SPSS Reports 2008 Fourth Quarter, Full Year Results

SPSS Inc. (Nasdaq:SPSS), a global provider of Predictive Analytics software and solutions, today announced financial results for its fourth quarter and year ended December 31, 2008. While the global economic environment presented revenue challenges, the Company benefited from prior productivity initiatives and its early focus on aligning expenses. As a result, operating margin for the 2008 fourth quarter was 15 percent, or a record 23 percent, excluding the costs of the previously announced organizational restructuring and a non-cash charge for the write-off of an intangible asset.

The Company reported fourth quarter revenues of $74.1 million, down 7 percent from $79.6 million in the same quarter of 2007. Excluding the effects of currency exchange rates, total revenues were down 2 percent from the fourth quarter of 2007. License revenues were $35.1 million, a 17 percent decline from $42.1 million in the fourth quarter of 2007. Net income was $7.9 million, a 21 percent decline from $10.0 million in the same period in 2007. Diluted earnings per share (EPS) reported for the quarter was $0.41, down 18 percent from EPS of $0.50 for the fourth quarter 2007. EPS in the 2008 quarter included a charge of $0.17 per share for an organizational restructuring and intangible asset write-off, compared with $0.08 per share for similar charges in the same 2007 quarter. Excluding these unusual charges, EPS was $0.58 in both the 2008 and 2007 fourth quarters.

For the 2008 fourth quarter, operating income was $11.5 million, or 15 percent of total revenues, compared with $14.7 million, or 18 percent of total revenues, in the same quarter of 2007. Charges for share-based compensation were $0.06 and $0.07 per share in the fourth quarter of 2008 and 2007, respectively.

Results for the fourth quarter 2008 include $3.5 million in pre-tax charges for a previously announced organizational restructuring and a $1.8 million pre-tax non-cash charge for the write-off of an intangible asset acquired in 2001. During the same 2007 quarter, the company reported $2.7 million in charges for a restructuring and consolidation of its research and development facilities.

"Our results for the fourth quarter reflect our ability to navigate well through choppy economic waters, particularly when compared to the fourth quarter of last year which was marked by exceptionally favorable foreign currency exchange rates and a healthier global economy,” said Jack Noonan, SPSS chairman, president and CEO. "While we saw customers moving away from larger transactions, we were able to leverage our competitive price points to stabilize revenue by completing smaller to mid-size transactions in markets where customers continued to spend even as the economy weakened. Our previous experience in downturns, along with a healthy maintenance revenue stream, proved advantageous.”

Maintenance revenues in the 2008 fourth quarter were $32.2 million, up 6 percent from $30.5 million in the same quarter of 2007. This increase was largely driven by increased renewal rates and the initial renewals of maintenance for existing license agreements, significantly offset by less favorable foreign currency exchange rates. Maintenance revenues in 2008 were $131.1 million, 43 percent of total revenues, for an 11 percent increase from $118.3 million and 41 percent of total revenues in 2007. Excluding the effects of currency exchange rates, maintenance revenues were up 13 percent and 9 percent from the 2007 fourth quarter and full year, respectively.

Noonan added, "Within our product families, our data collection software showed growth, with license revenues up 36 percent.” Noonan continued, "While most all of our markets saw a decline in new license revenue in the quarter, we saw bright spots in a few geographies, including Germany and France.”

For 2008, total revenues were $302.9 million, up 4 percent from $291.0 million in 2007. License revenues were $142.1 million, down 1 percent from $144.0 million in 2007. Excluding the effects of currency exchange rates, total revenues were up 1 percent over 2007. Net income was $36.0 million, up 7 percent from $33.7 million in 2007, with EPS of $1.88, a 14 percent increase from $1.65 in the prior year. Operating income for 2008 decreased 1 percent to $49.0 million, or 16 percent of total revenues, from $49.5 million, or 17 percent of total revenues, in 2007. Unusual charges related to the organizational restructuring and intangible asset write-off totaled $5.7 million in 2008 and $4.6 million in 2007. Excluding these charges, EPS was $2.06 and $1.79 for 2008 and 2007, respectively. Charges for share-based compensation were $0.26 and $0.23 per share in 2008 and 2007, respectively.

Noonan said, "Given the global economic environment, we are encouraged by these results. We believe that the demand for predictive analytic products will continue to grow and that our demonstrated ability to execute will serve us well in this difficult year ahead.”

At December 31, 2008, cash and cash equivalents totaled $305.9 million, compared with $306.9 million at December 31, 2007, and $307.0 million at September 30, 2008. Cash flow from operating activities in the fourth quarter of 2008 was $19.2 million compared to $33.4 million for the same quarter in 2007. For 2008, cash flow from operating activities was $64.7 million compared to $84.9 million in 2007. The effect of currency exchange rates on cash negatively impacted the 2008 year-end balance by $21.7 million and positively impacted the 2007 year-end balance by $4.8 million.

Outlook and Guidance

"The 2008 fourth quarter results reflect the benefits of cost management programs implemented in prior periods. Reported operating expenses for the 2008 quarter were down 4 percent from the same period in 2007. Excluding restructuring and other unusual charges, total expenses for the fourth quarter were down 8 percent,” said Raymond Panza, SPSS executive vice president and chief financial officer. "While cautious about 2009, especially given the uncertainties in the economic environment, we possess a good pipeline and believe demand for Predictive Analytics will continue to grow. In addition, we are investing in marketing initiatives that should drive higher constant currency revenue growth during the second half of the year.”

Panza continued, "During 2009, we expect foreign currency exchange rates to have a continuing negative effect on reported results. For the 2009 first quarter, we expect revenues of between $68.0 million and $74.0 million with EPS in the range of $0.37 to $0.51.” This EPS guidance includes a $0.07 charge for share-based compensation and a $0.04 estimated non-cash charge due to the required 2009 adoption of FASB Staff Position on APB 14-1 -- Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion ("FSP 14-1”).

Panza added, "In addition to the unpredictable long-term impact of currency exchange rates, continued volatility in the global economy and an increase in market variables, we do not believe it is meaningful to provide quantitative guidance for 2009. What is clear is that while we cannot control the economy, we can control our response and have proven our ability to deliver.”

For 2009, the Company expects charges of $0.30 per share for share-based compensation and $0.17 per share for FSP 14-1. The effective income tax rate for the 2009 first quarter and year is estimated to be 35 percent.

Conference Call – 4 p.m. CT/5 p.m. ET

The Company will host a conference call at 4 p.m. CT/5 p.m. ET on Feb. 17, 2009, to discuss its financial results. The live call will be broadcast online at www.spss.com/invest. Those interested in participating in the live call should dial (866) 770-7120 in the United States and (617) 213-8065 internationally. The live call pass-code is 34806452. A replay will be available via phone for one week after the call. To access it, participants should dial in the United States (888) 286-8010 or (617) 801-6888 internationally. Access code 40003479 is required for the replay. An archived version of the call will also be made available online at www.spss.com/invest approximately two hours after the live call.

About SPSS Inc.

SPSS Inc. (Nasdaq: SPSS) is a leading global provider of Predictive Analytics software and solutions. The Company’s predictive analytics technology improves business processes by giving organizations forward visibility for decisions made every day. By incorporating Predictive Analytics into their daily operations, organizations become Predictive Enterprises — able to direct and automate decisions to meet business goals and achieve a measurable competitive advantage. More than 250,000 public sector, academic, and commercial customers rely on SPSS technology to help increase revenue, reduce costs, and detect and prevent fraud. Founded in 1968, SPSS is headquartered in Chicago, Illinois. For more information, please visit www.spss.com.

Safe Harbor Statement

In addition to historical information, this press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words "expects,” "anticipates,” "intends,” "believes,” "estimates” or similar language. All forward-looking statements included in this document are based on information available to the Company on the date hereof. The Company cautions investors that its business and financial performance and the matters described in these forward-looking statements are subject to substantial risks and uncertainties. Because of these risks and uncertainties, some of which may not be currently ascertainable and many of which are beyond the Company’s control, actual results could differ materially from those expressed in or implied by the forward-looking statements. The potential risks and uncertainties that could cause results to differ materially include, but are not limited to: the Company’s ability to predict revenue, the Company’s ability to respond to rapid technological changes, a potential loss of relationships with third parties from whom the Company licenses certain software, fluctuations in currency exchange rates, the impact of new accounting pronouncements, increased competition and risks associated with product performance and market acceptance of new products. A detailed discussion of other risk factors that affect the Company’s business is contained in the Company’s Annual Reports on Form 10-K, particularly under the heading "Risk Factors.” The Company does not intend to update these forward-looking statements to reflect actual future events.