Event Summary
Lawson
Software has always been unique in many aspects within the enterprise applications
market and has consequently had a smooth ride for more than two decades since
its inception. The vendor has continued with the same differentiating tune,
albeit somewhat amended as to stifle unavoidable external disturbances during
the last two years. One of these disturbances would be the losing fiscal 2003
year with crippling revenues (a 20 percent decline in total revenues and nearly
halved license revenues compared to fiscal 2002), after twenty-six years of
seemingly unstoppable growth, positive cash flow and arguable profitability
(if one is to exclude the $30 million charge for accretion on and conversion
of preferable stock in fiscal 2002, and a similar adjustment for fiscal 2000,
see Figure 1).
Figure
1
Still,
a moderate recovery seems to have taken place during last several months. Thus,
more encouraging news took place on September 25, when Lawson Software,
Inc. (NASDAQ: LWSN), an enterprise solutions provider for service organizations
in certain industries, reported total revenues of $88.0 million for its fiscal
2004 first quarter ended Aug. 31, 2003, which was almost flat compared with
revenues of $87.4 million for Q1 2003. However, license fee revenues increased
a notable 25 percent to $22.7 million in the quarter, compared with $18.1 million
a year ago (see Figure 2). On a generally accepted accounting principles (GAAP)
basis, the company posted net income of $3.2 million in Q1 2004, compared with
a net loss of $1.9 million for Q1 2003. The company's cash, cash equivalents,
and marketable securities were $255.2 million at August 31, down slightly from
$260.5 million at May 31, 2003.
Figure
2
According
to Lawson's officials, the witnessed return of year-over-year license revenue
growth was driven by a strong quarter from the health care vertical. The company
signed 153 deals in the quarter. Of the total licensing activity in the fiscal
2004 first quarter, 58 percent came from new customers and 42 percent from existing
customers. During the quarter, the company signed nineteen new customers at
an average selling price of $730,000, compared with twenty-three new customers
at an average selling price of $333,000 a year ago. The company signed four
software licensing agreements valued at more than $1 million. Significant or
strategic wins included: Catholic Health Initiatives, Trinity
Health, and Sherman Health in the health care vertical,
W. S. Badcock in the retail vertical, and Orange County
Transportation Authority in the public sector.
The still recovering financial results might indicate that Lawson's vertical focus has not necessarily been an impervious strategy against the economic slowdown and increasing competition. The company has therefore had to trim its workforce a few times, sometimes even by a double-digit percentage, in an effort to cut costs. The most recent took place a few days before the above financial report, when Lawson announced it would cut 82 jobs or 5 percent of its workforce and that it plans to transfer some development work to India, where many competitors have increasingly been finding a cheap labor heaven. The company has lost a fifth of its workforce (down to over 1,500 now) since before its first major round of layoffs in June 2002, when it laid of 110 employees or 5 percent of its erstwhile workforce. The worst layoffs, however, took place in September 2002, when the vendor cut over 230 jobs, or 12 percent of its employees. Still, by reacting to current realities and adjusting its operational plans quickly to support the firm's strategic goals, along with aligning everyone's actions toward those goals, the company has demonstrated impressive management and financial discipline.
Despite the above hardships, Lawson sticks to its focus on selected vertical markets, but going forward the tenets of that focus will likely be more finely tuned. Namely, the vendor has lately accelerated development, in part through a number of appetizing acquisitions of its traditional vertical functionality to ensure continued success in its target industries. Taking the corporate performance management (CPM) tune to heart, the company is focusing its product, marketing, and sales efforts on its vertical core strengths, particularly health care, retail, and the public sector industries.
However,
one more horizontal, cross-industry acquisition took place on the same date
of the financial report announcement, when Lawson Software announced the acquisition
of Closedloop Solutions Inc., a privately held provider of
applications to help businesses with financial budgeting, planning, and forecasting
in a collaborative fashion. The acquisition is expected to significantly strengthen
Lawson's Enterprise Performance Management (EPM) offering,
which has in the past partly been built around the technology provided by Hyperion
Solutions. The acquisition is also in tune with the current trend of tier 2
ERP providers availing themselves with performance management vendors; Geac's
recent acquisition of Comshare being a case in point (see Geac
Gets Its Commonsense Share Of Consolidation, With Revolving Door CEOs No Less).
As for tier 1 vendors, they have mostly achieved native capabilities for analytical
and financial processes within the supply chain. To that end, Closedloop Solutions'
applications also enable organizations to implement more dynamic and responsive
financial management processes and encourage collaboration among both financial
and business line managers.
The
acquisition was subject to Closedloop Solutions shareholder approval and the
deal has since been finalized, while terms of the deal were not disclosed. Lawson
expects to retain most Closedloop employees at its headquarters in Redwood City,
CA. The venture-funded company currently has several customers who have fully
implemented its Closedloop Dynamic Financial Control product,
(Peoria, ILbased Caterpillar being the largest) and Lawson
intends to continue fully supporting these customers. However, Lawson plans
to re-brand Closedloop's applications as Lawson Budgeting and Planning.
The new applications will be enhanced and integrated with Lawson's existing
EPM suite, which spans the entire business intelligence (BI) range, from proactive
notification through reporting, analysis, collaboration and business process
optimization. The company expects to release the first Lawson version of the
new applications during Lawson's fiscal Q3 2004, which begins on December 1.
This
is Part One of a five-part note.
Part
Two will detail retail vertical initiatives and professional service vertical
initiatives.
Parts
Three and Four will discuss the market impact.
Part
Five will cover challenges and make user recommendations.
Health Care Vertical Initiatives
Lawson's dominant vertical market has always been health care, where it serves more than 400 health care industry customers representing more than 4,500 facilities, including eight of the top ten integrated delivery networks. The company also serves managed care systems, academic medical centers, hospitals, clinics, physician group practices, home health care, long-term care, and other health services enterprises. Lawson solutions were devised to help health care organizations manage their business so they can focus on their patients, automate and streamline materials management for a better bottom line, and manage the challenges of labor shortages by helping health care organizations hire and retain the right employees.
To
further lead the pack in terms of functionality, on October 1, Lawson announced
Lawson Grant Management, a comprehensive application specifically
designed to streamline health care research administration. The new product
tracks grant-funded research from notice of grant award to award closeout, enabling
grant administrators to more efficiently and effectively manage labor distribution,
salary encumbrances, effort reporting, and indirect costs. The product comes
at a time when steady growth of federal funding for health care research means
many health care organizations now commonly manage multiple grants simultaneously,
while the government scrutiny of how those funds are used is increasing.
Developed
in collaboration with a few leading health care organizations, Lawson Grant
Management is aimed at academic medical centers, children's hospitals and other
health systems and hospitals with sponsored research programs. It is integrated
with other Lawson suites, such as Lawson Financials, Lawson
Procurement and Lawson Human Resources, and enables
more timely effort reporting needed to comply with federal regulations. It is
based on a process model that encompasses all management processes involved
in a grant's life cycle, from allocating award budgets and tracking staff and
indirect costs to creating effort reports through the award close. Lawson touts
the key expected benefits would include: 1) increased efficiency and reduced
costs, 2) reduced compliance risk, 3) enhanced cash conversion cycle and 4)
improved decision-making. Lawson Grant Management is expected to be available
by the end of 2003.
Further,
on September 24, Lawson announced a definitive agreement to acquire Apexion
Technologies Inc. (www.apexion.com),
a San Francisco, CA-based provider of health care surgical instrument and supply
tracking applications based on a scalable mobile architecture. The definitive
agreement is subject to Apexion shareholder approval and is expected to be finalized
within forty-five days. Lawson expects to retain most of Apexion's twenty full-time
employees. Lawson also expects this action to provide it with a strong competitive
advantage over its traditional arch rival, PeopleSoft, which currently has a
partnership with Apexion. Maher Hakim, the current president of Apexion Technologies,
will become vice president of product development within Lawson's health care
business unit.
Apexion's
Apex SIM applications give hospitals greater visibility and
control of materials and surgical instruments by providing greater mobility
to workers involved in materials management and central supply. With a better
view of inventory, instrument location and status, hospitals should be able
to reduce excess inventory, improve instrument utilization rates and increase
the productivity of staff assembling surgical carts. This should directly improve
a hospital's bottom line and patient care by reducing the number of delayed
or cancelled surgeries. Apexion's technologies will deepen the functionality
of Lawson's health care suite and expand its current mobile platform to include
Microsoft's Windows CE operating system for wireless handhelds,
which is reportedly becoming more pervasive within the health care market and
scales to support large numbers of users. Lawson plans to introduce a new product
based on Apexion's applications and mobile platform by the end of this year.
This
concludes Part One of a five-part note.
Part
Two will detail retail vertical initiatives and professional service vertical
initiatives.
Parts
Three and Four will discuss the market impact.
Part
Five will cover challenges and make user recommendations.