Lexmark / Bernstein Research Investor Video Conference

Transcription

1 Lexmark / Bernstein Research Investor Video Conference February 27, 2014 Transforming to a Higher Value Portfolio

2 Safe Harbor Statement The contents of this presentation that are not statements of historical fact are forward-looking statements and involve risks and uncertainties that are discussed in the Safe Harbor section of our earnings releases and SEC filings. Actual results may differ materially from such statements. Lexmark undertakes no obligation to update any forward-looking statements. This presentation contains non-gaap financial measures, unless otherwise noted. Lexmark has provided reconciliations of GAAP to non-gaap financial measures and a discussion of management s use of non-gaap financial measures in the GAAP to Non-GAAP section of its earnings slide deck. 2

3 Today s Discussion Transforming to a Higher Value Portfolio Lexmark focused on solving the unstructured information challenge Market for high value solutions and software increasing Lexmark well positioned to increase participation in high value markets Lexmark solutions and software experiencing rapid growth Creating Shareholder Value 5 consecutive years achieving a record gross profit margin percentage 12 consecutive years of positive free cash flow Building and growing solutions business through expansion and acquisitions Returning >50% of free cash flow to shareholders through dividends and share repurchases on average 3

4 Solving The Unstructured Information Challenge The explosion of content outside your enterprise applications disconnects people from the information they need most, hindering the accurate and timely completion of processes. Explosion of unstructured information is both digital and paper-based Digital: word processing/spreadsheet files, , chat/social messaging, and rich file types like images, audio and video Paper-based: mail, memos, notes and more buried in mailrooms, filing cabinets and stacks of folders Lexmark is uniquely focused on Connecting the unstructured printed and digital information across the enterprise with the processes, applications and people that need it most. 4

5 Enterprise Systems: Where We Fit Customers Suppliers Enterprise ERP Resource Planning CRM Human Resources HRIS Information System Customer EMR Relationship SIS Management Healthcare Education Internal Processes Employees 5

6 World Class Platform, Industry Focused Solutions Output Management Platform Content and Process Management Software Platform Managed Print Solutions Workflow-enabled Fleet insight Perceptive Capture Multichannel capture Document capture Rich media capture Intelligent capture Perceptive Content Document management Rich media management Records and information management Document composition Perceptive Process Workflow Case management Electronic signatures Process mining Process modeling & analytics Perceptive Search Federated search Fault-tolerant search Data loss prevention Document filters Industry-specific unstructured content, process & output solutions Retail Manufacturing Banking Insurance Healthcare Government Education Back Office 6

7 Growing Market For High Value Solutions Content & Process Management ~$80B ~$10B Expected to grow at ~10% CAGR Enterprise Content Business Process Document Output Vendor Neutral Archive Output Management ~$70B MPS and Fleet Solutions expected to grow at double-digit rate Non-MPS expected to decline Laser Hardware, Supplies, Services Source: Industry sources, public information, and other internal and external sources 7 7

8 Lexmark Well Positioned in Growth Markets Lexmark s Unique Value Proposition Key Technology Ownership Deeper Industry Experience Superior Customer Intimacy Growth Synergies Imaging Solutions Perceptive Software Solutions 8

9 High Value MPS and Software Revenue Growing* Approaching $1 billion 26% of total revenue in 2013 Expected to grow by about 15% in 2014 $961 11/ 13 CAGR +19% Perceptive Software $683 $786 Managed Print Services *Non-GAAP, in millions, totals may not foot due to rounding 9

10 Perceptive Software Revenue Grew 48% in 2013 Expected to grow to $500 Million in 2016 Targeting ~25% operating income margin by end of 2016 $239 $162 $100 Licenses Subscriptions Maintenance Prof. Svc. / Other *Non-GAAP, in millions, totals may not foot due to rounding 10

11 Capital Allocation Increasing Shareholder Value* Acquisitions Invested > $725 Since 2010 Free Cash Flow ~90% to 100% of Non-GAAP Net Income Return of Capital Returned 87% of Free Cash Flow Perceptive Software Pallas Athena Brainware ISYS Nolij Acuo Twistage AccessVia Saperion Pacsgear <50% Cash for Investment >50% Return to Shareholders $694 Share Repurchase Dividends $798 Free Cash Flow 1Q11 To 4Q13 Long Term Assumption: Strengthen & Grow Capabilities Return >50% on Average through Dividends & Repurchases *In millions, totals may not foot due to rounding 11

12 Lexmark / Bernstein Research Investor Video Conference February 27, 2014 Transforming to a Higher Value Portfolio

13 Reference Materials

14 Lexmark Financial Summary* 4Q13 YTY FY13 YTY Revenue $1,011 +4% $3,684-3% Gross Profit Margin 41.4% +5.2 pts 40.7% +1.6 pts Operating Expense $307 +$38 $1,098 +$12 R&D $87 +$3 $322 -$38 SG&A $219 +$35 $775 +$50 Operating Income $112 +$31 $403 +$2 ISS $197 +$41 $701 +$7 Perceptive $2 +$9 -$2 +$23 All Other -$86 -$19 -$297 -$28 Operating Income Margin 11.1% +2.7 pts 10.9% +0.4 pts Net Earnings $75 +$30 $269 +$6 Tax Rate 27.4% pts 26.4% -2.9 pts EPS $1.18 +$0.50 $4.19 +$0.41 * Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted 14

15 Segment Financial Summaries* ISS 4Q13 YTY FY13 YTY Revenue $939 +1% $3,444-5% Laser $839 +8% $3,039 +1% MPS $ % $ % Non-MPS $631 +4% $2,317-3% Inkjet Exit $100-32% $405-37% Gross Profit Margin 40.4% +4.6 pts 39.9% +1.0 pts Operating Expense $182 +$7 $671 -$49 R&D $67 +1% $241-16% SG&A $115 +6% $431-1% Operating Income $197 +$41 $701 +$7 Operating Income Margin 21.0% +4.1 pts 20.4% +1.3 pts Perceptive Software 4Q13 YTY FY13 YTY Revenue $72 +70% $ % Licenses $23 +97% $78 +59% Subscriptions $7 +178% $ % Maintenance $24 +49% $79 +34% Professional Services / Other $18 +49% $58 +28% Gross Profit Margin 73.4% +6.4 pts 72.3% +3.1 pts Operating Expense $51 +$16 $175 +$39 R&D $16 +23% $58 +22% SG&A $35 +56% $ % Operating Income $2 +$9 -$2 +$23 Operating Income Margin 2.6% pts -0.8% pts * Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted 15

16 Balance Sheet and Cash Flow 1 Highlights Cash Conversion Cycle Improved 9 days sequentially, 7 days YTY Strong Liquidity Position with $1.1B Cash 2, $350M Revolver, $125M A/R Program Maintaining an Investment Grade Debt Rating Balance Sheet & Cash Flow 4Q13) Cash 2 $1,055) U.S. Cash $40) Non-U.S. Cash $1,014) 4Q13 YTD) Cash from Operations 3 $205) $474) Free Cash Flow 4 $164) $308) Depreciation & Amortization 5 $67) $250) Capital Expenditures $41) $167) Cash Provided By or (Used For) A/R $38) $78) Inventory $28) $7) A/P ($10) ($38) Cash Conversion Days 4Q12 1Q13 2Q13 3Q13 4Q13 Receivables Inventory Payables Cash Conversion Long Term Debt Long Term Debt $ %, Due 2020 $ %, Due 2018 $300 (1) GAAP, totals may not foot due to rounding, in millions unless otherwise noted (2) Includes current short-term marketable securities (3) Net cash provided by operating activities (4) Free cash flow = cash from operations capital expenditures + proceeds from the sale of fixed assets (5) Includes $21 million and $69 million for non-gaap adjustments in 4Q13 and YTD, respectively 16

17 2014 Revenue Assumption * Overall Revenue Inkjet Exit Lexmark Consumer + Business Inkjet Hardware & Supplies 2013 $3.7B $0.4B Year to Year % -3% to -5% Inkjet Exit Down 37% ~11% of Revenue Inkjet Exit Down >40% ~6% of Revenue Imaging Solutions Hardware, Supplies, Software, Services $2.3B Non-MPS -4% Imaging Solutions + Perceptive Software Up 4% Imaging Solutions + Perceptive Software Up Slightly Perceptive Software Solutions $0.7B MPS $0.2B MPS + Perceptive Software Up 22% MPS + Perceptive Software Up about 15% * Non-GAAP, bar chart depicts percentage of total revenue, totals may not foot due to rounding 17

18 2014 Outlook / Assumptions FY14 Assumptions Revenue (1)(2) -3% to -5% YTY Up Slightly YTY ex. IJ Exit Gross Profit Margin% (1) Increase Operating Expense (1) Lower FY14 Tax Rate ~29% EPS (1)(2) $ $4.00 Free Cash Flow Low end of 90%-100% NI (1) Capital Spending ~$150 Million Depreciation ~$235 Million (3) Pension Funding ~$35 Million (Cash) FY14 revenue decline of 3% to 5% YTY unfavorably impacted 5% by Inkjet Exit Laser + Perceptive revenue expected to grow slightly MPS + Perceptive Software revenue expected to grow ~15% YTY FY14 operating income expected to be near the low end of the 11% - 13% longer term target range Expect Perceptive Software to deliver significant operating income expansion in FY14 FY14 benefit from pension accounting change is reduced by approximately $13M YTY (1) Non-GAAP (2) Based on foreign currency exchange rates as of 12/31/13 (3) Includes approximately $75 million of restructuring ($3 million) and acquisition-related adjustments ($72 million) 18