Lexmark Presentation slides from raymond james conference (March 14)

Transforming to a Higher Value Portfolio

March 4, 2014

Raymond James Conference

© 2013 Lexmark International, Inc. All rights reserved.

Safe Harbor Statement

2

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.


Today’s Discussion

3

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


Lexmark’s Transformation

Continuing Solutions & Services Investments • Smart MFP Solutions

• Managed Print Solutions & Services

End-to-End Solutions Provider Goal

2007 2013 2010 2007 2010 2014

Software Acquisitions Perceptive Software

Pallas Athena

Brainware

Isys

Nolij

Acuo

AccessVia

Twistage

Saperion

Pacsgear

Exited Consumer Inkjet Exited Business Inkjet

Sold 2Q13

4


Solving The Unstructured Information Challenge

5

Explosion of unstructured information is both digital and paper-based

Digital: word processing/spreadsheet files, email, 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 …

with the processes, applications and

people that need it most.

Connecting the unstructured printed and digital information

across the enterprise

The explosion of content outside your enterprise applications

disconnects people from the information they need most, hindering

the accurate and timely completion of processes.


Internal

Processes

Suppliers Customers

Employees

Enterprise

Resource Planning

Human Resources

Information System

Customer Relationship

Management

Enterprise Systems: Where We Fit

6

ERP

CRM HRIS

EMR

Healthcare

SIS

Education


World Class Platform, Industry Focused Solutions

7

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

Managed Print

Solutions Workflow-enabled

Fleet insight

Industry-specific unstructured content, process & output solutions

Government Education Banking Healthcare Insurance Manufacturing Retail Back Office

Content and Process Management Software Platform Output Management Platform


Growing Market For High Value Solutions

Content & Process Management

Enterprise Content

Business Process

Document Output

Vendor Neutral Archive

Output Management

Laser Hardware, Supplies, Services

~$80B

Expected to grow

at ~10% CAGR

Source: Industry sources, public information, and other internal and external sources

8

~$10B

~$70B

MPS and Fleet Solutions

expected to grow at

double-digit rate

Non-MPS expected to

decline

8


Growth Synergies

Lexmark’s Unique Value Proposition

Lexmark Well Positioned in Growth Markets

9

Imaging

Solutions

Perceptive

Software

Solutions

Key Technology

Ownership

Deeper Industry

Experience

Superior Customer

Intimacy


Managed Print Services Leader

Recognized as a Leader*

Healthcare Content Software Leader

* See footnote slide 10

Enterprise Content Management Leader

Smart MFP Leader

Output

Management

Content & Process

Management

New Again


High Value MPS and Software Revenue Growing*

11

Approaching $1 billion

26% of total revenue in 2013

Expected to grow by about 15% in 2014

$786

$961

$683

Perceptive

Software

Managed

Print

Services

*Non-GAAP, in millions, totals may not foot due to rounding

‘11/’13 CAGR

+19%


Perceptive Software Revenue

12

$239

$100

Licenses

Prof. Svc. / Other

Subscriptions

Maintenance

$162

Grew 48% in 2013

Expected to grow to $500 Million in 2016

Targeting ~25% operating income margin by end of 2016

*Non-GAAP, in millions, totals may not foot due to rounding


Capital Allocation Increasing Shareholder Value*

Cash

for

Investment

Return

to

Shareholders

>50% <50%

Long Term Assumption: Return >50% on Average through

Dividends & Repurchases

Strengthen & Grow

Capabilities

Perceptive Software

Pallas Athena

Brainware

ISYS

Nolij

Acuo

Twistage

AccessVia

Saperion

Pacsgear

~90% to 100% of Non-GAAP Net Income

13

Free Cash Flow

1Q11 To 4Q13

Free

Cash

Flow

$694

$798

Share

Repurchase

Dividends

Acquisitions Return of Capital

Invested > $725

Since 2010

Returned 87% of Free Cash Flow

2011-2013

*In millions, totals may not foot due to rounding


Reference Materials


Lexmark Financial Summary*

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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% -13.0 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

4Q13 YTY FY13 YTY


Segment Financial Summaries*

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ISS 4Q13 YTY FY13 YTY

Revenue $939 +1% $3,444 -5%

Laser $839 +8% $3,039 +1%

MPS $208 +22% $722 +16%

Non-MPS $631 +4% $2,317 -3%

Inkjet Exit $100 -32% $405 -37%


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% $239 +48% Licenses $23 +97% $78 +59%

Subscriptions $7 +178% $24 +209%

Maintenance $24 +49% $79 +34%

Professional Services / Other $18 +49% $58 +28%


Operating Expense $51 +$16 $175 +$39

R&D $16 +23% $58 +22%

SG&A $35 +56% $117 +32%

Operating Income $2 +$9 -$2 +$23

Operating Income Margin 2.6% +18.9 pts -0.8% +14.6 pts

* Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted


4Q12 1Q13 2Q13 3Q13 4Q13

Receivables 49 50 54 49 41

Inventory 39 45 45 49 41

Payables 72 77 79 80 73

Cash

Conversion1 16 18 19 18 9

Balance Sheet and Cash Flow1

18

4Q13)

Cash2 $1,055)

U.S. Cash $40)

Non-U.S. Cash $1,014)

4Q13 YTD) Cash from Operations3 $205) $474) Free Cash Flow4 $164) $308) Depreciation & Amortization5 $67) $250) Capital Expenditures $41) $167) Cash Provided By or (Used For) A/R $38) $78) Inventory $28) $7) A/P ($10) ($38)

(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

• Cash Conversion Cycle Improved 9 days sequentially, 7 days YTY

• Strong Liquidity Position with $1.1B Cash2, $350M Revolver, $125M A/R Program

• Maintaining an Investment Grade Debt Rating

Long Term Debt $700

5.125%, Due 2020 $400

6.650%, Due 2018 $300

Highlights

Balance Sheet & Cash Flow Cash Conversion Days

Long Term Debt


Deferred Software Revenue

1Q13 2Q13 3Q13

Non-GAAP 4Q12 1Q13 2Q13 3Q13 4Q13

Ending

Balance

$69 $69 $72 $87 $93

GAAP 4Q12 1Q13 2Q13 3Q13 4Q13

Ending

Balance

$55 $56 $63 $72 $82

* Totals may not foot due to rounding, in millions 19


2014 Revenue Assumption*

20 * Non-GAAP, bar chart depicts percentage of total revenue, totals may not foot due to rounding

Overall Revenue

Inkjet Exit Lexmark Consumer + Business

Inkjet Hardware & Supplies

Non-MPS

MPS

2013

$3.7B

Perceptive Software Solutions

Imaging Solutions Hardware, Supplies,

Software, Services

-4%

Year to Year

Inkjet Exit

Imaging Solutions +

Perceptive Software

MPS + Perceptive

Software

2013

Up 4%

Up 22%

Down 37% ~11% of Revenue

Inkjet Exit

Imaging Solutions +

Perceptive Software

MPS + Perceptive

Software

Up Slightly

Up about 15%

Down >40% ~6% of Revenue

2014

-3% -3% to -5%

$0.4B

$2.3B

$0.7B

$0.2B


2014 Outlook / Assumptions

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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) $3.80 - $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)

(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)

• 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

FY14 Assumptions


-$0.20

* Non-GAAP, totals may not foot due to rounding.

EPS Range: $3.80 - $4.00

Tax / Other

+$0.11

2013 EPS $4.19

-$0.20 Operations Performance

$3.90

Tax Impact / Lower Outstanding Shares

Lower Average Shares

Outstanding

Midpoint of 2014 EPS

Guidance Range

- Inkjet Exit

+ Laser Margin Improvement

+ Perceptive Software Growth / Margin Expansion

+ Expense Reductions

Assumes Tax Rate of ~29% in 2014

compared to 26.4% in 2013

22

Bridge of 2013 to 2014 EPS Guidance

Ongoing Share Repurchases

2014 EPS* Guidance YTY Change