'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.
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.
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.
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.
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.
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.
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.
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.