LEXINGTON, Ky., Oct. 22, 2013 /PRNewswire/ — Lexmark International, Inc. (NYSE: LXK) 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.

“Lexmark’s value proposition is unique and squarely focused on helping our customers solve their unstructured information challenges, enabling us to lead in this large and expanding market,” Rooke said.

“Lexmark is continuing to increase shareholder value through acquisitions and organic investments that are accelerating our transition to a higher value solutions portfolio, and through the ongoing capital return of more than 50 percent of free cash flow,” added Rooke.

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 revenue², 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 $0.94per 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 revenue², grew 3 percent, compared to last year. On a year-to-year basis:

• Record Managed Print Services (MPS) revenue³ of $184 million grew 18 percent.
• Non-MPS revenue⁴ of $569 million declined 1 percent.
• Inkjet Exit revenue² 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 flow⁵ 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.

Perceptive Software a Leader in Enterprise Content Management

Perceptive Software recently announced it has been positioned by Gartner, Inc. in the Leaders Quadrant for enterprise content management (ECM) solutions, 2013⁶. Gartner evaluated 23 vendors in its most recent iteration of the annual Magic Quadrant for ECM. Gartner’s evaluation was based on completeness of vision and ability to execute.

Perceptive Software continues to deliver double-digit revenue growth reflecting the imaging and software synergies being created by Lexmark. Perceptive Software’s technology platform spans content management, process management, intelligent capture and enterprise search that, both separately and together, connect the unstructured printed and digital information across the enterprise with the processes, applications, and people that need it.

Looking Forward

In the fourth quarter of 2013, revenue excluding Inkjet Exit revenue² is expected to be flat to up 2 percent year to year. The company expects a continued negative impact from the decision to exit inkjet. Total revenue is currently expected to decline 3 to 5 percent, compared to last year. GAAP earnings per share in the fourth quarter of 2013 are expected to be around $0.57 to $0.67, compared with GAAP earnings per share of $0.10 in the fourth quarter of 2012. Non-GAAP earnings per share in the fourth quarter of 2013 are expected to be around $1.07 to $1.17, compared with non-GAAP earnings per share of $0.61 in the fourth quarter of 2012.

Conference Call Today

The company will be hosting a conference call with securities analysts today at 8:30 a.m. (EDT). A live broadcast and a complete replay of this call can be accessed from Lexmark’s investor relations website athttp://investor.lexmark.com. If you are unable to connect to the Internet, you can access the call via telephone at 888-693-3477 (outside the U.S. by calling 973-582-2710) using access code 68337844.

Lexmark’s earnings presentation slides, including reconciliations between GAAP and non-GAAP financial measures, will be available on Lexmark’s investor relations website prior to the live broadcast.

About Lexmark
Lexmark is uniquely focused on connecting unstructured printed and digital information across enterprises with the processes, applications and people that need it most. For more information, please visitwww.lexmark.com.

Lexmark and Lexmark with diamond design are trademarks of Lexmark International, Inc., registered in the U.S. and/or other countries.  All other trademarks are the property of their respective owners.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this release which are not historical facts are forward-looking and involve risks and uncertainties which may cause the company’s actual results or performance to be materially different from the results or performance expressed or implied by the forward-looking statements. Factors that may impact such forward-looking statements include, but are not limited to, continued economic uncertainty related to volatility of the global economy; uncertainty as a result of U.S. federal government automatic budget cuts required pursuant to the sequester that took effect in March 2013; failure to successfully integrate newly acquired businesses; fluctuations in foreign currency exchange rates; decreased supplies consumption; possible changes in the size of expected restructuring costs, charges, and savings; inability to execute the company’s strategy to become an end-to-end solutions provider; market acceptance of new products; inability to realize all of the anticipated benefits of the company’s acquisitions; aggressive pricing from competitors and resellers; changes in the company’s tax provisions or tax liabilities; the inability to develop new products and enhance existing products to meet customer needs on a cost competitive basis; reliance on international production facilities, manufacturing partners and certain key suppliers; increased investment to support product development and marketing; the financial failure or loss of business with a key customer or reseller; periodic variations affecting revenue and profitability; excessive inventory for the company’s reseller channel; failure to manage inventory levels or production capacity; credit risk associated with the company’s customers, channel partners, and investment portfolio; entrance into the market of additional competitors focused on imaging and software solutions, including enterprise content management, intelligent capture and business process management solutions; inability to perform under managed print services contracts; increased competition in the aftermarket supplies business; fees on the company’s products or litigation costs required to protect the company’s rights; inability to obtain and protect the company’s intellectual property rights and defend against claims of infringement and/or anticompetitive conduct; the outcome of litigation or regulatory proceedings to which the company may be a party; unforeseen cost impacts as a result of new legislation; the inability to attract, retain and motivate key employees; changes in a country’s political or economic conditions; the failure of information technology systems, including data breaches or cyber attacks; disruptions at important points of exit and entry and distribution centers; business disruptions; terrorist acts; acts of war or other political conflicts; or the outbreak of a communicable disease; and other risks described in the company’s Securities and Exchange Commission filings. The company undertakes no obligation to update any forward-looking statement.

SOURCE Lexmark International, Inc.