Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Jack Noonan - President & CEO

Raymond Panza – EVP & CFO

Douglas Dow – SVP Corporate Development

Analysts

Analyst for Nathan Schneiderman – Roth Capital Partners

Nabil Elsheshai – Pacific Crest Securities

Jack Miller for Steve Ashley – Robert W. Baird

Barbara Coffey – Kaufman Bros.

Ross MacMillan – Jefferies & Company

Frank Sparacino – First Analysis

Brian Murphy – Sidoti & Co.

SPSS Inc. (SPSS) Q1 2009 Earnings Call May 5, 2009 5:00 PM ET

Operator

Welcome to the SPSS 2009 first quarter 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 2009 first quarter earnings press release posted at www.spss.com.

At this time I would like to introduce 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.

Please go ahead gentlemen.

Jack Noonan

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

As announced in our press release issued earlier today we started the year on track. We met our revenue expectations for the first quarter and managed expenses to a record operating margin. The organization, as expected, made the right moves at the right time. We continued to leverage and benefit from our diverse product mix and price point advantages. We saw ongoing resistance from customers in closing larger transactions. We had continued support for our products at the low end, reflecting our competitive market position and demand for predictive analytic products.

While the number of large transactions was done compared to a year ago, the median value was up. I will now turn the call over to Raymond Panza for his comments on our first quarter financial results as well as our outlook for the second quarter of 2009.

Ray?

Raymond Panza

Thanks Jack. Earlier today we issued an earnings press release for the 2009 first quarter including unaudited financial statements for the quarter ended March 31, 2009. It is to those financial statements that I will direct my comments. The company’s form 10Q will be filed with the SEC tomorrow.

For the 2009 first quarter I am pleased to report that SPSS has again delivered solid operating results reporting a record 24% operating margin. This is not only higher than the 18% operating margin reported for the same prior year quarter but also represents an increase from the normalized 23% operating margin for the immediately preceding 2008 fourth quarter.

Total 2009 first quarter revenues of $72.1 million exceeded expectations and represented the 18th consecutive quarter of meeting or exceeding revenue guidance. Partially offsetting the strong operating performance were less controllable non-operating factors including lower interest income reflecting lower available interest investment rates and the impact of currency losses.

Overall, net income reported for the 2009 first quarter was $9.4 million or 4% above the $9 million reported for the 2008 first quarter. Despite a slightly higher share count for the 2009 period, diluted earnings per share was $0.48 or 2% above the adjusted $0.47 reported for the 2008 first quarter.

These financial results are especially significant given the impact of unfavorable changes in foreign currency exchange rates and the challenging global economic environment as the company continues to drive revenue growth efficiently, maintain a disciplined focus on cost management, further strengthen its balance sheet and deliver increased cash flows from operations.

Looking more closely at the financial results, total revenue of $72.1 million for the 2009 first quarter was $6.1 million or 8% below total revenue of $78.2 million for the same prior-year quarter. Most of the decrease or $5.3 million was attributable to unfavorable changes in currency exchange rates such that excluding the effect of currency total revenues for the 2009 quarter were down approximately 1% from the 2008 period. SPSS continues to benefit from increasing market demand for predictive analytic products as it leverages a number of its competitive advantages including a global reach, a broad customer base with no dependency on any one geography or business vertical, a diverse range of products, attractive product price points that address the buying needs and limitations of customers and most importantly its increasingly valuable go-to-market sales channel strategy.

With a firm foundation in our efficient, legacy core coverage transaction based channel we can drive revenue from both our loyal existing customer base as well as attract new users of predictive analytic products.

During the 2009 first quarter the core channel accounted for 76% of the total license revenue and included a large, six-figure transaction in North America. In our strategic channel we are focused on targeted named accounts, customers who we see having increasing interest in realizing the benefits of predictive analytics and a longer-term relationship. It is in this channel that we are building for even greater future success.

During the quarter the strategic channel accounted for 7% of total license revenue. In our indirect channel we continue to leverage the reach of our franchisees and distributors. In addition, we are increasing the relationships with our alliances and partners. During the 2009 first quarter the indirect channel represented 17% of total license revenue and included a significant six-figure alliance agreement that we expect to jointly announce with our partner within the next few weeks.

While there continues to be market resistance to large deals, the company continued to perform well in smaller transactions realizing nearly 64% of its 2009 first quarter revenue from transactions of less than $25,000. For the 2009 first quarter there were 18 transactions in excess of $100,000. Each compared with the 2008 first quarter when there were 30 transactions in excess of $100,000.

However, the large 2009 first quarter transactions were significant wins with the largest 2009 contract being in excess of $850,000 compared with the largest 2008 contract being approximately half that size.

Geographically, approximately 40% of total revenue was derived from the U.S. with 38% coming from Europe, down from 42% last year and 22% coming from the Pac Rim, up 18% from last year. Consistent with previous periods, commercial customers continued to represent slightly more than 60% of the total revenue mix.

U.S. total revenue for the 2009 quarter was down 8% from the prior year when compared to an unusually strong 2008 first quarter. While total revenue from Europe was down 18% from the same quarter last year. These decreases were somewhat offset by higher revenue from the Pac Rim driven by a 24% increase in Japan.

For the 2009 first quarter total revenue for Japan was a total record of $12.6 million reflecting an expanded product offering sold to our existing customer base. Excluding the effect of currency exchange rates total revenue from Europe was flat and total revenue from the Pac Rim was up 11% resulting in total international revenue for the 2009 quarter being up 3% over the 2008 first quarter.

Total licensed revenue for the 2009 first quarter was $33.8 million, down $4.7 million or 12% from the 2008 first quarter of $38.4 million. Of the $4.7 million total decrease in license revenue $3.5 million was from the U.S. in part reflecting a challenging comparison with a weaker 2009 U.S. economy compared against an unusually strong 2008 first quarter where 2008 first quarter being the second highest U.S. license revenue quarter in the history of the company.

Non-U.S. license revenue for the 2009 first quarter was down $1.2 million or 5% from the 2008 quarter. Absent the effect of the unfavorable change in foreign currency exchange rates, however, total international license revenue for the 2009 first quarter exceeded the 2008 first quarter by 1% as continued softness in Europe, largely in the Netherlands, was more than offset by strong 2009 sales in Japan which excluding the effects of currency exchange rates was up 14% over the same prior-year period.

Excluding the ongoing challenges in the Netherlands and absent the effects of currency exchange rates, license revenue in Europe would have been flat for the 2009 first quarter compared with 2008’s first quarter.

While reported total license revenue was down in all product lines, stat pulls continue to show the greatest resistance with the 2009 first quarter revenue exceeded only by record stat tool revenue in the 2007 fourth quarter and the near record 2008 first quarter. Each of these periods being favorably impacted by a then weaker U.S. dollar and more favorable currency exchange rates.

Maintenance revenue for the 2009 first quarter were $32.5 million or up 1% from the prior year period. Excluding the effects of less favorable currency exchange rates maintenance revenue was up 11%. This overall increase reflects continued strong demand for the company’s support and product upgrade, resulting in higher renewal rates generally across all major geographic regions most notably in the desktop statistical tools and data mining product categories.

As indicated, these improvements in renewal rates were virtually offset by less favorable currency exchange rates. As expected, services revenues for the 2009 first quarter were down $1.8 million or 24% from the same prior-year quarter due to a decrease in the consulting projects reflecting the change in sales mix, lower license revenue in preceding quarters and less follow-on service revenue. Approximately $700,000 of the decline was the result of changes in foreign currency exchange rates.

From an expense standpoint, total operating expenses for the 2009 quarter were 76% of total revenue, down from 82% of total revenue for the 2008 first quarter reflecting improved efficiencies in revenue generation. Operating expenses for the 2009 first quarter were $54.9 million, down $9.5 million or 15% from the 2008 first quarter operating expenses of $64.4 million. Primarily these lower expenses reflect lower variable costs associated with lower revenue and the expected savings from past cost management initiatives, most notably the 2008 fourth quarter headcount reduction.

As of March 31, 2009 there were 1,195 total full-time employees including 174 employees in China. This compares with total full-time employees of 1,234 at the end of the 2008 first quarter. Excluding China, total full-time headcount was down 80 positions at the end of the 2009 first quarter as compared to the end of the 2008 first quarter.

In addition, the company continues to realize the benefits of productivity improvements, ongoing process changes and institutionalized efficiencies including the previous rationalization of R&D facilities and continuing improvement in product development processes as well as lower G&A costs as we not only focused on reducing costs but focus on increasing the effectiveness of indirect spending and eliminating non value-added activities. Approximately 3.5 of the decrease in 2009 first quarter operating expenses was due to the effect of changes in foreign currency exchange rates.

As the result of solid revenue generation and lower operating costs, operating income for the 2009 first quarter was a record $17.2 million. The previous high operating income was $14.7 million realized in the 2007 fourth quarter. Excluding the negative effects of currency exchange rates, operating income for the 2009 first quarter would have been $19 million and resulted in a 25% operating margin.

Focusing on non-operating items below operating income other net expense was $2.6 million for the 2009 first quarter compared with other net income of approximately $800,000 for the 2008 first quarter resulting in a negative year-over-year variance of more than $3.4 million. As disclosed previously when guidance was provided for the 2009 first quarter, effective January 1, 2009 the company was required to adopt a change in accounting principle for FASB Stat position on APB 14-1. FSP14-1, for short, titled “Accountable for Convertible Debt Instruments that May Be Settled in Cash upon Conversion.” Under that FSP, retrospective application is required resulting in an adjustment of prior year interest expense and resulting net income and earnings per share.

Accordingly, the 2008 financial statements have been adjusted for comparative purposes to reflect the retrospective application of FSP for a Change in Accounting Principle. As a result of the adoption of FSP 14-1, interest expense for the 2009 and 2008 first quarters include a non-cash expense of $1.4 million and $1.3 million respectively. For the 2009 first quarter interest income was $817,000 or $2.2 million lower than interest income for the 2008 quarter. As expected, changes in the economic environment resulted in lower available interest rates during the 2009 period and therefore lower interest income.

For the 2009 quarter currency exchange losses totaled approximately $1.2 million compared with the currency exchange gain of $300,000 for the 2008 quarter. This significant net year-over-year change for the quarter of $1.5 million illustrates both the unexpected severity of the sudden and rapid downward movement in currency exchange rates that occurred during the first two weeks of January.

As previously announced, the SPSS Board of Directors has authorized the repurchase of up to $40 million face value of the company’s outstanding convertible bonds. During the 2009 first quarter the company spent $3.1 million in the opportunistic repurchase of 3.5 million face value of those bonds resulting in a pre-tax gain of $356,000. As expected, the effective income tax rate for the 2009 period was lower than 2008’s 39%. However, due to a less favorable than expected income mix, the 2009 effective income tax rate was 36% or slightly higher than the previously projected 35% for the period.

Net income for the 2009 quarter was $9.4 million or $0.48 per share compared with the 2008 net income and EPS after the required adjustment for the retrospective application of FSP 14-1 of $9.0 million and $0.47 per share respectively.

Earnings per share includes a $0.04 non-cash expense for FSP 14-1 in both the 2009 and 2008 first quarters. Expenses for share based compensation were $0.06 and $0.07 per share in the 2009 first quarter and the 2008 first quarter respectively. The higher share count for 2009 versus the 2008 period negatively impacted earnings per share by $0.01.

Moving on to the balance sheet, at March 31, 2009 the cash balance was $311.5 million, up $5.5 million from year-end. The March 31, 2009 cash balance is after the expenditure of the $3.1 million for the repurchase of convertible bonds and was further negatively impacted by $4.6 million unfavorable change in currency exchange rates.

Net accounts receivable at March 31, 2009 were $38 million for a record low day sales outstanding (DSO) of 48 days. This compares to net receivables of $43.2 million and DSO of 54 days at December 31, 2008 and net receivables of $48.5 million and DSO of 57 days at March 31, 2008. The balance sheet amount of capitalized software at March 31, 2009 was $37.5 million, the same as the 2008 year-end balance of $37.5 million reflecting equal and offsetting amounts of software capitalization and amortization during the 2009 first quarter.

Except for the convertible debt offering completed on March 19, 2007, SPSS has no other debt. As previously discussed during the 2009 first quarter the company repurchased 3,500 of its outstanding bonds, reducing the $150 million of convertible debt to $146.5 million. As a reminder, these are five-year bonds with a March 2012 maturity. The bonds carry a 2.5% coupon and are no-call notes with a 42.5% conversion rate. While the bonds carry net share settlement feature there is an option for physical settlement.

Due to the January 1, 2009 required adoption of FSP 14-1, the recorded balance of this convertible debt obligation has been adjusted to a balance of $126.6 million as of March 31, 2009. Pursuant to FSP 14-1, the difference between that amount and the actual $146.5 million debt obligation at maturity is largely recorded as additional paid in capital and as an increase in the non-current deferred income tax liability. The debt balance will pro-ratably until maturity as non-cash interest expense is recognized in each subsequent period.

The company continues to generate good and consistent cash flow. For the 2009 first quarter net cash flow from operating activities was $15.8 million compared with $14.1 million for the 2008 first quarter period.

Looking ahead, we continue to expect an increasingly unfavorable impact from foreign currency exchange rates as well as uncertainty in the global economic environment. We cannot control those external factors, the 2009 first quarter results have again reflected the strong fundamentals of our business and demonstrated our ability to continue to deliver despite the volatility in the economy.

We remain confident about the company’s future and the future of predictive analytics as we continue to invest in our strategic channel and spend in marketing initiatives to drive constant currency revenue growth for the balance of the year. Already we are beginning to realize the benefits from these marketing initiatives.

Specifically, for the 2009 second quarter we expect revenues to be between $68-74 million with reported diluted earnings per share of between $0.35 to $0.48. The 2009 second quarter EPS guidance includes an estimated $0.09 expense for share based compensation or $0.01 more than what was incurred in the 2008 second quarter and $0.03 higher than the expense incurred in the 2009 first quarter reflecting the timing of equity grants.

Non-cash interest expense for FSP 14-1 is expected to be $0.14 per share in the 2009 second quarter equal to the $0.04 per share expense for the retrospective application of FSP 14-1 in the 2008 second quarter. In addition, as has become typical for our second quarter seasonal spending, the 2009 second quarter EPS guidance includes a non-recurring expense expectation of $0.03 per share for higher expense than incurred in the 2009 first quarter for investments in marketing activities and revenue growth initiatives.

For the fiscal year 2009 the company expects estimated expense of $0.29 per share related to share based compensation and $0.17 per share for FSP 14-1. These expenses compare to full-year 2008 expenses of $0.26 and $0.17 respectively.

For the 2009 second quarter and for the full year the company estimates an effective income tax rate of 35%. As frequently acknowledged, we are aware of our revenue vulnerability to currency rate movements. Accordingly, in the 2009 first quarter we have once again demonstrated our ability to initiate actions to protect the bottom line. Our focus for the second quarter and beyond will continue to be on delivering long-term shareholder value, building on successes to date and creating a solid operational and financial foundation to ensure that the company remains a leader in predictive analytics, positioned to leverage its strength whenever the economic recovery takes hold.

At this time I would like to turn the meeting back over to Jack.

Jack Noonan

Thanks Ray. Before we open it up for questions I would like to add some color to the second quarter outlook that Ray just provided. Our revenue guidance clearly reflects the expectation of year-over-year license growth on a constant currency basis. We believe our recent marketing initiatives are helping to drive more transactions through our core sales channel. The number of leads per sales rep continue to grow and the size and quality of the pipeline continues to improve.

Also we are seeing heightened interest in our targeted accounts channel, providing encouragement for the future. The great thing about business cycles is that they cycle. We are confident that we have taken the right measures for today and the foreseeable future.

I think it is time to open it up for questions.

Question-and-Answer Session

Operator

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

Analyst for Nathan Schneiderman – Roth Capital Partners

How was the linearity in the quarter? How much was booked in January, February and March and could you make any comments regarding business in April?

Jack Noonan

Our general pattern is 25%, 25% and 50% within the quarter and we didn’t see a substantial deviation from that. I think April we did defer comment on that and stick with the guidance that Ray has already provided.

Analyst for Nathan Schneiderman – Roth Capital Partners

Could you explain why deferred revenue is down quarter-over-quarter and year-over-year? What was the impact from FX? Can you talk to the dynamics there?

Raymond Panza

Actually you are raising the right issue. A significant portion of that, probably about $2.3 million of that change is exactly what you said. It is FX. The balance of that really represents timing as license revenue decreases, as we do smaller transactions without maintenance and as we have said on numerous calls previously you really have to look at that as a trend over a rolling 12-month period so at this point I wouldn’t be disturbed by a one quarter decline. That would be very consistent with the license revenue pattern we are seeing. The fact of the matter is, our maintenance revenue is up. Our license revenue continues to be solid despite the currency impact.

Analyst for Nathan Schneiderman – Roth Capital Partners

Could you talk to the dynamics of why sales and marketing expense was down so much quarter-over-quarter? How much of the decline was FX related?

Raymond Panza

A couple of things on that. The sales and marketing itself was down about $3 million just on the FX. The balance of that reflects largely the variable costs associated with less revenue. Less commissions, less costs incurred that are directly related to revenue. It also reflects the fact that about 64% of the revenue came from smaller deals which meant they went through a very efficient, short-cycle core channel. Therefore they carried less expense with those revenues. In addition to that, you are seeing as I mentioned in my comments the savings from lower headcount, efficiencies, and some productivity improvements that we made in the latter half of last year that are coming to realization now this year.

Operator

The next question comes from Nabil Elsheshai – Pacific Crest Securities.

Nabil Elsheshai – Pacific Crest Securities

To follow-up on your comment about the year-over-year license growth, that is a pretty big acceleration from Q1. Are you starting to see demand change or kind of economic conditions change or what do you think is going to drive the acceleration through the year?

Jack Noonan

What we are seeing so far is good execution. We have continued to invest in our infrastructure in marketing. We have focused at the beginning of the year we did an alignment of our sales channels and I think it is a major change on focus for our go-to-market. We were historically aligned geographically with our channels underneath it. Now we have our channels on top with the geography underneath. The management team and the individuals within each of our channels is focused on their channel and their channel only. I think it is a combination of focus, effective marketing effort and I think we have also invested in significant training across our sales organization in all three channels.

Nabil Elsheshai – Pacific Crest Securities

That has resulted in a much larger pipeline than maybe going into Q1? I think Q1 was down 8% in constant currency on license?

Jack Noonan

Yes, we are seeing a stronger pipeline going in and confidence in our sales force.

Nabil Elsheshai – Pacific Crest Securities

On the indirect you said 17% is that measuring the same way as in Q4 last year which I think was 8% from indirect?

Raymond Panza

No. The number you are referring to is our partner influenced deals. Looking at a new categorization. We introduced in our investor day in November last year in Las Vegas we have two ways we are going to present a new way. We will provide the old way for historical reference. Lining up with our new core strategic accounts and indirect channels, again those numbers are 76% of new license came out of the core; 7% is strategic in the indirect and 17% is a combination of our franchises and distributors which used to be largely in what we called inside, our resellers and our partner revenue. It is a combination of those three things that are now our indirect channel.

Nabil Elsheshai – Pacific Crest Securities

For historical purposes, what was the equivalent of the 8% in Q4 indirect or partner and influenced business this quarter?

Raymond Panza

That was 7%.

Operator

The next question comes from Steve Ashley – Robert W. Baird.

Jack Miller for Steve Ashley – Robert W. Baird

A question on the product rebranding initiative you launched a few weeks ago. Just wondering if you can share any early feedback from your customers on that and whether or not there have been any changes in product packaging or simplification of the SKU list that may affect product mix or ASP going forward?

Jack Noonan

We have a listserv that our academic community had an opportunity to tell us they didn’t like it. For the most part the feedback from the analyst community and the feedback from those that follow the company and the feedback from our customers that are in IT that have to manage this environment were all quite positive. Also, feedback from the sales team is they like the new approach because it shows the integration we have with the technology and it allows them the ability to up sell and cross sell more easily. So that is pretty much the feedback on the renaming of our technology.

Jack Miller for Steve Ashley – Robert W. Baird

Ray, you said for FX on guidance that factoring in an increasingly unfavorable situation. Is that the result of increasingly unfavorable comps or are you assuming the dollar continues to get stronger from these levels?

Raymond Panza

Assuming the dollar continues to get stronger. Everything I am reading continues to show that. I think we have seen in the last week or so it has been an unexpected rebound where the dollar got weaker but what I have been reading is the dollar is expected to again strengthen which would be a negative to us given the extent of our international operations.

Jack Miller for Steve Ashley – Robert W. Baird

On the core channel, 7% of license or the strategic channel, was that in line with your expectations and I guess where should we expect that mix of your business to go from here?

Jack Noonan

It was in line because we were in line with the revenue. I think you should see the percentage go up in Q2.

Operator

The next question comes from Barbara Coffey – Kaufman Bros.

Barbara Coffey – Kaufman Bros.

A couple of quick questions. As you are taking a look internationally do you see any different stabilization patterns whether or not it is from the indirect channel versus direct? In the educational community are you seeing any changes potentially more stabilization as we go forward here?

Jack Noonan

On the higher education space I think we are seeing consistency. If I look at your first question, could you repeat that for me please?

Barbara Coffey – Kaufman Bros.

As you look internationally across a few other companies I cover they are starting to see the U.S. be stable and stabilizing at new lower levels than they had seen in the past but internationally thing are still quite murky and I’m wondering if the larger deals are any different than your smaller deals on stabilization internationally?

Jack Noonan

I don’t know that we are seeing any stabilization on large deals. The numbers are small enough that they are quite idiosyncratic. It is difficult to tell how much is the economy and how much is the deal size itself. Clearly the sales cycles have lengthened and we are seeing smaller transactions. So that is continuing. Our outlook into Q2 is showing the same thing. We are looking at the volume increasing. When I look at distribution, we had a very good quarter in Japan. Across Europe we were spotty. In the U.S. we are continuing to struggle and that is pretty much what Ray had told you and it is across the board. It is in all three channels.

Barbara Coffey – Kaufman Bros.

That’s what I was wondering if the larger channels were seeing different patterning than the indirect channels.

Jack Noonan

No. They all have the same complaints about the economy.

Operator

The next question comes from Ross MacMillan – Jefferies & Company.

Ross MacMillan – Jefferies & Company

Your Japanese numbers were terrific in the face of probably the worst Japanese economy for 15 years. I was curious as to what was the driver of the change has been? How big is Japan now in terms of license revenue? Third, is your assumption that relative strength you saw in Q1 at least from a cult perspective continues through the balance of the year in Japan?

Jack Noonan

I think there are two answers. The first one is execution. This alignment has worked very, very well in Japan. The second one though is we released a new piece of technology. It is our text analysis software for surveys in Japan and it has done very well. Again, our data mining and our text analytics software has done well in Japan. The new release has gotten very good acceptance in Japan.

Ross MacMillan – Jefferies & Company

The size of that business now and the license revenues out of Japan?

Raymond Panza

Japanese license revenue on a GAAP basis in the first quarter of 2009 was $9.5 million.

Ross MacMillan – Jefferies & Company

Is that, I guess the text analysis solution did that get a little bit of a bump so you wouldn’t expect that strength to continue or I’m just trying to understand how you are thinking about Japan for the balance of the year?

Jack Noonan

We are expecting Japan to continue to be strong. Maybe not quite that strong. We are also expecting the text analysis software to be a contributor throughout the year.

Ross MacMillan – Jefferies & Company

On costs, you have clearly enjoyed the benefits now of the cost controls including the reduction in headcount from Q4. I think you mentioned you will see some sequential up tick in costs. I think you mentioned 3% as the number. I’m trying to understand how you are thinking about that as we go through the year. Are we basically going to continue to basically monitor that and remain pretty conservative on cost growth as we go into the latter stages of the year assuming that the world is not changing rapidly I guess?

Raymond Panza

As you know, one of the things we have been very diligent about is making sure we keep our costs in line with our expected revenues. Until we get more comfortable about the economy and where revenues will be, yes we are going to continue to monitor expenses rather tightly. At the same time we are investing in the business. We are investing in marketing. We are investing in our strategic channel and we have some seasonality issues. So as I mentioned in my comments, share based compensation will sequentially be up about $0.03. That is a seasonal event. Marketing programs that traditionally hit in the second quarter that benefit the balance of the year traditionally hit in the second quarter. So we will have some things that will be more of a non-recurring type item that will occur in the second quarter. That said, we are continuing to focus on the manageable costs that don’t impair revenue growth. So we will be monitoring it very closely throughout the year.

Ross MacMillan – Jefferies & Company

I know you have been looking or keeping an eye on potential strategic targets, acquisitions and so forth. I think one of the challenges has been the disparity between buyer and seller expectations. I’m just curious, do you think we are getting closer to the time frame where those expectations and your expectations are moving more in line? Just curious to get a sense for where we might be in terms of that hurdle to doing M&A.

Jack Noonan

The simple answer to that is they are moving more in line. They are not as much in line as we would like to see them but they are moving more in line.

Operator

The next question comes from Frank Sparacino – First Analysis.

Frank Sparacino – First Analysis

If I could just get the break down in terms of the sales headcount by the new categories and then also just maybe a little bit more detail on the license revenue by product segment?

Douglas Dow

Two things, we are still for consistency sake think of it as core accounts and strategic accounts. 21 is the count for strategic accounts and core accounts is 182 for a total of 203 quote carrying sales people. The break down in license product categories, again we are introducing as we said we would in our investor day a product based classification. We also will continue to provide it in the old format for consistency sake. For going forward, aligning with our new product naming around Capture/Predicted/Act we will have data collection under the Capture arena. Statistics under Predict as well as modeler under Predict. Those are the two families under Predict. Then our deployment family under the Act arena.

To go back and give you the numbers there, we saw negative revenue growth in data collection the same quarter over the prior year of 54%. Statistics was off 5%. Model was off 11% and deployment was off 76%. Now let me give you in again the sequential order the percent of new license revenue, total new license revenue generated in each of those categories. Data collection was 4% of total. Statistics 81%. Modeler 14% and deployment is 1%. Just to give you the reference, looking backwards, if we were to cap this in the former tools and solutions buckets, the tools percent revenue growth over the prior year is negative 8%. Solutions is negative 59%. The percent of total new license revenue Tools accounted for 96% of the total and Solutions 4% of the total.

So there you have the new view going forward as well as the comparable view going back.

Operator

The final question comes from the line of Brian Murphy – Sidoti & Co.

Brian Murphy – Sidoti & Co.

Just to follow-up on that sales force question, the reduction in field sales force heads or strategic sales force heads was that due to forced or voluntary attrition?

Douglas Dow

Primarily forced. There is kind of two pieces that were going on in the last two quarters of the year. One piece was some of the folks from the field moved over into the core accounts channel and they are selling the product bundles, the higher priced products, but it is a transaction based sale which is how it aligns with the core account. The second piece was there was some involuntary right sizing at the end of the year as Alex and team looked at what was the optimal level of reps to have in the strategic category to really focus and get that piece of the business starting to grow for us.

Brian Murphy – Sidoti & Co.

With IBM out there seemingly making business analytics a bigger priority, could you just give us some color as to how that might affect the competitive landscape?

Jack Noonan

If you look at the little video that Balboni did in the press release they focused on people, not technology. They focused that putting 4,000 people in it and I think the number was 2,200 mathematicians. I think we got the technology to support them. We’ll see. When you look at it, it was focused on a go-to-market and focused on people and centers, not focused on technology. We think it is great.

Operator

There are no further questions in queue at this time. I would like to turn the call back to Mr. Jack Noonan for closing remarks.

Jack Noonan

Thank you all for joining us to hear about our first quarter results. We look forward to seeing you next quarter. Thanks.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: SPSS Inc. Q1 2009 Earnings Call Transcript
This Transcript
All Transcripts