Lawson Software Reports Second Quarter Fiscal 2009 Financial Results

GAAP net income rises 13 percent

ST. PAUL, Minn., Jan. 8, 2009 – Lawson Software, Inc. (Nasdaq: LWSN) today reported financial results for its second quarter of fiscal year 2009, which ended Nov. 30, 2008. Lawson reported revenues for the quarter of $206.4 million, down 6 percent from revenues of $218.6 million in its fiscal 2008 second quarter. Currency fluctuations negatively impacted GAAP and non-GAAP revenues by 5 percent as foreign currencies weakened substantially in the quarter compared to the U.S. dollar. License fees declined 9 percent, or 4 percent adjusted for currency, reflecting a lower level of software sales driven by the global economic conditions. Consulting revenues declined 15 percent, or 10 percent adjusted for currency, due to fewer billable hours resulting from a reduced number of consultants particularly in EMEA. Partially offsetting the decline in license fees and consulting revenues was a 6 percent increase, or 10 percent adjusted for currency, in maintenance revenues driven by customer renewals at higher average prices.

Second quarter GAAP net income was $4.2 million, or $0.03 per diluted share, compared to net income of $3.7 million, or $0.02 per diluted share, in the second quarter of fiscal 2008. General and administrative expenses decreased partially due to a $1.6 million favorable insurance settlement related to pre-merger litigation claims. When combined with reductions in sales and marketing and lower amortization expense for acquired intangibles these lower operating expenses offset a $7.7 million restructuring charge. Interest income declined due to lower investment balances and yields. Other income improved as the second quarter of fiscal 2008 included a $4.2 million impairment charge for auction rate securities. Net income also improved due to a decrease in the provision for income taxes. The company estimates currency fluctuations had a positive impact of less than $0.01 on net earnings per diluted share for the second quarter.

Included in GAAP net income and earnings per diluted share results are pre-tax expenses of $11.5 million for restructuring, amortization of acquired intangible assets, amortization of purchased maintenance contracts and pre-merger claims reserve adjustments as well as $2.9 million of non-cash stock-based compensation. Excluding these expenses and including $0.2 million of revenue impacted by purchase accounting adjustments, non-GAAP net income for the second quarter of fiscal 2009 was $16.6 million, or $0.10 per diluted share. Non-GAAP net income per diluted share includes a non-GAAP provision for income taxes based upon an estimated rate of 35 percent. The company estimates currency fluctuations had no impact on non-GAAP net earnings per diluted share for the second quarter. Non-GAAP earnings per diluted share of $0.10 increased year-over-year from $0.09 in the second quarter of fiscal 2008.

“Lawson delivered solid results in the quarter despite the difficult economic environment,” said Harry Debes, Lawson president and chief executive officer. “We met our revenue guidance and the high-end of our earnings guidance. Our primary goal for the quarter was to improve non-GAAP operating margin. We accomplished that goal, and achieved the highest level of operating margin since the merger with Intentia in April 2006.”

Six-Months Ended Nov. 30, 2008
Total revenues for the six months ended Nov. 30, 2008 were $397.3 million, down 2 percent from revenues of $406 million during the same fiscal 2008 period. Currency fluctuations accounted for a minor portion of the GAAP and non-GAAP revenue decline. GAAP net income was $1.7 million, or $0.01 per diluted share, declining from net income of $9.3 million, or $0.05 per diluted share in the comparable fiscal 2008 period. Decreases in sales and marketing, general and administrative and amortization of intangible expenses were offset by $7.5 million of restructuring. Lower total other income and an increase in the provision for income taxes were the primary reasons for the reduction in year-to-date net income. The company estimates currency fluctuations had a negative impact of less than $0.01 on net earnings per diluted share for the six-month period. In addition, the six-month results include a reduction to GAAP and non-GAAP net income of $2.1 million, primarily related to the $1.9 million adjustment reported in the first quarter, associated with sales incentive compensation expense that should have been recorded in the fourth quarter of fiscal 2008 and earlier periods. The company has determined that these expenses were immaterial to reported results for those periods. They are also expected to be immaterial to fiscal 2009 results.

Included in the six-month GAAP results are pre-tax expenses of $15.4 million for amortization of acquired intangible assets, restructuring charges, amortization of purchased maintenance contracts and pre-merger claims reserve adjustments as well as $4.7 million of non-cash stock-based compensation. Excluding these expenses and including $0.4 million of revenue impacted by purchase accounting adjustments, non-GAAP net income for the six months ended Nov. 30, 2008, was $25.3 million, or $0.15 per diluted share. The company estimates currency fluctuations had a negative impact of less than $0.01 on non-GAAP net earnings per diluted share for the six-month period in fiscal 2009. Non-GAAP net income per diluted share includes a non-GAAP provision for income taxes based upon an estimated rate of 35 percent. Non-GAAP earnings per diluted share of $0.15 were flat year-over-year compared to results for the six months ended Nov. 30, 2007.

Financial Guidance
For the third quarter of fiscal 2009, which ends Feb. 28, 2009, the company is providing guidance using foreign exchange rates as of the end of December 2008. The company estimates total revenues of $183 million to $187 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 $0.09, excluding approximately $9.5 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 expects to apply consistently throughout the fiscal year.
As a result of economic uncertainties the company is not providing updated guidance for fiscal 2009, which ends May 31, 2009. Prior fiscal 2009 guidance should no longer be relied upon.

Second Quarter Fiscal 2009 Key Metrics
Cash, cash equivalents, marketable securities and investments at quarter-end were $312.7 million (including $12.2 million of restricted cash), compared with $363.8 million (including $2.4 million of restricted cash) on Aug. 31, 2008. The sequential decline was anticipated as the company generates the majority of its cash during the fiscal third and fourth quarters from annual maintenance renewals.

Total deferred revenues were $197.5 million, including $50.1 million of deferred license revenues, compared with the Aug. 31, 2008, balance of $275.1 million, including $57.8 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. The deferred license revenue balance declined due to fewer deals and a lower deferral rate on deals signed in the quarter than deferred revenue recognized in the quarter.
The company signed 256 deals, compared with 331 in the second quarter of fiscal 2008. Average selling price of all deals was $96,000 compared with $107,000 a year ago.

The company signed 240 existing customers deals, compared with 294 in the second quarter a year ago. Average selling price of existing customer deals increased to $83,000 compared with $72,000 a year ago.

Sixteen new customer deals were signed, compared with 37 in the second quarter a year ago. Average selling price of new customer deals decreased to $292,000 compared with $373,000 a year ago.

Two deals greater than $1 million and nine deals between $500,000 and $1 million were signed, compared with two deals greater than $1 million and eight deals between $500,000 and $1 million in the second quarter of fiscal 2008.

Days sales outstanding (DSO) at quarter end were 59, compared with 68 on Aug. 31, 2008.
· The Americas region represented 56 percent of total revenue; Europe, Middle East, and Africa region represented 40 percent of total revenue; and Asia-Pacific/Australia-New Zealand represented 4 percent of total revenue.
· No shares were repurchased in the second quarter under the company’s share repurchase program. From the November 2006 inception of the program, the company has repurchased 29.4 million shares for $251.5 million, reducing the shares outstanding by approximately 16 percent compared with November 2006.
· Key customer wins: Americas – Idahoan Foods, LLC; Parkland Health and Hospital; Republic Services, Inc.; University of Mississippi Medical Center; and Workers’ Compensation Board of Manitoba. EMEA – Government of Tanzania; J.Barbour & Sons Ltd.; and Wema System AS. Asia-Pacific – Studio East Limited; and Wilcon Builders Depot.