LEXINGTON, Ky., April 28, 2015 — Lexmark International, Inc. today announced financial results for the first quarter of 2015.

"Despite a strong currency headwind, Lexmark delivered revenue and EPS at the top of our January guidance range," said Paul Rooke, Lexmark chairman and chief executive officer. "Double-digit revenue growth in Higher Value Solutions is another clear indication that our transformation strategy is working.

"Our Annuity revenue represents approximately 70 percent of Core revenue, fueling Lexmark's ability to invest in growing our Higher Value Solutions capabilities while also returning capital to shareholders through dividends and share repurchases."

First Quarter Results

  • Delivered revenue and EPS at the top of the company's January guidance range.

 

Revenue (millions)

1Q15

1Q14

    GAAP

$852

$878

    Adjustments

3

3

    Non-GAAP1

$855

$881

     

EPS

1Q15

1Q14

    GAAP

$0.32

$0.46

    Adjustments

0.49

0.46

    Non-GAAP

$0.81

$0.92

 

First Quarter GAAP Results

  • Revenue of $852 million in 2015 compares to $878 million in 2014.
  • Gross profit margin of 38.7 percent compares to 38.9 percent in the same period last year.
  • Operating income margin was 5.0 and 6.1 percent in 2015 and 2014, respectively.
  • EPS of $0.32 in 2015 compares to $0.46 in the same period last year.
  •  

First Quarter Non-GAAP Results

  • Revenue of $855 million in 2015 compares to $881 million in 2014.
  • Core revenueof $807 million was about flat year to year, but grew 6 percent at constant currency3.
  • Gross profit margin of 40.5 percent compares to 41.0 percent in the same period last year.
  • Operating income margin was 9.5 percent and 10.4 percent in 2015 and 2014, respectively.
  • Adjusted EBITDA4 of $123 million in 2015 compares to $137 million in 2014.
  • Static non-GAAP tax rate is 30.0 percent, approximately flat with the year ago period. The company has adopted a static non-GAAP tax rate in order to provide investors a better understanding of Lexmark's operations consistent with its long-term projections for mix of income among various taxing jurisdictions.
  • EPS of $0.81 in 2015 compares to $0.92 in the same period last year.
  •  

First Quarter Segment Revenue

  • Imaging Solutions and Services (ISS) revenue of $766 million declined 6 percent year to year.
    • Managed Print Services (MPS)5 revenue of $185 million grew 3 percent year to year.
    • Non-MPS6 revenue of $533 million declined 6 percent year to year.
    • Inkjet Exit7 revenue of $48 million declined 34 percent year to year.
  • Enterprise Software revenue was $86 million. Excluding adjustments, Enterprise Software revenue of $90 million grew 40 percent year to year.
    • Deferred software revenue8 increased 35 percent year to year.
    • Annualized subscription contract value9 increased 108 percent year to year.
    •  

First Quarter Higher Value Solutions Revenue

  • Lexmark's Higher Value Solutions revenue10 is comprised of Enterprise Software and MPS.
  • Higher Value Solutions revenue excluding adjustments grew 13 percent year to year, accounting for 32 percent of total revenue, up from 28 percent in the same period in 2014.
  •  

First Quarter Annuity Revenue

  • Lexmark is growing a more predictable Annuity revenue11 base of laser supplies, Software maintenance, Software subscriptions and ISS extended warranty.
  • Lexmark's Annuity revenue of $2.419 billion for the trailing four quarters grew 5 percent compared to the same period a year ago, and comprised 70 percent of Core revenue.

Free Cash Flow

  • The company delivered its 13th consecutive calendar year of positive free cash flow12 in 2014.
  • The company's calendar year 2015 outlook for free cash flow remains at 90 to 100 percent of non-GAAP net income.
  • In the first quarter of 2015, free cash flow was -$47 million compared with -$34 million in the first quarter of 2014.
  • Cash, including cash equivalents and current marketable securities, was $797 million at quarter end, $779 million of which was non U.S.-based.
  •  

Transforming Lexmark, Driving Shareholder Value

  • Lexmark's capital allocation framework delivers shareholder value through investments to build and grow Lexmark's higher value software and solutions business, and through the return of capital to shareholders.
  • Lexmark's target is to return, on average, more than 50 percent of free cash flow to shareholders through quarterly dividends and share repurchases, and the company has returned 86 percent since the first quarter of 2011.
  • In the first quarter, Lexmark returned $52 million to shareholders, which included paying the company's 14th consecutive quarterly dividend amounting to $22 million, and share repurchases of $30 million (0.7 million shares).
  •  

Lexmark to Acquire Kofax

  • On March 24, 2015, Lexmark and Kofax Limited announced that the two companies entered into a merger agreement in which Lexmark will acquire Kofax for $11.00 per share in cash for a total enterprise value of approximately $1 billion.
  • Upon successful completion, Lexmark will nearly double the size of its Enterprise Software business.
  • In addition to the significant increase in scale, Kofax is expected to help accelerate the growth and significantly increase operating margins of Lexmark's Enterprise Software business.
  • This acquisition will be funded with Lexmark's non-U.S. cash and existing credit facilities, and will result in an enhanced, more efficient balance sheet benefiting from the deployment of available overseas cash and existing balance sheet capacity.
  • The acquisition demonstrates the continued execution of Lexmark's capital allocation framework. The transaction will not impact Lexmark's quarterly dividend, however share repurchases would be paused for 18 to 24 months while short term debt is paid.
  • The acquisition is expected to close in the second quarter of 2015 and is contingent on Kofax shareholder approval, applicable regulatory clearances, and customary closing conditions.
  •  

Lexmark Named an Industry Leader in Smart MFPs

  • Lexmark has once again been named as a leader in smart MFPs by IDC13.
  • IDC analyzes the strategies and current capabilities of companies providing smart MFPs.
  • As defined by the IDC MarketScape, leaders are companies that have led and continue to lead the market in both breadth of offering and strategic intent.
  • In addition to smart MFPs, IDC has also named Lexmark a leader in Managed Print Services three consecutive times.
  •  

Looking Forward – Second Quarter of 2015

  • Core revenue is expected to be approximately flat year to year.
  • Total revenue is expected to decline in the range of 2 to 4 percent year to year.
  • GAAP EPS are expected to be around $0.07 to $0.17.
  • Non-GAAP EPS are expected to be around $0.75 to $0.85.
  •  

Looking Forward – Full Year of 2015

  • Core revenue is expected to decline slightly year to year.
  • Total revenue is expected to decline in the range of 3 to 5 percent year to year.
  • GAAP EPS are expected to be around $1.42 to $1.62.
  • Non-GAAP EPS are expected to be around $3.60 to $3.80.

 

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