SPSS Q4 2007 Earnings Call Transcript

Feb.18.08 | About: SPSS Inc. (SPSS)

SPSS, Inc. (SPSS) Q4 2007 Earnings Call February 12, 2008 6:00 PM ET

Executives

Jack Noonan - Chairman, President and Chief Executive Officer

Raymond Panza - Executive Vice President and Chief Financial Officer

Douglas Dow - Senior Vice President Corporate Development

Analysts

Nathan Tranadmer - Roth Capital

John Nietta - Neman and Company

Steve Ashley - Robert W. Baird

Sean Jackson - Avondale Partners

Peter Gomaker - Cohen & Company

Nadill Osheshe - Pacific Crest Securities

Frank Sparacino - First Analysis

Operator

And welcome to the SPSS 2007 fourth quarter conference call. With the exception of historical information, the matters discussed on this conference call include forward looking statements that involve risk and uncertainties including but not limited to market conditions, competition and other risks indicated in the company’s filings with Securities and Exchange Commission. Our GAAP reconciliation statement is available in the SPSS 2007 fourth quarter 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

Thanks JD and good evening; thank you for joining us to discuss our 2007 fourth quarter and full year performance. I’ll give some opening remarks, then Ray Panza, our CFO will comment on our financial results and provide guidance for the first quarter and full year 2008. We’ll end with a Q& A session.

As you’ve now seen in our press release issued earlier today, we closed 2007 with record results. Fourth quarter total revenues were up 12% with new license revenue up 18%. Driving this growth was strong sales of our statistical and data mining software as reflected in the 23% increase in new license revenue for our predictive tools products as compared to the fourth quarter of last year. We also had solid new license revenue growth in all major geographies.

We also saw a significant increase in the revenue generated by transactions over $100,000 as compared to the fourth quarter of 2006 we closed 14% more revenue in this category and the average revenue per transaction increased by 10%. This is a significant benchmark as well as an indication of the greater awareness and demand for predictive analytics at the enterprise level.

Another positive metric was partner influenced new license revenue. For the 2007 fourth quarter, partner influence revenue accounted for 14% of new license revenue compared to 2% for the 2006 fourth quarter. During the quarter however, we were not without challenges. New license revenue for our dimension survey platform for enterprise feedback management did not improve or the strong growth posted last year, although, the transaction volume increased by a third. This is reflected in the overall lower new license revenue attributable to our solutions category versus the 2006 fourth quarter.

Within the solutions category we continue to see strong growth of our predictive application offerings, closing 19 transactions in the quarter up from 14 in the third quarter of 2007 and 9 in the fourth quarter of 2006.

I’ll now turn the call over to Ray Panza for his comments on our fourth quarter and full year financial results as well as our outlook for 2008.

Ray Panza

Thanks Jack and good evening. Earlier today we issued an earnings press release with unaudited financial statements for the 2007 fourth quarter and full year. It is those financial statements that I’ll direct my comments. The 2007 fourth quarter was marked by solid execution in sales and operations resulting in record revenue, operating margin, earnings and cash flow. On the strength of the fourth quarter SPSS completed the 2007 fiscal year above previous expectations with financial results that provide validation of our strategy, a strong balance sheet and operating cash flow and sales momentum as we enter the new year.

For the 2007 fourth quarter we saw the 17th consecutive quarter over quarter increase in total revenue delivering record total revenue of 79.6 million. We achieved double digit new license sales growth across all major geographic regions with the diverse customer base not dependent on any one vertical. We made significant progress in closing larger sales transactions and saw advancement of our partnering and alliance strategies.

We continue to realize the benefits of productivity improvement strategy and institutionalized cost management efforts. Reported operating margins grew to record levels and with continued disciplined financial management, we delivered a record 33.4 million of operating cash flow, maximized interest expense, interest income, managed to contain translation currency risks and launched a stock buy back program.

In addition, we completed the consolidation of our R&D facilities including the successful expansion of the facility in Seong, China that is now in its fifth phase of expansion, increasing operating efficiencies and reducing the number of worldwide facilities to four. We continue to make organizational changes and key hiring decisions that further strengthen the management team and position the company for continued growth and uncertain economic environment.

Turning more specifically to 2007 fourth quarter operating performance and financial results for the 2007 fourth quarter. At 79.6 million total revenue was up 12% for the 2006 fourth quarter 71.1 million. Approximately 3.9 million or 5.5% of the increase resulted from favorable currency exchange rates. Overall, new license revenue for the 2007 fourth quarter was a record 42.1 million up 18% over the 2006 fourth quarter’s 35.8 million. This increase was driven by a 23% increase in predictive totals including a seven figure data mining transaction completed in the 2007 fourth quarter with a large commercial customer. Approximately 1.8 million of the total increase or 5% of the quarter over quarter increase resulted from a favorable currency exchange rate such that ex currency new license revenue was up 13% for the quarter.

As Jack previously stated for the 2007 fourth quarter, SPSS realized a notable increase in the revenue value of sales transactions in excess of 100,000 inside double digit growth of new license revenue in each geographic territory including the U.S., Europe and the Pac-Rim. Overall, new license revenue was 53% of total revenue in the quarter. For the 2007 fourth quarter maintenance revenue was a record 30.5 million up 10% over the same prior year period. With nearly two thirds of this revenue originating outside the U.S. favorable currency exchange rates contributed approximately 6% to that overall increase.

Fourth quarter 2007 service revenues were down 6% from the prior year, reflecting the impact of a difficult comparison against an unusually strong 2006 fourth quarter, where we experienced very large transactions in that period. Overall, reported operating expenses for the 2007 fourth quarter were 64.9 million representing an increase of 5.5 million over the same prior year quarter. While this increase in cost largely corresponds to the overall increase in revenue, approximately one third of this increase, or 1.8 million resulted from higher restructuring costs, principally related to the consolidation of R&D facilities. In addition, approximately 600,000 of the increase resulted from higher share based compensation expense.

Included in the financial statements that were provided with the earnings release, there’s a supplemental schedule setting forth the impact of share based compensation, an operating expenses, operating income and operating margin. Reported operating income for the 2007 fourth quarter is 14.7 million for a 26% increase over the 11.7 million for the 2006 fourth quarter, while reported operating margin for the 2007 fourth quarter was 18% absent share based compensation is shown in the supplemental information schedule. The 2007 fourth quarter operating margin would have been 21%. Clearly we’re realizing the benefits of greater efficiencies and revenue generation, as well as the previously implemented productivity improvements, process controls and discipline management across the organization.

From a financial management standpoint, other income expense for 2007 fourth quarter was income of 2.1 million. This is comprised of higher net interest income partially offset by currency translation loss. For the 2007 fourth quarter net interest income was 2.4 million for a 1.2 million increase over the prior year reflecting improved cash balances and cash management. This improvement in interest income was partially offset by a near one million turn around from the prior year’s 700,000 net unrealized currency gain to a near 300,000 currency translation loss in the 2007 fourth quarter.

For the 2007 fourth quarter pre-tax income was a record 16.8 million up 24% from the 2006 fourth quarter pre-tax income of 13.6 million. The effective income tax rate for the 2007 fourth quarter was 40.5%. This compares to an effective income tax rate of 85% in the fourth quarter of 2006, when the company recorded a 6.9 million non-cash, non-operating expense with a corresponding reduction in the deferred income tax asset on the balance sheet. This 6.9 million income tax charge reduced 2006 fourth quarter diluted earnings per share by 33 cents to a reported 10 cents per share.

Turning to the 2007 full year results. Total revenues were 291 million representing an 11% increase over 261.5 million for the same prior year period. Excluding the favorable impact of currency exchange rates, total revenues for 2007 were up approximately 7%. For the 2007 full year new license revenue was up 15% driven by solid growth and tools up 19% year on year. 2007 maintenance revenue was up 8% over the prior year. Approximately 5% of the increase resulted from favorable currency exchange rates. Overall, the increase in maintenance revenue is relatively consistent with the 7% increase realized last year 2006 versus 2005 and at 41% of total 2007 revenue, maintenance is in line with prior years.

For the 2007 fiscal year approximately 59% of the revenue is from outside the U.S. representing a slight increase from 58% of total revenue for 2006. The company continues to maintain a diverse customer base comprised of 64% commercial, 21% academic and 15% from the public sector.

Operating expenses for the year ended December 31, 2007 were 241.5 million or 14.3 million over the 2006 fiscal year. Approximately 2.4 million of this increase reflects higher charges related to restructurings and similar items, and a 1.1 million higher charge relative to the expensing of share based compensation. I reported basis 2007 operating expenses were 83% of revenue, compared to 87% of revenue for the 2006 fiscal year such that SPSS is generating more revenue and less cost, representing improved productivity and resulting in higher operating margins. Reported operating income for the year ended 2007 was 49.5 million compared to 34.3 million for the 2006 period for a year on year increase of 44%. For 2007 operating margin increased 17% from 2006’s 13%.

Other income expense for the year ended December 31, 2007 was 6.2 million comprised of nearly 8 million of net interest income partially offset by a 1.8 million currency translation charge. This compares to 2006 net interest income of 3.1 million which was more than offset by a $4 million currency translation charge. 2007 pre-tax income was 55.6 million for a 61% increase over the prior year pre-tax income of 34.5 million. The 2007 full year effective income tax rate was 39%. This compares to a 2006 effective income tax rate of 56% which was previously discussed was driven by recognition of an unusual $6.9 million income tax charge.

Net income for the year ended December 31, 2007 was 33.7 million up 18.6 million from 2006 net income of 15.1 million. Again the 2006 net income included a 6.9 million non-cash, non-operating income tax charge related to prior years. After giving effect to the 6.9 million income tax charge which had the effect of reducing EPS by 34 cents reported diluted earnings per share for the 2006 full year were 73 cents. The number of diluted shares used in the 2007 diluted per share calculation, reflects a net decrease of approximately 1% over the prior year mainly due to share repurchases. The net decrease in shares outstanding resulted mainly from the $50 million repurchase of 1.5 million shares completed in the first quarter concurrent with the convertible debt offering.

In addition, as previously announced, the SPSS Board of Directors authorized the company to repurchase up to 2 million shares of issued and outstanding common stock and up to 20 million principal amount of issued and outstanding convertible notes. This authorization extends until December 31, 2008. During the 2007 fourth quarter, the company purchased 607,200 shares of its issued and outstanding common stock in the open market pursuant to the stock repurchase program. This purchase in addition to the 1.5 million shares purchased in the first quarter of 2007 in connection with the convertible debt offering, resulted in total share purchase during 2007 of 2.1 million or 11% of shares outstanding at December 31, 2006. Total shares purchased during 2007 were acquired at an average price of 33.79 per share for a total cash cost of 71.8 million.

Since December 31, 2007, the company has purchased an additional 853,800 shares. Currently 539,000 shares remain available for repurchase under the current Board authorization. Repurchases of shares are not mandatory and will be made from time to time based on availability of alternative investment opportunities and market conditions. All repurchased shares have or will be retired.

Moving on to the balance sheet, as of December 31, 2007 the cash balance was 306.9 million up 166.7 million from 140.2 million as of December 31, 2006. The increase in cash includes approximately 96 million of net proceeds from the convertible debt offering completed during the first quarter of 2007. That offering consisted of 150 million less 4 million in expenses and the previously discussed 50 million used to repurchase issued and outstanding shares. As previously discussed, approximately 21.8 million was expended during the fourth quarter in the further repurchase of SPSS shares pursuant to the share repurchase plan.

Net accounts receivable at December 31, 2007 were 56.6 million similar to prior quarters there were a large number and increasing size of share sales transactions that closed disproportionately near the end of the quarter. Despite this fact, the DSO, calculated days outstanding at December 31, 2007 is 65 days which is down from 70 days at December 31, 2006.

Net property as of December 31, 2007 was 16.4 million down approximately 1.3 million from the 2006 year end. Approximately half of this decrease or 700,000 is a result of a write-down related to the closure and consolidation of R&D facilities. The balance of this decrease is the result of depreciation exceeding capital expenditures, which despite somewhat higher capital expenditures during 2007 related to equipment purchases and unusual number of leasehold build outs related to the expansion of facilities primarily outside the United States.

Capitalized software at December 31, 2007 was 34.1 million or 2.5 million higher than the 2006 year end balance of 31.6 million. This change is primarily due to capitalized software being 13.3 million partially offset by 10.7 million of software amortization. This compares with the prior year 2006 capitalized software of 12.8 million partially offset by 9.8 million of amortization. In effect for the fiscal year 2007 compared with fiscal year 2006, the increase in software amortization exceeded the increase in capitalized software.

Deferred revenue as of December 31, 2007 represented maintenance revenue that we recognize in future periods generally over the next twelve months, increased to 83.9 million up from a net 10.4 million from December 31, 2006. This increase compares favorably with the 9.5 million increase in deferred revenue during the prior year 2006 over 2005 period reflecting continued growth in license renewals. This previously reported during the 2007 first quarter, the company completed 150 million convertible debt offering resulting in long term debt on the balance sheet. As a reminder, this debt is non-callable with a five year maturity and carries an interest rate of 2.5% for an annual debt service cost of 3.75 million. Other than this debt the company currently has no other borrowings.

Turning to the statement of cash flow, net cash flow from operating activities was 33.4 million for the 2007 fourth quarter and 84.9 million for the year. This compares with 22.3 million for the 2006 fourth quarter and 48.2 million for the year ended December 31, 2006. Contributing to the improvement in operating cash flow is a favorable change in non-cash working capital, reflecting disciplined financial management resulting in a record low non-cash working capital balance excluding deferred revenue as of year end 2007. As previously discussed, capital expenditures during all of 2007 were 5.7 million up 1.4 million from 4.3 in 2006 and is expected as previously discussed capitalized software for 2007 fiscal year was up less than 500,000.

The 2007 financial results demonstrate the validity of our strategies and reflect a success of our operating performance. Equally important, we believe the 2007 financial results have further solidified the foundation for driving sustained revenue and earnings growth into 2008 which globally appears to be somewhat uncertain economic environment. Looking forward to 2008, we will continue to be focused on creating long term shareholder value and improving our operational and financial metrics.

For the 2008 first quarter we expect revenues to be between 73 million and 75 million with reported diluted earnings per share between 40 and 45 cents. For the 2008 fiscal year we expect revenues in the range of 305 million and 315 million with EPS in the range of $1.85 and $1.95. This guidance assumes an effective income tax rate of 39% and expected share compensation expense of 7 cents and 26 cents per share for the 2008 first quarter earned fiscal year respectively. While we remain committed to identifying and implementing further productivity improvement and achieving greater efficiencies, the critical factor for our success will continue to be our ability to drive quality revenue growth. We believe that we have the financial foundation, identified strategy and demonstrated abilities to continue delivering increasing shareholder value.

At this time, I’d like to turn the meeting back over to Jack.

Jack Noonan

Thanks Ray. And adding to Ray’s comments on guidance, while forecasters have a murky view of the U.S. and global economy, we have a very clear understanding of how we’ll continue to drive the sales of our predictive analytic software and game market share.

First, our channel strategy designed to support and grow our leadership position of predictive analytic tools and enterprise solutions in major geographies. We are taking our tools to market with our highly efficient inside sales channels and our solutions through our field sales channel that leverages our existing customer relationships and executes under a named account model.

Second, we are increasing focus on our distributor and franchise network for coverage across secondary geographies.

Third, we will continue emphasis on our alliances group that works with partners to further penetrate the market with our technologies. This will be measured by more partner assisted transactions and more OEM deals like the one recently signed with Business Objects.

Fourth, we will continue to advance our leadership position in predictive analytic software with new products added to our annual market driven releases, and finally we remain focused on finding strategic acquisitions to expand our market reach. We’ll now open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Nathan Tranadmer of Roth Capital.

Nathan Tranadermer – Roth Capital

Hi, thanks very much, nice job on the quarter. Congratulations. A handful of questions for you, one is I was hoping you could discuss your operating margin view longer term, I guess the implied improvement in 2008 based on the revenue is significant it looks like 200 basis points plus do you see that kind of ability to improve margin in 2009 and beyond or do you thing you’re getting close to steady state?

Ray Panza

Nate, this is Ray. As you know we’ve had out on our website now for over three years a target for the fourth quarter of 2008 of achieving a gap reported 20% operating margin. We do believe that we can continue to drive the margins in the business. We also believe as we’ve discussed previously that being a software business is all about revenue generation. You reach an inflection point and increasingly it drops to the bottom line and improves the margin. So yes we believe margins will continue to expand.

Nathan Tranadermer – Roth Capital

When you look at the maintenance revenue growth on a constant currency basis, it was approximately 3% for the year, you gave us the details there, I’m curious is this below your general expectations for year over year growth and if so, how do you expect to improve that for 2008.

Ray Panza

As we’ve said several times, we believe that with the size of the number its always going to be a small mid-digit percentage and on a total reported gap basis, we think 4, 5, 6, 7% is not a bad place to be so excluding all currency being at 3%, it’s not all that unusual. The other thing I point out is, it has to do a lot with mix. If I were to look strictly at the U.S., the U.S. in the fourth quarter maintenance revenue was up 6%. So you have to factor in the timing, the mix, the collection, there’s a lot of moving parts as we’ve talked previously but the overall at 3% excluding currency is not terribly troubling.

Nathan Tranadermer – Roth Capital

And the final question for you is just, I was hoping you could address G&A in more detail it was down about 400,000 500,000 sequentially, last year it was up about a million stripping out the stock expense so just why the decline this year versus the significant increase last year.

Ray Panza

Good catch, the issue there if you’ll recall is last year we took a $900,000 charge in the fourth quarter on a tax issue in Holland and that was reflected in the G&A line last year and its absent this year. That’s the one major item. What we also had is a tough comparison against last year because of the tax issues that were going on from a federal U.S. tax standpoint, there were higher professional fees in the fourth quarter. We’ve been able to bring many of those costs down this year.

Operator

Your next question will come from the line of John Nietta of Neman and Company.

John Nietta - Neman and Company

Hi thanks very much. Hey Jack, I was wondering if you could comment on how you know, customers prioritize predictive analytics with regard to their IT spending, how does it stack up on the priority list versus CRM and ERP and things like that?

Jack Noonan

It depends on the customer. Many times we see our entry point is in the line of business. Recently we’ve seen a number of IT organizations that are focusing on building poor confidency in predictive analytics. I think we’re kind of like the BI space was a decade ago as we’re starting to see early adopters focusing on when Gartner calls advanced analytics are what we call predictive analytics. So it’s a small number of IT organizations that are focusing early in the cycle. The majority of our stuff still enters through the line of business guy.

John Nietta - Neman and Company

Okay and then Ray with regard to capex, how should we think about that in ’08 in terms of growth rate or flattish or kind of directionally.

Ray Panza

Right now you should look at it as being relatively flat.

John Nietta - Neman and Company

Okay.

Ray Panza

We don’t own our facilities what we have are leaseholds, we had a number of [inaudible] this past year as I mentioned earlier in the call. We’ve completed most of the build out in our China facility so I would expect it to be closer to flat or down.

John Nietta - Neman and Company

Okay, that’s it for me, thanks very much.

Operator

Your next question will be from the line of Steve Ashley with Robert W. Baird.

Steve Ashley - Robert W. Baird

Great and I’d like to do maybe some housekeeping. If we could—you talked about the breakdown of license you said that the tools business grew 23% year over year, could we get what percentage of the total license the tools were and then maybe you could talk about what the year over year change was in deployment solutions as well.

Douglas Dow

Yeah, Steve it’s Doug. Tools again just to repeat for everyone, 23% growth in the fourth quarter over the same quarter in 2006, represented 92% of the total new license revenue again that’s total new license revenue. The solutions category was down 20% year on year for the quarter and that represented about 8% of the total new license revenue. Just to put that ladder—percentage in context, if you just look at the dollar amounts what we saw in aggregate dollars for the solutions category, we did $4.4 million last year in the category overall in the fourth quarter 2006 and that netted out against a 3.5 million total this year. Again, what we’re seeing is a decline in the big deals in the dimensions line balanced on the other side by continued increase in the predictive applications and that is almost totally around the predictive enterprise services.

Steve Ashley - Robert W. Baird

Great.

Douglas Dow

In terms of the year Steve, let me just give you those numbers as well. Again if we look at the tools category the growth for the annual number year on year 19% representing 90% of the new license revenue and for the solutions category, minus 9% representing for the year 10% of the total new license revenue.

Steve Ashley - Robert W. Baird

Is the expectation that the enterprise seat back management in absolute dollars should level out and start to flatten out as we go into ’08.

Jack Noonan

This is Jack, we’re looking for it to grow because of the transaction growth we’ve got a reasonable comparison now year over year. Last year we did a number of very large transactions in enterprise feedback management that we were not able to replicate this year, but the transaction volume went up substantially.

Steve Ashley - Robert W. Baird

Jack did you say their were 19 predictive analytics deals in the fourth quarter?

Jack Noonan

Correct.

Steve Ashley - Robert W. Baird

And how many of those do you know were in the U.S?

Jack Noonan

One moment, four.

Steve Ashley - Robert W. Baird

Great. And then lastly, just geographic I wonder if you could maybe give us the revenue growth year over year for like Americas, United Kingdom and Japan, some of those geos. Thank you.

Jack Noonan

Sure, in terms of growth rate by geography, the United States 8% up on the year, Europe overall up 16% on the year, the other countries we single out that you’ll find indicate the U.K was up 14%, the Netherlands was up 21% and that’s within that European total Japan up 3% on the year, Pacific Rim 8% international total was 14. So that evens up overall to the 11% revenue growth overall.

Steve Ashley - Robert W. Baird

Perfect, thank you.

Operator

Your next question will be from the line of Sean Jackson of Avondale Partners.

Sean Jackson - Avondale Partners

Good evening guys can you hear me? Can you talk about your partner program which partners are you seeing the most traction and some of the newer ones that you signed up, how much contribution are you expecting from those going forward.

Douglas Dow

Sean, its Doug. I mean I’ll take a start at this and perhaps we’ve got some other comments to add but I think the key thing is what we’ve seen consistent with the third quarter is a good amount of partner assisted deals with companies like Oracle, IBM, HP. We’ve seen a little bit of change quarter to quarter in the ranking for example, as I recall in the third quarter IBM was in the mid single digits, we were showing 11 deals with IBM in the fourth quarter. HP had a fairly high number of deals, that was 2 in the quarter and Oracle coming in at 5 for the quarter. So again, what’s consistent is those kind of names quarter after quarter with the number of deals changing a little bit from one quarter to another. I think the other perspective as Jack said in the comments is we’re looking to do OEM deals but we also know that’s got a fairly long lead time from signing the deal to revenue production. So for example with the Business Objects deal while that was signed in the last quarter, we’re expecting to see revenues from that in the second half of the 2008 time frame. Its going to take a while to complete some of the integration work, its going to take some time to get it to market, so we think it’s a layering effect that we hope to add the OEM pieces on top as we go forward.

Sean Jackson - Avondale Partners

Okay, thanks appreciate it. And on the expense side, real quick the restructurings that you’ve done, I assume the cost savings are going to be in the R&D line mostly.

Jack Noonan

Primarily in the R&D line. It’s the closure of the R&D facilities, there were some other organizational charges, that would be where the bulk is.

Sean Jackson - Avondale Partners

Okay, so given that, are you expecting a decline in ’08 in R&D expense versus ’07?

Jack Noonan

Probably more flattish.

Sean Jackson - Avondale Partners

Okay, and the one metric I didn’t hear is the fourth quarter ’07 capitalized software number.

Jack Noonan

You’re asking what is that number for the fourth quarter?

Sean Jackson - Avondale Partners

Correct, yes.

Jack Noonan

Hang on. Capitalized software for the fourth quarter was about 2.7 million.

Sean Jackson - Avondale Partners

Okay, all right, thanks.

Operator

Your next question comes from the line of Peter Gomaker of Cohen & Company.

Peter Gomaker - Cohen & Company

Hi guys, a couple quick questions. Did any of your contract terms vary in the fourth quarter than they have from previous quarters or previous 4Q’s in that you were discounting more or less or bundling more or less product and also everybody’s very concerned about the macro slowdown. If we saw—if one was happening, what do you think—how do you think you guys would see it first. Thanks.

Jack Noonan

Okay, two questions nothing unique in the transactions in the fourth quarter versus other quarters. So we continue to see more transactions with more combinations of products sold which is good that’s why the transaction value is going up and then I don’t know how to speculate on the future, but the good thing about our technology, is it has value in an up market and it has value in a down market. What you see more in an up market is revenue optimization and what you see in a down market is cost optimization. And our stuff works on both sides. So that’s the neat thing about our technology, you kind of change the name to protect the guilty, but the same stuff focuses on improved productivity and that cost savings and revenue generation both.

Peter Gomaker - Cohen & Company

Okay, thanks Jack.

Operator

Your next question will come from the line of Nadill Osheshe of Pacific Crest Securities.

Nadill Osheshe of Pacific Crest Securities

Hey guys, just a couple quick questions. On the share account what’s your assumption for ’08 in that guidance.

Jack Noonan

It should go up a little bit around 20, we’re right now down around 19.3, .4 depending on whether or not we buy more shares back but generally they’ll be a slight increase net net over the entire year so 20 is probably not a bad number.

Nadill Osheshe of Pacific Crest Securities

Okay great. And then just the follow up on that macro thing. I mean you guys I guess are half way into your Q1. Do you have any commentary on what you guys are seeing out there right now? Have you seen any changes from Q4 or the middle of last year?

Jack Noonan

No, about the only thing that affects our market is of course we’re a large supplier in the market research space, there’s talk of closing down some call centers and things but for the most part, a little bit of feed back in Europe but they’re worried about the U.S. economy. That’s the kind of feed back we’ve gotten from our channel. So for the most part, we’re kind of executing against our pipe a little bit of feed back that’s coming from Europe and a little bit from the market research community.

Nadill Osheshe of Pacific Crest Securities

Okay, great, thank you very much.

Operator

Your next question will come from the line of Frank Sparacino of First Analysis.

Frank Sparacino - First Analysis

Hi guys, I was wondering if you would just talk a little bit more about dimensions I know there was supposed to be a significant release toward the end of the year, maybe update us on that and secondly, things that you’re doing differently with respect to ’08 that gives you confidence you can actually grow that business going forward.

Jack Noonan

This is Jack. It was a significant release, it’s focused on a number of things, we have another one coming up at the end of this year also, so we’re shortening the cycle on the releases to bring more technology out driven mostly around usability versus scalability. What we’ve shown is we’ve consistently this year, been able to increase the transaction volume, we’re moving more of this technology through our inside channel also at lower price points which says when you look at what’s going on in the market, our transaction growth is actually ahead of the market growth. What we’ve been is the supplier of the large deals and what we’ve been doing is growing the small deals and competing very well, I believe, with the smaller players in the market place. So as we’ve pretty much wiped out the large transactions this year, our year over year comparison should be quite good when we walk into 2008.

Frank Sparacino - First Analysis

Jack can you tell me what the growth in the transaction volume was in ’07 versus ’06?

Jack Noonan

For the full year, Doug do you have that? I’ve got it for the fourth quarter it was 33% for the fourth quarter. We were up a third almost to the penny.

Douglas Dow

And for the year, it more was like 25% and Frank what we saw was the transaction volumes increasing in Q3 and Q4 was where the real pick up started to occur.

Frank Sparacino - First Analysis

And then just maybe my last question again I mentioned do you think when you look at ’08 that some of the large deals will come back, I mean my understanding is the market was in a bit of transition given a lot of consolidation and perhaps those people were rationalizing and start to move forward they’ll see some big deals come back, is that your expectation or no?

Jack Noonan

The transactions we did in 2007 were large. Now do I expect some in the middle of the road in the six figure the mid to mid six figure range which we haven’t seen much of, yeah I expect a few of those to come back this coming year. But I don’t expect this thing to be driven going forward by large transactions. I also expect this technology, when you focus on the EFM space which is outside the market research space, it also plugs in with our deployment technology and that you see an entry level and then continued growth of that deployment. So we’re expecting to see existing deployments continue to grow along with the number of new transactions with new name accounts.

Operator

Your next question is a follow up from the line of Steve Ashley of Robert W. Baird.

Steve Ashley - Robert W. Baird

Great, just a couple follow ups. The restructuring charge of $2.7 million in I believe that was in the fourth quarter, is that a pre-tax number and if it is do you know what the impact was after tax or to earnings?

Jack Noonan

That is a pre-tax number and the EPS was about 8 cents in the quarter.

Steve Ashley - Robert W. Baird

Perfect, and we talked about currency, it looks like it was maybe a million dollars better than maybe I want to say the guidance or where you pegged it, was there any impact on expenses from currency in the period.

Jack Noonan

Well yeah, I mean what happened earlier in the year, particularly in the first and second quarter the help we were getting in revenue was pretty much wiped out by the increase in expenses so similarly in this quarter when the dollar got so weak, much more than we would have anticipated and you’re right about how we did our guidance. It would have been foolhardy to look at it being that bad for the fourth quarter so we did get a little more help on the revenue side, but we also got hit pretty hard on the expense side as well. What it did though is decide to the numbers made it somewhat disproportionate such that there was an earnings impact overall of about 4 cents on the total bottom line in the quarter because of currency. About 4 cents favorable net net.

Steve Ashley - Robert W. Baird

Perfect and just lastly we talked about capex maybe being flattish year over year, how about capitalized software expenses in 2008. Where might we…

Jack Noonan

Again I think that’s going to be back in line about flat. We’re done with project that we did offshore, that was completed at mid-year as we planned and part of the reason why you’re seeing very little difference in the total now this year versus last year’s capitalized software is we’re getting back to normalcy.

Steve Ashley - Robert W. Baird

And so, I’m kind of flipping to find a number here but was that around $13 million and that’s what we can look for again in ’08?

Jack Noonan

Approximately 13 would not be a bad number.

Steve Ashley - Robert W. Baird

Perfect, thanks.

Operator

As a reminder that is star one for a question. And there are no more questions at this time. I will turn the call back over to Jack Noonan for closing remarks.

Jack Noonan

Well thanks everyone for spending the time to hear about SPSS and its fourth quarter results.

Operator

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

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