SPSS Inc. — Press Releases

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SPSS Inc. Reports Fourth Quarter and Fiscal Year 2001 Results

CHICAGO, 02/20/02 —

SPSS Inc. (Nasdaq: SPSS), a worldwide provider of analytical technology, today announced results for the fourth quarter and fiscal year ended Dec. 31, 2001.

On a pro forma basis, excluding acquisition-related and other non-recurring charges, but including, for both years, the full implementation of prior year accounting interpretations on revenue recognition, diluted earnings per share and revenues for the quarter ended Dec. 31, 2001 were $0.25 and $48.2 million, respectively. These results compare to analyst expectations of earnings of between $0.35 and $0.40 and revenues of between $48.0 and $50.0 million, as well as to pro forma earnings per share and revenue figures for the same period last year of $0.23 and $51.2 million, respectively.

On the same pro forma basis, diluted earnings per share and revenues for the fiscal year ended Dec. 31, 2001 were $0.62 and $187.4 million, respectively, which compare to pro forma earnings per share and revenue figures in the previous year of $0.98 and $197.9 million, respectively.

On a reported basis, diluted loss per share and revenues for the quarter ended Dec. 31, 2001 were ($0.73) and $48.2 million, respectively. These reported results include acquisition-related and other non-recurring charges as well as the effects of the prescribed implementation of the recent accounting interpretations. Such results for the fiscal year ended Dec. 31, 2001 were ($1.52) and $176.6 million, respectively.

Summary of Pro Forma Results

Exclude acquisition and other non-recurring charges; include full year implementation, in both 2001 and 2000, of prior year accounting interpretations on revenue recognition

(Unaudited; in millions, except for per share and shares outstanding amounts)

	Three months ended Dec. 31, 2001			Year ended Dec. 31, 2001
	2001	2000	Year/year % change	2001	2000	Year/year % change
Net revenues	$48.2	$51.2	-6%	$187.4	$197.9	-5%
Operating income	$ 5.2	$ 4.2	22%	$ 13.2	$ 19.6	-33%
Net income	$ 3.7	$ 3.2	17%	$ 8.7	$ 14.0	-43%
Diluted EPS	$0.25	$0.23	9%	$ 0.62	$ 0.98	-43%
Weighted shares outstanding	15,015,808	13,768,307	9%	14,128,086	14,326,552	-1%

Summary of Results

Include acquisition and other non-recurring charges; include GAAP proscribed implementation of prior year accounting interpretations on revenue recognition

(Unaudited; in millions, except for per share and shares outstanding amounts)

	Three months ended Dec. 31, 2001			Year ended Dec. 31, 2001
	2001	2000	Year/year % change	2001	2000	Year/year % change
Net revenues	$48.2	$38.6	25%	$176.6	$186.1	(5%)
Operating income (loss)	($13.2)	($8.4)	(57%)	($28.4)	$7.8	(462%)
Net income (loss)	($10.6)	($3.8)	(181%)	($21.2)	$5.9	(445%)
Diluted EPS	($0.73)	($0.28)	(361%)	($1.52)	$0.41	(471%)
Weighted shares outstanding	14,542,515	13,607,468	7%	13,927,048	14,326,552	(3%)

"2001 was a tough year," said Jack Noonan, SPSS Inc. president and chief executive officer, "arguably the most difficult in our more than thirty years in the software business. We responded to the economic climate by reducing payroll by eight percent, cutting the scope of our new initiatives, and restricting spending on everything from travel to promotion. We also shifted resources from the year's 'dead-spot' of high-ticket opportunities to corporate customers in North America, directing more attention to better-performing international markets, agencies of the United States Federal Government, and pursuing software and services transactions in the $5 thousand to $50 thousand range."

Noonan continued, "Yet most importantly, we made good on our efforts to emerge from 2001 stronger than we entered. SPSS has now achieved:

Significantly enhanced Web analytics capability and a foundation from which to build our CustomerCentric division with the acquisition of NetGenesis Corporation,
An even more dominant position as the analytical solutions provider to the market research industry through our alliance with AOL/Time Warner,
Validation of our capabilities for analytical customer relationship management (aCRM) in our developing relationship with Siebel Systems, and
An assimilated ShowCase division with good progress made in profitability and technology integration."

Noonan also noted the company's improved competitive position and strengthened management team. He said, "Many new entrants into the analytical software market were forced to curtail their aggressive plans or retreat from the space entirely. Market conditions further enabled us to add some essential executive talent, giving us greater bandwidth to operate and expand the business. I think we are now far better positioned to benefit when the economy recovers and more normal spending on information technology returns."

Noonan concluded, "Until market conditions improve, our plan is to consider 2002 as a continuation of 2001, which means that we will continue to hold the line on hiring, spending and new initiatives. This does not mean, however, that we will refrain from further strengthening the company when such opportunities are identified. The task of managing through the current environment should not distract us from our larger mission of dominating what we believe will be an excellent long-term market for predictive analytics."

Edward Hamburg, SPSS executive vice president and chief financial officer, explained that the company's financial performance in the quarter was affected by unanticipated adjustments to its accrual for third-party royalties and the deferral of five deals into the next quarter. He said, "We thought we fully understood the different royalty arrangements between ShowCase and Hyperion Solutions, but this was not the case. The result was an adjustment to the cost of revenues of about $1.6 million. The five deals moving into the first quarter of 2002 amount to about $600 thousand and involved shipping delays or required more definitive evidence of customer acceptance.

"Overall, the business climate in the fourth quarter was consistent with the first nine months of 2001," said Hamburg. "Performance in international markets such as Japan and the United Kingdom was quite reasonable, while sales in North America were well below what we've seen at the end of previous years. The difference is in the number of six-figure deals. In the United States, we concluded less than half the number of transactions over $100 thousand than in fourth quarter 2000, while the number of transactions under $25 thousand increased by 40 percent. This "deal shrinkage" is emblematic of the tightening in information technology spending by North American corporations since March 2001. Our sales pipelines continued to grow and there was more predictable movement of deals through the contract process. The results, however, were smaller transactions involving extensions of existing product installations or initial implementations of our larger-scale solutions."

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

Analytical Solutions: Probably the best example of deal shrinkage at work. Without major transactions like we saw with the US Federal Government in the third quarter, Clementine and other high-ticket product sales were down 10 percent from fourth quarter 2000. Also contributing to the drop in Analytical Solutions revenues was an absence of any major OEM deals in the quarter. Partially offsetting these declines were increased revenues from server versions of SPSS products.
Market Research: Up 15 percent from pro forma market research revenues in fourth quarter 2000 due to AOL-related revenues; otherwise some improvement shown but still reflected the difficult climate for completing high-ticket sales to information technology departments in market research firms.
Statistics: Steady demand for comparatively low-ticket, shrink-wrap products kept decline to 5 percent from pro forma statistics revenues in the same period last year.
ShowCase: Down 24 percent from a strong December 2000 quarter, showing the effects of the slowdown in IT spending in IBM® eServer iSeries™ (AS/400®) shops seen since March 2001.

Significant sales completed in the fourth quarter included:

Sun Microsystems, Inc., a leading provider of industrial-strength hardware, software, and services that power the Net, purchased a Clementine data mining solution to implement an easy-to-use, decision-support tool for management.
S.T. Dupont, a premier supplier of luxury leather goods, pens and cigarette lighters based in Paris, France, became a ShowCase customer by implementing an Essbase/400 solution.
APAC Customer Services, a leader in outsourced customer interaction solutions and technology, purchased Clementine for its data integration and analysis efforts.
Musician's Friend purchased NetGenesis 5.5 to be a key part of an internally developed solution that will allow the company to quantify and enhance their customer lifecycle. This solution will ultimately extend NetGenesis to other CRM and merchandising databases in order to give them a complete view of their customers and prospects activity and purchase history.
Millward Brown, one of the world's leading market research firms, is implementing SPSS telephone data collection technology in its Australian call centers as part of its efforts to create a standardized software platform and to gain further efficiencies in the computer-aided telephone interviewing (CATI) operations.
Rohm and Haas, Inc., manufacturers of specialty chemicals, purchased Clementine to leverage its data using data mining and advanced predictive analytics.
The University of Bonn in Germany is implementing an SPSS MR solution to cover the entire survey process, providing its faculty and students the same technology that is used by market research professionals and giving students a head start in their careers.
Credits des Societes d'Assurances a Caractere Mutuel (SOCRAM), a financial services company based in France, became the first company to purchase a ShowCase solution and Clementine, the SPSS data mining workbench, together.

Additional fourth quarter sales were made to: Bell South Corp., M&M Mars, Allstate Insurance Company, Pharmacea, JoAnn Fabrics, Novartis AG, Woolcott Research, ACA Research, Consumer Link, Styleclick (formerly MVP.com).

Examining the acquisitions and major strategic alliances completed by SPSS in 2001, Noonan reviewed the company's progress thus far:

ShowCase acquisition, completed in February

"You can't be pleased with an acquisition that was supposed to show 20 percent revenue growth but instead was down by 14 percent compared to 2000. This problem should correct itself with a return in IT spending, but it should not lessen some good work done in other areas of the ShowCase integration. This acquisition not only gave us a very capable executive vice president and Chief Technology Officer in Jon Otterstatter; it provided technology that is integrated into other SPSS products and solutions as well as a common metadata standard for the company's software. In the other direction, ShowCase products are now developed using the SPSS Web deployment technology and their integration with SPSS analytical products has enhanced the division's evolution as a solutions provider. All ShowCase operations are being integrated fully into the company's infrastructure. ShowCase division president, Patrick Dauga, responded to the difficult market conditions in 2001 by reducing his staff by 20 percent and costs by 15 percent as part of his accelerated efforts to improve the division's profitability. At the same time, 166 new ShowCase customers were added and 90 percent of existing accounts were retained, putting the total number of ShowCase customers at just over 2,100. Midrange Technology magazine again named ShowCase the best data warehousing solution for companies using the IBM® eServer iSeries™ (AS/400®) computing platform. This acquisition also brought us three new board members and the cash we required to execute our plan - and its various revisions - during the year."

Acquisition of the AOL/Time Warner online survey research business and alliance with its Digital Marketing Services Division, completed in October

"This transaction created SPSS MR Online, a unique one-stop shop where researchers can get both the analysis software and the survey respondents required for effective online market research. We inherited 31 staff from AOL/DMS as part of the transaction that work in our new Dallas, Texas facility, and the SPSS MR sales force is trained to sell sample and has these revenues in their quotas. Revenue generated in the fourth quarter from this business was $1.4 million, just under our expectations of $1.5 million. Twelve of the 14 inherited AOL/DMS customers were retained, while two additional market research firms were signed as new customers and another 12 are in the active pipeline. The primary issue currently faced by SPSS MR Online is the aggressive competition from about a half dozen firms that emerged in response to the SPSS-AOL announcement. This issue must be confronted effectively, and the operational integration must continue, to capitalize fully on the opportunity in 2002."

Strategic Alliance with Siebel Systems, signed in July, technology validated in October

"This partnership continues to strengthen, demonstrating the importance of analytical technology and the growing market for analytical CRM. Siebel made a $5 million investment in SPSS in September, we were a "Gold" level participant in "Siebel User Week" at which we gained an initial sense of the sizable joint market opportunity the relationship could present, and with the validation of our software in October, actively began identifying joint sales prospects with Siebel. Approximately 30 such opportunities make up the current pipeline, with two potential sales within the 2002 first quarter. In addition, SPSS and Siebel are completing the definition of an offering that the two corporations will jointly market. Scheduled for release in the third quarter of 2002, Scenario Manager Suite for Siebel is the part of the SPSS CustomerCentric solution that offers a set of predefined predictive models (or "scenarios") for general business users to modify as they analyze data in their transaction systems or data warehouses to personalize customer interactions."

NetGenesis acquisition, completed in December

"This transaction resulted in the net addition of 105 employees, which is in line with incremental revenue expectations. The newly integrated CustomerCentric Solutions division now has 77 members, two-thirds of the pre-merger workforce from the previous CustomerCentric and NetGenesis organizations. Sales pipelines were integrated and distributed among the 19 quota-carrying sales representatives and the 29 consulting services professionals are actively engaged in current projects. Joining the SPSS Research and Development organization from NetGenesis are 34 professionals involved in software development and seven in technical support. This R&D team continues to develop the next version of the NetGenesis product scheduled for release in June, is responsible for integrating the SPSS and NetGenesis technologies, and is charged with bringing its knowledge of the Web and data warehouse scalability to the development and implementation of other company enterprise solutions. The NetGenesis acquisition also brings important additions to the SPSS management team: Brian Zanghi, as SPSS executive vice president and chief operating officer, as well as the co-founders of NetGenesis Corp., Eric Richard and Matt Cutler, as a vice president of research and development and vice president of corporate marketing, respectively. All are on board and already making significant contributions towards integrating this acquisition and implementing the overall corporate plan in 2002."

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	Up 22% or $1.0 million from 4Q00 due to aforementioned accrual for Hyperion Solutions royalties; otherwise down commensurate with lower revenues.
Sales, marketing, and services expenses	Down 13% or $3.8 million from 4Q00, reflecting reductions in the number of sales and professional services personnel, cuts in promotional and travel expenses.
Research and development expenses	Reduced by 6% compared to the 4Q00 r due to staff reductions, partially offset by compensation increases.
General and administrative expenses	Down 22% or $800K from 4Q00 as the merger with ShowCase eliminated redundant positions and expenses. Additional reductions were also realized with the further integration of accounting and other processes.
Acquisition-related charges	Costs associated with the AOL and NetGenesis transactions: professional fees, severance payments, write-offs of in-process and redundant technologies, retention and other bonuses, related travel and meetings expenses.
Special G&A charges	Costs related to reductions in force and revaluations of investments.
Operating income	Up 25% and from 8% to 11% of revenues compared to 4Q00 due to 6% drop in revenues but 9% cut in operating expenses.
Other income & income taxes	Showed $250K loss to currency translations in the current quarter compared to $479K gain in 4Q00. Partially offset by a reduced provision for income tax due to over-accruals throughout the fiscal year. Annual figure compares to 2000 results showing 4Q currency translation gain and proceeds of $2 million from product line divestiture in 2Q00.
Net income	Up 17% to $3.7 million from 4Q00 and 8% of revenues.
EBITDA	$9.4 million in the current quarter or 20% of revenues, up sequentially from $8.5 million or 18% of revenues in the third quarter of 2001.
Cash	$33.3 million, including $26 million in cash from the NetGenesis acquisition, $13.4 reduction in borrowings against our line of credit, and $2.8 million initial payment to AOL/TW. Should show another quarter of positive operating cash flows.
Days Sales Outstanding	112 average rate (101 spot rate), down from 117 (106) in September 2001 and 114 (134) in December 2000. A/R reduced by 29% from December 2000 despite addition of NetGenesis and AOL related receivables, reflecting reduced revenues but also improved accounting systems technology, more aggressive collections efforts, and no longer offering extended payment terms.
Current & other assets	Addition to deferred tax assets due to the deferral of revenue with the application of prior year accounting interpretations; increments in plant and equipment due to office expansions and improvements in 2000 and the first half of 2001; additions to goodwill due to the final payout made to ISL shareholders as well as the AOL ($22.1 million) and NetGenesis ($14.4) transactions; added intangible assets from the AOL ($15.5 million) and NetGenesis ($2.3 million) transactions as well as $6.2 million of fixed assets from NetGenesis.
Capitalized software	Added the determined value of the technologies acquired in the AOL and NetGenesis transactions ($4.5 million); purchased approximately $2.5 million in other technologies; capitalization for the fiscal year was 16% of research and development costs.
Deferred revenues	Up 12% from December 2000.
Current liabilities	Accounts payable reduced from December 2000 despite AOL and NetGenesis integrations; reflects addition of $7.53 million liability due to AOL/TW in 2002 and $7 million in accrued liabilities from NetGenesis.
Noncurrent liabilities	Shows $30 million long-term liability to AOL/TW and $1 million in capital leases from NetGenesis.
Staff	Including staff assumed in the AOL and NetGenesis transactions, 1,385 full-time employees as of December 31, 2001; 289 are sales representatives (229 quota-carrying). Compares to 1,330 full-time staff, 321 sales representatives (288 quota-carrying) in March 31, 2001.

Hamburg confirmed guidance provided last week regarding the company's projected performance in 2002 of revenues between $215 and $225 million and diluted earnings per share of between $0.85 and $0.95. These projections:

Compare to pro forma revenues and earnings for 2001 of $187.4 million and $0.63, respectively;
Include revenues and operating expenses from the recent transactions involving AOL and NetGenesis; and
Will be the same as GAAP reported numbers apart from their exclusion of any acquisition-related and other non-recurring charges and application of a consistent effective tax rate.

For the quarter ending March 31, 2002, Hamburg projected that the company would show revenues of between $47 and $50 million and diluted earnings per share of between $0.03 and $0.08. These figures compare to pro forma revenues and earnings in the first quarter 2001 of $44.1 million and $0.03, respectively, and GAAP revenues and loss of $36.5 million and ($0.77), respectively.

Condensed Consolidated Statements of Income (three months - Pro Forma)
Condensed Consolidated Statements of Income (twelve months - Pro Forma)
Condensed Consolidated Statements of Income (three months)
Condensed Consolidated Statements of Income (twelve months)
Condensed Consolidated Balance Sheets

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 SPSS' periodic reports (copies of which are available from SPSS upon request).

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 Fourth Quarter and Fiscal Year 2001 Results