Lawson Software Inc. (LWSN)

F2Q2011 Earnings Call Transcript

January 6, 2011 5:00 pm ET


Barbara Doyle – VP, IR

Harry Debes – President and CEO

Stefan Schulz – SVP and CFO


Mark Murphy – Piper Jaffray

Stan Zlotsky – Deutsche Bank

Richard Williams – Cross Research

Ajay Kasargod – Morgan Keegan

Steve Koenig – Longbow Research

Peter Goldmacher – Cowen & Co.

Brad Sills – Barclays Capital

Mark Schappel – Benchmark

Neil Herman – Soleil Securities

Brian Murphy – Sidoti & Co.



Welcome and thank you for standing by. At this time all participants are in a listen-only mode until today's question-and-answer session. (Operator instructions) Today's call is being recorded. If you have any objections, you may disconnect at this time.

I'd now like to turn today's call over to Barbara Doyle. Ma'am, you may begin.

Barbara Doyle

Thank you, operator, and good afternoon to everyone on the call. This is Lawson Software's fiscal 2011 second quarter conference call. It covers performance for the quarter ended November 30, 2010.

With me on today's call are Harry Debes, Lawson's President and Chief Executive Officer; and Stefan Schulz, Senior Vice President and Chief Financial Officer. After completing our prepared remarks, we will take your questions as the operator described.

Before we begin the call, please let me review our Safe Harbor statement. We remind you that this call will include forward-looking statements which are subject to risks and uncertainties. These forward-looking statements contain statements of intent, belief or current expectations of Lawson Software and its management.

Such forward-looking statements are not guarantees of future results and involve risks and uncertainties that may cause actual results to differ materially from the potential results discussed. Our SEC filings contain further information about risk factors that could cause actual results to differ from management's expectation. We do not obligate ourselves to update our forward-looking statements for circumstances or events that occur in the future.

Please let me also remind you that in addition to reporting financial results in accordance with Generally Accepted Accounting Principles, Lawson Software reports non-GAAP financial results. Our remarks today will focus on our non-GAAP results unless otherwise noted. Discussion of our use of non-GAAP results, as well as a detailed reconciliation to our GAAP results is included in our press release. We also have a supplemental summary of our historical key business metrics, on our website at for your reference.

With that, let me turn the call over to Harry Debes.

Harry Debes

Thank you, Barbara and good afternoon everyone. As usual, I'll begin today's call by commenting on the overall business in sales performance in our second quarter. Our CFO, Stefan Schulz will cover our financial results in more detail and update our financial guidance. I'll wrap up the call with some closing comments and then, we'll take your questions. So, let's begin.

Our bottom line performance in Q2 was very good. Non-GAAP earnings per share of $0.12 increased from $0.09 in the second quarter of last year. Operating margin of 17% also improved from 14% last year, driven by improvements in our M3 Business. Increasing M3 profitability is one of our top priorities for fiscal 2011. So, we're very pleased to see this progress.

Overall, when it comes to our bottom line, I'm pleased with our trend of steady and consistent improvement in profitability. Revenue performance was mixed. Total non-GAAP revenues were $189 million and that's a 2% year-over-year increase. Total software contracting in the quarter was 26 million and that's up sequentially from $21 million in Q1, but down slightly from $27 million in Q2 of last year.

Software contracting for the first half of 2011 was $47 million, up 5% compared to the first half of last year. Software contracting was very strong in our S3 Business, but weak in one of our business, M3 businesses and this led to a year-over-year decline in license revenue. I'll explain this in greater detail, when I discuss the M3 Business in a few minutes.

Maintenance revenues for the Company were strong and grew 16% year-over-year. Consulting was down 10% as we forecasted. We've been downsizing our services business, so this is on track with our strategic plans for services. Now, let me give you some additional color by business segment starting with S3.

Our S3 segment performed very well, with license revenues up 25% compared to the second quarter of last year. 11 of our 13 largest deals in the quarter were S3 deals, and all three S3 business units showed year-over-year growth in software contracting.

Healthcare continues to be our strongest business as we bring more products and more expertise's to customers in this vertical. Healthcare software contracting and license revenue both increased year-over-year. Contracting more than doubled year-over-year, and Healthvision accounted, for about half of that increase. As we said when we announced the acquisition, we expected Healthvision would make a strong contribution to our business and this is proving to be the case.

In Q2, Clover Leaf was the top selling product in the healthcare vertical and our largest deal in the quarter for the entire company was the Cloverleaf sale to Alberta Health Services in Canada. This is a loss on many suite customers who added the Cloverleaf Integration Suite, and this deal exceeded $1 million of licensed software. Our healthcare pipeline continues to grow. Sales activity is up, and we feel very good about the market leadership and growth potential in this business vertical.

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