New Customer Sales Pump Up Lawson Software's Q3

Published: April 17, 2008

by Timothy Prickett Morgan

Application industry juggernaut Oracle maybe have given Wall Street a scare a few weeks ago when it reported application software sales that were lower than expectations, but over at Lawson Software, new application software sales are up smartly. We'll have to leave it to the geniuses on Wall Street to figure out which is a better bellwether for the economies of the world. Maybe Larry Ellison was right and Oracle was just facing a tough compare in its most recent quarter?

Anyway, over at Lawson, the combination of the Lawson and Intentia application software lines and a business that spans North America and Europe and is growing in Asia got traction in the company's fiscal third quarter ended February 29. Software license fees rose by 21 percent to $31.9 million, which the company said was "driven primarily" by sales of software to new customers. Lawson said it had 27 new customer deals in the quarter, with an average sale price of $646,000 (a deal size that is 73 percent higher than a year ago for new customers), which accounted for $17.4 million in bookings. (It is not clear how much of that revenue is recognized in the quarter and how much is deferred.) Maintenance fees rose by 15 percent to $84.6 million. Consulting revenues increase by a more modest 5 percent to $96.3 million, and represent nearly half of the company's sales, but Lawson said that it saw a lower consulting engagement level than it had been anticipating in the quarter. Total sales rose by 11 percent to $212.9 million. While Lawson's sales picture has improved compared to the prior year, it needs to grow just a bit more to bring some real profits to the bottom line. In fiscal Q3, Lawson only reported a $727,000 net profit, which is not a lot, but then again, that is a lot better than the $9.8 million loss it booked in the year ago quarter.

"Our third quarter license revenues grew 21 percent, boosted by software license sales to new customers," explained Harry Debes, Lawson's president and chief executive officer. "Software contracting in the quarter was strong in all geographies and verticals. In fact, Q3 was the second strongest quarter for software contracting in Lawson's history as a public company, going back more than six years, exceeded only by our May 2007 quarter. We still have some challenges to address in our business, but the progress we are making continues to be substantial."

Lawson burned through some cash in the past three months--$41.6 million, to be precise--but is still sitting on a cash and securities hoard of $390 million. The company spent $48.9 million in the third quarter to buy back its own stock to pump up per-share earnings, which was part of a $200 million share buyback scheme that Lawson announced back in November 2006. To date, Lawson has spent $160.5 million on its own stock, and that works out to about 9.6 percent of outstanding shares.

Wall Street was once again not happy, however, since Lawson's third quarter came in a bit lower than expected and, moreover, the company's projections of fiscal fourth quarter sales of between $225 million and $230 million and earnings of between 8 cents and 11 cents per share. Wall Street was expecting the company to bring a few more pennies per share to the bottom line, and revenue growth of between 5.7 percent and 8.1 percent is not the same thing as showing sustained double-digit revenue growth.

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