Lawson Software Inc. squeaked out a 2% gain in total revenue for its fiscal 2009 first quarter, despite a 17% decrease in software license fees. The anemic sales couldn’t offset expenses that pushed the company into the red.
The ERP provider reported total revenue of $190.9 million, boosted by 13% growth in maintenance revenue. Consulting fees were down 3%. Lawson recorded a net loss of $2.5 million, reversing a year-earlier gain of $5.5 million.
Contributing to the loss were higher taxes and lower interest income from investments, a $1.9 million reduction for sales incentive compensation expense that should have been recorded in the fourth quarter, and currency fluctuations. Also included in the GAAP earnings result were amortization and restructuring charges and other expenses. However, operating income of $6.2 million was up 14% from a year ago.
Company executives attempted to put the disappointing showing into context on a conference call with analysts late yesterday. Rather than blaming macroeconomic factors, they pointed to traditional first-quarter weakness coming off an exceptionally strong finish to fiscal 2008’s fourth quarter.
Noting that nearly half of Lawson’s business is in Europe, which all but shuts down for vacations in the month of August, Harry Debes, Lawson’s CEO, characterized Q1 as “typically our weakest quarter.” Also, a strong fourth quarter “may have drained a little bit of the pipeline” in the new quarter. He acknowledged that six forecasted first-quarter deals slipped into the second quarter for want of customer sign-offs; five were signed immediately after the first quarter close. Debes admitted to “sloppy execution on our part,” adding, “sometimes deal velocity doesn’t go as planned.” He assured analysts the company is taking steps to sharpen its license contract performance.
The revenue bright spot was maintenance, which the company attributed to strong renewals, new contracts, and customer migrations to its Total Care premium support program.
Lawson signed 216 deals in the quarter, down from 294 in the year-earlier period. The average selling price, however, increased to $123,000 from $89,000 a year ago. Thirty-one new customer deals represented a 27% increase from a year ago. Lawson landed one deal worth more than $1 million and nine deals between $500,000 and $1 million.
The Americas region accounted for 55% of total revenue; Europe, Middle East, and Africa, 41%; and Asia-Pacific 4%. Debes reported that M3 manufacturing software sales in the United States were weak in the first quarter, but he anticipates a return to fiscal 2008 strength going forward.
Deferred revenue was $275.1 million, including $57.8 million of deferred license revenue, down from a May 31 balance of $312.6 million. The decline was primarily due to deferred maintenance revenue; renewal dates occur in the fiscal third and fourth quarters. Also, Lawson bundles its software with premium maintenance contracts and hosting services, which triggers accounting rules necessitating the deferral of revenue until payment comes through. Debes indicated this is a mixed blessing, as it makes software revenue more predictable.
Lower consulting fees were attributed to a shortfall in headcount, lower utilization in specific regions, and third-party services declines. Lawson has been shifting the bulk of this business to Manila, the Philippines, where the company continues to add personnel. Debes said the services business helps to differentiate Lawson in the market and the company will focus on increasing its margins toward 20%. However, he cautioned that services revenue would be down 7% to 8% for the year, since it will be difficult to recoup the first-quarter shortfall.
To help whip its services business into shape, Lawson has hired Eric Verniaut as executive vice president of Lawson professional services. On Nov. 3, Verniaut, 42, will join the company from T-Systems Enterprise Services, where he was chief executive officer of T-Systems North America and chairman of the Americas region. Verniaut will be based at Lawson headquarters in St. Paul and will report directly to Debes.
Debes stated that Lawson has not yet seen the effects of the macro-economic uncertainty that quickly spread around the globe in September, although he anticipates that companies are re-evaluating their spending plans in light of a threatened credit freeze. With those factors in mind, he provided guidance for the second quarter but said a revision of full-year projections would be deferred 90 days. For the second quarter, ending Nov. 30, Lawson anticipates total revenue of $205 million to $215 million and GAAP EPS of $.03 to $.06. Debes stated that license bookings and revenue will grow in the coming quarter.
The CEO pointed to Lawson’s transformation of its business following the 2006 acquisition of Intentia International AB as proof that it can weather the challenges ahead.