Lawson Software Reports Fourth Quarter Fiscal 2008 Financial Results

ST. PAUL, Minn.--(BUSINESS WIRE)--July 10, 2008--Lawson Software, Inc. (Nasdaq: LWSN) today reported financial results for its fourth quarter of fiscal year 2008, which ended May 31, 2008. Lawson reported GAAP (generally accepted accounting principles) revenues for the quarter of $233 million, up 9 percent from revenues of $212.9 million in its fiscal 2007 fourth quarter. The revenue increase was primarily driven by 14 percent growth in maintenance revenues resulting from high customer renewal rates at standard annual price increases and new customer contracts. License fees and consulting revenues also grew by 3 percent and 8 percent respectively. Currency fluctuations had a positive impact on all lines of revenue.

Fourth quarter GAAP net income was $3.7 million, or $0.02 per diluted share, compared with net income of $8.1 million, or $0.04 per diluted share, in the fourth quarter of fiscal 2007. Operating income of $17.5 million nearly doubled year-over-year, offset by a decrease in other income and an increase in the tax provision. Other income declined due to lower investment yields and a non operating impairment charge of $6.1 million recorded in other expenses to reduce the fair value of auction rate securities held by the company that have subsequently been sold, which is further described below. The impairment charge impacted net earnings by $0.03 per diluted share. Currency fluctuations had a nominal negative impact of less than $0.01 on net earnings per diluted share. Refer to Table 1 attached to this release for a summary of the impact of currency fluctuation to Lawson's year-over-year performance.

Included in the reported GAAP net income and earnings per share results are pre-tax expenses of $6.8 million for amortization of acquired intangible assets, amortization of purchased maintenance contracts, purchase accounting impact on consulting costs, restructuring charges, the $6.1 million impairment charge for auction rate securities and $2.1 million of non-cash stock-based compensation. Excluding these expenses and including $0.4 million of maintenance and consulting revenue impacted by purchase accounting adjustments made to the opening deferred revenue balances acquired from the former Intentia International AB and other acquisitions, non-GAAP net income for the fourth quarter of fiscal 2008 was $17.6 million, or $0.10 per diluted share. Non-GAAP earnings per diluted share of $0.10 increased year over year from $0.08 in the fourth quarter of fiscal 2007.

"Our Q4 results once again demonstrate that Lawson is delivering on our commitments to customers and shareholders," said Harry Debes, Lawson president and CEO. "Our company is getting stronger and the market is responding to our message. By focusing on our key verticals, we grew software contracting to more than $51 million for the quarter, the highest contracting for any quarter in company history. And for the year, we made substantial progress by introducing many new products and enhancements. We grew our license revenues by 25 percent while deferred license revenues also increased more than 50 percent. We substantially improved our profitability and we repurchased $106 million of our shares. We still have work to do to reach our best-in-class profitability targets, but we believe it's clear that we've demonstrated that we are more than capable of reaching our goals by executing against our plans with consistency."

12-Months Ended May 31, 2008

GAAP revenues for the 12 months ended May 31, 2008, were $851.9 million, up 14 percent from revenues of $750.4 million in fiscal 2007. GAAP net income was $13.7 million, or $0.08 per diluted share, improving from a net loss of $20.9 million, or $0.11 per share loss a year ago. The primary reason for the increase in net income in the 12-month period was revenue growth of $101.5 million, driven largely by organic growth in license fees and maintenance revenues and positive year-over-year impact due to currency fluctuations. Currency fluctuations also inflated expenses incurred outside the U.S. The company estimates currency fluctuations had a negative impact of $0.03 on net earnings per diluted share for the 12-month period.

Included in the reported 12-month GAAP results are pre-tax expenses of $25.3 million for amortization of acquired intangible assets, amortization of purchased maintenance contracts, purchase accounting impact on consulting costs, reductions to pre-merger claim reserves, restructuring charges, $18.4 million of impairment charges for auction rate securities and $6.7 million of non-cash stock-based compensation. Excluding these expenses and including $1.7 million of maintenance and services revenue impacted by purchase accounting adjustments made to the opening deferred revenue balances acquired from the former Intentia International AB and other acquisitions, non-GAAP net income for the 12 months ended May 31, 2008, was $59.6 million, or $0.33 per diluted share. Non-GAAP earnings per diluted share of $0.33 increased year over year from $0.19 in fiscal 2007.

Financial Guidance

For the first quarter of fiscal 2009, which ends Aug. 31, 2008, the company estimates total revenues of $195 million to $200 million. The company anticipates GAAP fully diluted earnings per share will be $0.02 to $0.04. Non-GAAP fully diluted earnings per share are forecasted to be between $0.06 and $0.07, excluding approximately $8 million of pre-tax expenses related to the amortization of acquisition-related intangibles, amortization of purchased maintenance contracts, stock-based compensation charges and purchase accounting adjustments for acquired deferred revenue balances.

For fiscal 2009, which ends May 31, 2009, the company estimates total revenues of $920 million to $925 million. The company anticipates GAAP fully diluted earnings per share of $0.28 to $0.32. Non-GAAP fully diluted earnings per share are forecasted to be between $0.43 and $0.47 excluding approximately $36 million of pre-tax expenses related to the amortization of acquisition-related intangibles, amortization of purchased maintenance contracts, stock-based compensation charges and purchase accounting adjustments for acquired deferred revenue balances. The non-GAAP effective tax rate for fiscal 2009 is anticipated to be between 36 and 39 percent.

Fourth Quarter Fiscal 2008 Key Metrics

• Cash, cash equivalents, marketable securities and investments at quarter-end were $488.6 million (including $2.8 million of restricted cash), compared with $390 million (including $3.3 million of restricted cash) on Feb. 29, 2008.
• $105.6 million of cash was used to repurchase 11.6 million shares at an average price of $9.12 in fiscal 2008. No shares were repurchased in the fiscal 2008 fourth quarter. The repurchases in fiscal 2008 caused a decline in cash, cash equivalents, marketable securities and investments compared with $561.3 million (including $7.4 million of restricted cash) on May 31, 2007.
• On July 10, 2008 the company announced a $200 million increase to its current share repurchase authorization, resulting in $239.5 million available for future stock repurchases as of July 10, 2008 (see press release dated July 10, 2008, for details).
• Total deferred revenues were $312.6 million, including $54.6 million of deferred license revenues, compared with the Feb. 29, 2008, balance of $216 million, including $45.3 million of deferred license revenue. Total deferred revenues increased primarily due to added deferred maintenance revenues resulting from the company's May 31 annual contract renewal date for its customers located in the Americas region. The increase in deferred license revenue was primarily driven by higher software contracting in the quarter.
• Days sales outstanding (DSO) at quarter end were 71, compared with 85 on Feb. 29, 2008. The DSO decrease was due to increased receivables collections for maintenance contracts.
• The company signed 603 deals, compared with 751 in the fourth quarter of fiscal 2007. Average selling price of all deals increased to $86,000 compared with $57,000 a year ago.
• Thirty-eight new customer deals were signed, compared with 40 in the fourth quarter a year ago. Average selling price of new customer deals increased to $391,000 compared to $228,000 a year ago.
• Four deals greater than $1 million and eight deals between $500,000 and $1 million were signed, compared with two deals greater than $1 million and seven deals between $500,000 and $1 million in the fourth quarter fiscal 2007.
• The Americas region represented 52 percent of total revenue; Europe, Middle East, and Africa region represented 44 percent of total revenue; and Asia-Pacific represented 4 percent of total revenue.
• Key customer wins: Americas - Community Medical Center; Central Grocers Cooperative, Inc.; Greenville County Schools; St. Alexius Medical Center; Total Wine & More; USC Care Medical Group, Inc. EMEA - Abel und Schafer GmbH & Co.; LaBrosse et Dupont SA; and Roller GmbH & Co. Asia-Pacific - Caspex Corporation Limited; and Walker Shop Footwear Limited

Sale of Auction Rate Securities

As of May 31, 2008, the company had a total of $488.6 million in cash and equivalents including $45.2 million in short-term investments which consist of investments in auction rate securities. These auction rate securities have a par value of $63.7 million. Subsequent to May 31, 2008 the company sold all of its investments in auction rate securities for cash proceeds of $45.2 million. During the fourth quarter, the company reclassified the auction rate securities from long-term investments to short-term investments and recorded an additional $6.1 million impairment charge on the securities, including $2.9 million which had previously been recorded as a temporary impairment as unrealized losses in stockholders' equity. In total, the company has recorded impairment charges on its auction rate securities of $18.4 million as non-operating losses in other expenses. The impairment charges represent capital losses on the sale of the securities for which the company does not have available capital gains to offset. Accordingly, no tax benefits were recorded with the charge. Lawson has no other exposure to auction rate securities.

Conference Call and Webcast

The company will host a conference call and webcast to discuss its fourth quarter results and future outlook at 4:30 p.m. Eastern Time (3:30 p.m. Central Time) July 10, 2008. Interested parties should dial 800-988-0202 (passcode: LWSN) and international callers should dial +1-210-839-8501. A live webcast will be available on www.lawson.com. Interested parties should access the conference call or 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 for one week. The replay number is 888-562-2895 or + 1-402-220-6516. The webcast will remain on www.lawson.com for approximately one week.

About Lawson Software

Lawson Software provides software and service solutions to approximately 4,000 customers in manufacturing, distribution, maintenance and service sector industries across 40 countries. Lawson's solutions include Enterprise Performance Management, Supply Chain Management, Enterprise Resource Planning, Customer Relationship Management, Manufacturing Resource Planning, Enterprise Asset Management and industry-tailored applications. Lawson solutions assist customers in simplifying their businesses or organizations by helping them streamline processes, reduce costs and enhance business or operational performance. Lawson is headquartered in St. Paul, Minn., and has offices around the world. Visit Lawson online at www.lawson.com.

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 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 Lawson's ability to realize synergies and revenue opportunities anticipated from the Intentia International acquisition; uncertainties in the software industry; uncertainties as to when and whether the conditions for the recognition of deferred revenue will be satisfied; increased competition; global military conflicts; terrorist attacks; pandemics, and any future events in response to these developments; changes in conditions in the company's targeted industries and other risk factors listed in the company's most recent Quarterly Report on Form 10-Q and the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Lawson assumes no obligation to update any forward-looking information contained in this press release.

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Lawson Software reports non-GAAP financial results including non-GAAP net income (loss) and non-GAAP net income (loss) per share. We believe that these non-GAAP measures provide meaningful insight into our operating performance and an alternative perspective of our results of operations. Our primary non-GAAP adjustments are described in detail below. We use these non-GAAP measures to assess our operating performance, to develop budgets, to serve as a measurement for incentive compensation awards and to manage expenditures. Presentation of these non-GAAP measures allows investors to review our results of operations from the same perspective as management and our Board of Directors. Lawson has historically reported similar non-GAAP financial measures to provide investors an enhanced understanding of our operations, facilitate investors' analysis and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe that the non-GAAP measures are useful to investors because they provide supplemental information that research analysts frequently use to analyze software companies including those that have recently made significant acquisitions.

The method we use to produce non-GAAP results is not in accordance with GAAP and may differ from the methods used by other companies. These non-GAAP results should not be regarded as a substitute for corresponding GAAP measures but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with GAAP and the reconciliation of the supplemental non-GAAP financial measures to the comparable GAAP results provided for each period presented, which are attached to this release.

Our primary non-GAAP reconciling items are as follows:

Purchase accounting impact on revenue - Lawson's non-GAAP financial results include pro forma adjustments for deferred maintenance and consulting revenues that we would have recognized under GAAP but for the related purchase accounting. The deferred revenue for maintenance and consulting on the acquired entity's balance sheet, at the time of the acquisition, was eliminated from GAAP results as part of the purchase accounting for the acquisition. As a result, our GAAP results do not, in management's view, reflect all of our maintenance and consulting activity. We believe the inclusion of the pro forma revenue adjustment provides investors a helpful alternative view of Lawson's maintenance and consulting operations.

Integration related - We have incurred various integration related expenses as part of our acquisitions. These costs of integrating the operations of acquired businesses and Lawson are incremental to our historical costs and were charged to GAAP results of operations in the periods incurred. We do not consider these costs in our assessment of our operating performance. While these costs are not recurring with respect to our past acquisitions, we may incur similar costs in the future if we pursue other acquisitions. We believe that the exclusion of the non-recurring acquisition related integration costs provide investors an appropriate alternative view of our results of operations and facilitates comparisons of our results period-over-period.

Amortization of purchased maintenance contracts - We have excluded amortization of purchased maintenance contracts from our non-GAAP results. The purchase price related to these contracts is being amortized based upon the proportion of future cash flows estimated to be generated each period over the estimated useful lives of the contracts. We believe that the exclusion of the amortization expense related to the purchased maintenance contracts provides investors an enhanced understanding of our results of operations.

Stock-based compensation - Expense related to stock-based compensation has been excluded from our non-GAAP results of operations. These charges consist of the estimated fair value of share-based awards including stock option, restricted stock, restricted stock units and share purchases under our employee stock purchase plan. While the charges for stock-based compensation are of a recurring nature, as we grant stock-based awards to attract and retain quality employees and as an incentive to help achieve financial and other corporate goals, we exclude them from our results of operation in assessing our operating performance. These charges are typically non-cash and are often the result of complex calculations using an option pricing model that estimates stock-based awards' fair value based on factors such as volatility and risk-free interest rates that are beyond our control. The expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted. As such, we do not include such charges in our operating plans. We believe that the exclusion of stock-based compensation provides investors useful information facilitating the comparison of current period results of operations and prior periods when such charges were not required to be recorded in our financial statements. In addition, we believe the exclusion of these charges facilitates comparisons of our operating results with those of our competitors who may have different policies regarding the use of stock-based awards.

Pre-merger claims reserve adjustment - We have excluded the adjustment to our pre-merger claims reserve from our non-GAAP results. As part of the purchase accounting relating to the Intentia transaction, we established a reserve for Intentia customer claims and disputes that arose before the acquisition which were originally recorded to goodwill. As we are outside the period in which adjustments to such purchase accounting is allowed, adjustments to the reserve are recorded in our general and administrative expenses under GAAP. We do not consider the adjustments to this reserve established under purchase accounting in our assessment of our operating performance. Further, since the original reserve was established in purchase accounting, the original charge was not reflected in our operating statement. We believe that the exclusion of the pre-merger claims reserve adjustment provides investors an appropriate alternative view of our results of operations and facilitates comparisons of our results period-over-period.

Restructuring - We have recorded various restructuring charges to reduce our cost structure to enhance operating effectiveness and improve profitability and to eliminate certain redundancies in connection with acquisitions. These restructuring activities impacted different functional areas of our operations in different locations and were undertaken to meet specific business objectives in light of the facts and circumstances at the time of each restructuring event. These charges include costs related to severance and other termination benefits as well as costs to exit leased facilities. These restructuring charges are excluded from management's assessment of our operating performance. We believe that the exclusion of the non-recurring restructuring charges provide investors an enhanced view of the cost structure of our operations and facilitates comparisons with the results of other periods that may not reflect such charges or may reflect different levels of such charges.

Amortization - We have excluded amortization of acquisition-related intangible assets including purchased technology, client lists, customer relationships, trademarks, order backlog and non-compete agreements from our non-GAAP results. The fair value of the intangible assets, which was allocated to these assets through purchase accounting, is amortized using accelerated or straight-line methods which approximate the proportion of future cash flows estimated to be generated each period over the estimated useful lives of the applicable assets. While these non-cash amortization charges are recurring in nature and benefit our operations, this amortization expense can fluctuate significantly based on the nature, timing and size of our past acquisitions and may be affected by any future acquisitions. This makes comparisons of our current and historic operating performance difficult. Therefore, we exclude such accounting expenses when analyzing the results of all our operations including those of acquired entities. We believe that the exclusion of the amortization expense of acquisition-related intangible assets provides investors useful information facilitating comparison of our results period-over-period and with other companies in the software industry as they each have their own acquisition histories and related adjustments.

Impairment on long-term investments - The liquidity and fair value of our investments in marketable securities, including Auction Rate Securities (ARS), have been negatively impacted by the uncertainty in the credit markets and exposure to the financial condition of bond insurance companies. As a result, we recorded impairment charges to reduce the carrying value of our ARS investments. The impairment charges related to our ARS investments have been excluded from our non-GAAP results of operations. These impairment charges are excluded from management's assessment of our operating performance. We believe that the exclusion of these unique charges provide investors an enhanced view of our operations and facilitates comparisons with the results of other periods that do not reflect such charges.













CONTACT: Lawson Software, Inc.
Joe Thornton, +1-651-767-6154
Media
joe.thornton@us.lawson.com
or
Barbara Doyle, +1-651-767-4385
Investors and Analysts
barbara.doyle@us.lawson.com

SOURCE: Lawson Software, Inc.