SPSS Inc. — Press Releases

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SPSS Inc. Reports First Quarter 2002 Results

CHICAGO, 05/02/02 —

SPSS Inc. (Nasdaq: SPSS), a worldwide provider of analytical technology, today announced results for the first quarter 2002.

On a pro forma basis, excluding acquisition-related and other non-recurring charges, and including the impact of the adoption of SFAS No. 142 (Goodwill and Other Intangible Assets), diluted earnings per share and revenues for the quarter ended March 31, 2002 were $0.00 and $49.4 million, respectively. These results compare to analyst expectations of earnings of between $0.03 and $0.08 and revenues of between $47.0 and $50.0 million. For the same period last year, pro forma earnings per share and revenue were $0.05 and $44.1 million, respectively, and GAAP loss and revenues were ($0.77) and $36.5 million, respectively.

Summary of Pro Forma Results

Exclude acquisition and other non-recurring charges, include full implementation of accounting interpretations on revenue recognition and impact of adoption of SFAS No. 142

(Unaudited; in millions, except for per share)

	Three months ended Mar. 31, 2001
	2002	2001	Year/year % change
Net revenues	$49.4	$44.1	12%
Operating income (loss)	($ 0.2)	$ 2.0	-112%
Net income (loss)	($0.05)	$ 0.73	-107%
Diluted EPS	$0.00	$0.05	-100%
Weighted shares outstanding (diluted)	16,782	14,240	18%

Summary of Results

Include acquisition and other non-recurring charges, show GAAP proscribed implementation of accounting interpretations on revenue recognition and implementation of SFAS No. 142 in 2002

(Unaudited; in millions, except for per share)

	Three months ended Mar. 31, 2001
	2002	2001	Year/year % change
Net revenues	$49.6	$36.5	36%
Operating income (loss)	($4.8)	($15.9)	-70%
Net income (loss)	($2.5)	($10.5)	76%
Diluted EPS	($0.15)	($0.77)	81%
Weighted shares outstanding	16,782	13,639	23%

"We were pleased to see revenues towards the high-end of expectations," said Jack Noonan, SPSS Inc. president and chief executive officer. "In a quarter when international revenues proportionately matter the most, it was good to see double-digit growth from many of our markets outside of North America - particularly when this reported growth was reduced by changes in foreign currency exchange rates."

Noonan continued, "But we were not at all pleased with our having about $1 million more in expense than we planned in the quarter, much of it related to the integration of our most recent acquisitions. This added expense, combined with the loss of approximately 3 cents from foreign currency, produced profitability numbers below expectations. While the cost overage wasn't huge, it is being addressed."

Noonan continued, "As anticipated, 2002 continues to provide a difficult climate for many software companies. We retain our conservative outlook for the remainder of the year, as visibility around customer spending remains unclear. We also retain our excitement for the opportunity surrounding predictive analytics, but just can't tell when a change in spending patterns will turn this opportunity into more and larger sales."

Positives	Negatives
Good international revenue growth from 1Q01 (particularly in the United Kingdom and Japan); improved performance among Corporate US and higher education accounts.	Changes in foreign currency exchange rates reduced pro forma earnings by 3 cents.
Compared to 1Q01 and sequentially, solid growth in sales of data mining tools, including Clementine and SPSS server versions	Compared to 1Q01 and sequentially, declines in revenues from ShowCase and NetGenesis products
Increase in average deal size from previous quarters	Flat revenues from transactions >$100K from previous quarters.
Improvement over 4Q01 in revenues from AOL related transactions, from $1.4 to $1.7 million	Small increase in revenues (4%) from traditional market research business

Noonan commented on the company's acquisition during the quarter of LexiQuest, Inc., a leader in the development of innovative text mining software. He said, "Three new sales of LexiQuest technology closed in February and March totaling about $350,000. This acquisition combines LexiQuest's proven expertise in linguistics-based text mining and SPSS data mining capabilities, strengthening our leadership position in predictive analytics by tapping into volumes of information in text documents that until now were not analyzable in a systematic way."

Noonan provided an update on the company's relationship with its strategic partner, Siebel Systems. He said, "We had hoped to close a couple of opportunities in Q1 with Siebel customers, but due to budget constraints these transactions were deferred to future quarters. We continue to pursue approximately 30 leads, a number of which are new prospects. Given the complexity of both the sales and the relationship, we remain encouraged by the progress we are making." He also noted that work was continuing on the Scenario Manager Suite for Siebel (SMS), which offers a set of predefined predictive models (or "scenarios") for general business users to interact with data from their operational Customer Relationship Management (CRM) systems to personalize customer interactions. SMS is scheduled for release during the third quarter of 2002.

Significant sales for the quarter include:

Hitachi Seisakujo, part of Tokyo-based Hitachi, Ltd., the worlds leading global electronics company, purchased Clementine and other SPSS products for general research purposes.
Vodafone, the largest mobile telecommunications company in the world, has made SPSS software the foundation of its data-mining workbench of choice in Spain.
Royal Bank of Scotland International (RBSI), part of the Royal Bank of Scotland Group, the second largest UK bank, purchased additional ShowCase software to further enhance its capabilities in customer profitability analysis and debt tracking.
Avanturo, a financial and insurance planning portal and online community, as well as a joint venture of Deutsche Telekom and the Ergo Insurance Group, purchased SPSS analytical software and services to help gain insight into their customer segments and behavior.
Oglebay Norton, an industrial minerals company headquartered in Cleveland, Ohio, will implement a ShowCase enterprise analytical solution to facilitate more effective decision-making.
CNAM-TS, the French national healthcare administration organization, selected SPSS data mining and statistical tools for use in a large-scale effort to track the nation's healthcare spending.
Hong Kong-based, AMI Group, Asia's premier market research group, will standardize on SPSS technology across its operations spanning nine countries.
Philips Consumer Electronics extended its license for NetGenesis web analytics software to deliver insight to the organization's management team worldwide. In fourth quarter 2001, the SPSS was selected to deliver analytics and reporting services to Philips Consumer Electronics.
The economics faculty at the University of Barcelona selected Clementine as its preferred data-mining tool. The department's students will also use the software for research developing their skills in using data mining technology

Additional transactions completed during the first quarter include: The Department of Health and Human Services of the United States Federal Government, Caterpillar, Inc., SBC Communications Inc., Grainger, Monitor Group, Cartier, American Suzuki Motor Corp., The Tommy Hilfiger Corporation, West Marine Products, and D&K; Healthcare Resources, Inc.

Edward Hamburg, SPSS executive vice president and chief financial officer, explained that the cost overruns in the quarter were distributed across a number of different operational areas. He said, "We thought the expense from the acquired entities would come out more quickly than it did. There are a lot of moving parts to the integration process, and when your cost estimates related to each are off by even small amounts, the cumulative effect can be material in a quarter with a small margin for error."

Hamburg further elaborated on the company's performance in each of its revenue reporting categories during the current quarter:

Analytical Solutions: 57 percent growth from pro forma revenues in the first quarter 2001; up 16% on a fully comparable basis excluding revenues from NetGenesis and LexiQuest. Improvement was seen in sales of Clementine and other enterprise data mining products, both internationally and in the United States. These increases were partially offset by the absence of any major OEM deals in the quarter and the small amount (under $1 million) of new NetGenesis license revenue. Yet many customers purchased services rather than software, which is common when tight budgets focus attention on enhancing current software investments rather than making new ones.
Market Research: Up 30 percent from pro forma market research revenues in the first quarter 2001 due to $1.7 million of AOL-related revenues; otherwise up 4%, reflecting the continued difficult climate for completing high-ticket sales to information technology departments in market research firms. The Online (AOL) business continued to draw most of its revenue in the quarter from the customer base inherited from AOL/DMS, but the pipeline of new prospects grew nicely from December 2001 despite price pressure from new competitors.
Statistics: Steady demand for comparatively low-ticket, shrink-wrap products produced a 2 percent increase from pro forma statistics revenues in the same period last year.
ShowCase: Down 6 percent from the March 2001 quarter and 2 percent sequentially, reflecting continued weakness in the middle market for higher-ticket business intelligence software and services.

Looking at other financial aspects of the quarter and fiscal year, Hamburg made the following comments, which, unless noted, reference pro forma results excluding acquisition-related and other non-recurring charges:

Topic	Comments
Cost of revenues	Increase primarily due to AOL sample costs, Hyperion Solutions royalties, the amortization of acquired technology assets, and royalties from NetGenesis products
Sales, marketing, and services expenses	Primarily reflect the addition of staff from AOL/DMS transaction as well as NetGenesis and LexiQuest acquisitions; partially offset by reductions in the number of sales and professional services personnel, mostly related to ShowCase activities
Research and development expenses	Primarily reflect the addition of staff from the NetGenesis and LexiQuest acquisitions as well as compensation increases in the second half of 2001; partially offset by staff reductions made throughout 2001
General and administrative expenses	Primarily reflect the addition of staff from the expansion of the corporate executive group and NetGenesis acquisition; partially offset by the elimination of goodwill amortization with the implementation of SFAS No. 142
Special G&A and Merger-related charges	Costs associated with the LexiQuest and NetGenesis transactions: professional fees, severance payments, retention and other bonuses, related travel and meetings expenses
Other income & income taxes	Interest income, partially offset by interest expense and a small loss to currency translations. Effective tax rate of 36%
Cash	Reduced from $31.2 million in December 2001 by payments related to the LexiQuest ($4.5) and NetGenesis ($2M) acquisitions, AOL sample ($1.8M), funding of Illumitek subsidiary ($1M), and capital expenditures ($2.5M)
Days Sales Outstanding	99 days average rate (88 spot rate). Compares to 112 average rate (101 spot rate) in December 2001, 117 (106) in September 2001 and 114 (134) in December 2000. A/R reduced from December 2001 despite higher revenues and the addition of NetGenesis, AOL, and LexiQuest related receivables
Current & other assets	Deferred tax assets due to the deferral of revenue with the application of accounting interpretations on revenue recognition; includes goodwill related to the ISL, AOL, NetGenesis, and LexiQuest transactions; includes intangible assets from the AOL, NetGenesis, and LexiQuest transactions; adds fixed assets from LexiQuest acquisition
Capitalized software	Includes the determined value of the technologies acquired in the AOL transaction as well as the NetGenesis and LexiQuest acquisitions. Target capitalization for the fiscal year is 10%-12% of research and development costs
Deferred revenues	Down from December 2001 with lower reported revenues
Current liabilities	Accounts payable reduced from December 2001 despite AOL and NetGenesis integrations; reflects addition of liability to AOL/TW in 2002 and accrued liabilities from NetGenesis and LexiQuest
Noncurrent liabilities	Shows long-term liability to AOL and capital leases from NetGenesis
Staff	Including staff assumed in the LexiQuest acquisition, 1,432 full-time employees as of March 31, 2002; 296 are sales representatives (230 quota-carrying). 59% are employed in North America (31% at headquarters in Chicago), 41% in international offices. Compares to 1,385 full-time staff, 289 sales representatives (229 quota carrying) in December 31, 2001, and 1,330 full-time staff, 321 sales representatives (288 quota-carrying) in March 31, 2001

For the quarter ending June 30, 2002, Hamburg projected that the company would show revenues of between $50 and $53 million and diluted earnings per share of between $0.07 and $0.15. These figures compare to pro forma revenues and earnings in the second quarter 2001 of $47.1 million and $0.07, respectively, and GAAP revenues and loss of $44.0 million and ($0.20), respectively.

Condensed Consolidated Statements of Income (three months - Pro Forma)
Condensed Consolidated Statements of Income (three months)
Condensed Consolidated Balance Sheets
Notes from conference call

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended:

Certain statements in this press release are forward-looking statements. Such statements can be identified by phrases such as "should be," "planning" and "expects." Such statements also involve known and unknown risks, including market conditions and competition, which may cause the company's actual results, performance, achievements, or industry results, to be materially different than any future results, performance or achievements expressed or implied in or by such forward-looking statements. By way of example and not limitation, known risks and uncertainties include changes in: market conditions, especially in Asia; changes and/or product demand and acceptance; the competitive environment; product release schedules; and currency fluctuations. In light of these and other risks and uncertainties, the inclusion of a forward-looking statement in this release should not be regarded as a representation by the company that any future results, performance or achievements will be attained. The company assumes no obligation to update the information contained in this press release. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's periodic reports (copies of which are available from SPSS upon request).

SPSS Inc. will hold an investor conference call to discuss the contents of this news release on May 1, 2002 at 9:00 a.m. CDT. To participate, please dial 800-967-7134 in the United States and 719-457-2625 internationally. A replay will be available for one week after the call. For access, dial 888-203-1112 in the United States and 719-457-0820 internationally. Use access code 402085 for the replay. The live call and replay will also be available online at www.spss.com/invest.

SPSS Inc. will hold an investor day at headquarters in Chicago on June 14, 2002. Participants will be able to meet senior staff, see technologies demonstrated and ask questions. All are invited.

About SPSS Inc.

SPSS Inc. (Nasdaq: SPSS) headquartered in Chicago, IL, USA, is a multinational computer software company providing technology that transforms data into insight through the use of predictive analytics and other data mining techniques. The company's solutions and products enable organizations to manage the future by learning from the past, understanding the present, as well as predicting potential problems and opportunities. For more information, visit www.spss.com.

SPSS Press Releases

SPSS Inc. Reports First Quarter 2002 Results