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Executives

Jack Noonan - President & CEO

Raymond Panza – EVP & CFO

Douglas Dow – SVP Corporate Development

Analysts

Nathan Schneiderman – Roth Capital Partners

John Maietta – Needham & Company

Nabil Elsheshai – Pacific Crest Securities

Joel Hammond – Robert W. Baird

Ross MacMillan – Jefferies & Company

Unspecified Analyst – Cowen and Company

SPSS Inc. (SPSS) Q4 2008 Earnings Call February 17, 2009 5:00 PM ET

Operator

Welcome to the SPSS 2008 fourth quarter full year earnings conference call. With the exception of historical information the matters discussed on this conference call include forward-looking statements that involve risks and uncertainties including, but not limited to, market conditions, competition and other risks indicated in the company’s filings with the Securities and Exchange Commission.

A full Safe Harbor statement is available in the SPSS 2008 fourth quarter full year earnings press release posted at www.spss.com.

At this time I would like to introduce you to Mr. Jack Noonan, Chairman, President and Chief Executive Officer; Mr. Raymond Panza, Executive Vice President and Chief Financial Officer; and Mr. Douglas Dow, Senior Vice President in Corporate Development.

Jack Noonan

Good evening and thank you for joining us to discuss our 2008 fourth quarter and full year performance. I’ll give some opening remarks and then Raymond Panza, our CFO will comment on our financial results and provide guidance for the first quarter of 2009. We’ll end with a Q&A session.

As you have now seen in our press release issued earlier today, in 2008 and even more so in the fourth quarter we drew heavily on the experience of our management team. Having executed well through previous downturns we were quick to implement cost savings measures and focus our inside channel on smaller to mid size transactions.

While total revenue for the fourth quarter was down, this is compared to a very strong fourth quarter in the prior year with more favorable currency exchange rates and a significantly healthier global economy. You may recall that driving license revenue in the fourth quarter of 2007 was significant increase in revenue from transactions over $100,000 which not surprisingly diminished in the 2008 fourth quarter as the global economy continued to contract.

Because of our geographic and product diversity there were a number of bright spots in the quarter including higher new license revenue in Germany and France, strong growth in sales of our data collection software and continuing solid maintenance renewal rates. For the year total revenue was up with new license revenue about flat compared to full year 2007. Overall I believe we had solid operating performance in a faltering global economy.

I’ll now turn the call over to Raymond Panza for his comments on our fourth quarter and full year financial results as well as our outlook for 2009.

Raymond Panza

Thanks Jack, as Jack mentioned earlier today we issued the 2008 fourth quarter earnings press release including unaudited financial statements for the quarter and fiscal year ended December 31, 2008. Its to those financial statements that I’ll direct my comments.

The company does plan to file its SEC Form 10-K tomorrow. The fourth quarter results once again demonstrate that while we cannot control the global economic environment including the increasingly less favorable foreign exchange rates we can manage our response and continue to deliver shareholder value in a most challenging market.

The 2008 fourth quarter results are especially significant given the comparison against the relatively stronger operating environment that existed during 2007 fourth quarter and a foreign currency environment where during the 2007 fourth quarter the US dollar was at near record lows and the British pound reached $2.10 and the Euro nearly $1.50.

The 2008 fourth quarter presented an economic climate where sales cycles have lengthened and customers across the tech sector generally are delaying if not eliminating large purchases and are focusing on smaller transaction sizes if purchasing at all. It is within this environment that again SPSS demonstrated its competitive advantages including broad product offerings, availability of lower entry product pricing, an established cost effective sales channel, a diverse customer base, and financial stability.

A few points of reference regarding revenue for the 2008 fourth quarter, total revenue for the 2008 fourth quarter was down 7% from the same quarter a year ago. Of this decline nearly 70% of the decline reflected the negative impact of less favorable foreign exchange rates. The largest single transaction in 2008 quarter was only slightly more then $0.75 million with the next largest transaction being less then $0.50 million resulting in only six transactions being in excess of $200,000 individually with a total aggregate value slightly exceeding $2.5 million.

By comparison during the same 2007 quarter the largest single transaction was in excess of $1 million, the next largest transaction was in excess of $600,000 for a total of 16 transactions being in excess of $200,000 and a total of approximately $6.4 million. For the quarter license revenue was down $7 million from the same 2007 quarter. In the US license revenue was down $1.6 million or 9% with most of the decline reflected in Europe which was down slightly and offset by an overall improvement in the Pac rim, specifically Japan.

Even in Europe however there were some positives. For the quarter license revenue in Germany was up 8%, 23% excluding the negative FX effects and France was up 6% or 21% excluding the negative FX impact. The company’s maintenance revenue stream proved strong increasing 6% over the 2007 fourth quarter, 13% if we exclude the negative impact of foreign currency exchange rates. Equally significant maintenance revenue for the 2008 fourth quarter represented 43% of total revenue up from 38% in the same prior year period. For the 2008 fourth quarter revenue from market research increased 36% and represented 4.4% of total revenue versus 3% of total revenue in the same 2007 period.

Services revenues were down 4% for the 2008 quarter however absent negative FX impact, service revenue would have been up 2% over the 2007 comparative quarter. In addition to the 2007 quarter being a difficult comparison due to the timing of service projects, service revenue generally trails license revenue as services are typically sold with larger transactions.

As previously discussed those larger size transactions have been on the decline as we see the economy shifting from larger deals, those generally sold without the service component. Nonetheless total services revenue improved to represent 10% of total revenue in the quarter compared with 9% in the same prior year period. Over the past few years the company has taken initiatives to drive improvements in processes, productivity, and rationalization of facilities. We continue to see the benefits of those proactive efforts and for the quarter operating expenses were down 4% from the 2007 quarter excluding the FX effect expenses were in fact down 1%.

As previously announced during the 2008 fourth quarter the company in anticipation of further deterioration in the global economy initiated a number of cost management programs including an organizational restructuring resulting in approximately a 10% global headcount reduction. Net of related savings the restructuring resulted in a $3.5 million pretax charge in the quarter with the financial impact mostly in the sales, marketing and services expense line.

Absent those charges sales, marketing expense services were in fact down 8%. For the 2008 quarter research and development costs were down 29% from the same 2007 quarter mainly reflecting the streamlining of development processes and last year’s rationalization of facilities. Absent restructuring charges in both the 2008 and the 2007 periods, R&D costs were still down 17%.

Separately in accordance with required accounting under the financial accounting standard 142, the company annually conducts a review and assessment of its intangible assets. Pursuant to that review it was determined that a trademark recorded in a 2001 acquisition was no longer of value and a noncash charge of $1.8 million was recognized in the quarter for the write-off of that intangible asset.

For the 2008 quarter the company reported an operating margin of 15% in spite of the unusual charges. This reflects the benefits of past efficiency majors and the current financial and operational disciplines. Excluding the charges for the restructuring and the intangible asset write-off the operating margin for 2008 fourth quarter was a record 23%. Looking below operating income, as expected interest and investment income was significantly lower largely due to lower interest rates available in 2008 versus 2007 fourth quarter.

While other mainly currency translation was near zero as we continue to manage this. Due to the overall geographic mix of income the income tax rate for the quarter was 35%, a rate higher then the projected 32%. Largely as a result of the unusual charges in the 2008 quarter specifically the restructuring and intangible asset write-off reported net income was lower then the comparative prior year period. Reported EPS for the quarter was $0.41 compared with $0.50 in the 2007 quarter, however excluding the EPS impact of those unusual charges in both 2008 and 2007 EPS is $0.58 in both periods, again and further demonstrating our financial discipline and ability to manage through a difficult economy and lower revenues.

As mentioned at the beginning of this presentation the company plans to file its SEC Form 10-K tomorrow that will address the annual results in significant detail, however briefly returning to the full year results total revenue for the year was $302.9 million or 4% above the prior year’s $291 million. Excluding the benefits of the still favorable for the full year foreign exchange rates revenue increased 1%. As in the fourth quarter the full year number of large transactions decreased significantly in 2008 from 2007 as well as a marked decrease in the average deal size for these transactions. Specifically during the full year 2008 the company closed 20 deals individually exceeding $250,000 with an aggregate value of $8.8 million. During 2007 the company closed 30 deals individually exceeding $250,000 total $15.1 million.

Comparing 2008 total revenue with the prior year commercial customers comprised 62% versus 64% of the total revenue with government and academic each increasing 1% to 22% and 16% respectively. By geography total revenue from the US remained at 41%, with a total of 59% arising from outside the US. However for license revenue the US component increased to 46% from 44%.

Total US revenue for 2008 increased 5% over 2007. Internationally total revenue for 2008 increased 4% over 2007. Excluding the positive impact of currency exchange rates for the year international revenues were down approximately 1% driven entirely by lower revenue in Europe slightly offset by improvements in the Pac rim. [Inaudible] tool products remained unchanged and continued to represent approximately 72% of our total revenue in both 2008 and 2007.

Total license revenue for the 2008 year was down 1% absent the benefit of favorable currency exchange rates down 5% or $6.6 million. While the economic climate across Europe continued to deteriorate with the key contributors to this decline being the Netherlands down $4.4 million and the UK down $1.8 million, each before the benefit of favorable currency exchange rates. The remaining decreases were nearly offset by a 3% year over year improvement in the US and some improvement in Japan.

In both the Netherlands and the UK the declines were driven by a lower number of large transactions due to the previously discussed personnel issues earlier in the year that could not be offset as the year progressed and the economic climate for larger transactions continued to worsen. Maintenance revenue continued to benefit the company as higher renewal rates contributed to an 11% year over year increase. Excluding FX effects maintenance revenue in 2008 was up 9% over the 2007 period.

Total operating expenses for 2008 we $12.3 million or 5% over 2007. These higher expenses include approximately $10 million for higher sales marketing and services, largely reflecting both the under investment marketing in the prior year as well as the ramping up of the marketing organization and sales support team in 2008, approximately $4 million in higher cost of revenue due to a sales mix, mostly downward sales having a larger fixed cost component, along with higher fulfillment costs, $3 million related to the impact of currency exchange rates, and a net $1.1 million of higher unusual charges including the $1.8 million fourth quarter write-off of the previously discussed intangible asset.

These increases were partially offset by $6 million of lower R&D costs reflecting savings from prior period facility rationalizations and productivity initiatives. Operating income for 2008 was $49 million or approximately $400,000 below prior year for a 1% overall decline. For 2008 the reported operating margin was 16% with the decline for the 2007 operating margin of 17% being driven by higher non revenue related unusual expenses.

As set forth in the Reg G reconciliation schedule provided with the press release financial schedules, excluding the restructuring charges included in both 2008 and 2007 and the noncash 2008 charge for the write-off of intangible assets, operating income as a percent of revenue, the operating margin, was 18% in 2008 compared to 19% in 2007. Other income and expense for 2008 was a net other income of $4.5 million compared with a net other income of $6.2 million for the same 2007 period.

As we have discussed previously the net decline is primarily due to the less favorable interest rates in 2008, less cash available to invest, due to share repurchases in late 2007 and early 2008, somewhat offset by improved management of currency translation resulting in lower expense.

The effective income tax rate for 2008 was 32.7% somewhat higher then the expected 32% due to less favorable geographic revenue and income mix, the 32.7% however the effective income tax rate is down compared with 39.3% for 2007. As discussed during previous earnings calls the change in the effective income tax rate was expected and mainly reflects a more favorable income mix, tax planning opportunities, and the ability to utilize certain tax attributes. The company continues to evaluate its expected full year effective income tax rate.

Net income for 2008 was $36 million or a 7% increase from the $33.7 million for the same 2007 period, diluted earnings per share for the 2008 period was $1.88 compared to $1.65 for the same period in 2007 for a 14% increase. Excluding the unusual charges from both the 2008 and 2007 years EPS was $2.06 in 2008 compared with $1.79 in 2007 for a 15% overall increase.

Moving to the balance sheet at December 31, 2008 the cash balance was $305.9 million down $1 million from the 2007 year end balance of $306.9 million. The effective currency exchange rates negatively impacted the 2008 year end cash balance by $21.7 million and positively impacted the 2007 year end balance by $4.8 million. The only debt on the balance sheet is the non callable $150 million convertible debt offering due in 2012. As a reminder these bonds carry a 2.5% annual coupon rate.

The liquidity of the company is further supported by a focus on noncash working capital. At December 31, 2008 noncash working capital not including deferred revenue and deferred income taxes was 4.8% trailing 12 months revenue. Net accounts receivable at December 31, 2008 were $43.2 million resulting in DSO of 54 days. This is down from net receivables of $56.6 million or 65 days at December 31, 2007.

The balance sheet amount of capitalized software at December 31, 2008 is $37.5 million for an increase of $3.4 million for the 2007 year end balance of $34.1 million. The amount of R&D spend capitalized through 2008 is $1.5 million net of amortization specifically $13.7 million capitalized offset with $12.2 million of amortization. The balance of the increase is approximately $2.1 million of third quarter expenditures for a purchased software whereby the company imbeds third party software in its showcased product and a related expenditure of $600,000 of related development work incurred during the fourth quarter.

Turning to the statement of cash flow, as previously noted net cash flow provided by operating activities was $64.7 million for the year ended December 31, 2008 or $20 million less then the $84.9 million provided during the same period last year. This decrease includes the absence of a $7.4 million accrued expense recorded at year end 2007 and the resulting subsequent $7.4 million payment in early 2008 relative to the timing of shares purchased under the authorized share repurchase program.

Net cash flow from operations for the 2008 fourth quarter was $19.1 million representing the highest quarterly operating cash flow for the year. Looking ahead to 2009 we expect to continue to face uncertainties in the global economy, volatility in the marketplace, and an increasingly unfavorable impact from foreign exchange rates.

We believe that the demand for predictive analytic products will continue to grow and that the company possesses a good pipeline. We continue to invest in marketing initiatives to drive higher constant currency revenue growth for the second half of the year. This growth will however be challenged by unfavorable currency exchange rates and the uncertainties in the global economic conditions.

For the 2009 first quarter we expect revenues to be between $68 and $74 million with EPS in the range of $0.37 and $0.51. This first quarter guidance includes $0.07 for share based compensation, and $0.04 estimated for a noncash charge resulting from the required 2009 adoption of the financial staff position on APB 14 dealing with the accounting for convertible debt instruments.

In addition to the unpredictable long-term impact of currency exchange rates, the continued volatility in the global economy, and in increase in the market variables, we do not believe that it is meaningful to provide quantitative guidance for the 2009 full year. What is clear is that while we cannot control the economy we can control our response and have a proven record of our ability to deliver. For the 2009 full year the company expects charges of $0.30 for share based compensation, and $0.17 for the financial staff position 14(1), the effective income tax for 2009 first quarter and full year is estimated to be 35%. In 2009 we will continue to focus on capital preservation to allow for acquisitions that satisfy our strategic filter and accelerate revenue growth. We will continue to drive productivity improvement efforts to grow operating margins as we continually adjust to align expenses with our revenue expectations.

We are committed to delivering superior customer value and long-term shareholder returns through disciplined financial and operational management. At this time I’d like to turn the meeting back over to Jack.

Jack Noonan

Thanks Raymond, and before we open the call up for questions, I’d like to add to Raymond’s comments on our outlook. Today companies are looking for technology that will help them get more out of their current systems and data assets and that’s just what predictive analytics does. We believe that the ROI of predictive analytics will continue to drive demands for our offerings.

So we’ll now open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Nathan Schneiderman – Roth Capital Partners

Nathan Schneiderman – Roth Capital Partners

Real nice job on the cost controls and the operating margin, looking forward, I was surprised that the sales in marketing and the R&D declined so much on a sequential basis, so I was hoping you could help with the modeling of, how we should think about that going forward, is that the base level or was there anything of a one time nature, maybe as you discuss that you had gone over some of those details on the capitalized software fairly quickly, so I was wondering if some of the low level of R&D reflected the capitalized software for the Q4.

Raymond Panza

Start with the R&D because I know that’s an issue of particular concern, you know over the last several years we’ve rationalized facilities, we have not in any way retrenched on our R&D development efforts. We continue to expand in China and we continue to expand in our four key locations around the world. We believe we are at a stable level now to continue to invest in R&D and so what you’re seeing right now is a continuing spend rate for normal increases of inflation, salary increases and so forth.

What you’re not seeing is any shift between expense versus capitalization. Our expenditures were up in the second half of the year as we purchased some software. That drove the higher level of capitalization. There was not a change in the expensing of what our expenditures were. Looking at sales marketing and services, there is a change there in that we were spending more heavily this year in a difficult economy putting more into our marketing efforts, putting more into our sales channels as we shifted particularly late third quarter and early fourth quarter from an efficiency standpoint and to get the right people into the right jobs.

We will continue to invest in our sales marketing and services business despite the economy, I want to be clear, we’re not in any way retrenching. We believe that we are well positioned in the marketplace right now and we intend to continue to be aggressive.

Nathan Schneiderman – Roth Capital Partners

And then just if we look at the March 2008 quarter we saw sequential increases in maintenance and in services, do you see that, do you see the seasonality of those lines behaving similarly in Q1 2009 or is that not likely to be the case.

Raymond Panza

There is going to be some seasonality, we do have the renewal of existing new license contracts that has a bit of a timing factor and because of the strength last year, the initial renewal period was in the fourth quarter of 2008. So from a sequential standpoint no you won’t see maintenance revenue move again. As you know it’s a mix of various factors. What I will stand by is the guidance that we’ve given for total revenue. With regard to services that’s just a function of when the services are provided that generally trails license revenue.

So timing of that will follow how the larger deals transpire. We’re selling fewer large deals therefore there’s probably a little less services, the goal though is to keep services at roughly 10% of the total revenue pool.

Nathan Schneiderman – Roth Capital Partners

Final question, I guess working through the numbers you just described it would take us to a license revenue figure, a license fee figure probably down 20% or so year over year for Q1, just any additional commentary on that magnitude of decline.

Raymond Panza

I’d have to go back and look at that, 20 sounds a bit on the high side. There’s not a 20% decline year over year well except for currency. Yes, I’m thinking of it in constant currency you’re right. We’d have to go back and look at that, we haven’t publically stated what the expected currency rates are and I could see how you could get there if you factor in currency. But the fact is license revenue will be down next year, we do expect that because of currency and other factors, the economic environment. But 20 may be a bit much.

Operator

Your next question comes from the line of John Maietta – Needham & Company

John Maietta – Needham & Company

First question I had was I was wondering if you’d just talk about how this quarter is tracking, what have you seen sort of thus far on the month of January and February.

Jack Noonan

We’re on target to the numbers that Raymond shared with you and you know kind of the way you, we see things is we’ve got a, we look at worst case and best case and somewhere in the middle and that’s kind of what we gave you as our range. So we’re tracking pretty solid right now to the numbers that Raymond provided you.

John Maietta – Needham & Company

Good strength in Germany and France, was there anything specific that was going on there?

Raymond Panza

No more then just solid execution. When you look at ups and downs most of our challenges in northern Europe, UK, we’re getting some management in place, we moved our entire sales organization in the third quarter and we’re back to where we think we should be now with staffing and training and so we’re marching forward in northern Europe.

So those are the three majors and we’re looking okay in the UK.

John Maietta – Needham & Company

With regard to the marketing initiatives, I was just wondering if you could give a couple of examples of some of the programs you may be running there.

Jack Noonan

The things we’re focusing on is in the fourth quarter we deployed a new marketing automation system but this is all about driving demand marketing for our inside channel more effectively and so its all about names and promotions and we’re doing what we’ve done well a little bit better. This is the time when I believe that good companies steal market share and so the investment in direct marketing is the one that drives our inside channel so we’re out focused on market share right now.

John Maietta – Needham & Company

And then directionally how should we think about CapEx and capitalized software in 2009 as compared to 2008.

Raymond Panza

On the CapEx itself it will be in line with what you saw for this past year. With regard to capitalized software you’ll see the number you have on the cash flow statement to reduce by about $2 to $3 million because that’s additional spend that was done in 2008 but it should continue to trend like that $13 million range.

John Maietta – Needham & Company

In terms of the mix of license revenue is it just kind of in line with historic numbers there, kind of 90% from tools?

Douglas Dow

Actually what we saw in the quarter was because of the strength of the market research product line, we saw the solutions bucket increase 12% of total to license revenue and 88% for tools and then that gives the balance for the year of 89%, tools again as a percent of total new license revenue and 11% solutions.

As Jack and Raymond both pointed out it was an exceptionally strong quarter for the data collections survey product line based on the one place were we did see I think both of the big deals that Raymond talked about were done in that line. And we also saw substantial, continued substantial growth on the low end on transactions under $25K with that line in particular.

Operator

Your next question comes from the line of Nabil Elsheshai – Pacific Crest Securities

Nabil Elsheshai – Pacific Crest Securities

To follow-up on that question on the data collections last surveys, is there anything in particular going on there and how sustainable is the strength that you saw in the Q4 results.

Jack Noonan

I think there’s two things going on, we are seeing continued advancement in the enterprise feedback management market but we’re also seeing the high end adoption of the major market research firms with our dimensions technology.

Nabil Elsheshai – Pacific Crest Securities

And then on the kind of the deal size and number of large deals, I realize the economy is weak but how much of that falloff is basically by design and the fact that you are very much more focused on the inside sales channel and as a result that lower level should continue through 2009 and as long as you’re focused on that channel.

Jack Noonan

I’ll tell you the reason we’re focused this way is the high end of the market and we’re no less focused there then we were before. But those sales are longer term and I use the term they are idiosyncratic and you can’t bet the farm on a couple of large deals or you are going to miss your numbers. And so when we get a large deal we’ll be happy with the numbers, if we don’t get the large deal we’ll still make our numbers and that’s how we’re looking at it.

And so we don’t have any less focus on our strategic accounts but we’re not taking with the bank as early as we would have done in the past and nor should anyone else.

Nabil Elsheshai – Pacific Crest Securities

What is the make up of the sales org in terms of the number of people and inside and outside split right now.

Douglas Dow

The numbers are headcount, field sales in the quarter, fourth quarter 2008 we ended field sales with 26, and telesales with 180 for a total of 206.

Jack Noonan

And I want to throw in that we’ve changed the definition of this, that field isn’t, field is field. Field is focused on our strategic accounts, named accounts and what Douglas called inside is our sales force that’s focused on transaction based selling. Some sell face to face, some sell over the telephone, but its focused on transaction based selling that’s driven with direct marketing.

Nabil Elsheshai – Pacific Crest Securities

On the solution side, Douglas is it safe to assume that the majority of that remained was from predictive enterprise services or was there other areas of strength in the solutions side.

Douglas Dow

I think its, the best way to characterize it is the strength was almost entirely due to the market research product line.

Nabil Elsheshai – Pacific Crest Securities

Well in the sense, I think you said that was 4.3% of total revenue is that correct?

Douglas Dow

No what we said was the solutions category as a whole was 12%.

Nabil Elsheshai – Pacific Crest Securities

No in the call I think you gave a number for the market research.

Raymond Panza

Market research, you’re right, market research as a percentage of the total, just market research was 4.4% of the total versus 3% total last year. But there are other products besides the core tool products that make up the applications and solutions.

Nabil Elsheshai – Pacific Crest Securities

And then on the partnership side of things, percent of revenue from [Endoract] and any progress there in terms of driving that indirect channel.

Douglas Dow

Yes the total percentage of new license revenue from the partner influenced and OEM aspect of the business was 8% of new license revenue for the quarter and what we saw in the quarter was a shift in terms of the composition of that revenue, what we saw was the business objects relationship starting to mature with some revenues showing up over a little over 10 different transactions showing royalty revenue coming in. We continue to see a steady pace of business with HP on an OEM basis, as well as a couple of other OEM partners.

So the OEM component of that revenue increased in the quarter.

Operator

Your next question comes from the line of Joel Hammond – Robert W. Baird

Joel Hammond – Robert W. Baird

If we look at that $3.5 million charge related to restructuring in Q4 you had mentioned that the majority of that hit the sales marketing and services line, is it safe to say that’s about maybe 75, 80% of it and then also, if so, is the remainder split between the R&D and the G&A line.

Raymond Panza

That’s correct. Keep in mind what we did is we were realigning our sales organization from a country manager strategy, a channel strategy, and in the course of moving folks around, it all goes through that line. Also a significant portion of that was from a dollar standpoint not necessarily a headcount standpoint is outside the US where the costs tend to be a little higher. So it drives that particular line because that’s where those people came from.

Joel Hammond – Robert W. Baird

If we look at your Q1 revenue guidance, its down to about 9% year over year at the midpoint, how many points in that decline is related to unfavorable currency.

Raymond Panza

There is currency in that line, it gets back to where do you think the currency is going to, where do you think the dollar is going to be at the end of the quarter. I don’t know that I want to go necessary to a projection on the currency. I think the dollar is going to continue to get stronger. We’re looking right now at a very volatile pound and Euro where we’re at like 1.42 and 1.27 so I think the best way, if I had to take a stab at would say figure about 70% of it, the same as in Q4.

Joel Hammond – Robert W. Baird

And then finally here, understanding you’re not giving 2009 full year guidance, but in 2008 the maintenance revenue line was up 9% in constant currency can we expect similar growth on a constant currency basis for the maintenance line in 2009/

Raymond Panza

It will probably be slightly less then that overall.

Operator

Your next question comes from the line of Ross MacMillan – Jefferies & Company

Ross MacMillan – Jefferies & Company

First question would be if I adjust for both the items, the charges and stock based comp there was a pretty material sequential down tick in the total operating expense bucket closing in on $5 million and the way that you guided for Q1 which suggest that most of the cost benefits from the actions that you took early in the fourth quarter have been realized, is that a fair assumption, have you probably had the majority of those cost benefits flow through the P&L in Q4.

Raymond Panza

No, quite the opposite, if you recall last call when we talked about taking these charges we said the benefits would mostly be realized ongoing with an estimate of about $10 million annually and the fact that this would occur throughout the quarter would take savings and shift them more to 2009. So you should see a benefit from these savings in 2009, not necessarily in the fourth quarter. The savings in the fourth quarter reflected two things, one is we did have lower revenues so the costs related to that revenue were down.

The second is there was a concerted effort as we stated on our last earnings call to focus on our expenses in Q4 knowing that the economy was going to be very rocky and uncertain, knowing that currency was going to continue to have some of an impact on us, so in light of that we did some things to pull back on expenses. What we don’t want to do and we have never done, is anything that will deteriorate revenue growth, trying to find what expenses can we pull back on that don’t drive a negative effect against revenue where we’re never going to save our way to prosperity, this is all by growth and driving revenue.

Ross MacMillan – Jefferies & Company

So I guess the other question then would be just how much headcount based investment or other types of investment around marketing etc. should we expect to see. Are you dialing back up on that so that you’re getting that full benefit from the adjustments early in Q4 but against that you’ve got some incremental investments, is that a better way to think about it.

Jack Noonan

We will see small incremental investments in headcount but for the most part its driving programs in our transaction business. That’s what this is all about. Its just getting our name in front of more people that have an interest in this stuff. And so what I hate is something I call uncontested losses and so I want a shot at every piece of business that’s out there in the predictive analytics space. And so we’re going to be trying to plan every deal.

Ross MacMillan – Jefferies & Company

And then finally on the dimensions line, obviously its really started to get some good momentum within the market research segment, how applicable is it to your corporate customer segment as well and is that more of an opportunity ahead of us or I guess the question really is why would we see that product line particularly doing well in the market research segment as opposed to either a government or a corporate customer or academia.

Jack Noonan

I think its because of the size of the transactions this quarter. As we look at the number of transactions there is a, we believe that there’s a lot of legs in the space called enterprise feedback management and that’s in the commercial marketplace. And in fact its commercial, its higher education, its government. And this collecting data of all types is a critical component to our differentiation in the marketplace with our deployment solutions.

And so this is high on our list and we believe that it has a lot of legs outside market research.

Operator

Your next question comes from the line of Unspecified Analyst – Cowen and Company

Unspecified Analyst – Cowen and Company

So I was wondering if you could expand more on the last point and explain what you’re seeing out in each of your verticals, both in tools and in aps and your enterprise solutions.

Jack Noonan

You’re talking about the verticals as I outlined them commercial, government and higher education?

Unspecified Analyst – Cowen and Company

Yes.

Jack Noonan

Government it’s a crapshoot right now. There’s all kinds of unrest and delay just as you would expect pretty much everywhere across the organization. What we’re seeing though in the commercial marketplace and we’re continuing to see reasonable spend in higher education worldwide focused on though teaching and research. That’s continued to be funded at about the same level so we’re not expecting to see a lot of shortfall in that space. When you look at what’s going on in the commercial marketplace, you have a few places that are doing reasonably well but a lot of them that are doing poorly.

And that’s why we’re focusing on ensuring that when we focus on named accounts, that we’re building a plan with these customers together to show ROI as we deploy the technology and have a transaction level that stays out of the under the radar for our tools. And so we’re executing both strategies. And so its not a pretty market anywhere, its not a pretty market anywhere and so this is all about finding a place where you can sell software. And that’s what we’re doing.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Jack Noonan

Thanks everyone for taking the time to hear about SPSS and our fourth quarter results and full year 2008. Thanks again.

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Source: SPSS Inc. Q4 2008 Earnings Call Transcript
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