Lawson Sees Red Ink In Fiscal Third Quarter

Published: April 19, 2007

by Timothy Prickett Morgan

Last week, Lawson Software reported its financial results for its fiscal 2007 third quarter, and the numbers show that it is still digesting its acquisition of Swedish ERP competitor Intentia International.

Lawson said that it booked $191.2 million in sales in the third quarter, which ended February 28, with $26.4 million coming from software license fees, $73.3 million coming from maintenance fees, and $91.5 million from consulting and implementation services. Overall, Lawson's sales in the quarter rose by 118 percent, and the company said that most of that growth was attributed to adding Intentia's revenue stream to its own. The company's gross profits did not keep pace with that revenue growth, rising only 75 percent to $91.5 million. While the combined research and development operations of the company only grew by 42 percent to $20.3 million (implying that Lawson was able to get savings in this area) and sales and marketing costs rose by 125 percent, only slightly outpacing the combined revenue growth, general and administrative costs rose by 167 percent to $25.7 million, and the company also booked $11.5 million in restructuring costs and $2.5 million in write-downs of assets. That forced Lawson into an $8.3 million operating loss and after other adjustments and paying taxes, it had a net loss of $9.8 million.

These numbers just show that it is really hard to merge to software companies, but the argument that Lawson is better able to compete against much bigger rivals through this combination and a focus on the midrange market is hard to argue. Lawson closed the quarter with more than $286 million in cash and marketable securities, more than it had a year ago by its lonesome. It also has $182.3 million in deferred revenue stacked up, too.

"We executed well on many levels during the third quarter," said Harry Debes, Lawson's president and chief executive officer, in a statement accompanying the financial results. "We met or exceeded our financial commitments for revenues, expenses and non-GAAP earnings per share. In addition, our maintenance renewals came in strong from our Lawson M3 customer base, our cash flow from operations improved, our consulting services margin improved, we outlined our transformation plans for our new global operations and began to execute those plans, and our sales pipeline grew for the fourth consecutive quarter. Although we still have more to work to do, we made strong progress on our customer commitments and company goals during the third quarter."

Lawson provided Wall Street with guidance for the fiscal fourth quarter ending May 31, saying that it expected sales to be between $187 million and $195 million. On April 2, the company said that earnings would be lower than expected in the quarter because of the restructuring charges, and Wall Street shrugged it off. Lawson's stock is trading at a 52-week high, giving it a market capitalization of $1.7 billion, up about 13 percent so far in April.

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