Lawson Says S3 Selling Nicely, and M3 Is Recovering
October 4, 2010 Timothy Prickett Morgan
Uncle Sam helped out Lawson Software in its first quarter of fiscal 2011 ended August 31 in a big way by charging the company less taxes than it did in the year ago quarter. So even though Lawson’s overall sales were up only 3 percent, to $174.7 million, in the quarter and operating expenses rose by 5 percent, the company was nonetheless able to boost net income by 61 percent, to $9.6 million.
In the quarter, Lawson’s software license fee revenues were $24.5 million, down 6 percent, but in a conference call with Wall Street analysts, Harry Debes, president and chief executive officer at the company, said that software license contracting was up 21 percent, to $21 million, compared to the year-ago period. Contracts for the S3 suite (which came from the Lawson side of the Lawson-Intentia merger) rose by 38 percent in the quarter. When you add Healthvision and S3 contracts together in the quarter, the figure is nearly double from a year ago. The company’s human capital management (HCM) suite drove 25 percent of contracts in fiscal Q1, and this business is now driving at an annual run rate of more than $100 million.
Debes said that the M3 suite (which comes from the Intentia side of the merger and which has its roots in the AS/400 base) had “pockets of improvement,” with contracting up 4 percent and driven by the consumer vertical in Asia/Pacific, where contracting was up three times that of last year. (Asia/Pacific accounted for just 6 percent of the company’s overall revenues in fiscal Q1, however.) In Europe, Debes said that the M3 suite, in terms of both license and maintenance sales, had a “pretty strong quarter,” but that it was tough sledding. “Europe still is a difficult and challenging environment when it comes to macroeconomic conditions.” explained Debes. “So it’s tough, and we’re fighting for every dollar.”
The M3 business hit operating profitability, with 3 percent margins in the quarter (compared to a 2 point loss a year ago) but still far lower than the nearly 25 percent operating margin Lawson had across the S3 products.
Summer vacation schedules for both employees and customers and four quarter restructurings and layoffs also hurt revenues in the quarter. Europe takes its holiday very seriously–meaning Europeans, unlike a lot of Americans, actually get lots of vacation time and take all of it.
Debes added that the addition of Healthvision, which Lawson acquired in January, and strong renewals for the S3 product helped push up sales.
Maintenance service fees were up 11 percent, to $94.7 million, and that pushed overall software sales up 7 percent, to $119.2 million. Consulting revenues fell by 4 percent, to $55.5 million in the quarter.
Lawson has $340 million in cash and equivalents in the bank and a little more than $100 million net of debts; the company has $273 million in deferred revenues. The company has been in worse financial shape and is plugging along.
Looking ahead, Lawson’s chief financial officer, Stefan Schulz, said in the call that Lawson expected sales in the second quarter of fiscal 2011 ending November 30 will be in the range of $184 million to $189 million, with GAAP earnings per share in the range of 4 cents to 5 cents, which is a bit lower than the 6 cents per share in net earnings Lawson had in Q1.