Lexmark Reports Strong Fourth-Quarter and Full Year: Record Revenue Growth for Perceptive Software and MPS

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Lexmark International today reported financial results for both its fourth quarter and full-year 2013. For its fourth quarter, revenue was up 4 percent versus the same quarter a year ago, and would have been up 11 percent excluding the decline in its inkjet business, which it has exited. Full-year revenue was also up 4 percent, excluding the inkjet exit. Of note is that MPS revenue was up 22 percent for the fourth quarter, and 16 percent for the full year, while revenue from Lexmark’s Perceptive Software unit was up 60 percent in the fourth quarter, and up 43 percent for the full year.

“In the fourth quarter, Lexmark delivered strong revenue and earnings growth, and generated operating cash flow of more than $200 million,” commented Paul Rooke, Lexmark chairman and CEO. “Perceptive Software’s profitability increased again year to year, and once again Perceptive Software and Managed Print Services revenue each grew at a double-digit rate and now together represent 28 percent of our total revenue.

Fourth Quarter Results

Earnings Per Share  4Q13 4Q12
GAAP $1.48 $0.40
AdjustmentsNon-GAAP  (0.30)$1.18   0.28$0.68

Net earnings for the fourth quarter $94 million, compared to 2012 net earnings of $26 million.

Earnings per share for the fourth quarter were $1.48, compared with earnings of $0.40 per share in the fourth quarter of 2012. As previously announced, the company changed its method of accounting for asset and actuarial gains and losses for its pension and post-retirement plans3 in the fourth quarter of 2013. Earnings per share include a favorable mark-to-market adjustment of $0.64 per share and a $0.37 per share for fourth quarter 2013 and fourth quarter 2012 respectively. Earnings per share in the fourth quarter also include restructuring related charges, and acquisition and divestiture related items.

Segment Revenue

Imaging Solutions and Services (ISS) revenue of $939 million grew 1 percent compared to the same period last year. ISS revenue, excluding Inkjet Exit revenue, grew 8 percent compared to last year. On a year-to-year basis:

  • Record Managed Print Services (MPS) revenue of $208 million grew 22 percent.
  • Non-MPS revenue of $631 million grew 4 percent.
  • Inkjet Exit revenue of $100 million declined 32 percent, represented 10 percent of total company revenue, and is expected to decline as a percentage of total revenue as Lexmark’s declining inkjet supplies revenue from the remaining installed base of inkjet printers naturally decreases over time.

Perceptive Software revenue was $67 million. Perceptive Software revenue, excluding acquisition-related adjustments of $5 million, was a record $72 million and grew 70 percent compared to the same period in 2012.

Product Revenue

Hardware revenue of $228 million and Supplies revenue of $661 million grew 3 percent and 1 percent respectively, compared to last year.

Hardware revenue, excluding Inkjet Exit, grew 7 percent, compared to last year. Supplies revenue, excluding Inkjet Exit, grew 8 percent, compared to last year.

Other revenue of $116 million grew 31 percent compared to last year, or 36 percent, excluding acquisition-related adjustments. For the fourth quarter:

  • Revenue was $1.006 billion compared to $967 million last year.
  • Gross profit margin was 41.5 percent versus 35.0 percent in 2012.
  • Operating expense was $267 million compared to $278 million last year.
  • Operating income was $151 million compared to $61 million in 2012.
  • Operating income margin was 15.0 percent compared to 6.3 percent in 2012.
  • Net earnings were $94 million compared to 2012 net earnings of $26 million.

Full Year Results

Full-year revenue of $3.668 billion includes $16 million of acquisition-related adjustments. .

Earnings Per Share 2013 2012
GAAP $4.08 $1.55
AdjustmentsNon-GAAP   0.11$4.19   2.23$3.78

Earnings per share for 2013 were $4.08, compared with earnings of $1.55 per share in 2012.

Full-Year Segment Revenue

Net earnings for the full year were $262 million, compared to 2012 net earnings of $108 million.

ISS revenue of $3.444 billion declined 5 percent compared to last year. ISS revenue, excluding Inkjet Exit revenue, grew 1 percent compared to last year. On a year-to-year basis:

  • Record MPS revenue of $722 million grew 16 percent.
  • Non-MPS revenue of $2.317 billion declined 3 percent.
  • Inkjet Exit revenue of $405 million declined 37 percent, represented 11 percent of total company revenue, and is expected to decline as a percentage of total revenue as Lexmark’s declining inkjet-supplies revenue from the remaining installed base of inkjet printers naturally decreases over time.

Perceptive Software revenue was $224 million. Perceptive Software revenue, excluding acquisition-related adjustments of $16 million, was a record $239 million and grew 48 percent compared to 2012.

Full-Year Product Revenue

Hardware revenue of $763 million and Supplies revenue of $2.484 billion declined 8 percent and 6 percent respectively compared to 2012.

Hardware revenue, excluding Inkjet Exit, declined 2 percent, compared to last year. Supplies revenue, excluding Inkjet Exit, grew 2 percent, compared to last year.

Software and Other revenue of $420 million grew 27 percent compared to last year, or 30 percent, excluding acquisition-related adjustments. For the full year:

  • Revenue was $3.668 billion compared to $3.798 billion the previous year.
  • Gross profit margin was 39.4 percent versus 36.9 percent in 2012.
  • Operating expense was $1.035 billion compared to $1.210 billion last year.
  • Operating income margin was 11.2 percent compared to 5.0 percent in 2012.
  • Net earnings were $262 million compared to 2012 net earnings of $108 million.

2013 net cash provided by operating activities was $474 million, free cash flow was $308 million, capital expenditures were $167 million, and depreciation and amortization was $250 million. The company ended the year with $1.055 billion in cash, equivalents and current marketable securities.

Looking Forward

In the first quarter of 2014, Lexmark expects revenue, excluding Inkjet Exit revenue, to be up 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. Earnings per share in the first quarter of 2014 are expected to be around $0.31 to $0.41, compared with earnings per share of $0.62 in the first quarter of 2013.

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