Lawson Software Reports First Quarter Fiscal 2009 Financial Results

ST. PAUL, Minn., Oct. 2, 2008 – Lawson Software, Inc. (Nasdaq: LWSN) today reported financial results for its first quarter of fiscal year 2009, which ended Aug. 31, 2008. Lawson reported GAAP (generally accepted accounting principles) revenues for the quarter of $190.9 million, up 2 percent from revenues of $187.4 million in its fiscal 2008 first quarter. The revenue increase was driven by 13 percent growth in maintenance revenues due to customer maintenance renewals at standard annual price increases, customer migrations to Lawson Total Care premium support and new customer contracts. Offsetting the maintenance revenue increase was a 17 percent decrease in license fees and a three percent decline in consulting revenues. License fees declined due to lower revenue from M3 sales in EMEA and lower revenue from S3 sales in the Americas outside the company’s targeted industries. Consulting revenues declined due to lower billable headcount, lower utilization in certain regions and third-party services decreased in line with expectations.

First quarter GAAP net loss was $2.5 million, or $0.01 per share, compared with net income of $5.6 million, or $0.03 per diluted share, in the first quarter of fiscal 2008. The decline in net income is primarily attributable to an increase in the provision for income taxes and lower interest income resulting from lower investment balances along with lower yields on those investments. In addition, the results include a reduction to GAAP and non-GAAP net income of $1.9 million for sales incentive compensation expense that should have been recorded in the fourth quarter of fiscal 2008. Lawson has determined that this sales incentive compensation expense was immaterial to all quarterly and annual periods of fiscal 2008 and is not expected to be material to fiscal 2009. Currency fluctuations had a negative impact of nearly $0.02 on net earnings per share. Refer to Table 1 attached to this release for a summary of the impact of currency fluctuations to Lawson’s year-over-year performance.

Included in the reported GAAP net income and earnings per share results are pre-tax expenses of $4 million for amortization of acquired intangible assets, amortization of purchased maintenance contracts, purchase accounting impact on consulting costs, restructuring charges, a pre-merger claims reserve adjustment and $1.8 million of non-cash stock-based compensation. Excluding these expenses and including $0.3 million of maintenance and consulting revenue impacted by purchase accounting adjustments made to the opening deferred revenue balances acquired from the former Intentia International AB and other acquisitions, non-GAAP net income for the first quarter of fiscal 2009 was $8.7 million, or $0.05 per diluted share. Non-GAAP net income per share includes a non-GAAP provision for income taxes based upon an estimated rate of 35 percent. Non-GAAP earnings per diluted share of $0.05 decreased year over year from $0.07 in the first quarter of fiscal 2008.

“In our first fiscal quarter, we saw mixed results,” said Harry Debes, Lawson president and chief executive officer. “Relative to our guidance, sales of our S3 solutions in healthcare and public sector performed well but sales of M3 in the Americas and Europe were weaker than forecasted. This resulted in flat year-over-year software contracting. Services revenues and utilization were weaker than forecasted particularly in certain European regions. However, our maintenance business continues to deliver excellent results. Despite this slower start to the year, we remain committed to our goal of improving profitability but there’s no doubt that current economic conditions make this more challenging.”

Financial Guidance
For the second quarter of fiscal 2009, which ends Nov. 30, 2008, the company estimates total revenues of $205 million to $215 million. The company anticipates GAAP fully diluted earnings per share will be $0.03 to $0.06. Non-GAAP fully diluted earnings per share are forecasted to be between $0.07 and $0.10, excluding approximately $8 million of pre-tax expenses related to the amortization of acquisition-related intangibles, amortization of purchased maintenance contracts, stock-based compensation charges and purchase accounting adjustments for acquired deferred revenue balances. The non-GAAP effective tax rate for fiscal 2009 is anticipated to be 35 percent which the company intends to apply consistently throughout the fiscal year.

The company is evaluating its outlook for fiscal year 2009 which ends May 31, 2009. Based on the softening economy and other factors, it is unlikely to achieve its prior fiscal year 2009 guidance. The company will provide revised fiscal year guidance during its second quarter conference call to be held in January 2009.

First Quarter Fiscal 2009 Key Metrics
Cash, cash equivalents, marketable securities and investments at quarter-end were $363.8 million (including $2.4 million of restricted cash), compared with $488.6 million (including $2.8 million of restricted cash) on May 31, 2008.
11.5 million shares were repurchased in the first quarter through a $100 million accelerated share repurchase.
Total deferred revenues were $275.1 million, including $57.8 million of deferred license revenues, compared with the May 31, 2008, balance of $312.6 million, including $54.6 million of deferred license revenue. Total deferred revenues declined primarily due to deferred maintenance revenue as the company’s renewal dates occur in the fiscal third and fourth quarters.
Days sales outstanding (DSO) at quarter end were 68, compared with 71 on May 31, 2008.
The company signed 216 deals, compared with 294 in the first quarter of fiscal 2008. Average selling price of all deals increased to $123,000 compared with $89,000 a year ago.
Thirty-one new customer deals were signed, compared with 27 in the first quarter a year ago. Average selling price of new customer deals was relatively flat at $306,000 compared to $308,000 a year ago.
One deal greater than $1 million and nine deals between $500,000 and $1 million were signed, compared with six deals greater than $1 million and four deals between $500,000 and $1 million in the first quarter fiscal 2008.
The Americas region represented 55 percent of total revenue; Europe, Middle East, and Africa region represented 41 percent of total revenue; and Asia-Pacific represented four percent of total revenue.
Key customer wins: Americas – Cancer Treatment Centers of America; City & Borough of Juneau, Alaska; Fresno Unified School District; Montana State Fund; Munson Healthcare; ProHealth Care; and Robert Wood Johnson University Hospital. EMEA – Estrella Maarud; Fonderie du Poitou Aluminium; and O'Neill. Asia-Pacific – Daizo.

In light of the $1.9 million out of period adjustment associated with the previously mentioned sales incentive compensation expense, the company is evaluating its internal controls over financial reporting as they relate to sales incentive compensation, and management's previous assessment of internal controls over financial reporting as of May 31, 2008, included in the company's fiscal 2008 Form10-K. As always, quarterly results and disclosures are not deemed final until the company files its Form 10-Q, which the company expects to file on a timely basis.