SPSS Inc Reports Third Quarter Results

SPSS Inc, a worldwide provider of analytical solutions that enable organizations to create more profitable customer relationships, announced results for the quarter ended Sept. 30, 2000. Net revenues in the quarter were $39.6 million and diluted earnings per share (EPS) were $0.42, which were up 14 percent and 5 percent, respectively, from the same period last year. These results reflect significant adverse affects caused by changes in foreign currency exchange rates, representing a reduction from the company's internal rate of revenue growth of 20 percent and to earnings by approximately $0.06 per share. For the nine month period ending Sept. 30, 2000, net revenues were $114.5 million and diluted EPS was $1.19, increases of 13 and 18 percent, respectively, from the same period last year.

"The reported numbers don't tell the whole story," said Jack Noonan, SPSS president and CEO. "We were pleased with the 20 percent internal growth rate, the result of better-than-expected growth in the underlying business, particularly in Analytical Solutions, and a very impressive performance by our Market Research business. If not for the continuing decline of the Euro and British Pound relative to the U.S. dollar, as well as continuing execution issues in our Statistics business, this would have been a strong quarter.

"Two factors were primarily responsible for the 89 percent growth in Analytical Solutions revenues for the quarter," Noonan explained. "The first was CustomerCentric and eMine, our new branded solutions for analytical customer relationship management. Purchases in the quarter of these offerings by exciting companies like Urban Box Office Network (UBO) are the direct result of an ongoing trend among organizations to better understand the needs of customers and more effectively predict their behavior. UBO, for example, is integrating various internal data sources and building sophisticated profiles of visitors to their Web site. These profiles will enable UBO to target their visitors with tailored banner ads, buying opportunities, and other content, with the goal of maximizing revenues.

"The second factor driving growth in our Analytical Solutions revenues was continued strong demand for our data mining products, particularly Clementine and client-server versions of the SPSS product line. Once again, Clementine sales were up substantially compared to the same periods last year: over 80 percent growth in the third quarter and more than double the revenues seen in the first nine months of 1999. We were also delighted that Sun Solaris joined NT as a platform on which SPSS client-server versions are available, with support for HP and IBM-AIX systems expected for next quarter."

• SofMap, a Japanese retailer selling digital products in 33 stores as well as through one of the largest online shopping networks in the country, extended its SPSS analytical solution to build models for personalizing Web content.
• Co-operative Wholesale, a UK-based supermarket chain, will implement an SPSS solution for doing market basket analysis.
• The Office of Community Services (OCS) of the United States Department of Health and Human Services will employ SPSS solutions to monitor an extensive program designed to improve the economic position of lower income families.
• The Occupational Pensions Regulatory Authority of the United Kingdom plans to use SPSS software for fraud detection.
• StrategicOne, a U.S.-based firm specializing in developing relationships between non-profit organizations and their contributors, will examine donor behavior with SPSS software to ultimately maximize the lifetime value of these relationships.

Noonan continued, "SPSS MR, our division providing analytical solutions to professionals in the market research industry, saw a 29 percent increase in revenues in the quarter, bringing their rate of growth for the first nine months of the year to 18 percent. Sizable deals were concluded with two of the world's largest market research firms, Millward Brown and ACNielsen, as well as with such other notable market research organizations as IPSOS-Reid and the Temo Group. These firms are just a few of the many companies that not only recognize our current leadership position in the market research industry, but also see our commitment to extending this dominance through MR Dimensions, our forthcoming next-generation suite of market research products."

"It is easy to see the challenges we have faced this year when you look at the 17 percent falloff of the Euro and 14 percent drop in the British Pound since January," said Edward Hamburg, SPSS executive vice president and CFO. "Yet what hit us particularly hard this quarter was the 9 percent drop in the Euro, 8 percent drop in the Australian dollar and 5 percent dip by the British Pound within the last three months. For example, we would have reported revenues of about $40.3 million in the quarter had exchange rates simply remained as they were in June, with much of this difference falling to the bottom-line."

Hamburg explained that exchange rates also affected the company's geographic distribution of revenues in the quarter. "International operations contributed 52 percent of sales during the first half of this year," he said. "Although most of our revenues in the second half usually come from North America, the percentages reported this quarter from Europe and Asia were materially reduced by the recent exchange rate declines. Similarly affected was the growth we saw in international revenues, which increased by 10 percent from the same period last year."

Hamburg noted that the growth in Analytical Solutions revenues was driven by a steadily increasing number of large transactions that include competitive wins and sizeable extensions of existing implementations. He said, "Revenues in this category from sales of over $25,000 were up 92 percent from third quarter last year, and the number of these transactions increased by 57 percent. In addition to good CustomerCentric, eMine, Clementine and SPSS client-server activity, we made our second sale of the Lucent-DCS solution and saw more large implementations of the SPSS desktop statistical analysis products in corporate settings. The 89 percent increase in Analytical Solutions revenues this quarter is down from the 104 percent growth rate posted in the first six months of the year, but exchange rates are again reducing this quarter's numbers. Even with these negative effects, revenues from our Analytical Solutions grew sequentially from the first and second quarters of the year."

"There were also parts of the business that did not perform well in the quarter," Hamburg said, "the most important being the public sector organization in North America." He said, "September is the end of the U.S. Government fiscal year, and we had little to show from it. Sales to higher education institutions continued flat despite revenues in line with expectations from our newly released update to the SPSS product for Macintosh computers. Among the reasons for this performance was the lack of senior management in the public sector organization, which was resolved in the last two months. Yet another factor was the general performance of the Statistics business, which improved over the previous quarter, but remained down relative to the 1999 third quarter."

Hamburg explained how part of the drop in Statistics revenue was simply due to exchange effects and the absence this quarter of revenues from the company's divested products for statistical quality control. Also contributing, however, was limited growth in Germany, flat sales of SPSS Science products and continuing declines in revenues from retail sales of the allCLEAR and Deltagraph products.

About SPSS Inc

SPSS Inc enables organizations to develop more profitable customer relationships by providing analytical solutions that discover what customers want and predict what they will do. The company delivers analytical solutions at the intersection of customer relationship management and business intelligence. SPSS analytical solutions integrate and analyze market, customer and operational data in key vertical markets worldwide including: telecommunications, health care, banking, finance, insurance, manufacturing, retail, consumer packaged goods, market research and the public sector.

Headquartered in Chicago, SPSS has more than 40 offices, over 1000 employees and 1999 revenues of $142 million. The company also has won the following awards: No. 77 on Forbes 2000 list of the "200 best small companies" and as the 22nd most profitable company on the Nasdaq exchange by Equities magazine; 1999 World Class Solution award in business intelligence and named "best decision support system for business intelligence" in the 1999 RealWare award competition; No. 14 in DM Review's 1999 Data Warehouse Top 100; placed No. 16 on the 2000 Soft-letter 100, a ranking of the top 100 personal computer software companies in the United States; and No. 115 in the 2000 Software 500, a ranking of the world's largest software vendors by Software Magazine; listed on Working Mother magazine's 100 Best Companies for Working Mothers for 2000. For more information, visit www.spss.com.