Lawson Software Inc. (LWSN) yesterday reported revenues of $169 million in the first quarter of fiscal 2010, down 11% year over year and down 9.1% sequentially, but in line with management’s guidance of revenues between $160 million and $165 million. Excluding the unfavorable movement in exchange rates, revenues were down 6%.
Lawson provides enterprise resource planning (ERP) software solutions and professional services to mid-market enterprises in the health care, retail, public and professional service industries. Lawson derives its revenue from software license fees, customer support and maintenance fees and consulting fees.
License fees grew 23% year over year, driven primarily by increases in healthcare, public sector and equipment service management & rental vertical markets. Maintenance services declined 4%. Consulting revenues declined 29%, driven by fewer billable consultants. The company reduced the size of its consulting staff as part of a strategy to move more implementation services to its partner channel, as well as due to lower bookings for consulting and implementation services.
Gross margin improved to 57.2% from 50.4% in the year-ago quarter. Operating expenses declined 19% as a result of cost-cutting activities undertaken by the management. Thus, operating margin improved to 11.2% from 3.2% in the prior quarter. EPS of 9 cents easily beat the Zacks Consensus Estimate of 4 cents. Currency fluctuations positively impacted EPS by one cent.
Going forward, management expects revenues between $175 million and $180 million in the second quarter of 2010. EPS is estimated to come between 7 cents and 9 cents. For full fiscal 2009, the company expects EPS to increase by 8% to 10% compared to fiscal 2009.
Lawson also announced that it will reduce headcount in consulting services in Europe by approximately 75 positions. The majority of reduction is expected to be completed by the end of the second quarter and result in pre-tax charges of approximately $4 million in severance pay and related benefits.
As a result of these actions, management expects to save approximately $7 million. The company is currently resizing its services business in light of current demand for consulting and implementation services in Europe.
In fiscal 2009, Lawson took actions to reduce costs in response to the current global economic downturn and to vertically align the company’s organization structure. The company continues to reorganize its operations in 2010. The reorganization has led to improvement in margins, which partially offset the impact of lower revenues.
Meanwhile, the increased competition from Oracle (ORCL), SAP AG (SAP), JDA Software (JDAS), Microsoft (MSFT) and others continue to put pricing pressure on the company.
In particular, SAP AG and Oracle Corporation, both being large global ERP vendors, are increasingly targeting mid-sized businesses as their traditional larger-customer market is becoming more mature, which continues to put competitive pressure on the company.
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