ERP provider Lawson Software Inc. reported a whopping 118% year-over-year increase in revenue for its 2007 third quarter — its third full quarter incorporating its prolonged acquisition of Intentia International AB — but the company failed to turn a profit.
Lawson reported a GAAP (generally accepted accounting principles) net loss of $9.8 million, or $0.05 per share, in the quarter ended Feb. 28, 2007, reversing year-earlier net income of $10 million, or $0.09 per diluted share.
The company attributed the loss to costs and operating expenses related to the Intentia acquisition, which has taken more than a year to accomplish. Also, the company took a restructuring charge of $11.5 million in the quarter for severance and related benefits for roughly 350 positions that will be eliminated in the United States and Europe over the next year as work is shifted to a global support center in the Philippines to reduce operating costs. Lawson expects to fully realize the benefits of this shift in fiscal 2009.
Despite the red ink, Lawson president and CEO Harry Debes remained upbeat about the combined company's progress on a conference call with analysts yesterday afternoon. "The third quarter showed good progress on a number of important fronts," he said, including gaining control over costs. He added that the quarterly report "is more reflective of where we really are in [our] transformation."
Third-quarter revenue of $191.2 million — more than double the $87.7 million reported in the year-earlier period — reflected revenue from Intentia. That total included license fees of $26.4 million, up 75% from a year earlier; maintenance revenue of $73.3 million, up 64%; and consulting fees of $91.5 million, up a whopping 237%.
Debes noted that the company closed a total of 354 deals around the globe in the third quarter, at an average selling price of $88,000. These included 24 new customers at an average selling price of $373,000. Officials said Lawson beat out Oracle and/or SAP in several of those negotiations, including Quiksilver Japan and Belle Footware in the Asia-Pacific region, and Pinnacle Airlines in the Americas. Five deals in the third quarter exceeded $1 million and four came in at between $500,000 and $1 million.
By comparison, in the second quarter, Lawson signed 307 deals at an average selling price of $105,000. These included 27 new customers in deals averaging $420,000. Lawson reported second-quarter total revenue of $184.5 million and a GAAP net loss of $3.5 million, or $0.02 per share.
"Revenue increases and healthy renewal rates show customer confidence in our support business," Lawson CFO Rob Schriesheim said during the call with financial analysts.
Debes pointed to strong maintenance renewals from Lawson M3 middleware customers, improved consulting service margins, and growth in the sales pipeline as indicators of the company's progress. In addition, he noted that the January announcement of M3 version 7.1, in which the company separated the underlying technology from the M3 applications, will enable customers to upgrade to service-oriented architectures without incurring the costs of replacing their applications.
Another positive move has been to migrate to a global salesforce application that will give management deeper visibility into sales opportunities, country by country and market by market, Debes said during the question-and-answer session. He noted that the prior Intentia system wasn't consistent, making forecasting difficult.
Also, new account executive hires, which brought the total to 200, and key reseller agreements, such as one with IBM that sets the stage for on-demand versions of Lawson's products, position the company for growth in the near term, according to Debes. "We executed well on many levels during the third quarter," he said in a prepared statement. Even so, he acknowledged that license contracting was not as strong as expected.
Looking to the fourth quarter, Lawson said it anticipates revenue of between $187 million and $195 million, with per-share results of between a $0.02 loss and a $0.03 gain. Debes noted that the company will no longer provide license contracting guidance because of the difficulty in accurately predicting that aspect of the business.
"We have lots of work ahead, but we have accomplished much. We look forward to a less complicated 2008," Debes said.