Monotype Announces Fourth Quarter and Full-Year 2018 Results

Company Posts Record Performance, and Exceeds Revenue and
Profitability Expectations


WOBURN, Mass.–(BUSINESS WIRE)–Monotype Imaging Holdings Inc. (Nasdaq: TYPE) today announced financial
results for the fourth quarter and full year ended December 31, 2018.


Fourth quarter 2018 highlights


Revenue for the quarter was $71.4 million, an increase of 10% year
over year.


Creative Professional revenue was $49.6 million, up 29% year over year.


Net income was $9.5 million; Non-GAAP net adjusted EBITDA was $26.8
million, a 44% increase year over year, or 37.5% of revenue.


Full-year 2018 highlights


Revenue for the year was $246.7 million, an increase of 5% year over
year.


Creative Professional revenue was $159.1 million, up 22% year over
year.


Net income was $12.3 million; Non-GAAP net adjusted EBITDA was $73.4
million, a 31% increase year over year, or 29.7% of revenue.


Cash and cash equivalents stood at $60.1 million.


“We ended the year with a very strong fourth quarter, capping off the
most successful year in company history,” said Scott Landers, president
and CEO of Monotype. “The investments we’ve made in our enterprise
sales, design, marketing and engineering capabilities have had a
positive effect on our top and bottom line results. Our efforts continue
to translate into tangible customer value. Our ability to execute over
the past few years has enabled us to transform our business from one
serving mainly mature markets to now one solidly rooted in growing
markets.”


Tony Callini, executive vice president and chief financial officer of
Monotype, said, “We are very pleased with our performance in 2018. We
exceeded the high end of our guidance for net adjusted EBITDA, as well
as the previous high-water mark from 2014, reflecting improved
operational leverage across the portfolio. We will continue to operate
with a focus on enhancing profitability while growing revenue and
returning value to shareholders.”


Fourth quarter 2018 operating resultsRevenue for the
quarter increased 10% to $71.4 million, compared to $65.0 million for
the fourth quarter of 2017. Creative Professional revenue was $49.6
million, a 29% increase from the fourth quarter of 2017. OEM revenue was
$21.8 million, a decrease of 18% from the same period in 2017, as
expected.


Gross margin for the quarter was 85.1% compared to 83.1% in the prior
year quarter.


Net income was $9.5 million, compared to net income of $11.9 million in
the fourth quarter of 2017. Earnings per diluted share was $0.23,
compared to earnings per diluted share of $0.28 in the prior year.


Non-GAAP net income, which excludes the amortization of intangible
assets, stock-based compensation expense, acquisition-related
compensation expense, and non-recurring expenses, net of taxes, was
$18.2 million, compared to $20.3 million in the fourth quarter of 2017.
Non-GAAP earnings per diluted share were $0.45 in the fourth quarter of
2018, compared to $0.51 in the prior year period.


Non-GAAP net adjusted EBITDA was $26.8 million, or 37.5% of revenue,
compared to $18.6 million in the fourth quarter of 2017. In the first
quarter of 2018, Monotype updated its definition of non-GAAP net
adjusted EBITDA to include the add back of non-recurring expense to GAAP
income (loss) from operations. Accordingly, all non-GAAP financial
measures have been recast for the three months and year ended December
31, 2017, to add back certain advisor fees and restructuring expenses
included in non-recurring expenses.


Full-year 2018 operating resultsRevenue for the year was
$246.7 million, an increase of 5% compared to $235.8 million for 2017.
Creative Professional revenue was $159.1 million, an increase of 22%
year over year. OEM revenue was $87.6 million, down 17% year over year,
as expected.


Net income for 2018 was $12.3 million, compared to net income of $11.6
million for the prior year. Earnings per diluted share were $0.29,
compared to earnings per diluted share of $0.27 in 2017.


Non-GAAP net income, which excludes the amortization of intangible
assets, stock based compensation expense, and acquisition-related
compensation expense, net of taxes, was $47.3 million, compared to $37.9
million in 2017. Non-GAAP earnings per diluted share were $1.17,
compared to $0.95 in 2017.


The company’s 2018 effective tax rate was approximately 43%.


Non-GAAP net adjusted EBITDA was $73.4 million, or 29.7% of revenue,
compared to non-GAAP net adjusted EBITDA of $55.8 million in 2017.


A reconciliation of GAAP measures to non-GAAP measures for the three
months and years ended December 31, 2018 and 2017 is provided in the
financial tables that accompany this release.


Cash and cash flowMonotype had cash and cash equivalents of
$60.1 million as of December 31, 2018, compared to $70.1 million as of
September 30, 2018 and $82.8 million as of December 31, 2017. The
company generated $11.4 million of cash from operations in the fourth
quarter of 2018, consistent with the same period last year. During the
fourth quarter of 2018, the company repaid $5.0 million on its
outstanding revolving line of credit.


In the fourth quarter of 2018, Monotype repurchased approximately
560,000 shares of common stock on the open market at prevailing market
prices, for a total consideration of $10.7 million. For the full year,
Monotype repurchased approximately 890,000 shares of common stock on the
open market at prevailing market prices for a cumulative consideration
of $17.3 million.


Quarterly dividendMonotype’s most recent dividend payment
of $0.116 per share was paid on January 22, 2019, to shareholders of
record as of the close of business on January 2, 2019. A dividend of
$0.116 cents per share will be paid on April 18, 2019, to shareholders
of record as of the close of business on April 1, 2019.


Financial outlookMonotype’s first quarter and full-year
2019 financial guidance are set forth in the following tables:




 




 




(in $ millions, except for per share data)




Q1 2019




Full-Year 2019


Revenue




$55.5 – $59.5




$247.0 – $257.0


Non-GAAP net adjusted EBITDA




$12.5 – $15.5




$71.5 – $78.5


Operating expenses




$39.0 – $41.0




$158.0 – $161.0


GAAP earnings per diluted share




$0.07 – $0.13




$0.72 – $0.84


Non-GAAP earnings per diluted share




$0.19 – $0.25




$1.18 – $1.30










 


Conference call detailsMonotype will host a conference call
on Friday, February 15, 2019, at 8:30 a.m. EST to discuss the company’s
fourth quarter and full-year 2018 results and business outlook for 2019.
Individuals who are interested in listening to the audio webcast should
log on to the Investors portion of the Company section of the Monotype
website at www.monotype.com.
The live call can also be accessed by dialing (855) 312-5713 (domestic)
or (703) 925-2611 (international) using passcode 8298138. If individuals
are unable to listen to the live call, the audio webcast will be
archived in the Investors portion of the company’s website for one year.


Non-GAAP financial measuresThis press release contains
non-GAAP financial measures under the rules of the U.S. Securities and
Exchange Commission. This non-GAAP information supplements and is not
intended to represent a measure of performance in accordance with
disclosures required by generally accepted accounting principles.
Non-GAAP financial measures are used internally to manage the business,
such as in establishing an annual operating budget and in reporting to
lenders. Non-GAAP financial measures are used by Monotype management in
its operating and financial decision-making because management believes
these measures reflect ongoing business in a manner that allows
meaningful period-to-period comparisons. Accordingly, Monotype believes
it is useful for investors and others to review both GAAP and non-GAAP
measures in order to (a) understand and evaluate current operating
performance and future prospects in the same manner as management does,
and (b) compare in a consistent manner the company’s current financial
results with past financial results. The primary limitations associated
with the use of non-GAAP financial measures are that these measures may
not be directly comparable to the amounts reported by other companies
and they do not include all items of income and expense that affect
operations. Monotype management compensates for these limitations by
considering the company’s financial results and outlook as determined in
accordance with GAAP and by providing a detailed reconciliation of the
non-GAAP financial measures to the most directly comparable GAAP
measures in the tables attached to this press release.


Forward-Looking StatementsThis release may contain
forward-looking statements including those related to future revenues
and operating results; the growth of the company’s business; anticipated
savings, costs and expenses resulting from the company’s restructuring
actions and changes to the company’s product portfolio; the impact of
the company’s revenue recognition policy; the impact of federal tax
reform legislation; the execution of the company’s capital allocation
and funding strategies; and anticipated business momentum that involve
risks and uncertainties that could cause the company’s actual results to
differ materially. Factors that might cause or contribute to such
differences include, but are not limited to risks associated with
changes in the economic climate including decreased demand for the
company’s products or products that incorporate the company’s solutions;
risks associated with the company’s ability to adapt products or
services to new markets and to anticipate and quickly respond to
evolving technologies and customer requirements; risks associated with
the company’s development of and the market acceptance of new products,
product features or services; risks associated with the anticipated cost
savings and expenses from the company’s restructuring actions and wind
down of certain of the company’s products including that such savings
and expenses are not as predicted; risks associated with increased
competition in markets the company serves, including the risks that
increased competition may result in the company’s inability to gain new
customers, retain existing customers or may force the company to reduce
prices; risks associated with the ownership and enforcement of the
company’s intellectual property; and risks associated with geopolitical
conditions and changes in the financial markets. Additional disclosure
regarding these and other risks faced by the company is available in the
company’s public filings with the Securities and Exchange Commission,
including the risk factors included in the company’s Annual Report on
Form 10-K for the year ended December 31, 2017 and subsequent filings.
The forward-looking financial information set forth in this release
reflects estimates based on information available at this time. These
amounts could differ from actual reported amounts to be included in the
company’s future earnings releases and public filings. While the company
may elect to update forward-looking statements at some point in the
future, the company specifically disclaims any obligation to do so, even
if an estimate changes.


About MonotypeMonotype empowers creative minds to build and
express authentic brands through design, technology and
expertise. Further information is available at www.monotype.com.
Follow Monotype on Twitter,
Instagram
and LinkedIn.


Monotype is a trademark of Monotype Imaging Inc. registered in the U.S.
Patent and Trademark Office and may be registered in certain
jurisdictions. ©2019 Monotype Imaging Holdings Inc. All rights reserved.


 


MONOTYPE IMAGING HOLDINGS INC.CONSOLIDATED BALANCE
SHEETS (Unaudited and in thousands)




 








December 31,






2018


 


2017


ASSETS










Current assets:










Cash and cash equivalents




$


60,106






$


82,822




Restricted cash






6,000








11,987




Accounts receivable, net of allowance for doubtful accounts






55,943








34,461




Income tax refunds receivable






5,122








1,204




Prepaid expenses and other current assets




 


6,473


 




 


5,714


 


Total current assets






133,644








136,188




Property and equipment, net






14,105








16,763




Goodwill






276,222








279,131




Intangible assets, net






74,699








84,856




Restricted cash






—








6,000




Other assets




 


8,986


 




 


3,112


 


Total assets




$


507,656


 




$


526,050


 










 


LIABILITIES AND STOCKHOLDERS’ EQUITY










Current liabilities:










Accounts payable




$


1,719






$


1,467




Accrued expenses and other current liabilities






43,840








43,096




Accrued income taxes payable






510








522




Deferred revenue




 


10,337


 




 


15,102


 


Total current liabilities






56,406








60,187




Revolving line of credit






75,000








93,000




Other long-term liabilities






3,102








6,428




Deferred income taxes






35,083








28,004




Reserve for income taxes






2,471








2,783




Accrued pension benefits






5,888








6,280




Stockholders’ equity:










Common stock






46








44




Additional paid-in capital






319,486








298,113




Treasury stock, at cost






(83,518


)






(64,083


)


Retained earnings






99,605








97,815




Accumulated other comprehensive loss




 


(5,913


)




 


(2,521


)


Total stockholders’ equity




 


329,706


 




 


329,368


 


Total liabilities and stockholders’ equity




$


507,656


 




$


526,050


 


















 


 


MONOTYPE IMAGING HOLDINGS INC.CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited and in
thousands, except share and per share data)


 




 


Three Months EndedDecember 31,


 


Year EndedDecember 31,






2018


 


2017




2018


 


2017


Revenue




$


71,398






$


65,016






$


246,737






$


235,789




Costs and expenses:


















Cost of revenue






9,758








10,123








41,545








38,761




Cost of revenue—amortization of acquired technology




 


858


 




 


885


 




 


3,441


 




 


3,529


 


Total cost of revenue




 


10,616


 




 


11,008


 




 


44,986


 




 


42,290


 


Gross profit






60,782








54,008








201,751








193,499




Operating expenses:


















Marketing and selling






21,599








23,014








79,981








89,431




Research and development






7,996








9,271








33,428








37,049




General and administrative






12,335








12,031








50,597








46,063




Restructuring






2,755








3,185








9,569








3,185




Amortization of other intangible assets




 


847


 




 


1,016


 




 


3,687


 




 


4,067


 


Total operating expenses




 


45,532


 




 


48,517


 




 


177,262


 




 


179,795


 


Income from operations






15,250








5,491








24,489








13,704




Other (income) expense:


















Interest expense, net






768








666








3,121








2,722




Other (income) expense, net




 


(100


)




 


(45


)




 


(274


)




 


4,813


 


Total other expense




 


668


 




 


621


 




 


2,847


 




 


7,535


 


Income before income taxes






14,582








4,870








21,642








6,169




Provison for (benefit from) income taxes




 


5,126


 




 


(7,000


)




 


9,369


 




 


(5,391


)


Net income




$


9,456


 




$


11,870


 




$


12,273


 




$


11,560


 


Net income available to common shareholders—basic




$


9,151


 




$


11,304


 




$


11,527


 




$


10,615


 


Net income available to common shareholders—diluted




$


9,151


 




$


11,306


 




$


11,527


 




$


10,615


 


Net income per common share:


















Basic




$


0.23


 




$


0.28


 




$


0.29


 




$


0.27


 


Diluted




$


0.23


 




$


0.28


 




$


0.29


 




$


0.27


 


Weighted-average number of shares:


















Basic






40,110,039








39,746,203








40,262,717








39,619,133




Diluted






40,185,709








39,988,868








40,386,896








39,858,248




Dividends declared per common share




$


0.116


 




$


0.113


 




$


0.464


 




$


0.449


 


 


 


MONOTYPE IMAGING HOLDINGS INC.OTHER INFORMATION (Unaudited
and in thousands)
RECONCILIATION OF GAAP NET
INCOME TO NON-GAAP NET ADJUSTED EBITDA


 




 


Three Months EndedDecember 31,


 


Year EndedDecember 31,






2018


 


2017 (1)



2018


 


2017 (1)

GAAP net income




$


9,456






$


11,870






$


12,273






$


11,560




Interest expense, net






768








666








3,121








2,722




Other (income) expense, net






(100


)






(45


)






(274


)






4,813




Provision for (benefit from) income taxes




 


5,126


 




 


(7,000


)




 


9,369


 




 


(5,391


)


Income from operations






15,250








5,491








24,489








13,704




Depreciation and amortization






3,195








3,126








12,743








12,397




Stock based compensation(2)





5,174








4,826








18,336








20,120




Acquisition-related compensation(3)





389








1,518








3,323








5,739




Non-recurring expenses(4)



 


2,755


 




 


3,675


 




 


14,489


 




 


3,885


 


Net adjusted EBITDA




$


26,763


 




$


18,636


 




$


73,380


 




$


55,845


 


































 


(1) Net adjusted EBITDA has been recast for the three months and year
ended December 31, 2017 to conform to the current definition by adding
back certain advisor fees and restructuring expenses included in
non-recurring expenses.


(2) For the three months ended December 31, 2018, the amount excludes a
$0.9 million non-recurring increase for acceleration of awards by
employees included in the restructuring plan. For the year ended
December 31, 2018, the amount excludes a $0.9 million non-recurring
increase for acceleration and a $1.4 million non-recurring reduction for
forfeiture of awards by employees included in the restructuring plan.
These amounts are included in non-recurring expenses.


(3) For the three months ended December 31, 2018 and 2017, the amount
includes $0.4 million and $0.9 million, respectively, of expense
associated with the deferred compensation arrangements with the founders
of Olapic in connection with the acquisition and $0 and $0.6 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.
For the years ended December 31, 2018 and 2017, the amount includes $2.8
million and $3.5 million, respectively, of expense associated with the
deferred compensation arrangements with the founders of Olapic in
connection with the acquisition and $0.5 million and $2.2 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.


(4) For the three months ended December 31, 2018, the amount includes
$2.8 million of restructuring expenses. For the three months ended
December 31, 2017, the amount includes $0.5 million of certain advisor
fees related to shareholder activities and $3.2 million of restructuring
expenses. For the year ended December 31, 2018, the amount includes $2.7
million of certain advisor fees related to shareholder activities, $2.2
million of royalty expenses, recorded in cost of sales, associated with
revenue that was not recognized under ASC 606 and $9.6 million of
restructuring expenses. For the year ended December 31, 2017, the amount
includes $0.7 million of certain advisor fees related to shareholder
activities and $3.2 million of restructuring expenses.




 




 




 




 




MONOTYPE IMAGING HOLDINGS INC.OTHER INFORMATION(Unaudited
and in thousands, except share and per share amounts)NET
INCOME TO NON-GAAP NET INCOME


 






Three Months EndedDecember 31,




Year EndedDecember 31,






2018




2017(1)



2018




2017(1)

GAAP net income available to common stockholders—diluted




$ 9,456




$ 11,870




$ 11,527




$ 10,615


Amortization, net of tax of $384, $701, $1,647 and $2,803,
respectively




1,321




1,200




5,481




4,793


Stock based compensation, net of tax of $543, $1,400, $2,769 and
$5,837, respectively(2)



4,630




3,426




15,567




14,283


Acquisition-related compensation, net of tax of $0, $0, $0 and $0,
respectively(3)



389




1,518




3,323




5,739


Non-recurring expenses, net of tax of $303, $1,356, $3,043 and
$1,434, respectively(4)



2,452




2,319




11,446




2,451


Non-GAAP net income




$ 18,248




$ 20,333




$ 47,344




$ 37,881


















 


(1) Non-GAAP net income has been recast for the three months and year
ended December 31, 2017 to conform to the current definition by adding
back certain advisor fees and restructuring expenses included in
non-recurring expenses.


(2) For the three months ended December 31, 2018, the amount excludes a
$0.8 million, net of tax, non-recurring increase for acceleration of
awards by employees included in the restructuring plan. For the year
ended December 31, 2018, the amount excludes a $0.7 million, net of tax,
non-recurring increase for acceleration and a $1.2 million, net of tax,
non-recurring reduction for forfeiture of awards by employees included
in the restructuring plan. These amounts are included in non-recurring
expenses.


(3) For the three months ended December 31, 2018 and 2017, the amount
includes $0.4 million and $0.9 million, respectively, of expense
associated with the deferred compensation arrangements with the founders
of Olapic in connection with the acquisition and $0 and $0.6 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.
For the years ended December 31, 2018 and 2017, the amount includes $2.8
million and $3.5 million, respectively, of expense associated with the
deferred compensation arrangements with the founders of Olapic in
connection with the acquisition and $0.5 million and $2.2 million,
respectively, of expense associated with the deferred compensation
arrangements resulting from an amendment to the Swyft Merger Agreement.


(4) For the three months ended December 31, 2018, the amount includes
$2.5 million, net of tax, of restructuring expenses. For the three
months ended December 31, 2017, the amount includes $0.3 million, net of
tax, of certain advisor fees related to shareholder activities and $2.0
million, net of tax, of restructuring expenses. For the year ended
December 31, 2018, the amount includes $2.2 million, net of tax, of
certain advisor fees related to shareholder activities, $1.7 million,
net of tax, of royalty expenses, recorded in cost of sales, associated
with revenue that was not recognized under ASC 606 and $7.5 million, net
of tax, of restructuring expenses. For the year ended December 31, 2017,
the amount includes $0.5 million, net of tax, of certain advisor fees
related to shareholder activities and $2.0 million, net of tax, of
restructuring expenses.




 




 




MONOTYPE IMAGING HOLDINGS INC.OTHER INFORMATION(Unaudited
and in thousands, except share and per share amounts)RECONCILIATION
OF GAAP EARNINGS PER DILUTED SHARE TO NON-GAAP EARNINGS PER
DILUTED SHARE










 






Three Months EndedDecember 31,




Year EndedDecember 31,






2018


 


2017(1)



2018


 


2017(1)

GAAP net income per diluted share




$


0.23




$


0.28






$


0.29




$


0.27




Amortization, net of tax of $0.01, $0.02, $0.04 and $0.07,
respectively






0.03






0.03








0.13






0.12




Stock based compensation, net of tax of $0.01, $0.04, $0.07 and
$0.15, respectively(2)





0.12






0.10








0.39






0.36




Acquisition-related compensation, net of tax of $0, $0, $0 and $0,
respectively(3)





0.01






0.04








0.08






0.14




Non-recurring expenses, net of tax of $0.01, $0.03, $0.08 and $0.04,
respectively(4)



 


0.06




 


0.06


 




 


0.28




 


0.06


 


Non-GAAP earnings per diluted share




$


0.45




$


0.51


 




$


1.17




$


0.95


 


















 


(1) Non-GAAP net income has been recast for the three months and year
ended December 31, 2017 to conform to the current definition by adding
back certain advisor fees and restructuring expenses included in
non-recurring expenses.


(2) For the three months ended December 31, 2018, the amount excludes a
$0.8 million, or $0.02 per share, net of tax, non-recurring increase for
acceleration of awards by employees included in the restructuring plan.
For the year ended December 31, 2018, the amount excludes a $0.7
million, or $0.02 per share, net of tax, non-recurring increase for
acceleration and a $1.2 million, or $0.03 per share, net of tax,
non-recurring reduction for forfeiture of awards by employees included
in the restructuring plan. These amounts are included in non-recurring
expenses.


(3) For the three months ended December 31, 2018 and 2017, the amount
includes $0.4 million, or $0.01 per share and $0.9 million, or $0.02 per
share, respectively, of expense associated with the deferred
compensation arrangements with the founders of Olapic in connection with
the acquisition and $0, or $0.00 per share, and $0.6 million, or $0.02
per share, respectively, of expense associated with the deferred
compensation arrangements resulting from an amendment to the Swyft
Merger Agreement. For the years ended December 31, 2018 and 2017, the
amount includes $2.8 million, or $0.07 per share and $3.5 million, or
$0.09 per share, respectively, of expense associated with the deferred
compensation arrangements with the founders of Olapic in connection with
the acquisition and $0.
Contacts

Investor Relations:Chris BrooksMonotypeir@monotype.com


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