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Lexmark reports second quarter results

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Lexmark reports second quarter results

 

Highlights:

  • Revenue and earnings per share exceeded April guidance
  • Revenue grew 5 percent excluding Inkjet Exit
  • Managed Print Services and Perceptive Software combined revenue grew 12 percent (11 percent non-GAAP)
  • Strong free cash flow generation of $76 million
  • Share repurchases and dividends totaled $41 million
  • Increased full-year 2014 guidance for revenue and earnings per share

Lexmark International, Inc. (NYSE: LXK) today announced financial results for the second quarter of 2014.

“In the second quarter, our higher value solutions portfolio revenue, comprised of Managed Print Services and Perceptive Software, grew 11 percent, accounted for nearly 30 percent of Lexmark’s total revenue and is expected to exceed $1 billion this year,” said Paul Rooke, Lexmark chairman and chief executive officer. “This growth is fueled by the disciplined execution of our capital allocation framework, which funds the company’s transformation while concurrently rewarding our shareholders with both a 20 percent dividend increase and share repurchases, returning $41 million this past quarter.

“Our strong second-quarter results reflect the synergies we are creating with our unique imaging and software solutions, which help our customers solve their unstructured information challenges,” added Rooke. “Considering our continued strong performance, we are increasing our full-year 2014 revenue and earnings per share guidance.”

Second Quarter Results

  • Second quarter revenue and earnings per share exceeded the company’s April guidance.
Revenue (Millions)

2Q14

2Q13
GAAP

$892

$887
Adjustments

      2

      3
Non-GAP

$894

$890
 

 
Earnings Per Share

2Q14

2Q13
GAAP

$0.59

$1.47
Adjustments

  0.40

-0.43
Non-GAAP

$0.99

$1.04

 

  • GAAP revenue of $892 million includes acquisition-related adjustments of $2 million. Non-GAAP1 revenue of $894 million increased slightly year to year, but grew 5 percent excluding the planned and ongoing decline in Inkjet Exit2 revenue.
  • GAAP earnings per share for the second quarter of 2014 were $0.59. Second quarter 2014 non-GAAP adjustments were $0.40 per share.
  • Second quarter 2014 non-GAAP earnings were $0.99 per share compared with non-GAAP earnings of $1.04 per share in the second quarter of 2013.

Higher Value Solutions Portfolio

  • Lexmark’s higher value solutions portfolio revenue, comprised of Managed Print Services (MPS)3 and Perceptive Software, is expected to exceed $1 billion in 2014.
  • Combined MPS and Perceptive Software revenue of $259 million, excluding acquisition-related adjustments of $2 million, grew 11 percent year to year and accounted for 29 percent of total revenue, up from 26 percent in the same period last year.

Segment Revenue

  • Imaging Solutions and Services (ISS) revenue of $830 million increased slightly compared to the same period last year. ISS revenue, excluding Inkjet Exit revenue, grew 5 percent compared to last year. On a year-to-year basis:
    • MPS revenue of $195 million grew 14 percent.
    • Non-MPS revenue4 of $569 million grew 2 percent.
    • Inkjet Exit revenue of $67 million declined 33 percent and represented 7 percent of total revenue.
    • Perceptive Software revenue was $61 million. Excluding acquisition-related adjustments, Perceptive Software revenue of $64 million grew 3 percent compared to the same period in 2013.

Product Revenue

  • Hardware revenue of $183 million grew 7 percent compared to last year.
  • Supplies revenue of $602 million declined 1 percent year to year. Laser supplies revenue grew 5 percent.
  • Software and Other revenue of $106 million ($109 million non-GAAP) declined 1 percent compared to last year.

GAAP Results

  • Revenue was $892 million compared to $887 million last year.
  • Gross profit margin was 39.4 percent versus 38.6 percent in 2013.
  • Operating expense was $289 million compared to $206 million last year.
  • Operating income was $62 million compared to $136 million in 2013, which included a pretax gain of $71 million, net of related costs, on the sale of inkjet-related technology and assets.
  • Operating income margin was 7.0 percent compared to 15.3 percent in 2013.
  • Net earnings were $37 million compared to 2013 net earnings of $94 million.

Non-GAAP Results

  • Revenue was $894 million compared to $890 million last year.
  • Gross profit margin was 40.8 percent versus 40.4 percent in 2013.
  • Operating expense was $267 million compared to $262 million last year.
  • Operating income was $98 million compared to $98 million in 2013.
  • Operating income margin was 10.9 percent compared to 11.0 percent last year.
  • Net earnings were $62 million compared to $67 million in 2013.

Cash Flow

  • Net cash provided by operating activities was $102 million.
  • Free cash flow5 was $76 million. The company continues to expect 2014 free cash flow to be in the range of 90 percent to 100 percent of non-GAAP net earnings.
  • Capital expenditures were $26 million.
  • Depreciation and amortization was $65 million.
  • Cash, including cash equivalents and current marketable securities, was $1.031 billion at quarter end.

Maintaining Capital Allocation Discipline to Deliver Shareholder Value

  • Lexmark is executing 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 90 percent of free cash flow generated since the first quarter of 2011 to shareholders through dividends and share repurchases.
  • In the second quarter of 2014, Lexmark returned $41 million to shareholders:
    • The company increased its quarterly dividend by 20 percent to $0.36 per share ($1.44 annually). This was Lexmark’s 11th consecutive quarterly dividend.
    • The company repurchased 0.4 million Lexmark shares for $19 million. The company’s remaining share repurchase authorization at quarter end was $129 million.

Healthcare Clients Select Lexmark’s Perceptive Software for Solutions Expertise

  • Lexmark’s Perceptive Software announced three healthcare customer wins in the second quarter spanning North America and EMEA.
  • Tulsa-based Saint Francis Health System will deploy Perceptive Software Acuo Vendor Neutral Archive (VNA) to consolidate medical image management for radiologists and clinical users across all hospital and clinic locations. This deployment improves clinical workflow and archiving capabilities and will enable all clinical content to be easily shared across the enterprise — providing greater freedom and flexibility in implementing departmental systems that best meet patient care, clinical quality and business process needs. St. Francis Health System also currently utilizes Perceptive Software to handle other content management demands across the enterprise.
  • England-based Nottingham University Hospitals NHS Trust, one of the largest in the country, announced that it will use Perceptive Software to help with its picture archive and communications (PACS) data migration. The implementation of Perceptive Software Acuo VNA will form part of a comprehensive media imaging IT system that will see the data migration of about 3 million existing imaging studies from the legacy PACS system at Nottingham University Hospitals NHS Trust.
  • Buffalo, New York-based Catholic Health will deploy Perceptive Capture and Perceptive Content to complement the Infor Financial Management and Human Capital Management Suites being implemented by the health system at its corporate finance and human resources offices. Perceptive Software was chosen due to its seamless integration with the Infor applications.

Lexmark and Perceptive Software Leadership Recognition

  • Lexmark announced recently that it has been positioned as a leader in MPS by leading European-based industry analyst firm Quocirca for the third consecutive year. The report notes that by combining Enterprise Content Management with Business Process Management technology with intelligent distributed capture solutions, including workgroup multifunction printers and mobile devices, Lexmark has a strong proposition for connecting unstructured print and digital information with structured information.6
  • Lexmark recently announced that Perceptive Software has been positioned by Gartner, Inc. in the Leaders Quadrant for enterprise search solutions, 2014. Gartner’s evaluation is based on completeness of vision and ability to execute.7

Looking Forward

  • Third quarter 2014 revenue, excluding Inkjet Exit revenue, is expected to grow year to year. The company expects a continued negative impact from the 2012 decision to exit inkjet.
  • Total revenue in the third quarter is currently expected to be in the range of flat to down 2 percent compared to last year.
  • GAAP earnings per share in the third quarter of 2014 are expected to be around $0.44 to $0.54.
  • Non-GAAP earnings per share in the third quarter of 2014 are expected to be around $0.85 to $0.95, compared with non-GAAP earnings per share of $1.02 in the third quarter of 2013.
  • Full-year 2014 total revenue is currently expected to be in the range of flat to down 2 percent year to year. The previous guidance range was for revenue to decline 2 percent to 4 percent year to year for full-year 2014.
  • Full-year 2014 GAAP earnings per share are expected to be around $2.27 to $2.47.
  • Full-year 2014 non-GAAP earnings per share are expected to be around $3.95 to $4.15, an increase compared with previous non-GAAP earnings per share guidance of $3.80 to $4.00 per share for full-year 2014.