Lawson Software Inc. (LWSN: 7.45 -0.17 -2.23%) recently reported a 70% decline in net income in the fourth quarter of fiscal 2010. Net income came in at $2.6 million or 2 cents per share compared with $8.6 million or 5 cents in the year-earlier quarter.Excluding one-time charges but including stock-based compensation expense, earnings per share (”EPS”) came in at 10 cents, in line with the Zacks Consensus Estimate.
Revenues came in at $197 million, up 5.8% year over year and in line with management’s guidance of $194 million – $198 million. The growth in revenues was driven by an increase in license fees and maintenance services (in part from the Healthvision acquisition). This was partially offset by contraction in consulting revenues.
Lawson acquired Healthvision in mid-January 2010. Integration of Health Vision into Lawson’s Healthcare business unit is now complete, including sales and services, customer support and back office operations.
On a segment basis, license fees came in at $38.0 million, up 13% year over year, driven by sales of S3 and M3 strategic growth markets. The S3 business segment (including the health care, public sector and human capital management verticals) showed strong performance in the fourth quarter.
The M3 segment includes food, fashion, equipment services management and rental verticals along with Asia-Pacific and Latin American business. The economic and business recovery in Europe continues to lag other regions, which are straining the M3 business. On an organic basis, license revenues grew 8%.
Revenues from Maintenance services came in at $93.3 million, up 10% year over year. On an organic basis, maintenance revenues increased by 3%.
Consulting revenues came in at $65.7 million, down 3% year over year. Lawson ended 2010 with about 90 fewer billable consultants compared with 2009. The company continues to right size its consulting organization.
Margins:
Operating expenses came in at $89.5 million, an increase of 14% year over year. Half of the year-over-year increase was due to the addition of Health Vision. Currency pushed the expenses up another 1%, and the rest of the increase was largely due to increases in employee costs, reflecting the addition of headcount in key areas along with higher incentive compensation.
Operating margin (excluding one-time items and stock-based compensation expense) came in at 16.5% compared with 14.9% recorded in the year-earlier quarter. Income tax provision increased $5.6 million year over year, primarily due to changes in the jurisdictional mix of global taxable income. In the year-earlier quarter, Lawson recorded a tax benefit in 2009 relating to certain deferred tax assets. Consequently, net income declined $6.0 million year over year.Total deferred revenue at the end of the fourth quarter was $328 million, up from $208 million at the end of the third quarter, primarily driven by maintenance renewal cycle.
For fiscal 2010, Lawson reported revenues of $736.4 million, down 3% from fiscal 2009. Operating margin improved to 15.6% from 12.1% in the year-earlier quarter. Net income was $13.0 million, or $0.08 per diluted share compared with a net income of $14.2 million, or $0.08 per diluted share in fiscal 2009. Currency fluctuations had a negative impact of approximately 2 cents on the EPS.
Excluding one-time charges but including stock-based compensation expense, EPS came in at 32 cents, in line with the Zacks Consensus Estimate.
Guidance:
Going forward, Lawson will focus on three primary areas – maintain revenue growth, improve services margin and improve profitability in the M3 business. As part of management’s initiative to restructure and simplify the operation structure, the company decided to consolidate and eliminate positions in its M3 operations on a global basis in May.
Lawson expects to streamline its workforce by 150 to 200 positions, less than 5% of its total workforce. Going forward, the company plans to invest in its strategic S3 and M3 growth verticals, and therefore might increase its workforce in these areas in the coming twelve months.
Lawson projects revenues between $168 million and $172 million in the first quarter of fiscal 2011. Including approximately $2 million of revenues impacted by purchase accounting adjustments, revenues are estimated between $170 million and $174 million. EPS is expected at 1 cent – 2 cents. Excluding one-time items and stock-based compensation expense, Lawson projects EPS at 8 cents – 9 cents.
The unfavorable movements in foreign currency exchange rates are expected to reduce total revenue by $25 million in fiscal 2011 as 30% of total revenue comes from Europe . For fiscal 2011, revenues are projected at $751 million – $766 million. EPS is projected at 18 cents – 23 cents. Excluding one-time items and stock-based compensation expense, EPS is projected at 47 cents – 51 cents.Investors were clearly disappointed with the results and forecast. Shares dropped 3.54% to close at $7.35 in after-market trading. In regular trading hours, shares gained 0.13% to close at $7.62.
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