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Lexmark reports first quarter results

- Revenue growth in MPS and Enterprise Software offset by strong U.S. dollar, decline in non-MPS revenue and ongoing exit of inkjet- Core revenue grew 3 percent at constant currency- Generated free cash flow of $56 million- Announced agreement to be acquired for $40.50 per share in all-cash transaction, reflects 30 percent premium to undisturbed stock price on Oct. 21, 2015- Announced payment of 18th consecutive quarterly dividend of $0.36 per share

LEXINGTON, Ky., April 27, 2016 /PRNewswire/ -- Lexmark International, Inc. today announced financial results for the first quarter of 2016.

First Quarter Results

  • Results reflect growth in MPS and Enterprise Software offset by the strong U.S. dollar, decline in non-MPS revenue and the ongoing exit of inkjet.

Revenue (millions)

1Q16

1Q15

GAAP

$806

$852

Adjustments

6

3

Non-GAAP

$812

$855




EPS

1Q16

1Q15

GAAP

-$0.63

$0.32

Adjustments

$0.94

0.49

Non-GAAP

$0.31

$0.81

GAAP Results

  • Revenue of $806 million in 2016 compares to $852 million in 2015.
  • Gross profit margin of 38.0 percent compares to 38.7 percent in the same period last year.
  • Operating income margin was -4.8 percent and 5.0 percent in 2016 and 2015, respectively.
  • EPS of -$0.63 in 2016 compares to $0.32 in the same period last year.

Non-GAAP Results

  • Revenue of $812 million declined 5 percent, down 1 percent at constant currency [1] .
  • Core revenue [2 ] of $792 million declined 2 percent, up 3 percent at constant currency.
  • Gross profit margin of 41.2 percent compares to 40.5 percent in the same period last year.
  • Operating income margin was 4.8 percent and 9.5 percent in 2016 and 2015, respectively.
  • Adjusted EBITDA [3] of $80 million in 2016 compares to $123 million in 2015.
  • EPS of $0.31 in 2016 compares to $0.81 in the same period last year.

Non-GAAP Segment Revenue

  • Enterprise Software revenue of $143 million grew 60 percent, up 62 percent at constant currency.
    • Deferred software revenue [4] of $214 million increased 65 percent year to year.
    • Annualized subscription contract value [4 ] increased 18 percent year to year.
  • ISS [5] revenue of $669 million declined 13 percent, down 8 percent at constant currency.
  • MPS [6] revenue of $189 million grew 2 percent, up 8 percent at constant currency.
  • Non-MPS [7] revenue of $460 million declined 14 percent, down 9 percent at constant currency.
  • Inkjet Exit [8] revenue of $20 million declined 58 percent.

Non-GAAP Higher Value Solutions Revenue

  • Lexmark's Higher Value Solutions revenue [9] of $332 million grew 21 percent, up 26 percent at constant currency.
  • Higher Value Solutions revenue accounted for 41 percent of total revenue, up from 32 percent in the same period in 2015.

Balance Sheet and Cash Flow

  • Cash [10] was $127 million at quarter end, $118 million of which was non U.S.-based.
  • Total long-term and short-term debt declined $66 million year to date.
  • Net debt [11 ] was $869 million.
  • Net cash flow provided by operating activities was $79 million.
  • Free cash flow [12] was $56 million.

Lexmark Acquisition Announcement and Quarterly Dividend Declaration

  • Lexmark announced on April 19, 2016, that it entered into a definitive merger agreement with a consortium of investors led by Apex Technology and PAG Asia Capital. Legend Capital is also a member of the consortium.
  • This all-cash transaction is the result of an exhaustive six-month strategic alternatives review process undertaken by Lexmark's Board of Directors to maximize shareholder value.
  • At closing, the transaction will provide Lexmark's shareholders $40.50 per share in cash, representing a 30 percent premium to the undisturbed stock price on Oct. 21, 2015, the date prior to the news of Lexmark's exploration of strategic alternatives becoming public.
  • In the April 19 announcement, Lexmark's Board of Directors also declared its regular quarterly dividend of $0.36 per share of Lexmark Class A Common Stock payable on June 17, 2016, to shareholders of record as of the close of business on June 3, 2016.

Looking Forward

  • The merger, which is expected to close in the second half of 2016, is subject to approval by Lexmark shareholders, foreign and domestic regulatory approvals and other customary closing conditions.
  • The company will not conduct quarterly conference calls while this transaction is pending.
  • Upon closing, Lexmark common stock will cease to be publicly traded on the New York Stock Exchange.

Earnings Materials This earnings release, including reconciliations between GAAP and non-GAAP financial measures, will be available on Lexmark's investor relations website.

About Lexmark Lexmark LXK, -0.03% creates enterprise software, hardware and services that remove the inefficiencies of information silos and disconnected processes, connecting people to the information they need at the moment they need it. Open the possibilities at www.Lexmark.com.

Lexmark, the Lexmark logo and Open the possibilities 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 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, Lexmark may not be able to complete the proposed transaction on the terms described herein or other acceptable terms or at all because of a number of factors, including without limitation (1) the occurrence of any event, change or other circumstances that could give rise to the expected timing of completion or termination of the Merger Agreement, (2) the failure to obtain the requisite approval of Lexmark's shareholders or the failure to satisfy the other closing conditions, (3) risks related to disruption of management's attention from Lexmark's ongoing business operations due to the pending transaction and (4) the effect of the announcement of the pending transaction on the ability of Lexmark to retain and hire key personnel, maintain relationships with its customers and suppliers, and maintain its operating results and business generally; fluctuations in foreign currency exchange rates; decreased supplies consumption; excessive inventory for the company's reseller channel; aggressive pricing from competitors and resellers; failure to successfully integrate newly acquired businesses; inability to realize all of the anticipated benefits of the company's acquisitions; failure to manage inventory levels or production capacity; possible changes in the size of expected restructuring costs, charges, and savings; market acceptance of new products; continued economic uncertainty related to volatility of the global economy; inability to execute the company's strategy to become an end-to-end solutions provider; changes in the company's tax provisions or tax liabilities; periodic variations affecting revenue and profitability; the failure of information technology systems, including data breaches or cyberattacks; 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; business disruptions; increased competition in the aftermarket supplies business; inability to obtain and protect the company's intellectual property rights and defend against claims of infringement and/or anticompetitive conduct; ineffective internal controls; customer demands and new regulations related to conflict-free minerals; fees on the company's products or litigation costs required to protect the company's rights; inability to perform under managed print services contracts; terrorist acts; acts of war or other political conflicts; increased investment to support product development and marketing; the financial failure or loss of business with a key customer or reseller; credit risk associated with the company's customers, channel partners, and investment portfolio; the outcome of litigation or regulatory proceedings to which the company may be a party; unforeseen cost impacts as a result of new legislation; changes in a country's political or economic conditions; disruptions at important points of exit and entry and distribution centers; and other risks described in the company's Securities and Exchange Commission filings. The company undertakes no obligation to update any forward-looking statement.

Additional Information and Where to Find It In connection with the proposed transaction, Lexmark will file with the Securities and Exchange Commission (the SEC) and mail or otherwise provide to its shareholders a proxy statement regarding the proposed transaction. BEFORE MAKING ANY VOTING DECISION, LEXMARK'S SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT IN ITS ENTIRETY WHEN IT BECOMES AVAILABLE AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION OR INCORPORATED BY REFERENCE THEREIN BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE PARTIES TO THE PROPOSED TRANSACTION. Investors and security holders may obtain a free copy of the proxy statement and other documents that Lexmark files with the SEC (when available) from the SEC's website at www.sec.gov and the "Investors" section of www.lexmark.com. In addition, the proxy statement and other documents filed by Lexmark with the SEC (when available) may be obtained from Lexmark free of charge by directing a request to Lexington International, Inc., Investor Relations Department, One Lexmark Centre Drive, 740 West New Circle Road, Lexington, Kentucky 40550, (859) 232-5568.

Participants in the Solicitation Lexmark and its directors, executive officers and employees may be deemed, under SEC rules, to be participants in the solicitation of proxies from Lexmark shareholders with respect to the proposed transaction. Security holders may obtain information regarding the names, affiliations and interests of such individuals in Lexmark's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and its definitive proxy statement for the 2016 annual meeting of shareholders. Additional information regarding the interests of such individuals in the proposed transaction will be included in the proxy statement relating to the transaction when it is filed with the SEC. These documents may be obtained free of charge from the SEC's website at www.sec.gov and the "Investors" section of www.lexmark.com.

GAAP to non-GAAP Financial Measures In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release non-GAAP financial measures such as EBITDA, Adjusted EBITDA, earnings per share amounts and related income statement items which management believes provides useful information to investors. When used in this press release, "non-GAAP" Adjusted EBITDA, earnings per share amounts and related income statement items exclude restructuring charges and project costs, acquisition and divestiture-related adjustments, pension plan actuarial gains/losses, and remediation-related adjustments. The rationale for management's use of non-GAAP measures is included in Appendix A to the financial information attached hereto.

Footnotes (1) Constant currency is calculated by translating prior period results at current period exchange rates and removing related hedge gains and losses. (2) Core revenue is defined as total Lexmark revenue minus Inkjet Exit revenue. (3) Adjusted EBITDA, a non-GAAP measure, is defined as net earnings plus net interest expense (income), provision for income taxes, depreciation and amortization, excluding restructuring charges and project costs, acquisition and divestiture related adjustments, pension plan actuarial gains or losses, and remediation related adjustments. (4) Deferred software revenue is defined as amounts billed to customers but...


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