Business News

Lexmark reports first quarter results

Tuesday 23. April 2013 - - Revenue and EPS at high end of guidance range

– Growth in both managed print services and Perceptive Software revenue
– Share repurchases and dividends totaled $40 million
– Solutions offerings expanded and strengthened by two first quarter acquisitions
– Announced sale of inkjet-related technology and assets
Lexmark International, Inc. (NYSE: LXK) today announced financial results for the first quarter of 2013.
“In the first quarter, Lexmark delivered revenue and EPS at the high end of our guidance range, and we continued to grow our higher value segments,” said Paul Rooke, Lexmark chairman and chief executive officer. “We also remain focused on our transition from a hardware-centric to a solutions-centric company with the acquisitions of two software companies and the recently announced agreement to sell Lexmark’s inkjet-related technology and assets.
“Lexmark’s long history of free cash flow generation has enabled the company to complete eight software-focused acquisitions that are strengthening and expanding our solutions capabilities, and since 2011 return more than $500 million in combined dividends and share repurchases to our shareholders,” added Rooke.
First Quarter Results
GAAP revenue of $884 million includes $2 million of acquisition-related adjustments. Non-GAAP(1) revenue of $886 million declined 11 percent compared with last year.
GAAP earnings per share for the first quarter of 2013 were $0.54, compared with GAAP earnings of $0.84 per share in the first quarter of 2012. Non-GAAP earnings were $0.88 per share compared with non-GAAP earnings of $1.05 per share in the first quarter of 2012.
The enactment of the American Taxpayer Relief Act of 2012 was not completed until 2013. Certain provisions of the Act benefiting the company’s 2012 federal taxes, including the extension of the research and experimentation tax credit for 2012, could not be recognized in the company’s 2012 financial results and instead were reflected in the company’s first quarter 2013 financial results. This favorably impacted earnings by $6 million ($0.09 per share).
Imaging Solutions and Services (ISS) revenue of $840 million declined 13 percent compared to the same period last year. Within ISS, Managed Print Services (MPS) revenue(2) of $160 million grew 10 percent, Non-MPS( )revenue(3) of $558 million declined 12 percent and Inkjet Exit revenue(4) of $122 million declined 34 percent year to year. Inkjet Exit revenue represented 14 percent of total company revenue and is expected to decline as a percentage of total revenue as the trailing inkjet supplies revenue from the installed base of inkjet printers decreases over time.
Perceptive Software revenue was $44 million. Perceptive Software revenue, excluding acquisition-related adjustments of $2 million, was $46 million and grew 54 percent compared to the same period in 2012.
Hardware revenue of $181 million and Supplies revenue of $609 million declined 9 percent and 16 percent, respectively. Software and Other revenue of $94 million grew 34 percent, or 37 percent excluding acquisition-related adjustments.
Lexmark continues to focus on growing workgroup laser hardware and supplies, MPS, and software revenue.
First Quarter 2013 GAAP results:
— Revenue was $884 million compared to $992 million last year.
— Gross profit margin was 37.8 percent versus 38.4 percent in 2012.
— Operating expense was $281 million compared to $292 million last year.
— Operating income margin was 6.1 percent compared to 9.0 percent in 2012.
— Net earnings were $35 million compared to 2012 net earnings of $61
million.
First Quarter 2013 Non-GAAP results:
— Revenue was $886 million compared to $993 million last year.
— Gross profit margin was 39.8 percent versus 39.4 percent in 2012.
— Operating expense was $272 million compared to $282 million last year.
— Operating income margin was 9.1 percent compared to 11.0 percent last
year.
— Net earnings were $57 million compared to $76 million in 2012.
In the first quarter of 2013, net cash provided by operating activities was $38 million, free cash flow(5) was negative $5 million, capital expenditures were $43 million, and depreciation and amortization was $62 million. The company ended the quarter with $880 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(5) 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 $500 million to shareholders through dividends and share repurchases since July 2011.
In the first quarter of 2013, Lexmark paid a dividend of $0.30 per share totaling $19 million and also repurchased 0.9 million of the company’s shares for $21 million. The company’s remaining share repurchase authorization is currently $230 million.
Lexmark Strengthens and Expands Enterprise Content Software and Solutions
During the first quarter, Lexmark completed two acquisitions that expand and strengthen the company’s enterprise content management software and solutions offerings.
— Twistage
Twistage offers an industry-leading, cloud software platform for managing video, audio and image content. Twistage’s framework easily integrates with customers’ existing applications and is flexible and adaptable – bridging gaps in a company’s media management infrastructure.
Twistage’s technology enables customers to securely consume rich media in virtually any format, and also manage and deliver content within their firewalls and outside the walls of their networks. The company’s architecture minimizes costs through a scalable and decentralized approach, equipping organizations to realize a return on their existing rich media assets across a wide range of mobile and desktop devices.
When combined with Lexmark, Twistage will enable customers to capture, manage and access all of their content, including rich media content assets, within the context of their business processes and enterprise applications.
— AccessVia
AccessVia’s customers benefit from industry-leading signage solutions to create and produce retail shelf-edge materials, all from a single platform. These materials can be directed to a variety of output devices and published to digital signs or electronic shelf tags.
AccessVia’s software prints on-demand in stores on monochrome and color laser printers, smart multifunction products and on handheld devices in the aisle, or centrally in high-speed production print facilities.
The technology also enables customers to publish to digital shelf signs, large digital displays or electronic shelf labels. AccessVia’s Web-based software tools can be delivered via their cloud-based software-as-a-service as well as an on-premise installation. Regardless of the deployment model, the tools are readily available and easy to use.
AccessVia, when combined with Lexmark’s managed print services and expertise in delivering print and document process solutions to the retail market, will enable customers to quickly design and produce in-store signage for better and more timely merchandising in a highly distributed store environment.
AccessVia’s signage software platform provides paper and digital solutions to more than 75 retailers with more than 60,000 stores. Some of the well recognized brands and retailers that use AccessVia include Best Buy, Office Depot, Safeway, Family Dollar and El Corte Ingles.
Sale of Inkjet-Related Technology and Assets Announced
On April 1, 2013, an agreement was announced that Funai Electric Company, Ltd. will acquire Lexmark’s inkjet-related technology and assets for approximately $100 million. Upon closing of the transaction, Funai will acquire more than 1,500 inkjet patents, Lexmark’s inkjet-related research and development assets and tools, all outstanding shares and the manufacturing facility of Lexmark International (Philippines), Inc., and other inkjet-related technologies and assets. The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2013.
For Lexmark customers and distributors, there will not be a disruption of service or support as they continue to work directly with Lexmark. Lexmark will continue to support its installed base of customers in the sale of aftermarket inkjet supplies and will continue to provide customer technical and warranty support.
New Debt Issuance and Redemption
During the first quarter Lexmark issued registered public debt in an aggregate principal amount of $400 million, maturing March 15, 2020. The seven-year unsecured senior notes have a coupon and effective yield to maturity of 5.125%. On March 31, 2013, Lexmark used a portion of the net proceeds from the offering to redeem all of its $350 million, 5.90% Senior Notes at a premium of $3.2 million, prior to their scheduled June 1, 2013, maturity date. The remaining net proceeds from the $400 million debt issuance will be used for general corporate purposes, including to repay other debt, finance capital expenditures and operating expenses, fund share repurchases, fund dividends, finance acquisitions, and invest in any subsidiaries.
Looking Forward
In the second quarter of 2013, the company expects a continued negative impact from the decision to exit inkjet. Revenue is currently expected to decline 6 to 8 percent year on year. GAAP earnings per share in the second quarter of 2013 are expected to be around $0.42 to $0.52, compared with GAAP earnings per share of $0.55 in the second quarter of 2012. Non-GAAP earnings per share in the second quarter of 2013 are expected to be around $0.80 to $0.90, compared with non-GAAP earnings per share of $0.89 in the second quarter of 2012. Second quarter 2013 guidance excludes expected gains from the closing of the inkjet sale transaction, which is scheduled to close in the second quarter of 2013.