LWSN Lawson Software, Inc. (MM)

Lawson Software, Inc. (Nasdaq:LWSN), today reported revenues of $87.7 million for its fiscal 2006 third quarter ended Feb. 28, 2006, an increase from revenues of $82.7 million in its fiscal 2005 third quarter. License fee revenues were $15.1 million in the third quarter, up from $13.9 million in the fiscal 2005 third quarter. Services revenues were $72.6 million in the quarter, up from $68.8 million in the comparable fiscal 2005 third quarter. The increase in license fees in the third quarter is primarily attributed to an increase in the total number of license transactions. Services revenue results are attributed to a steady growth in maintenance revenues and an increase in consulting and implementations reflecting the increased software licensing activity throughout fiscal 2006. Operating income in the fiscal 2006 third quarter increased to $10.4 million, compared with operating income of $2.5 million in the fiscal 2005 third quarter. The improvement in operating income was driven by the increase in revenues as well as reduced costs and expenses. Cost of revenues decreased 3 percent from the prior year, primarily resulting from initiatives to reduce services costs. Operating expenses decreased 4 percent from the prior year, primarily due to a reduction in G&A expense of $2.1 million from SEC-related legal costs incurred in the prior year, and cost-control efforts and headcount reductions, partially offset by increases in expenses relating to the pending acquisition of Intentia International AB. GAAP net income increased to $10.0 million, or $0.09 per diluted share, compared with $2.8 million, or $0.03 per diluted share, in the fiscal 2005 third quarter. GAAP net income in the third quarter was favorably impacted by $1.5 million more of interest income, the reversal of a $1.4 million tax valuation allowance resulting from the determination that previously recorded tax assets are now more likely than not to be realized prior to their expiration dates, and a release of $0.5 million of tax reserves. As a result, Lawson had a low effective tax rate of 24.4 percent in the quarter. "Lawson delivered another quarter of solid financial performance and improved profitability driven by our continuing focus on sales execution and effective business management," said Harry Debes, Lawson president and chief executive officer. "On a year-over-year basis, our revenues are growing, our cost of services is declining, and we are managing operating expenses at prudent levels. I am pleased with the progress we are making in building Lawson into a more profitable and predictable business. Our solution set has been greatly enhanced with the recently announced Lawson 9 product family, which consolidates our technology layer, enhances our business applications and lays the foundation for a service-oriented architecture (SOA) under which all future applications will be developed. Overall, we are continuing to strengthen our foundation for the future as we build our sales team, improve services margins and develop more customer references." For the nine months ended Feb. 28, 2006, GAAP net income was $20.7 million, or $0.19 per diluted share, on total revenues of $264.6 million, an improvement over a net loss of $0.7 million, or a net loss of $0.01 per diluted share, on total revenues of $248.4 million in the comparable fiscal 2005 period. Operating income for the nine months ended Feb. 28, 2006, was $20.9 million, an improvement compared to an operating loss of $4.8 million in the comparable fiscal 2005 period. Operating expenses for the nine-month period ended Feb. 28, 2006, decreased 1 percent from the prior year, primarily due to a reduction in G&A expense of $2.6 million from SEC-related legal costs incurred in the prior year, and expense declines from continuing cost control efforts and headcount reductions in the company, offsetting a $6.3 million non-cash charge for option expense relating to the former president and CEO's negotiated separation agreement reflected in G&A expenses in the first fiscal quarter as well as an increase in expenses relating to the acquisition of Intentia. Lawson's fiscal 2006 third quarter GAAP operating results include $2.9 million in pre-tax items for the three-month period and $16.4 million in pre-tax items for the nine-month period, compared with $4.2 million for the three-month period and $14.6 million for the nine-month period of fiscal 2005. These pre-tax items primarily include restructuring, certain non-cash acquisition related amortization expense, non-cash stock-based compensation, and integration planning expenses relating to the pending merger with Intentia International. In addition, Lawson's fiscal 2006 nine-month GAAP net income includes the benefits of added interest income on a tax refund of $0.4 million, the release of income tax reserves of $2.1 million as a result of closing income tax-related matters, and the change in our deferred tax valuation allowance of $1.4 million in the third quarter which was driven by improving results. Lawson provides this list for the financial analysts and investors who exclude one or more of these items in developing their financial models and estimates of the company's performance. If analysts adjust their models for all of these items, Lawson exceeded the Thomson First Call consensus third quarter estimate for the company's EPS performance. See the supplemental information at the end of this news release for more detail on these items. Other highlights for the fiscal 2006 third quarter: -- Cash, cash equivalents and marketable securities increased to $277.9 million, up from $260.8 million in the fiscal 2006 second quarter -- Total deferred revenues of $76.7 million increased $2.5 million from the second quarter -- Software license revenue increased more than 8 percent year-over-year -- 131 deals were signed, up from 100 in the third quarter of fiscal 2005 -- 13 new customers were signed at an average selling price of $394,000, compared with 10 new customers at an average selling price of $478,000 in the third quarter of fiscal 2005 -- Seven deals greater than $500,000 were signed in the quarter, up from six in the prior year, but fewer of these large deals were greater than $1 million (1 compared with 4) -- Significant software license agreements were signed with ExpressJet Holdings, Guilford County in North Carolina, Nanticoke Health Services, Providence Health and Services, and Triad Hospitals, Inc. -- The multi-year license agreement signed with Triad Hospitals, Inc. - second largest deal signed in fiscal 2006 - is anticipated to primarily be implemented (and accordingly result in revenues) in fiscal 2007 and future years as part of Triad's $1.3 billion healthcare information technology initiative -- Lawson announced the Lawson 9 family of products Acquisition Update On June 2, 2005, Lawson Software and Intentia International AB announced their agreement to combine in an all-stock transaction. On March 17, 2006, Lawson announced that the U.S. Securities and Exchange Commission declared effective the Form S-4 Proxy Statement/Prospectus pertaining to the proposed transaction. The company also announced that Lawson will hold a meeting of stockholders on April 17, 2006, to approve matters relating to the proposed combination of the two companies, as well as conduct business related to Lawson's annual meeting for fiscal year 2005. On March 24, 2006, Lawson and Intentia announced that the Swedish prospectus was registered by the Swedish Financial Supervisory Authority. The Swedish prospectus was mailed to Intentia securityholders who are non-U.S. persons on or about March 27, 2006. The tender period will expire on April 24, 2006. Lawson and Intentia have a timetable to close the transaction before the amended termination date of April 30, 2006, subject to stockholder approval and sufficient tender by the Intentia security holders. Conference Call and Webcast The company will host a conference call to discuss its third quarter results and future outlook at 4:30 P.M. Eastern Time (3:30 P.M. Central Time) April 6, 2006. Interested parties may listen to the call by dialing 800-857-4748 (passcode Lawson 46) and international callers 1-210-234-7123. A live webcast will also be available on www.lawson.com. Interested parties should dial into the conference call or access the webcast approximately 10-15 minutes before the scheduled start time. A replay will be available approximately one hour after the conference call concludes and will remain available through Thursday, April 13, 2006. The replay number is 800-839-4571 and international 1-203-369-4013. The webcast will remain on www.lawson.com for approximately two weeks. About Lawson Software Lawson Software provides business application software and consulting services to services organizations in the healthcare, retail, government and education, banking and insurance and other markets. Lawson's software suites include enterprise performance management, distribution, financials, human capital management, procurement, retail operations and service process optimization. With headquarters in St. Paul, Minn., Lawson has offices and affiliates serving North and South America, Europe, and Africa. Visit www.lawson.com for more information. Lawson Software and Lawson are registered trademarks of Lawson Software, Inc. All rights reserved. Forward-Looking Statements This press release contains forward-looking statements that contain risks and uncertainties. These forward-looking statements contain statements of intent, belief or current expectations of Lawson Software, Inc., 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 in the forward-looking statements. The company is not obligated to update forward-looking statements based on circumstances or events that occur in the future. Risks and uncertainties that may cause such differences include but are not limited to: uncertainties in the company's ability to realize synergies and revenue opportunities anticipated from the Intentia International acquisition; uncertainties in the software industry; global military conflicts; terrorist attacks in the United States, and any future events in response to these developments; changes in conditions in the company's targeted service industries; increased competition and other risk factors listed in the company's most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission and as included in other documents the company files from time to time with the Commission. -0- *T LAWSON SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended ------------------------- ------------------------- February 28, February 28, February 28, February 28, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Revenues: License fees $15,099 $13,924 $51,824 $40,370 Services 72,596 68,790 212,822 208,028 ------------ ------------ ------------ ------------ Total revenues 87,695 82,714 264,646 248,398 ------------ ------------ ------------ ------------ Cost of revenues: Cost of license fees 2,727 2,232 7,922 7,511 Cost of services 32,576 34,260 99,213 107,764 ------------ ------------ ------------ ------------ Total cost of revenues 35,303 36,492 107,135 115,275 ------------ ------------ ------------ ------------ Gross profit 52,392 46,222 157,511 133,123 ------------ ------------ ------------ ------------ Operating expenses: Research and development 14,325 15,527 42,875 46,828 Sales and marketing 17,655 17,681 56,092 58,216 General and administrative 9,644 10,325 36,555 26,486 Restructuring - (153) 5 5,237 Amortization of acquired intangibles 346 391 1,077 1,160 ------------ ------------ ------------ ------------ Total operating expenses 41,970 43,771 136,604 137,927 ------------ ------------ ------------ ------------ Operating income (loss) 10,422 2,451 20,907 (4,804) ------------ ------------ ------------ ------------ Other income: Interest income 2,814 1,281 7,486 2,845 Interest expense (1) (11) (26) (39) ------------ ------------ ------------ ------------ Total other income 2,813 1,270 7,460 2,806 ------------ ------------ ------------ ------------ Income (loss) before income taxes 13,235 3,721 28,367 (1,998) Provision (benefit) for income taxes 3,228 961 7,627 (1,321) ------------ ------------ ------------ ------------ Net income (loss) $10,007 $2,760 $20,740 $(677) ============ ============ ============ ============ Net income (loss) per share: Basic $0.10 $0.03 $0.20 $(0.01) ============ ============ ============ ============ Diluted $0.09 $0.03 $0.19 $(0.01) ============ ============ ============ ============ Shares used in computing net income (loss) per share: Basic 103,572 99,342 102,384 98,651 ============ ============ ============ ============ Diluted 108,033 104,899 106,877 98,651 ============ ============ ============ ============ LAWSON SOFTWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) February 28, May 31, 2006 2005 ------------ ------------ ASSETS ------ Current assets: Cash and cash equivalents $187,140 $187,744 Marketable securities 90,264 43,099 Trade accounts receivable, net 49,847 42,907 Other current assets 20,966 28,574 ------------ ------------ Total current assets 348,217 302,324 ------------ ------------ Long-term marketable securities 496 3,770 Property and equipment, net 12,371 13,574 Goodwill and other intangible assets, net 68,685 75,346 Other assets 33,717 25,704 ------------ ------------ Total assets $463,486 $420,718 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- Current liabilities: Current portion of long-term debt $300 $1,836 Accounts payable and other accrued liabilities 51,010 45,507 Deferred revenue 73,713 76,571 ------------ ------------ Total current liabilities 125,023 123,914 ------------ ------------ Long-term deferred revenue 2,996 1,284 Other long-term liabilities 3,118 2,465 ------------ ------------ Total liabilities 131,137 127,663 ------------ ------------ Stockholders' equity: Common stock 1,152 1,124 Additional paid-in capital 355,571 338,666 Treasury stock, at cost (70,311) (72,348) Deferred stock-based compensation (229) (41) Retained earnings 43,473 22,733 Accumulated other comprehensive income 2,693 2,921 ------------ ------------ Total stockholders' equity 332,349 293,055 ------------ ------------ Total liabilities and stockholders' equity $463,486 $420,718 ============ ============ LAWSON SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended Nine Months Ended ------------------- ------------------- Feb. 28, Feb. 28, Feb. 28, Feb. 28, 2006 2005 2006 2005 --------- --------- --------- --------- Cash flows from operating activities: Net income (loss) $10,007 $2,760 $20,740 $(677) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,281 3,776 10,573 12,258 Deferred income taxes (1,167) 3,667 (1,102) 3,828 Provision for doubtful accounts, net of recoveries (199) (575) (1,303) 413 Loss on the disposal of assets - 1 - 1 Tax benefit from stockholder transactions 2,446 1,097 4,255 2,955 Amortization of stock-based compensation 98 64 337 171 Stock-based compensation - - 6,368 - Amortization of discounts on notes payable (1) 19 17 67 Amortization of discount and accretion of premium on marketable securities (274) 30 (311) 119 Changes in operating assets and liabilities, net of effect from acquisitions: Trade accounts receivable (716) 6,436 (5,637) 22,524 Prepaid expenses and other assets (3,098) (4,660) 3,628 (6,918) Accounts payable 606 1,669 (935) (1,030) Accrued and other liabilities (141) (2,987) (1,186) (6,710) Income taxes payable 1,870 - 4,327 (999) Deferred revenue 2,486 (150) (1,146) (8,915) --------- --------- --------- --------- Net cash provided by operating activities 15,198 11,147 38,625 17,087 --------- --------- --------- --------- Cash flows from investing activities: Cash paid in conjunction with acquisitions, net of cash acquired (522) - (2,929) - Purchases of marketable securities (23,704) (65,850) (116,425) (447,864) Sales and maturities of marketable securities 21,277 79,601 72,773 435,608 Purchases of property and equipment (1,855) (1,426) (2,967) (3,101) --------- --------- --------- --------- Net cash (used in) provided by investing activities (4,804) 12,325 (49,548) (15,357) --------- --------- --------- --------- Cash flows from financing activities: Payments on debt (717) (841) (1,684) (1,323) Exercise of stock options 3,526 2,531 9,266 6,378 Issuance of treasury shares for employee stock purchase plan 1,240 1,579 2,737 3,947 Repurchase of common stock - - - (10,000) --------- --------- --------- --------- Net cash provided by (used in) financing activities 4,049 3,269 10,319 (998) --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents 14,443 26,741 (604) 732 Cash and cash equivalents at beginning of period 172,697 46,387 187,744 72,396 --------- --------- --------- --------- Cash and cash equivalents at end of period $187,140 $73,128 $187,140 $73,128 ========= ========= ========= ========= LAWSON SOFTWARE, INC. SUPPLEMENTAL INFORMATION (in thousands) (unaudited) Three Months Ended Nine Months Ended ------------------------- ------------------------- February 28, February 28, February 28, February 28, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Selected Pretax Expense: Restructuring $- $(153) $5 $5,237 Amortization of acquired intangibles 346 391 1,077 1,160 Amortization of purchased maintenance contracts (Cost of Service) (1) 981 1,005 2,969 2,991 Amortization of software (Cost of License Fees) 805 822 2,423 2,448 Non-cash stock- based compensation - 63 42 170 Non-cash stock- based compensation (2) - - 6,261 - Integration related (Cost of Service) (3) 24 - 262 - Integration related (R&D) (3) 62 - 179 - Integration related (Sales & Marketing) (3) 35 - 900 - Integration related (G&A) (3) 629 - 2,324 - SEC-related legal costs (G&A) - 2,100 - 2,640 ------------ ------------ ------------ ------------ Total $2,882 $4,228 $16,442 $14,646 ============ ============ ============ ============ Interest income on tax refund $- $- $357 $- ============ ============ ============ ============ Effective tax rate for financial analysts' modeling (4) 39% 38% 39% 38% (1) Service revenue from the acquired maintenance contracts for the three months ended February 28, 2006 and February 28, 2005 was $2,954 and $2,764, respectively. Service revenue from the acquired maintenance contracts for the nine months ended February 28, 2006 and February 28, 2005 was $8,764 and $8,447, respectively. (2) Represents a non-cash charge for recording of option expense resulting from a negotiated separation agreement with former president and CEO in the first quarter of fiscal 2006. (3) Represents integration related expenses relating to the pending merger with Intentia International. (4) For the three and nine months ended February 28, 2006, the non- GAAP provision for income taxes is calculated at a rate of 39%. There were two discrete items for the three months ended February 28, 2006 included in the GAAP provision, an 11% impact from the reversal of the valuation allowance and a 4% impact from the release of tax reserves. There were two discrete items for the nine months ended February 28, 2006, a 5% impact from the reversal of the valuation allowance and a 7% impact from the release of tax reserves. There were no significant discrete items for the three and nine month periods ended February 28, 2005. *T