Lawson Software Has Ups and Downs in Fiscal Q1

Published: October 5, 2009

by Timothy Prickett Morgan

Midrange ERP application maker Lawson Software has finished out its first quarter of fiscal 2010, and the results are mixed as they have been for all hardware and software suppliers, but there are hopeful signs in Lawson's most recent quarter that the economy might be stabilizing.

For the quarter ended August 31, which is the end of Lawson's first quarter of fiscal 2010, the company's sales fell by 11 percent to $169 million. Any decline is not great news, of course, but this one is in line with other application software makers, and when reckoned in local currencies, global revenues for Lawson only fell by 6 percent. That's not the bright spot I was thinking about. But this is: Lawson said that in fiscal Q1, software license fees rose by 23 percent to $25.9 million (up 28 percent at constant currency).

This being an economic meltdown, just because software license fee sales were up, something would have to drop, and in this case, Lawson had a relatively minor decline of 4 percent in software maintenance services, to $85.4 million, and a rather dramatic 29 percent decline in consulting services revenues, to $57.6 million. Lawson's top brass says that it has cut back on the size of its consulting staff in a move to shift more implementation services to its channel partners, which accounted for some of the declines, but some of it was simply due to lower consulting sales. Lawson said it has cut 75 employees, primarily in its consulting services units in Europe, and that the layoffs will cost it around $4 million but will result in a annualized cost savings of $7 million.

By keeping a tight rein on costs, Lawson's gross profits were flat at $96.7 million, and by slashing research and development costs by 6 percent (to $20.6 million) and sales and marketing costs by 23 percent (to $35.9 million), the company was able to book an operating income of just under $19 million, more than triple that of the year-ago quarter. After paying taxes and interest, Lawson brought just under $6 million to the bottom line printed in black ink, which is a lot better than the $3.7 million in red ink it had in the first quarter of fiscal 2009.

Lawson has burned a bit of cash since May, and is now down to $391.3 million. The company has $224.3 million in long-term debt, so it does have net cash if it wants to make some acquisitions. The company has $257 million in deferred revenues, down from $275.1 million in the year-ago quarter and from the $292.5 million level at the end of fiscal 2009 at the end of May this year.

On a geographic basis, Lawson had $106.1 million in sales in the Americas, up 1.3 percent, while sales in Europe, the Middle East, and Africa took a dive by an astounding 29.4 percent to $55.4 million. Lawson's Asia/Pacific business has always been small, and in fiscal Q1, it got smaller again, shrinking 3.9 percent to $7.4 million.

Lawson said that it did 134 deals in the quarter, which is a lot lower than the average of 302 deals it did each quarter in the prior four quarters. Some 17 of those deals were to new customers, a little more than half of what it did in the first quarter of fiscal 2009 but about what it tends to do; the remaining 117 deals were to existing customers, which is where the shortfall in the deal count seems to be. Lawson tends to have a really good fourth fiscal quarter, where it closes twice as many deals as it does in a normal quarter, so there is still plenty of time for Lawson to make up the deal count in fiscal 2010. The company did five deals worth more than $1 million in the quarter, but only three deals with between $500,000 and $1 million in value. This quarter, it seems, was saved by the booking of deferred revenues from prior quarters more than by new deals.

For the quarter ending November 30, Lawson is projecting that it will have revenues of between $175 million and $180 million, and that earnings per share will be somewhere between 1 cent and 3 cents.

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