       41,348      47,055

Total operating expenses               157,671     163,031      7,460         8,533          165,131     171,564

Income (loss) from operations $ 61,374 $ 48,520 $ (1,625 ) $ (2,036 ) $ 59,749 $ 46,484

(a) An insignificant amount of general and administrative services was provided to the Angel.com business unit by MicroStrategy's core business operations during the nine months ended September 30, 2008.

The business intelligence market is highly competitive and our results of operations depend on our ability to market and sell product offerings that provide customers with greater value than those offered by our competitors. Organizations recently have sought, and we expect may continue to seek, to standardize their various business intelligence applications around a single software platform. This trend presents both opportunities and risks for our business. It offers us the opportunity to increase the size of transactions with new customers and to expand the size of our business intelligence installations with existing customers. On the other hand, it presents the risk that we may not be able to penetrate accounts where a competitor currently is or may become the incumbent business intelligence application provider. In addition, companies with industry leading positions in certain software markets, such as Microsoft, Oracle, IBM and SAP AG, have incorporated business intelligence capabilities into their product suites. As a result, our products need to be sufficiently differentiated from these bundled software offerings to create customer demand for our platform and products.

To address these opportunities and challenges, we are implementing a number of initiatives, including:

• concentrating our research and development efforts on maintaining our position as a technology leader by continuing to innovate and lead in enterprise business intelligence, improving the capability of our products to efficiently handle the ever increasing volume of data and user scalability needs of our current and future customers, and adding analytical and end user features to support the increasing levels of sophistication in our customers' business intelligence needs and applications, such as the incorporation of "dynamic enterprise dashboards" to our interfaces;

• widening the availability of our business intelligence software through the launch of MicroStrategy Reporting Suite™, a free reporting software bundle targeted at departmental reporting applications, which features sophisticated reporting capabilities that enable the rapid deployment and delivery of operational and analytical reports, and also adopting new licensing and product configuration policies to give small and departmental users an easy point of entry into MicroStrategy tools; and

General worldwide economic conditions have experienced a significant downturn. These conditions could cause our customers to slow spending on our products and services, which may delay and lengthen sales cycles. In addition, customers may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts. Customers with excess information technology resources may seek to develop in-house software solutions rather than obtain those solutions from us. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers.

On January 31, 2007, we entered into an agreement to purchase a corporate aircraft with an aggregate purchase price of $46.3 million, payable in installments on various dates related to the completion of manufacturing and delivery of the aircraft. To date, we have made payments totaling $32.5 million toward the purchase price of the aircraft. We expect to pay the remaining $13.8 million of the purchase price upon delivery of the aircraft, which is expected to occur during the fourth quarter of 2009. We intend to utilize this aircraft to assist us in, among other purposes, managing our global business, and believe that such use will facilitate more effective communication and more rapid coordination with our employees, partners, and customers around the world. Upon delivery of the aircraft, the depreciation expense of the capitalized cost of acquiring the aircraft and operating expenses relating to the aircraft will be included in general and administrative expenses. As a result, assuming the aircraft is delivered in the fourth quarter of 2009, we expect our general and administrative expenses to increase in future periods beginning in the fourth quarter of 2009.

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. We may be unable to adjust spending quickly enough in any particular period to offset any unexpected revenue shortfall in that period. 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.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and equity and 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, allowance for doubtful accounts, valuation of net deferred tax assets, and litigation and contingencies, have a material impact on our financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

In addition to evaluating estimates relating to the items discussed above, we also consider other estimates and judgments, including, but not limited to, those related to software development costs, intangible assets, provision for income taxes, and other contingent liabilities, including liabilities that we deem not probable of assertion. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.

MicroStrategy does not have any material ownership interest in any special purpose or other entities that are not wholly-owned or consolidated into our consolidated financial statements. Additionally, MicroStrategy does not have any material related party transactions as defined under ASC 850, "Related Party Disclosures" (formerly SFAS No. 57, "Related Party Disclosures.")

For a more detailed explanation of the judgments made in these areas and a discussion of our accounting estimates and policies, refer to "Critical Accounting Estimates" included in Item 7 and "Summary of Significant Accounting Policies" (Note 2) included in Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2008. Since December 31, 2008, there have been no significant changes to our critical accounting estimates and policies.

Impact of Foreign Currency Exchange Rate Fluctuations on Results of Operations

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. Historically, we have generated a significant portion of our revenues and incurred a significant portion of our expenses in euro and the British pound sterling. As currency rates change from quarter to quarter and year over year, our results of operations may be impacted. The table below summarizes the impact (in thousands) of fluctuations in foreign currency exchange rates on certain components of our consolidated statements of operations by showing the increase (decrease) in revenues or expenses, as applicable, from the prior year.

                                              Three Months Ended        Nine Months Ended
                                                 September 30,            September 30,
                                               2009          2008       2009          2008

  International product licenses revenues   $     (513 )    $   463   $  (2,664 )    $ 2,218
  International product support revenues        (1,693 )      1,265      (8,509 )      5,632
  International other services revenues           (489 )        444      (2,810 )      2,023

  Cost of product support revenues                 (97 )         33        (480 )        190
  Cost of other services revenues                 (534 )        512      (2,518 )      1,704
  Sales and marketing expenses                    (840 )        747      (5,704 )      3,777
  General and administrative expenses             (308 )        284      (1,519 )      1,126

The term "international" refers to operations outside of the United States and Canada. For example, if there had been no change to foreign currency exchange rates from 2008 to 2009, international product licenses revenues would have been $12.1 million rather than $11.6 million and $30.9 million rather than $28.2 million for the three and nine months ended September 30, 2009, respectively. If there had been no change to foreign currency exchange rates from 2008 to 2009, sales and marketing expenses for our core BI business would have been $31.2 million rather than $30.4 million and $95.7 million rather than $90.0 million for the three and nine months ended September 30, 2009, respectively.

Results of Operations

Comparison of the three and nine months ended September 30, 2009 and 2008

Revenues

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

                                              Three Months Ended                   Nine Months Ended
                                                September 30,          %             September 30,         %
                                               2009         2008     Change         2009        2008     Change
Product Licenses Revenues:
Domestic                                    $    22,819   $ 12,220     86.7 %    $   43,699   $ 39,748      9.9 %
International                                    11,624     12,567     -7.5 %        28,198     28,218     -0.1 %

Total product licenses revenues             $    34,443   $ 24,787     39.0 %    $   71,897   $ 67,966      5.8 %

                                                 Three Months Ended         Nine Months Ended
                                                    September 30,             September 30,
                                                  2009         2008         2009         2008
Product Licenses Transactions with
Recognized Licenses Revenue in the
Applicable Period:
Above $1.0 million of licenses revenue
recognized                                             4            2            6            6
From $500,000 to $1.0 million of licenses
revenue recognized                                    11            8           21           17

Total                                                 15           10           27           23


Domestic:
Above $1.0 million of licenses revenue
recognized                                             3            1            4            5
From $500,000 to $1.0 million of licenses
revenue recognized                                     7            3           14            8

Total                                                 10            4           18           13


International:
Above $1.0 million of licenses revenue
recognized                                             1            1            2            1
From $500,000 to $1.0 million of licenses
revenue recognized                                     4            5            7            9

Total                                                  5            6            9           10

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

                                             Three Months Ended                   Nine Months Ended
                                               September 30,          %             September 30,         %
                                              2009         2008     Change         2009        2008     Change
Product Licenses Revenue Recognized in
the Applicable Period (in thousands):
Above $1.0 million of licenses revenue
recognized                                 $     8,549   $  5,102     67.6 %    $   12,869   $ 12,160      5.8 %
From $500,000 to $1.0 million of
licenses revenue recognized                      7,642      5,065     50.9 %        14,231     11,286     26.1 %
Below $500,000 of licenses revenue
recognized                                      18,252     14,620     24.8 %        44,797     44,520      0.6 %

Total                                           34,443     24,787     39.0 %        71,897     67,966      5.8 %


Domestic:
Above $1.0 million of licenses revenue
recognized                                       7,472      2,332    220.4 %         9,615      9,390      2.4 %
From $500,000 to $1.0 million of
licenses revenue recognized                      4,936      1,977    149.7 %         9,402      5,506     70.8 %
Below $500,000 of licenses revenue
recognized                                      10,411      7,911     31.6 %        24,682     24,852     -0.7 %

Total                                           22,819     12,220     86.7 %        43,699     39,748      9.9 %


International:
Above $1.0 million of licenses revenue
recognized                                       1,077      2,770    -61.1 %         3,254      2,770     17.5 %
From $500,000 to $1.0 million of
licenses revenue recognized                      2,706      3,088    -12.4 %         4,829      5,780    -16.5 %
Below $500,000 of licenses revenue
recognized                                       7,841      6,709     16.9 %        20,115     19,668      2.3 %

Total                                      $    11,624   $ 12,567     -7.5 %    $   28,198   $ 28,218     -0.1 %

For the three months ended September 30, 2009 and 2008, product licenses transactions with at least $500,000 in recognized revenue represented 47.0% and 41.0%, respectively, of our product licenses revenues. During the nine months ended September 30, 2009, our top three product licenses transactions totaled $8.3 million of recognized revenue, compared to $9.1 million during the nine months ended September 30, 2008, or 11.6%, and 13.4% of total product licenses revenues, respectively.

Product licenses revenues increased 39.0% during the three months ended September 30, 2009, as compared to the same period in the prior year, primarily due to an increase in the average deal size of domestic transactions and an increase in the number of large domestic transactions, partially offset by a decrease in the number of large international transactions, a decrease in the average deal size of international transactions, and unfavorable changes in foreign currency exchange rates.

Product licenses revenues increased 5.8% during the nine months ended September 30, 2009, as compared to the same period in the prior year, due to an increase in the number of product licenses transactions with between $500,000 and $1.0 million of recognized revenue and an increase in the average deal size of product licenses transactions with at least $500,000 of recognized revenue.

Domestic product licenses revenues. Domestic product licenses revenues increased 86.7% during the three months ended September 30, 2009, as compared to the same period in the prior year, primarily due to an increase in the average deal size of domestic transactions and an increase in the number of domestic transactions with at least $500,000 of recognized revenue.

Domestic product licenses revenues increased 9.9% during the nine months ended September 30, 2009, as compared to the same period in the prior year, primarily due to an increase in the average deal size of domestic transactions and an increase in the number of domestic transactions with at least $500,000 of recognized revenue.

International product licenses revenues. International product licenses revenues decreased 7.5% during the three months ended September 30, 2009, as compared to the same period in the prior year, due to a decrease in the number of international transactions with at least $500,000 of recognized revenue, and unfavorable changes in foreign currency exchange rates.

International product licenses revenues remained relatively flat during the nine . . .