In its first full quarter following its acquisition of Intentia International, Lawson Software Inc has posted below-par first-quarter results. It has moved to a loss-making position with lower-than-expected license revenue but better-than-expected service and maintenance income.
From a net profit of $4.2m in the year ago quarter, it dropped to a loss of $15.8m. It attributed the loss to pre-tax expenses of $15.1m, which were mainly related to acquisition and restructuring costs, and a payment of $2.1m as part of a stock-based compensation plan. Without these costs, the company said it would have achieved earnings of $4.7m.
Earnings are only part of the picture. Revenue rose 84% to $161.8m, from $87.9m in the year-ago quarter. However, this was still below expectations. Analysts were expecting revenue of $163.2m.
The growth was mostly the effect of the Intentia acquisition, indicating that Lawson has not yet managed to capitalize on its purchase. The company closed fewer deals than expected so license revenue fell 10% year on year, to $16.8m.
What it failed to make in license sales it made up for with higher maintenance revenue and consulting services income. The company said there was $4.6m in deferred maintenance revenue which was excluded from the quarter’s results due to acquisition accounting.
CEO Harry Debes attributed the results to execution problems. The integration of Lawson’s international operations and training of its sales and services staff had more impact than we anticipated, he said.
Looking forward, it said it expects the second quarter to bring bottom-line results ranging from breakeven to a loss of $0.02 on revenue of between $172m and $180m, excluding $3m in deferred maintenance revenue related to Intentia.
The results indicate that Lawson is suffering from the costs associated with acquisitions without reaping any benefits and that the two organizations are still effectively operating as separate businesses. It also highlights the business risk that is part of the acquisition equation and the direct impact it can have on sales. Having been distracted by the long-winded acquisition process, it needs to turn its attention to driving revenue. The drop in license revenue and admission of poor execution must be particularly embarrassing for Lawson as it had previously said that the acquisition process had given it plenty of time to prepare for the operation of the new entity.
The company also announced that Robert Schriesheim, a existing member of the board, would take up the post of CFO, replacing Robert Barbieri, who in July announced his intention to leave the company.