This week’s issue of the DIR newsletter features a cover story on the re-branding that is underway at Perceptive Software. Perceptive was an ECM vendor that was acquired by Lexmark in 2010 and is now operates as the Enterprise Software Group within Lexmark. Its ECM suite has been fleshed out by a series of software acquisitions that Lexmark completed in 2011-2012. These include capture, search, and BPM technology, as well as vertical market specialist ISV. The details of how these products are being integrated, as well as still taken to market separately, are in the DIR article.
This week Lexmark reported its third-quarter results, and Perceptive’s quarterly revenue came in at $41 million, which represented 88% growth from the previous year’s third quarter. A good bit of that was due to the aforementioned acquisitions, but organic growth was still 22%. This is no doubt above market growth rates, but, it is apparently significantly below what Lexmark had budgeted.
According to Rooke (as quoted in a transcript of Lexmark’s recent conference call to discuss quarterly results, “While Perceptive Software’s revenue was up strongly year-to-year, it was less than we expected, driving a larger-than-expected operating income loss as we continue to invest for growth. Now for the next several quarters, we plan to limit Perceptive Software’s expense levels to allow expected revenue growth to catch up and deliver positive operating margins in 2013.”
Unfortunately, despite Perceptive’s growth, Lexmark reported that its segment operating income was negative $8 million. This begs the question: What kind of growth is Lexmark expecting?
Lexmark certainly paid a good premium for Perceptive and some of the complementary ECM technology it bought, so it obviously was expecting some significant returns. But, to tell the truth, a lot of people I talked with thought an MFP hardware vendor like Lexmark could not successfully run an ECM software operation like Perceptive. But, to date, it seems that Lexmark has done everything it can to nurture Perceptive’s business, buy acquiring complementary technology, while also allowing it to operate fairly autonomously. And this has worked to the tune of 22% organic growth – which certainly seems like a far cry from failure. Let’s hope that unrealistic expectations don’t spoil this success and that limiting expenses doesn’t end up limiting Perceptive’s success.
Rooke added that Perceptive’s growth reflects, “slower growth in EMEA than expected and the delay in the closure of a number of large transactions in North America. With regards to EMEA, we continued to make progress, although slower than expected, and are making changes in sales leadership that we believe will accelerate growth. In North America, although we are disappointed that several large transactions did not close in the quarter, the majority of them, we believe, were deferred and not lost, and we expect them to close over the next several quarters.”