Lawson Software Guidance Disappoints

The company's fourth-quarter forecast falls short.
Author:
Publish date:

Updated from 4/03/08

SAN FRANCISCO --

Lawson Software's

(LWSN)

third-quarter revenue and fourth-quarter forecast disappointed Wall Street Thursday, but not due to a weakening market, executives said.

Unlike competitor

Oracle

(SYMBOL)

, which

reported having difficulty closing deals

in late February, Lawson executives say they've seen no slowdown in sales.

Executives were bullish on the conference call, noting that Lawson beat out both Oracle and

SAP

(SAP) - Get Report

for its largest deal signed in the quarter, which was with a U.S. company. The upfront payment went entirely into deferred revenue, helping to boost the pipeline, Lawson President and CEO Harry Debes said.

In fact, "Productivity per sales rep is way up," Debes added.

The St. Paul, Minn.-based company posted revenue of $212.9 million, up 11% from revenue of $191.2 million for the same period of last year. But analysts were expecting a top line of $217.2 million, according to Thomson Financial.

The revenue shortfall came primarily in Lawson's European consulting business, CEO Harry Debes said on the conference call. The company has already replaced some managers there, but the problems became apparent too late in the quarter for the company to react. Debes said he is confident that Lawson won't repeat that "speedbump" in the current quarter.

Lawson reported net income of $727,000, or break-even on a per-share basis, vs. a loss of $9.8 million, or 5 cents a share, in the year-ago period.

The bottom line took a hit as the company recorded a charge of $10.3 million to reduce the value of its auction-rate securities to their new estimated fair value. Lawson had already taken a $5 million charge for the same purpose in the prior quarter.

Excluding items, EPS was 8 cents, in line with analysts' expectations.

In constant currency, license fees were up 17% year over year to $32 million, maintenance rose 11% to $84.6 million, and consulting was down 2% to $96.3 million.

Total deferred revenue during the quarter rose 22% to $216 million. The increase was largely due to deferred maintenance revenues from the company's Jan. 1 annual contract renewal date for international customers, the company said in a statement.

Shares were down 40 cents, or 5%, to $7.60 in after-hours trading.

Lawson projected fourth-quarter revenue of $225 million to $230 million and EPS, less items, of 8 cents to 11 cents. Analysts were expecting revenue of $230.9 million and EPS of 12 cents.

Typically a seasonally slow period, the fourth quarter will have a tough comparison with the prior year, which was a "blowout," Debes said in an interview. "People were expecting that we couldn't repeat that. We expect to exceed last year's Q4 numbers. We are not disappointed in our guidance," he added.

The guidance "reflects impacts of lower interest yields on cash" and a move into securities with shorter-term maturities that reduced the rates Lawson is earning by about a penny a share for the fourth quarter, CFO Rob Schriesheim said.

Debes and Schriesheim said the European consulting business, a 2006 acquisition, fell short in the third quarter as projects ended, leaving consultants idle before new projects began.

"It was not a change in demand for consulting services," Schriesheim said. "It was fundamentally an execution issue," with the unit failing to meet its targets.

During the quarter, the company repurchased 5.5 million shares for $48.9 million.

Know What You Own

: LWSN operates in the application software industry, and some of the other stocks in its field include

Microsoft

(MSFT) - Get Report

,

IBM

(IBM) - Get Report

and

Red Hat

(RHT) - Get Report

. These stocks were recently trading at $28.88, -0.42%, $115.42, -0.52% and $20.02, -0.89% respectively. For more on the value of knowing what you own, visit TheStreet.com's

Investing A-to-Z

section.