Lawson Boosts Profits Even as Economic Meltdown Bites

Published: July 13, 2009

by Timothy Prickett Morgan

It is not an easy time to be selling application software and implementation services to IT shops right now, which are hunkered down awaiting the economic storm to die down so they can get back to sailing. Lawson Software, one of the key players in the Power Systems i platform, reported its fourth quarter and year end financial results for fiscal 2009 last week, and the numbers could have been worse.

For the fourth quarter ended May 31, total revenues at Lawson dropped by 20 percent to $186.2 million, but the company was quick to point out that at constant currency (meaning, looking at deals as done in their local currencies, not brought back to the United States and converted to dollars for the official bookkeeping), sales only fell by 11 percent. In the quarter, Lawson's software license sales fell by 19 percent to $33.6 million. Maintenance revenues, the gift that keeps on giving in the software business, accounted for $85.2 million in sales in Lawson's Q4, down 4 percent as reported but actually up 4 percent at constant currency. Consulting revenues, thanks to the rotten economy, plummeted by 34 percent to $67.4 million as companies slammed on the spending brakes in the fiscal quarter. (Consulting fees were down 25 percent even when looking through the more rose-colored constant currency glasses.)

Having already done layoffs back in December when the economic meltdown was in full swing, Lawson started benefiting from those cuts in this quarter. Thanks to cost-cutting and lower taxes, it was able to bring $9.85 million in net income to the bottom line in fiscal Q4, which was 168 percent more than the $3.68 million it booked in the year-ago quarter.

For the full fiscal 2009 year, Lawson's software license sales were down by 17 percent to $109.7 million, maintenance fees were up by 4 percent to $350.2 million, and consulting fees fell by 22 percent to $297.4 million. (I guess we all know now why Lawson was so keen on buying rival Intentia International. Maintenance revenue is a ballast in an economic storm.) Net income for the fiscal year rose by 38 percent to $18.9 million, which is a lot better growth than a lot of other application software companies are showing, but then again, Lawson is doing better against some pretty easy compares.

Based on currency exchange rates that were prevailing at the end of June, Lawson expects that it will have revenues of between $160 million and $165 million in its first quarter of fiscal 2010 ended on August 30, with earnings per share of between 1 cents and 3 cents, which works out to somewhere between $1.64 million and $4.92 million in net income, if Lawson doesn't buy back a lot of its shares. In the first quarter of fiscal 2009 a year ago, Lawson had sales of $190.9 million, but lost $2.52 million. Being able to profit with such a big decline (about 15 percent at the midpoint of Q1 fiscal 2010 projections) is something that won't make Wall Street or customers ecstatic, but both would rather have Lawson steering its way through this storm than not. Lawson has $414.8 million in cash and equivalents on hand, $279 million in deferred revenues, and $247.9 million in long-term debt.

There are worse positions to be in. For sure. But the economy is not behaving, and that's why Lawson didn't feel confident enough last week to provide any kind of guidance for all of fiscal 2010.

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