Lexmark reports third quarter results

LEXINGTON, Ky. (Oct. 22, 2013) — Lexmark International Inc. today announced financial results for the third quarter of 2013.

“In the third quarter, Lexmark continued solid execution of our strategy of transforming to an end-to-end solutions provider, and delivered revenue that exceeded our July guidance range, EPS at the top of the range and also strong free cash flow,” said Paul Rooke, Lexmark chairman and chief executive officer. “Perceptive Software’s profitability increased significantly compared to last year and once again both managed print services and Perceptive Software revenue grew at a double-digit rate, reflecting the imaging and software synergies we’re creating.”

Highlights

• Revenue, excluding Inkjet Exit, grew 5 percent
• Record Managed Print Services revenue grew 18 percent
• Perceptive Software GAAP revenue grew 32 percent (non-GAAP 38 percent)
• Revenue exceeded guidance range, EPS at top of range
• Free cash flow generation of $98 million
• Share repurchases and dividends totaled $40 million
• Strengthened software solutions with two acquisitions

Third quarter results

GAAP revenue of $890 million includes $5 million of acquisition-related adjustments. Non-GAAP¹ revenue of $896 million declined 3 percent compared with last year.  Excluding the ongoing decline in Inkjet Exit revenue, non-GAAP revenue grew 5 percent year to year.

GAAP earnings per share for the third quarter of 2013 were $0.45, compared with GAAP earnings of $0.00 per share in the third quarter of 2012.

Third quarter 2013 adjustments were $0.50 per share, compared with third quarter 2012 adjustments of $0.94 per share. Third quarter 2013 non-GAAP earnings were $0.95 per share compared with non-GAAP earnings of $0.94 per share in the third quarter of 2012.

Earnings in the third quarter of 2013 include an unfavorable impact of $0.04 per share as compared to the company’s July guidance resulting from a higher-than-anticipated income tax provision required for the year-to-date period. This higher tax provision was primarily driven by a shift in the company’s geographic earnings mix.

Segment Revenue: 
Imaging Solutions and Services (ISS) revenue of $837 million declined 5 percent compared to the same period last year. ISS revenue, excluding Inkjet Exit revenue, grew 3 percent, compared to last year. On a year-to-year basis:

• Record Managed Print Services (MPS) revenue of $184 million grew 18 percent.
• Non-MPSrevenue of $569 million declined 1 percent.
• Inkjet Exit revenue of $84 million declined 44 percent, represented 9 percent of total company revenue, and is expected to decline as a percentage of total revenue as the trailing inkjet supplies revenue from the remaining installed base of inkjet printers naturally decreases over time.

Perceptive Software revenue was $54 million. Perceptive Software revenue, excluding acquisition-related adjustments of $5 million, was $59 million and grew 38 percent compared to the same period in 2012.

Product Revenue
: Hardware revenue of $182 million and Supplies revenue of $606 million declined 11 percent and 4 percent, respectively, compared to last year. Software and Other revenue of $102 million grew 21 percent compared to last year, or 24 percent, excluding acquisition-related adjustments.

GAAP Results

• Revenue was $890 million compared to $919 million last year.
• Gross profit margin was 38.9 percent versus 35.7 percent in 2012.
• Operating expense was $294 million compared to $316 million last year.
• Operating income margin was 5.9 percent compared to 1.3 percent in 2012.
• Net earnings were $29 million compared to 2012 net earnings of $0 million.

Non-GAAP Results

• Revenue was $896 million compared to $921 million last year.
• Record gross profit margin was 40.8 percent versus 39.9 percent in 2012.
• Operating expense was $270 million compared to $269 million last year.
• Operating income margin was 10.6 percent compared to 10.7 percent last year.
• Net earnings were $61 million compared to $65 million in 2012.

Cash Flow 
In the third quarter of 2013, net cash provided by operating activities was $143 million, free cash flow⁵ was $98 million, capital expenditures were $45 million, and depreciation and amortization was $61 million. The company ended the quarter with $974 million in cash and marketable securities.

Maintaining capital allocation discipline to deliver shareholder value

Lexmark is continuing to execute on its stated capital allocation framework of returning more than 50 percent of free cash flow to shareholders, on average, through quarterly dividends and share repurchases while building and growing its solutions and software business through expansion and acquisitions. Lexmark has returned more than $650 million to shareholders through dividends and share repurchases since July 2011.

In the third quarter of 2013, Lexmark paid a dividend of $0.30 per share totaling $19 million and also repurchased 0.5 million of the company’s shares for $21 million. The company’s remaining share repurchase authorization is currently $189 million.

Two acquisitions strengthen software solutions presence, capabilities

With its two recent acquisitions, Lexmark increased the company’s enterprise content management (ECM) presence in Europe, and further strengthened its capabilities of providing the platform, products and solutions that help its healthcare customers manage their unstructured information challenges.

Saperion

During the third quarter, Lexmark completed the acquisition of Germany-based Saperion, a leading provider of ECM software in Europe. Saperion is focused on providing document archive and workflow solutions and now reports into Perceptive Software. Lexmark purchased Saperion for $72 million utilizing non-U.S. cash.

This acquisition expands Perceptive Software’s European-based footprint in the ECM market. Saperion’s ECM products feature a platform-independent, multilingual architecture, making the products highly scalable and easy to integrate with all major ERP, email and document management systems. Saperion has also developed leading cloud-based and mobile ECM solutions to provide workers easy and intuitive access to important content, even when they are away from the office.

PACSGEAR

Earlier this month, Lexmark announced the acquisition of PACSGEAR, a leading provider of connectivity solutions for healthcare providers to capture, manage and share medical images and related documents and integrate them with existing picture archiving and communication systems and electronic medical records (EMR) systems. Lexmark paid a cash purchase price of $54 million.

With this acquisition, Perceptive Software will be uniquely positioned to offer a vendor-neutral, standards-based, clinical content platform for capturing, managing, accessing and sharing patient imaging information and related documents within healthcare facilities through an EMR and between facilities via PACSGEAR technology.