This is a dated announcement. The material in this announcement could be superceded by more current announcements.
CHICAGO, 07/29/03 —
SPSS Inc. (Nasdaq: SPSS), a global provider of predictive analytics technology and services, today announced results for its second quarter ended June 30, 2003.
Revenues and diluted earnings per share were $51.3 million and $0.13 in the quarter, as compared to $53.0 million and a loss per share of $(0.02) in the same period last year, respectively. Operating income improved to $3.7 million in the quarter from an operating loss of $(1.3) million in the same period last year. Included in the results for the quarter ended June 30, 2002, were acquisition and other nonrecurring charges of $2.8 million, or 11 cents per diluted share.
The company's improved profitability was primarily due to expense reduction programs implemented in the second half of 2002, which included a field operations restructuring, the downsizing or closing of certain facilities, and the termination of certain investments. SPSS also increased its cash flow from operations to $13.4 million in the first half of 2003, up from $0.5 million in the same period last year.
"We saw improvement in the predictability of business following the March quarter," said Jack Noonan, SPSS Inc. president and chief executive officer, "but not any rebound in the closure rate of sales. As a result, the company is adapting to an extended period of longer sales cycles and smaller average transactions. We can make this adjustment, particularly with our expenses under control and marketplace interest in predictive analytics steadily building."
Revenues and diluted earnings per share for the first six months of 2003 were $100.4 million and $0.21, as compared to $102.6 million and a loss per share of $(0.17) in the same period last year, respectively. Operating income improved to $5.7 million in the first six months of 2003 from an operating loss of $(6.1) million in the same period last year. Included in the results for the six months ended June 30, 2002, were acquisition and other nonrecurring charges of $7.4 million, or 26 cents per diluted share.
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Summary of Results (Unaudited; in millions, except for per share) |
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| *Includes acquisition and other non-recurring charges of $2.8 million, or 11 cents per diluted share **Includes acquisition and other non-recurring charges of $7.4 million, or 26 cents per diluted share |
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"We made progress in the quarter," Noonan continued. "There was an increase in sales of our enterprise data mining tools and NetGenesis® Web analytics application, as well as growth in revenues from the SPSS® line of statistical analysis tools. Most of these improved results were from the commercial verticals in the United States, with uneven performance in Europe and the Pacific Rim.
"We also licensed a high-scale solution based on our PredictiveMarketing™ technology," said Noonan. "Designed for a global business services provider, this solution will operate in a Linux cluster and automatically deploy over one thousand unique models that generate billions of response propensity scores for more effectively targeted direct mail campaigns."
Noonan observed, "More organizations are coming to SPSS for such increasingly sophisticated predictive analytic solutions. Guided by their requirements, we are developing mission critical applications that similarly involve clustered computing power, a range of predictive models, and the daily analysis of millions of records to measurably improve new customer acquisition, existing client retention, and ongoing fraud detection initiatives. These forward-thinking companies truly understand the power of predictive analytics to transform business processes and better realize returns on information technology investments."
Revenue Performance
Software Licenses
Revenues from new software licenses declined 5 percent to $21.4 million in the quarter from $22.6 million in the same period last year. This decrease was primarily due to a drop in new sales of the company's ShowCase business intelligence products and applications for market research, partially offset by increased revenues from the NetGenesis Web analytics application, higher sales of SPSS data mining and statistical analysis tools, and changes in currency exchange rates.
The quarter included sales of NetGenesis to major financial services firms, such as:
New sales of the company's Clementine data mining workbench increased 15 percent from the same period last year, and included licenses to:
Other new sales during the quarter involved high-value integrations between Clementine and other SPSS technologies. CIM01, a Paris-based firm that conducts surveys for pharmaceutical companies, will combine Clementine with SPSS LexiQuest text mining technology to unlock information contained in previously unanalyzed responses to open-ended survey questions. Additional licenses for these integrated technologies were signed with Biznet, a Japanese online retailer of office supplies, and credit card provider Kyushu Card.
New license revenue from SPSS statistical analysis tools increased 2 percent from the second quarter 2002. Contributing to this increase was an agreement with The United States Department of Health and Human Services/National Institutes of Health for an enterprise-wide license for a broad range of SPSS statistical tools. This agreement was made in conjunction with SPSS partner, Northrop Grumann.
New sales of ShowCase business intelligence products were down 56 percent from the same period last year, primarily due to the absence of seven-figure transactions in the current quarter. Significant transactions involving ShowCase tools included purchases by:
New revenues from the SPSS applications for market research declined by 9 percent compared to the second quarter of 2002. Significant sales included an enterprise license agreement with Millward Brown, one of the world's leading market research firms. The drop in market research revenues was primarily due to a sizable agreement made with Procter and Gamble in June 2002.
Maintenance and Services
Revenues from maintenance agreements and renewals of annual licenses increased 3 percent to $21.6 million in the quarter from $20.9 million in the same period last year. This growth was due to strong renewal rates for the company's major offerings as well as changes in currency exchange rates. Maintenance revenues increased as a percentage of total revenues to 42 percent in the current quarter from 39 percent in the same period last year.
Service revenues declined 12 percent to $8.3 million in the quarter from $9.5 million in the same period last year. This decrease was primarily due to the fall off in ShowCase implementation services as well as a drop in training revenues. Revenues from the SPSS Online (AOL) business were flat sequentially and compared to the second quarter of 2002. Service revenues declined as a percentage of total revenues to 16 percent in the current quarter from 18 percent in the same period last year.
Financial Commentary
Speaking to other aspects of the second quarter, Edward Hamburg, SPSS executive vice president and chief financial officer, said, "The company's internal rate of revenue growth was down about eight percent from the second quarter in 2002. Much of this decline was due to the difference in the number of large transactions completed in the periods. We closed six transactions over $500,000 in June 2002, compared to half as many in the current quarter. We also never expected to see the same surge in sales from the higher education market that occurred in the second quarter last year.
"In addition, staff turnover contributed to a 9 percent drop in new revenues in the United Kingdom from a year ago," he said, "and the fall-off in ShowCase sales was steeper than anticipated. We are now back to full-strength in the UK, while an experienced group of account managers are targeting the healthy pipeline for our ShowCase technology."
Hamburg continued, "Expenses in the quarter again came in as expected. The company's operating margin grew sequentially, and noticeably improved year-over-year. Looking to the second half of the year, our overall cost structure will continue to be focused on additional operating margin improvement, our balance sheet should get stronger, and barring any dramatic changes, the effects of currency on profitability should remain immaterial."
Hamburg also provided the following detail on other financial aspects of the quarter:
| Topic | Comments |
| Cost of license and maintenance revenues | Decreased from the second quarter 2002 due to lower cost of goods related to the decline in license revenues, lower Hyperion royalties, and lower amortization of purchased technology. |
| Sales, marketing, and services costs | Decreased as a result of the reduction in the number of sales and professional services personnel from the field reorganization implemented in August 2002; partially offset by increases due to changes in currency exchange rates. |
| R&D costs | Decreased due to reductions in the number of LexiQuest development personnel and lower consulting costs related to internal information technology projects; partially offset by increases due to changes in currency exchange rates. |
| G&A costs | Increased due to the addition of accounting professionals and changes in currency exchange rates, partially offset by reduced expenses associated with the cost reduction programs implemented in August 2002. |
| Special G&A charges | None in the current quarter, compared to second quarter 2002 costs associated with the LexiQuest and netExs acquisitions. |
| Other income & income taxes | Gains from currency translations due to the weakening of the $US against other major currencies; partially offset by net interest expense from line-of-credit borrowings, the decline in value of $US-denominated receivables held overseas, and approximately $200K of imputed interest related to the company's October 2001 transaction with AOL Time Warner. Thirty-six percent effective tax rate expected for 2003. |
| Cash | Increased from December 2002 primarily due to increased cash from operations generated from operating income. Decreased $1.2 from March 2003, while reducing accounts payable by $3.6 million and making $1.2 million in royalty payments. |
| Days sales outstanding | 78 days average rate, compared to 77 in March 2003 and 79 in December 2002. |
| Intangibles, net | Decreased from March 2003 and December 2002 due to the amortization of intangibles. |
| Other assets | Includes deferred tax assets related to net operating loss carry-forwards. Decreased from March 2003 and December 2002 due to a reduction in the deposit requirements related to the company's leased facility in Cambridge, Mass. |
| Capitalized software | Increased from December 2002 due to the purchase of third-party technologies. Includes the determined value of the technologies acquired in the netExs, NetGenesis, and LexiQuest acquisitions. Target capitalization for the fiscal year is 10-12% of research and development costs. |
| Deferred revenues | Increased from March 2003 and December 2002 to reflect growth in recurring revenues from renewals of annual licenses and maintenance agreements, as well as changes in currency exchange rates. |
| Current liabilities | Decreased as a result of reductions in accounts payable and accrued liabilities from acquisitions, as well as royalties and tax payments. |
| Noncurrent liabilities | Decreased from March 2003 and December 2002 due to the reduced balance of the AOL-related merger consideration; partially offset by a $1.1 million increase in note payable related to the company's credit agreement with Wells Fargo Capital (Foothill Capital). |
| Staff | 1,248 full-time employees as of June 30, 2003, with 227 sales representatives (185 quota-carrying). Compares to 1,263 full-time employees in December 31, 2002 (234 sales representatives, 195 quota-carrying), and pre-reorganization figures of 1,395 full-time employees in June 2002 (297 sales representatives, 226 quota-carrying). 58% are employed in North America (33% at headquarters in Chicago), 42% in international offices. |
Outlook
Hamburg concluded, "We are still working to understand demand conditions in the second half of the year. While our sales force and industry analysts are delivering more positive outlooks, the facts currently before us show a higher-end business that has not yet turned the corner and growing pipelines with extended sales cycles. Accordingly, we are adjusting our guidance on the company's 2003 performance to:
The low end of these estimates assumes no improvement in the current business climate, while the high end considers increased third quarter spending by the United States federal government and improved fourth quarter spending by commercial organizations worldwide."
The following summary table describes the company's performance during the trailing twelve months ended June 30, 2003, compared to 2002, as well as its current fiscal year and 2006 goals for productivity and profitability:
Performance vs. Productivity and Productivity Goals
| Q2 2003* | ||||
| Item | 2002* | Trailing Twelve Months | 2003 | 2006 Target |
| Revenue per employee ($000's) | $ 166,000 | $ 166,000 | $168 to $175K | $200K |
| Revenue ($000's) | $ 209,300 | $ 207,074 | ||
| Operating income (as % of revenue) | ||||
| Operating income (loss) | -4.4% | 1.2% | ||
| Acquisition and nonrecurring charges | -9.8% | -6.4% | ||
| Adjusted operating income | 5.4% | 7.6% | 8% - 10% | 18% |
| EBITDA (as % revenue) | ||||
| Net loss | -3.8% | -0.7% | ||
| Net interest expense | -0.5% | -0.7% | ||
| Income tax (expense) benefit | 0.6% | 1.3% | ||
| Depreciation and amortization | -8.4% | -8.4% | ||
| EBITDA | 4.5% | 9.7% | ||
| Acquisition and nonrecurring charges | -9.8% | -6.4% | ||
| Adjusted EBITDA | 14.3% | 16.1% | 16% - 18% | 25% |
* Excludes acquisition and other nonrecurring charges of $20.5 million in 2002 and $13.2 million in the trailing twelve months ended Q2 2003
2003 Second Quarter Results
Conference Call
The company will host a conference call to discuss its second quarter results at 9:00 a.m. CDT on Wednesday, July 30. These proceedings will be broadcast online at www.spss.com/invest. Please dial 800.231.9012 in the
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.
The following constitutes the 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
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