<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934
      For the quarterly period ended September 30, 1997

                                      OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934
      For the transition period from          to 
                                    ----------   -----------
Commission file number 000-22409

                                LHS GROUP INC.
            (Exact name of registrant as specified in its charter)

           DELAWARE                                     58-2224883
(State of other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                     Identification No.)

                       SIX CONCOURSE PARKWAY, SUITE 2700
                                  ATLANTA, GA
                                     30328
                   (Address of principal executive offices)
                                  (Zip Code)

                                (770) 280-3000
             (Registrant's telephone number, including area code)

   Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes  X  No  
     -      - 

     Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the last practicable date.
<TABLE> 
<CAPTION>
<S>                                                         <C> 
              Class                                       Outstanding at October 31, 1997
---------------------------------                      ------------------------------------
Common Stock, $0.01 Par Value                                    25,015,239 Shares
</TABLE>

<PAGE>
 
                         PART I. FINANCIAL INFORMATION
                         -----------------------------

                                        
ITEM 1.  FINANCIAL STATEMENTS
-----------------------------

                                LHS GROUP INC.
                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
           (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                             Third Quarter Ended September 30,      Nine Months Ended September 30,
                                             ---------------------------------      -------------------------------
                                             (unaudited)           (unaudited)      (unaudited)         (unaudited)
                                                1997                  1996             1997                 1996
                                             -----------           -----------      -----------         -----------
<S>                                          <C>                   <C>              <C>                 <C>
Revenues
  License revenues                           $    10,259           $     8,068      $    25,751         $    15,253
  Service revenues                                18,627                10,886           47,333              21,410
                                             -----------           -----------      -----------         -----------
Total revenues                                    28,886                18,954           73,084              36,663

Cost of services                                  12,979                 6,692           32,541              12,441
                                             -----------           -----------      -----------         -----------
Gross profit                                      15,907                12,262           40,543              24,222

Operating expenses
  Sales and marketing                              2,019                 2,009            6,384               5,383
  Research and development                         5,306                 3,765           13,629              11,388
  General and administrative                       3,214                 2,588           10,172               5,018
                                             -----------           -----------      -----------         -----------
                                                  10,539                 8,362           30,185              21,789

Earnings before interest and taxes                 5,368                 3,900           10,358               2,433
Interest expense (income), net                      (918)                   24           (1,188)                161
                                             -----------           -----------      -----------         -----------
Earnings before income taxes                       6,286                 3,876           11,546               2,272

Income taxes                                       2,552                 1,473            4,618                 863
                                             -----------           -----------      -----------         -----------
Net earnings                                 $     3,734           $     2,403      $     6,928         $     1,409
                                             ===========           ===========      ===========         ===========
Net earnings per share                       $      0.14           $      0.11      $      0.29         $      0.06
                                             ===========           ===========      ===========         ===========
Shares used in per share calculation          26,482,988            21,977,003       24,019,226          21,977,003
                                             ===========           ===========      ===========         ===========
</TABLE>

                                       2
<PAGE>
 
                                 LHS GROUP INC.
                     CONSOLIDATED CONDENSED BALANCE SHEETS
           (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                  September 30,       December 31,
                                                                      1997                1996
                                                                  -------------       ------------
                                                                   (unaudited)
<S>                                                               <C>                  <C> 
ASSETS
Current assets:
  Cash and cash equivalents                                           $ 69,478           $ 4,289
  Trade accounts receivable, net of allowance
    for doubtful accounts of $1,155 and $200                            21,992            22,415
  Unbilled receivables                                                  12,450             6,073
  Other current assets                                                   2,454             2,505
                                                                      --------           -------
Total current assets                                                   106,374            35,282

Property, plant and equipment                                           14,220            11,426
Allowance for depreciation and amortization                             (5,783)           (4,304)
                                                                      --------           -------
                                                                         8,437             7,122

Other non current assets                                                 2,588             1,415
                                                                      --------           -------
Total Assets                                                          $117,399           $43,819
                                                                      ========           =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Loans payable to banks                                                    12             1,914
  Accounts payable                                                       5,622             2,572
  Accrued expenses and other current liabilities                        10,876             8,747
  Amount due to former shareholder                                           -             4,000
  Income tax payable                                                     7,749             3,970
  Deferred revenues                                                      5,116             8,931
                                                                      --------           -------
Total current liabilities                                               29,375            30,134
Long-term obligations                                                    1,073             1,360
Stockholders' equity
  Series A convertible preferred stock ($.01 par value),
    225,000 shares authorized; none and 225,000 shares
    issued and outstanding                                                   -                 2
  Common stock ($.01 par value) 40,000,000 shares authorized;
    24,918,331 and 15,550,000 shares issued and outstanding                249               156
  Additional paid-in-capital                                            76,930             6,374
  Retained earnings                                                     13,229             6,301
  Accumulated translation adjustments                                   (3,457)             (508)
                                                                      --------           -------
Total stockholders' equity                                              86,951            12,325
                                                                      --------           -------
Total Liabilities and Stockholders' Equity                            $117,399           $43,819
                                                                      ========           =======
</TABLE>

                                       3
<PAGE>
 
                                LHS GROUP INC.
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                           Nine Months Ended September 30,
                                                           -------------------------------
                                                              1997                1996
                                                           -----------         -----------
                                                           (unaudited)         (unaudited)
<S>                                                        <C>                 <C>
OPERATING ACTIVITIES
Net earnings                                                 $ 6,928             $ 1,409
Adjustments to reconcile net earnings to net cash
  provided by operating activities:
    Depreciation and amortization                              1,480               1,189
    Changes in operating assets and liabilities               (3,708)             (2,235)
                                                             -------             -------
Net cash provided by operating activities                      4,700                 363

INVESTING ACTIVITIES
Additions of leasehold improvements and equipment             (2,795)             (2,435)
Other                                                         (1,341)                555
                                                             -------             -------
Net cash used in investing activities                         (4,136)             (1,880)

FINANCING ACTIVITIES
Proceeds from issuance of capital stock                       70,647                   -
Payment of amount due to former shareholder                   (4,000)                  -
Repayments of bank borrowings                                 (2,352)             (3,816)
Other                                                            330                   -
                                                             -------             -------
Net cash provided by (used in) financing activities           64,625              (3,816)

Increase (decrease) in cash and cash equivalents              65,189              (5,333)
Cash and cash equivalents at beginning of period               4,289              10,200
                                                             -------             -------
Cash and cash equivalents at end of period                   $69,478             $ 4,867
                                                             =======             =======
</TABLE>

                                       4
<PAGE>
 
                        NOTES TO CONSOLIDATED CONDENSED
                              FINANCIAL STATEMENTS
                                        
NOTE 1 - BASIS OF PRESENTATION

          The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.  In the opinion of management, all
adjustments considered necessary for fair presentation have been included.  For
further information, refer to the consolidated financial statements and
footnotes included in the Company's Registration Statement on Form S-1 (File No.
333-22195) filed with the Securities and Exchange Commission on February 21,
1997.

NOTE 2  - EARNINGS PER SHARE:

          Net earnings per share are computed based on the weighted average
shares of Common Stock outstanding during each period.  Common Stock equivalents
(stock options and preferred shares) are included in the computation of net
earnings per share.

          In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE. The
Statement changes the method for computing and presenting earnings per share and
will be effective for the Company's year ending December 31, 1997.  The effect
of adopting this standard is not expected to have a material effect on
previously reported earnings per share.

NOTE 3 - INITIAL PUBLIC OFFERING:

          In May 1997, the Company sold 4,865,000 shares of its Common Stock in
an initial public offering in which it received approximately $70.6 million in
net proceeds.  At the completion of the offering, 225,000 shares of the
Company's Series A Convertible Preferred Stock were converted into 4,500,000
shares of Common Stock.

                                       5
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------

RESULTS OF OPERATIONS
---------------------

          The following table presents, for the periods indicated, certain items
in the Company's statements of income reflected as a percentage of total
revenues.
<TABLE>
<CAPTION>
 
                                    Third Quarter                       Nine Months
                                 Ended September 30,                Ended September 30,
                                 -------------------                -------------------       
                                   1997       1996                    1997       1996
                                 --------   --------                --------   --------
<S>                               <C>        <C>                      <C>        <C> 
Revenues
    License revenues               35.5%      42.6%                   35.2%      41.6%
    Service revenues               64.5%      57.4%                   64.8%      58.4%
                                  -----      -----                   -----      -----
Total revenues                    100.0%     100.0%                  100.0%     100.0%
Cost of services                   44.9%      35.3%                   44.5%      33.9%
                                  -----      -----                   -----      -----
Gross profit                       55.1%      64.7%                   55.5%      66.1%
Operating expenses
    Sales and marketing             7.0%      10.6%                    8.7%      14.7%
    Research and development       18.4%      19.9%                   18.6%      31.1%
    General and administrative     11.1%      13.7%                   13.9%      13.7%
                                  -----      -----                   -----      -----
                                   36.5%      44.2%                   41.2%      59.5%
Earnings before interest
   and taxes                       18.6%      20.5%                   14.3%       6.6%
                    
Interest expense (income)          (3.2%)      0.1%                   (1.6%)      0.4%
                                  -----      -----                   -----      -----
Earnings before income taxes       21.8%      20.4%                   15.9%       6.2%
Income taxes                        8.8%       7.8%                    6.3%       2.4%
                                  -----      -----                   -----      -----
Net earnings                       13.0%      12.6%                    9.6%       3.8%
                                  =====      =====                   =====      =====
</TABLE>
                                                                                

THIRD QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO THIRD QUARTER ENDED SEPTEMBER
30, 1996

REVENUES

          Total revenues increased 52.4% to $28.9 million in the third quarter
of 1997 from $19.0 million in the third quarter of 1996.  Revenues increased
primarily due to the increased market acceptance of the Company's products in
the Americas and Asia.  Revenues from the Company's European customers accounted
for $13.3 million or 46.0% of total revenues in the third quarter of 1997
compared to $8.5 million or 45.1% of total revenues in the third quarter of
1996.  Revenues from the Company's Americas customers accounted for $11.9
million or 41.3% of total revenues in the third quarter of 1997 compared to $6.9
million or 36.4% of total revenues in the third quarter of 1996.  Revenues from
Asian customers increased to $3.7 million or 12.7% of total revenues in the
third quarter of 1997 from $3.5 million or 18.5% of total revenues in the third
quarter of 1996.  Revenues in the third quarter of 1996 in Asia included a
sizable license upgrade.  Service revenues as a percentage of total revenues
increased to 64.5% in the third quarter of 1997 compared to 57.4% in the third
quarter of 1996, primarily due to the increased demands of customers for
customization to meet their specific requirements and increased maintenance and
operational assistance required by customers following implementation.

                                       6
<PAGE>
 
COST OF SERVICES

          Cost of services increased to $13.0 million or 44.9% of revenues in
the third quarter of 1997 from $6.7 million or 35.3% of revenues in the third
quarter of 1996. The increase was primarily the result of additional project
personnel hired to staff current and future projects, additional personnel
required to staff the customer support functions in the Americas and also an
increase in the use of outside consultants and systems integrators.

SALES AND MARKETING

          Sales and marketing expenses decreased as a percentage of revenues to
7.0% in the third quarter of 1997 from 10.6% in the third quarter of 1996.  The
sales and marketing staffing level remained fairly constant between these two
periods. The sales and marketing expenses also remained constant at $2.0 in both
quarters while total revenues increased 52.4%, consequently, resulting in a
decrease in sales and marketing expenses as a percentage of total revenues.

RESEARCH AND DEVELOPMENT

          Research and development expenses decreased as a percentage of total
revenues to 18.4% in the third quarter of 1997 from 19.9% in the third quarter
of 1996.  Research and development expenses increased by 40.9% to $5.3 million
in third quarter of 1997 from $3.8 million in third quarter of 1996.  The
increase in expense of $1.5 million in the third quarter of 1997 is primarily
the result of increased staffing necessary to complete the development of
Version 5.0 of the BSCS software and for the initial design and development of
Version 5.01 of the BSCS software.

GENERAL AND ADMINISTRATIVE

          General and administrative expenses increased by 24.2% to $3.2 million
or 11.1% of revenues in the third quarter of 1997 from $2.6 million or 13.7% of
revenues in the third quarter of 1996.  The increase was primarily due to the
establishment of management and other administrative personnel in the Americas
and Asian operations, as well as increases in facilities and infrastructure
related expenses.

INCOME TAXES

          The effective income tax rate was 40.6% of earnings before income
taxes for the third quarter of 1997 compared to 38.0% of earnings before income
taxes for the third quarter of 1996.

                                       7
<PAGE>
 
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996

REVENUES

          Total revenues increased 99.3% to $73.1 million in the first nine
months of 1997 from $36.7 million in the same period of 1996. Revenues increased
primarily due to the increased market acceptance of the Company's products in
the Americas and Asia and the successful introduction of BSCS Versions 4.02 in
Europe and 4.03 in the Americas. Revenues from the Company's European customers
accounted for $35.3 million or 48.2% of total revenues in the first nine months
of 1997 compared to $20.6 million or 56.3% of total revenues for the same period
of 1996. Revenues from the Company's Americas customers accounted for $28.5
million or 39.0% of total revenues in the first nine months of 1997 compared to
$11.1 million or 30.1% of total revenues in the same period of 1996. Revenues
from the Company's Asian customers increased to $9.3 million or 12.8% of total
revenues in the first nine months of 1997 from $5.0 million or 13.6% of total
revenues in the first nine months of 1996. Service revenues increased as a
percentage of total revenues to 64.8% in the first nine months of 1997 from
58.4% in the same period of 1996 primarily due to the increased demands of
customers for customization to meet their specific requirements and increased
maintenance and operational assistance required by customers following
implementation.
 
COST OF SERVICES

          Cost of services increased to $32.5 million or 44.5% of revenues in
the first nine months of 1997 from $12.4 million or 33.9% of revenues in the
first nine months of 1996. The increase was primarily the result of additional
project personnel hired to staff current and future projects, additional
personnel required to staff the customer support functions in the Americas and
also an increase in the use of outside consultants and systems integrators.

SALES AND MARKETING

          Sales and marketing expenses decreased as a percentage of revenues to
8.7% in the first nine months of 1997 from 14.7% in the same period of 1996,
while sales and marketing expenses increased to $6.4 million in the first nine
months of 1997 from $5.4 million in the same period of 1996.  The increase was
principally due to the growth in the number of worldwide sales and marketing
personnel responsible for developing new business, particularly in the Americas
and Asia.

RESEARCH AND DEVELOPMENT

          Research and development expenses decreased as a percentage of total
revenues to 18.6% in the first nine months of 1997 from 31.1% in the same period
of 1996.  Research and development expenses increased 19.7% to $13.6 million in
the first nine months of 1997 from $11.4 million in the same period of 1996.
During the last quarter of 1996, the Company increased the research and
development staff significantly to develop the BSCS Version 5.0 software.  The
Company did not increase research and development staffing significantly in 1997
until late in the second quarter in preparation for the design and development
of Version 5.01 of the BSCS software in the Americas and Version 5.1 of the BSCS
software in Europe.

GENERAL AND ADMINISTRATIVE

          General and administrative expenses increased by 102.7% to $10.2
million in the first nine months of 1997 from $5.0 million in the same period of
1996 and remained relatively flat at 13.9% of revenues in the first nine months
of 1997 compared to 13.7% of revenues in the same period of 1996.  The increase
in expenses was primarily due to increases in the number of administrative
personnel required to staff the Americas and Asian operations as well as,
increases in facilities and infrastructure related expenses.

                                       8
<PAGE>
 
INCOME TAXES

          The effective income tax rate was 40.0% of earnings before income
taxes for the first nine months of 1997 compared to 38.0% of earnings before
income taxes in the same period of 1996.

                                       9
<PAGE>
 
                        LIQUIDITY AND CAPITAL RESOURCES

          Net cash provided by operating activities totaled $4.7 million for the
first nine months of 1997 compared to net cash provided by operating activities
of $.4 million for the same period of 1996.  The small amount of cash provided
by operations in 1996 was primarily the result of the use of working capital to
fund new business expansion into the Americas and Asia markets.

          Net cash used for investing activities totaled $4.1 million for the
first nine months of 1997 compared to $1.9 million in the same period of 1996.
The increase reflects the investment of a portion of the proceeds from the
initial public offering in investment grade debt instruments with a maturity of
slightly more than one year.  The Company invested $2.8 million in leasehold
improvements and equipment in the first nine months of 1997 compared to $2.4
million in the same period of 1996.  The increase is primarily due to the growth
in the Company's Americas and Asia operations which required additional
purchases of furniture and computer equipment.

          Net cash provided by financing activities totaled $64.6 million in the
first nine months of 1997 compared to net cash used in financing activities of
$3.8 million in the same period of 1996. The Company completed its initial
public offering of Common Stock in May 1997, raising $70.6 million in net
proceeds.  In July 1996, the Company repurchased shares of Common Stock from one
of its stockholders at a price of $10.0 million and simultaneously sold the
Common Stock to a related party for $10.0 million.  The final payment of $4.0
million was made to the former stockholder in the first quarter of 1997.

          At June 30, 1997, the Company did not have any material commitments
for capital expenditures.  The Company believes that the net proceeds from the
sale of the Common Stock in the initial public offering combined with existing
cash balances, available credit facilities and funds generated by operations,
will be sufficient to meet its anticipated working capital and capital
expenditure requirements for the foreseeable future.

                                       10
<PAGE>
 
                          PART II - OTHER INFORMATION
                                        
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(a)  Exhibits
      3.1 - Registrant's Certificate of Incorporation, as amended (incorporated
            by reference from Exhibit 3.1 to the Registrant's Registration 
            Statement on Form S-1 (File No. 333-22195) filed on 
            February 21, 1997).

      3.2 - Bylaws of the Registrant (incorporated by reference from Exhibit 3.2
            to the Registrant's Registration Statement on Form S-1  
            (File No.333-22195) filed on February 21,1997).

       11 - Statement Re:  Computation of Per Share Earnings
 
       27 - Financial Data Schedule (for SEC use only)


(b)  Reports on Form 8-K
     No reports on Form 8-K were filed by the Company during the quarter ended
     September 30, 1997.

                                       11
<PAGE>
 
                                   SIGNATURES
                                        
          Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                          LHS Group Inc.

Date:  November 10, 1997          By: /s/ Jerry W. Braxton
                                      --------------------
                                      Jerry W. Braxton
                                      Executive Vice President, Chief Financial
                                      Officer, Treasurer and Director (duly
                                      authorized and principal financial and
                                      accounting officer)

                                       12
<PAGE>
 
                                 EXHIBIT INDEX
                                        
Exhibit No.
-----------
3.1           Registrant's Certificate of Incorporation, as amended
              (incorporated by reference from Exhibit 3.1 to the
              Registrant's Registration Statement on Form S-1
              (File No. 333-22195) filed on February 21, 1997).

3.2           Bylaws of the Registrant (incorporated by reference
              from Exhibit 3.2 to the Registrant's Registration 
              Statement on Form S-1 (File No.333-22195) filed on
              February 21,1997).

11            Statement Re:  Computation of Per Share Earnings
 
27            Financial Data Schedule (for SEC use only)

                                       13